SGH LTD v FC of T

Judges: Gleeson CJ
Gaudron J
McHugh J
Gummow J

Kirby J
Hayne J
Callinan J

Court:
High Court of Australia

MEDIA NEUTRAL CITATION: [2002] HCA 18

Judgment date: 1 May 2002

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Kirby J

75. Two questions have been removed into this Court pursuant to the Judiciary Act 1903 (Cth). ^[103] s 40. Each question concerns the construction of s 114 of the Constitution. ^[104] The section is set out in the reasons of Gleeson CJ, Gaudron, McHugh and Hayne JJ (``the joint reasons'') at [ 5]; reasons of Gummow J at [ 35]; reasons of Callinan J at [ 125]. The questions reserved are set out in the joint reasons at [ 3]; reasons of Gummow J at [ 36]; reasons of Callinan J at [ 123]. This Court has said that s 114 has as its fundamental purpose ``the protection of the property of the Commonwealth and the States from the imposition of taxation by each other in the interests of their respective financial integrity''. ^[105] DFC of T v State Bank of New South Wales 92 ATC 4079 at 4083; (1991-1992) 174 CLR 219 at 229 (``the State Bank Case ''). However, in State of Queensland v Commonwealth of Australia (The Fringe Benefits Tax Case) , <sup>[106]</sup> 87 ATC 4029 at 4037; (1987) 162 CLR 74 at 92. Gibbs CJ observed that `` [ i]t cannot be said that the decisions of this Court contain a clear exposition of the meaning and scope of s 114. ^[107] Discussed in Morabito, ``The Constitutional Restriction on Taxes Imposed on Crown Property'', (1998) 1 Journal of Australian Taxation 41. ''

76. Having heard argument on the first question, the Court came to a firm view, by majority, that an answer could be given to the effect that the party propounding that it was an emanation of the State of Queensland was not so. This conclusion meant that it was unnecessary for the Court to answer the second question. I was of the contrary opinion. In my view the plaintiff was ``the State'' for the purposes of s 114 of the Constitution. I would have ordered that the hearing continue so that the second question might be answered and final orders made conformably with my conclusion on the first question.

77. My opinion could not alter the disposition of the proceedings. Because it is a minority view I will state it as briefly as I can. In the joint reasons an opinion is expressed that it is unnecessary to embark upon the ``troubled waters'' of the preferable approach to constitutional interpretation, <sup>[108]</sup> Joint reasons at [ 14]. concerning whether a prohibition such as that stated in s 114, is to be construed ``in accordance with the meaning of the prohibition at the time when the Constitution was enacted'' ^[109] Attorney-General (Vict); Ex rel Black v The Commonwealth (1981) 146 CLR 559 at 615 per Mason J. The relevant passage appears in the joint reasons at [ 14]. or in some other way. I hold to the other way. ^[110] Re Wakim; Ex parte McNally (1999) 17 ACLC 1,055 at 1,093-1,094 [ 188-191]; (1999) 198 CLR 511 at 600-601 [ 188]- [ 191] . It is a serious mistake, in my opinion, to attempt to construe any provision of the Constitution, including a prohibition such as that contained in s 114, from a perspective controlled by the intentions, expectations or purposes of the writers of the Constitution in 1900. ^[111] cf The Grain Pool of WA v Commonwealth (2000) 202 CLR 479 at 522-525 [ 110]- [ 118] .

78. As the joint reasons point out, this Court has already specifically rejected such an approach to the meaning of s 114. ^[112] State Bank Case 92 ATC 4079 at 4082-4083; (1991-1992) 174 CLR 219 at 229. See joint reasons at [ 15]. Inherent in that rejection is the recognition that, at least in respect of what is ``the Commonwealth'' or ``a State'' for the purpose of s 114, the section is to be given a broad and not a narrow meaning. ^[113] Stone, ``Immunity from taxation under section 114 of the Constitution'', (1992) 66 Australian Law Journal 601. It is to be construed in a way harmonious with its purposes that lie deep in the nature of a federal polity. <sup>[114]</sup> cf Morabito, ``The Constitutional Restriction on Taxes Imposed on Crown Property'', (1998) 1 Journal of Australian Taxation 41 at 55-56. When those purposes are fully appreciated it will be realised that the section speaks to succeeding generations in a way that adapts to the significantly altered manner in which the political units of the Australian federation manifest themselves today when compared, say, with the equivalent manifestations of 1901 or of 1950, 1980 or even of 1990.

79. The past two decades in Australia and elsewhere have seen very large changes in the notions of governmental responsibilities and how they are to be fulfilled: federal, State and local. ^[115] Seddon, Government Contracts , 2nd ed (1999) at 11 [ 1.8]. Governments now pursue governmental purposes through legal instrumentalities and agencies sometimes quite different from those created earlier in the history of the Commonwealth. Many such instrumentalities now involve ``outsourcing'' of governmental functions to the private sector. <sup>[116]</sup> Airo-Farulla, ```Public' and `Private' in Australian Administrative Law'', (1992) 3 Public Law Review 186; Fredman and Morris, ``The Costs of Exclusivity: Public and Private Re-examined'', (1994) Public Law 69. Others (like Qantas Airways Ltd ^[117] cf R v Portus; Ex parte Federation Clerks Union of Australia (1949) 79 CLR 428 at 434-435, 438, 441 . and Telstra Corporation Ltd) involve the use of private corporations to manifest the governmental purpose. In the present case, the instrumentality or agency in question is a building society, formed in accordance with State law but with very special features. Once one looks past matters of form to matters concerning its origins, purposes, substance and powers, the building society in this case is seen for what it truly is: not just another ordinary building society, formed solely for the purposes of its members and depositors, but a special building society with origins in State objectives, created

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for State purposes, controlled by a State manifestation, established pursuant to amended State legislation to do the business of the State and audited by the State Auditor-General under State law.

80. This, then, is the essence of my difference from the majority. It has its origin in the approach that I take to constitutional interpretation. But it is also connected with what I regard as the significant and relevant changes in governmental activities in recent years and the new and different instruments by which such activities are now accomplished. The Constitution - as the fundamental law of government in Australia - keeps pace with such changes.

81. When the approach that I favour is adopted, the answer to the first question on the basis of the agreed facts is clear: the plaintiff is ``the State''. It is therefore within the scope of the immunity from federal taxation provided by s 114 of the Constitution. Any other view involves the ``strict construction'' of the section that this Court has expressly disclaimed. ^[118] State Bank Case 92 ATC 4079 at 4082-4083; (1991-1992) 174 CLR 219 at 229. It is inconsistent with other established authority, with the text and purposes of the Constitution and with the application of the Constitution to contemporary realities and to the facts of the present case.

The origins and meaning of s 114 of the Constitution

82. History: Other constitutions : To make good the foregoing propositions I will start by addressing some remarks to the origins of s 114 of the Constitution, its purposes in the context of our federal constitution and the authority of this Court about the way in which its meaning should be approached when one is dealing not with the State as such but with an instrumentality, agency or emanation of the State. It is useful to start with a reference to the position in other federations. ^[119] In addition to the provisions in the United States, Canadian and Indian constitutions referred to here there are similar provisions controlling taxation of the constituent polities making up other federations: see eg Basic Law for the Federal Republic of Germany 1949, Arts 105(2)(2a), 106(2); Federal Constitution of Malaysia, Arts 73, 110(1); Constitution of the United Mexican States, Art 115(iv); Constitution of the Islamic Republic of Pakistan 1990, s 165.

83. The United States Constitution contains only one provision expressly limiting a polity of the federation from burdening the others by imposts. This is the provision forbidding a State, ``without the Consent of Congress'' from levying ``any Duty of Tonnage'' or keeping any troops or ships of war in time of peace. ^[120] US Constitution, Art 1 s 10; Graves v New York; Ex rel O'Keefe 306 US 466 (1939) ; South Carolina v Baker 485 US 505 at 523 (1988) ; cf Powell, ``The Waning of Intergovernmental Tax Immunities'', (1945) 58 Harvard Law Review 633; Powell, ``The Remnant of Intergovernmental Tax Immunities'', (1945) 58 Harvard Law Review 757. This asymmetrical provision became the original source of the proposal that ultimately became s 114 in the draft Australian Constitution presented to the Sydney Convention in 1891. However, that clause extended the prohibition to one upon a State imposing ``any tax on any land or other property belonging to the Commonwealth''. <sup>[121]</sup> Quick and Garran, The Annotated Constitution of the Australian Commonwealth , (1901) at 948. In committee, Sir Samuel Griffith proposed that there be added to the clause: ``nor shall the Commonwealth impose any tax on any land or property belonging to a State''. This was agreed. The clause substantially assumed its present form at the Adelaide session in 1897.

84. The framers of the Australian Constitution were obviously aware that the United States Constitution had included no such broad inhibition upon taxation on the property of the several States of that federation. But they were also aware of the fact that the Supreme Court of the United States had interpreted the Constitution of that country as implying that no State could tax the ``property and lawful agencies and instrumentalities of the Federal Government, no matter in whose hands they may be found''. <sup>[122]</sup> Quick and Garran at 949; Sackville, ``The Doctrine of Immunity of Instrumentalities in the United States and Australia'', (1969) 7 Melbourne University Law Review 15. They knew that, at the time shortly before Federation, this implied immunity had developed in the United States to a substantial degree - including so as to prohibit a State from taxing the whole or part of the stock of a corporation ``if made up of... public funds''. <sup>[123]</sup> Quick and Garran at 949. The explanation given in the cases for such a prohibition had been that, otherwise, `` [ I]f such power were recognized in the States it might be carried to such extent as to, in effect, destroy this power in Congress''. ^[124] Quick and Garran at 949. See also The Collector v Day 78 US 113 at 127 (1870) ; Morabito, ``Commonwealth Taxes, State Governments and the Doctrine of Intergovernmental Immunity'', (1997) 26 Australian Tax Review 182.

85. Somewhat similar reasoning came to be adopted in the early days of this Court in the guise of the doctrine of implied prohibitions upon governmental instrumentalities, ^[125] eg D'Emden v Pedder (1904) 1 CLR 91 ; Attorney-General for Queensland v Attorney-General for the Commonwealth (1915) 20 CLR 148 at 163 . until that doctrine was swept aside in 1920 by the Engineers Case . ^[126] Amalgamated Society of Engineers v Adelaide Steamship Co Ltd (1920) 28 CLR 129 at 150-151 ; see also Melbourne Corporation v The Commonwealth (1947) 74 CLR 31 at 81 ; Victoria v The Commonwealth (1971) 122 CLR 353 at 383 ; Queensland Electricity Commission v The Commonwealth (1985) 159 CLR 192 at 214-215 ; Re Lee; Ex parte Harper (1986) 160 CLR 430 at 453 ; State Chamber of Commerce and Industry & Ors v Commonwealth of Australia 87 ATC 4745 at 4756; (1987) 163 CLR 329 at 355-356 ; Re Australian Education Union; Ex parte Victoria (1995) 184 CLR 188 at 231-232 . However, at the Conventions, the founders had enjoyed the advantage of a particular provision in the Canadian constitutional instrument which they elected to adopt and copy. It said: ^[127] British North America Act 1867 (Imp), s 125 (now Canadian Constitution, s 125). ``No Lands or Property belonging to Canada or any Province shall be liable to Taxation''.

86. The Canadian provision was to become a basis for similar constitutional measures in the instruments of government of several British dominions and former colonies and possessions that adopted a federal system of government. The provisions of s 114 of the Australian Constitution were the first that followed the substance of the Canadian template. However, there were many others. Thus Art 289(1) of the Constitution of India 1949 states:

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``(1) The property and income of a State shall be exempt from Union taxation.

(2) Nothing in clause (1) shall prevent the Union from imposing... any tax to such extent... as Parliament may by law provide in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State...

(3) Nothing in clause (2) shall apply to any trade or business... which Parliament may by law declare to be incidental to the ordinary functions of Government.''

87. Perhaps unsurprisingly, given its simple and apparently absolute terms, the Canadian immunity has been afforded a broad ambit by successive court decisions in that country. ^[128] Great West Saddlery Co v The King [ 1921] 2 AC 91 (PC); Attorney-General of British Columbia v Attorney-General for Canada [ 1924] AC 222 (PC); Caron v The King [ 1924] AC 999 at 1006 (PC); Attorney-General of Alberta v Attorney-General for Canada [ 1939] AC 117 (PC); Reference re Debt Adjustment [ 1942] SCR 31 affd [ 1943] AC 356 (PC); The Canadian decisions have sometimes adopted an even wider view of the immunity than has been adopted by this Court: Morabito, ``The Constitutional Restriction on Taxes Imposed on Crown Property'', (1998) 1 Journal of Australian Taxation 41 at 55-56. A public corporation will enjoy the same taxation immunities as the possessions of the Crown <sup>[129]</sup> City of Halifax v Halifax Harbour Commissioners [ 1935] SCR 215 . and even a private corporation would enjoy those immunities if the requisite public character is established. <sup>[130]</sup> Attorney-General of British Columbia v Attorney-General for Canada [ 1924] AC 222 (PC); Montreal v Montreal Locomotive Works [ 1947] 1 DLR 161 (PC); Regina Industries v City of Regina [ 1947] SCR 345 . The provision of the Indian Constitution, on the other hand, has been given a narrow or strict interpretation. <sup>[131]</sup> `` In re Sea Customs Act s 20(2) AIR 1963 SC 1760; (1964) 3 SCR 787; New Delhi Municipal Committee v State Punjab AIR 1997 SC 2847 at 2900 [ 168], 2904 [ 174]; cf at 2880 [ 104] .'' Thus in India, State public corporations have been rendered subject to Union taxation. The fact that the bulk of the capital of the corporation was contributed, and income received, by the State in question has been held insufficient to attract the Art 289 exemption. ^[132] Andhra Pradesh State v Income-Tax Officer (1964) 7 SCR 17 .

88. Necessity of a broad approach : This, then, is the historical context in which this Court has been called upon to give meaning to s 114 of the Australian Constitution. Like the Canadian predecessor it is short and comparatively straightforward. Its provenance and conceptual expression suggests a broad application. So do various internal indications appearing in the language. Thus although for convenience in these proceedings this Court has separated the questions as to whether the plaintiff is ``the State'' and whether the propounded tax falls upon ``property'' of a State, they are in truth aspects of a composite phrase. ^[133] In the context of the interpretation of ordinary legislation this Court has repeatedly said that it is a mistake to dissect statutory provisions into words and phrases. The ordinary unit of communication in the English language is the sentence: Collector of Customs v Agfa-Gevaert Limited 96 ATC 5240 at 5244-5245; (1996) 186 CLR 389 at 396-397 ; Minister for Immigration and Multicultural Affairs v Khawar [ 2002] HCA 14 at [ 109] . There is no reason to adopt a different approach to constitutional interpretation.

89. The prohibition in s 114 is upon the imposition of a federal tax on ``property of any kind belonging to a State''. The wide ambit of the section is signalled expressly by the words ``of any kind''. ^[134] This is a point noticed by Murphy J in Bevelon Investments Pty Ltd v Melbourne City Council (1976) 135 CLR 530 at 551 ; cf Morabito, ``The Constitutional Restriction on Taxes Imposed on Crown Property'', (1998) 1 Journal of Australian Taxation 41 at 54. Such an ambit is also marked by the fact that s 114 allows no relevant express provision for waiver. Whereas such provision is made with respect to the imposition of State taxes upon the Commonwealth (``without the consent of the Parliament of the Commonwealth'') there is no such provision for the Parliament of a State giving a like consent. No such consent is therefore contemplated. Moreover the ``property'' that is exempt is immune so long as it ``belongs'' to the State. This phrase clearly envisages property owned directly by the State as such, being the polity created by the Constitution out of the colonies admitted into the Commonwealth. ^[135] Commonwealth of Australia Constitution Act 1900 (Imp), (63 & 64 Vict c 12), s 6. But it also envisages property owned indirectly (through statutory agencies, private corporations and, I would suggest, building societies) so long as such instrumentalities or agencies fairly answer to the description of ``the State'' for the purposes for which the immunity from taxation is afforded by s 114.

90. This view of the section, which its language, history and origins suggest, is also confirmed by the opinions about its ambit expressed from the start by knowledgeable commentators. Thus, even in 1901, Dr John Quick and Mr Robert Garran stated their opinion that the exemption of State property from taxation was secured, not just in respect of property held by the State eo nomine but also, as in the United States, by ``necessary governmental instrumentalities of the States''. ^[136] Quick and Garran at 950. The authors appear to have regarded such a broad application of s 114 as inherent in the character of a federal system of government and the divided sovereignties that such a system necessarily entails.

91. Limitations of a check-list : Contrary to the submissions of the Commonwealth, outlined in the reasons of Callinan J, ^[137] Reasons of Callinan J at [ 131]. the correct approach to the question presented by these proceedings does not therefore involve looking for six or more, or fewer, aspects or attributes of a relevant corporation with a view to discerning its true character for the purposes of s 114. That is an unconceptual approach to the task before this Court. If adopted, it would lock the Court into solving this case, and all future such cases, by reference to the factual features that have presented themselves in past cases to this time. Effectively, it would tend to freeze the protected manifestations of the federal and State polities into the organisations, agencies and institutions by which they have manifested themselves in the past. This is not permitted by a correct approach to the task of giving meaning to a Constitution. Facts continue to change. Governmental institutions and organisations

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continue to evolve. The responsibilities of government constantly adapt to meet the perceived needs of the people in the representative democracy established by the Constitution. The Constitution is not a straight- jacket confining the emanations of a State or of the Commonwealth protected by taxation immunity to those that conform to a six point ``checklist''. In saying this I do not deny that the characterisation required by s 114 may not sometimes be assisted by reference to indicators that have been found helpful in the past. But the search must ultimately be for whether the propounded emanation represents the State or federal polity so as to attract the immunity of s 114 not whether it secures a high score on the six point checklist.

92. A glance at past decisions of this Court on s 114 indicates that the disputed cases have been comparatively few: five or six major ones at most. ^[138] The application of s 114 was raised but not argued in Allders International Pty Ltd v Commr of State Revenue (Vict) 96 ATC 5135 at 5141, 5154; (1996) 186 CLR 630 at 643, 666 . That was a case involving the purported imposition of a State stamp duty law upon a lease of shop premises upon land held by a federal authority for federal purposes. Given the many changes that have occurred in Australia in governmental functions and institutions over the past century, this comparative paucity of litigation suggests (as one would expect) a high degree of mutual respect and flexibility among the several polities of the Commonwealth in avoiding taxation of each other's agencies and instrumentalities.

93. It would, I imagine, have been possible in the early days of the interpretation of s 114, for this Court to have adopted a strict approach to the operation of the section and to the references in it to ``the Commonwealth'' and ``a State'', much as the Supreme Court of India, with its different constitutional text, was later to do. Such a view might have been sustained by a literal interpretation of the section. More recently it could possibly have been supported by a principle influenced by modern views about taxation, namely that exemptions should be kept to a minimum, reserved to the traditional, indispensable or ``core'' activities of government and not extended to business, commercial or trading activities for which income and profit are inherent objectives. ^[139] cf South Carolina v United States 199 US 437 (1905) ; National League of Cities v Usery 426 US 833 (1976) . Upon such a view, to the extent that government entered upon such activities, its instrumentalities should have no tax advantages over private competitors in the market place but should pay taxation in the same way as other business, commercial or trading entities. I do not doubt that this would have been a legitimate and defensible interpretation of s 114 of the Constitution, however difficult it might have been to apply in particular cases. ^[140] The Canadian cases have not generally developed a distinction between commercial and non- commercial activities of governmental corporations: Re City of Toronto and Canadian Broadcasting Corporation [ 1938] OWN 507 ; Hogg, Constitutional Law of Canada , 4th ed, (1997) at 620-624; Laskin's Canadian Constitutional Law , 5th ed, (1986) vol 2 at 840-846; cf Re Exported Natural Gas Tax [ 1982] 1 SCR 1004 at 1079 .

94. However, it was not the approach that this Court adopted. And no-one in these proceedings advocated such a changed approach. Perhaps that was because the several polities before the Court - federal and State - have, through various instrumentalities, each engaged in business, commercial and trading activities of many kinds. No party and no intervener suggested a root and branch revision of current doctrine about s 114. When first adopted, that doctrine was doubtless influenced by the fact that, even in colonial times, the polities that are now the States of the Commonwealth were engaged in ``a wide range of governmental functions which were not traditional and inalienable''. ^[141] State Bank Case 92 ATC 4079 at 4084; (1991-1992) 174 CLR 219 at 231-232 referring to Heiner v Scott (1914) 19 CLR 381 at 392 per Griffith CJ. The colonial governments in Australia had been engaged in the provision of railways, banking and even butchering services through various entities which they severally controlled. Such arrangements continued after federation. The new Commonwealth quickly followed suit. This is therefore the setting in which the immunity in s 114 fell to be interpreted. It helps to explain the position adopted by this Court in a unanimous opinion stated a decade ago: ^[142] State Bank Case 92 ATC 4079 at 4083; (1991-1992) 174 CLR 219 at 230-231.

``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. The activities of government are carried on not only through the departments of government but also through corporations which are agencies or instrumentalities of government.''

95. Polities acting through instrumentalities : Several other points about s 114, expressed in decisions of this Court, support the submission that the section is to be given a broad application, with attention focussed on objects and purposes rather than on form and on particular arrangements that are bound to vary over time and as between different institutions established as emanations of the polity concerned. The mere fact that the Commonwealth or a State engages in activities that, in other times or places and even elsewhere in Australia or contemporaneously,

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are conducted by non-governmental, private bodies is not determinative of the character of the instrumentality concerned for the purposes of s 114 or analogous purposes. Thus banks, ^[143] Melbourne Corporation v The Commonwealth (1947) 74 CLR 31 at 52 ; Bank of NSW v The Commonwealth (1948) 76 CLR 1 ; State Bank of NSW v Commonwealth Savings Bank of Australia (1986) 161 CLR 639 at 644 . railways ^[144] The Federated Amalgamated Government Railway and Tramway Service Association v The New South Wales Railway Traffic Employ é s Association (1906) 4 CLR 488 . and superannuation boards ^[145] State Authorities Superannuation Board v Commissioner of State Taxation (WA) 96 ATC 5167 at 5179; (1995-1996) 189 CLR 253 at 284 . have sometimes been identified as emanations of the States for relevant purposes.

96. It follows that the list of features regarded as relevant in particular circumstances is not closed. Still less is it determinative of the character of the propounded instrumentality as a manifestation of the polity concerned. The possession of traditional, or generally accepted, governmental features will certainly assist in the task of giving an affirmative characterisation. But the decisive question is always whether the instrumentality, with its history, purposes, manner of organisation, governance, functions and systems of control represents an instrument or agency by which the Commonwealth or a State is to ``operate in a particular field through a corporation created for the purpose''. <sup>[146]</sup> Inglis v Commonwealth Trading Bank of Australia (1969) 119 CLR 334 at 338 per Kitto J; State Bank of NSW v Commonwealth Savings Bank of Australia (1986) 161 CLR 639 at 644 . Alternatively, the question is whether it can be said that a corporation has been created with some connections with the Commonwealth or State concerned but with a purpose that it should ``perform its functions independently of the [ polity], that is to say otherwise than as a [ federal or State] instrument, so that the concept of a [ federal or State] activity cannot realistically be applied to that which the corporation does''. ^[147] Inglis v Commonwealth Trading Bank of Australia (1969) 119 CLR 334 at 337- 338 ; State Bank of NSW v Commonwealth Savings Bank of Australia (1986) 161 CLR 639 at 644 .

The evidence suggests an emanation of the State

97. History and purpose of SGH : It remains to apply the foregoing principles to the facts of the present case. Most of the relevant facts are set out in other reasons. ^[148] Joint reasons at [ 1]- [ 2]; reasons of Gummow J at [ 37]; reasons of Callinan J at [ 112]- [ 122]. Ultimately, characterisation of multiple facts for constitutional purposes always involves an element of judgment and opinion. Different people can see exactly the same facts and come to different conclusions about their classification for such purposes. So it is in this case. However, in my view, consistently with the unchallenged doctrine of this Court, the relevant features of the history, purposes, manner of organisation, governance, functions and systems of control of SGH Limited (``SGH'') combine to render it an emanation of the State of Queensland for the purposes of s 114 of the Constitution. I must explain why.

98. The history speaks powerfully in favour of this conclusion. SGH owes its origins and existence to a particular political and economic crisis that in 1976 faced the Government of the State of Queensland. That crisis involved seven building societies in that State, incorporated under the then applicable law. ^[149] Building Societies Act 1886 (Q). The societies were on the point of financial collapse. Such a collapse would have been seriously damaging to the economy of the State. What followed, leading to the creation of the body that was later renamed as SGH, involved decisive governmental action for what was obviously a legitimate and proper purpose of the State as a polity.

99. Under State Government encouragement and direction, the existing State Government Insurance Office (``SGIO'') (which for relevant purposes is accepted as an instrumentality and manifestation of the State), established a body that originally bore the name ``SGIO Building Society''. That name itself reflects, in its terms, the involvement of the ``State Government''. The body so established became the vehicle by which the assets and liabilities of the seven collapsing building societies were taken over by the State Government. The SGIO was later renamed ``Suncorp'' in accordance with the modern tendency to give public sector bodies a private corporate appearance (the later corporate manifestations of the Postmaster- General in the federal sphere represent an analogy). By direction of Suncorp, the name of SGH was adopted; but the substance remained the same. The body existed to effect the State Government purposes. They remained exactly the same. The plaintiff is still a ``State Government'' body. The ``S'' and ``G'' of its name effectively gave the game away. Whilst adoption of a name could not foreclose the constitutional question, in the present case the name reflected the reality.

100. Nor were the foregoing changes effected purely by private corporate initiatives. Public legislation was required. Its passage was secured from the State Parliament by the State Government. The Building Societies Amendment Act 1976 (Q) conferred on the State Registrar of Building Societies (``the Registrar'') the power to direct the transfer of engagements or property from one building society to another. <sup>[150]</sup> s 38C. A ``contingency fund'' was created to be held by the State for the protection of persons with investments in building societies. ^[151] s 36A. This fund was maintained by a general levy on building societies. The

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State Government then applied for incorporation of SGH (under its original name). The Registrar, with the State Treasurer's approval, directed the transfer of all assets and liabilities of the collapsing building societies to SGH (under its earlier name). The State Treasurer then instructed SGIO to provide financing to the new society. It did so specifically to restore confidence in the building society industry. This involved SGIO providing to SGH (under the name SGIO Building Society) loan funds of at least $1 million and a standby facility of $43 million, representing the consolidated liabilities of the seven collapsing societies by now assumed by the new specially created ``State Government'' building society.

101. Against the background of the foregoing history and having regard to the purposes which that history discloses (as explained to the State Parliament by the State Treasurer, Sir Gordon Chalk) ^[152] Queensland Parliamentary Debates , Legislative Assembly, 13 April 1976 at 3640. it cannot be doubted that SGH owed its existence and functions to the specific State governmental objective, necessary to the times. The Treasurer said: ^[153] Queensland Parliamentary Debates , Legislative Assembly, 13 April 1976 at 3640.

``While some people think that the entry of the SGIO into this particular type of operation is in some way undesirable, it is necessary if we are to provide funds and so protect every person involved in the problems confronting the societies.

The only source from which they could become available and which is accessible to me is the SGIO.''

102. The ``we'' and ``me'' referred to in this passage from Hansard was not the Treasurer personally - but the Government of the State, for declared State purposes, requiring specific State legislation which the State Parliament, for the objects revealed, approved without division for the protection of the investors and people of the State and the State economy.

103. Disbursement of the State funds : When in 1985 the original building society legislation was repealed and replaced, ^[154] Building Societies Act 1985 (Q). new legislation established a new Contingency Fund to which the funds in the earlier contingency fund were transferred. SGH continued to make contributions to this Fund. In 1993, the crisis just described having passed, the Parliament of the State provided for the disbursement of the latter Fund. ^[155] Building Societies Fund Act 1993 (Q). It was pursuant to that Act ^[156] s 11. that the State, on 5 July 1993, paid SGH the sum of $23,002,000. On 28 July 1993 a further sum of $2,011,095 was paid by the State to SGH as an ex gratia payment. ^[157] Pursuant to Financial Administration and Audit Act 1977 (Q), s 106. It was these payments that were assessed by the respondent Commissioner of Taxation for federal taxation under the Income Tax Assessment Act 1936 (Cth). This was so although the moneys in question were of State origin under State control and directly derived from the disbursement of the Fund initially created on the initiative of the State under a State law and maintained as long as deemed necessary for the State Government purposes described.

104. Control of SGH : To the foregoing features of the history, purposes and manner of organisation of SGH (including under its original, significant name) should be added a number of aspects of the governance, functions and systems of control of SGH. To a large extent these are described sufficiently for my purposes in the joint reasons. ^[158] Joint reasons at [ 23]- [ 26]. I agree with the conclusion there stated that Suncorp, the new name for SGIO, is an undisputed manifestation of the State- controlled SGH. ^[159] Joint reasons at [ 26].

105. It is true that such control on the part of Suncorp was not to the total exclusion of the legal duties imposed by the general law of building societies on the directors, whom Suncorp controlled. However, those duties do not in my opinion contradict, or relevantly diminish, the powers lawfully reserved to the State's control through Suncorp. The power of a State to appoint directors to a corporation is a feature that may suggest that the corporation is a manifestation of the State. The fact that the corporation and directors must obey other laws, of general application, does not erode the relevance of control for the character of the institution. Otherwise, no private corporation could be an emanation or agency of the Commonwealth or a State. Nor does the general law governing building societies alter the public character of this particular corporation - utilising, as it did, the features of a statutory building society - or its characterisation as an instrumentality of the State for constitutional purposes for the achievement of State purposes.

106. Far from the utilisation of the elements of a manifestation as a building society (with the duties that this entailed under the applicable legislation) constituting a reason for distinguishing SGH from the State, the opposite is the case. Given the specific State purposes of rescuing ailing building societies and restoring confidence in that particular industry, the

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ATC 4386

creation of a State-guaranteed building society for that purpose was a predictable, and certainly permissible, way of going about the legitimate State object that recommended itself both to the State Government and Parliament. In a sense, the course adopted was modelled on the moves much earlier in Australian history, in colonial times, long before the creation of the Reserve Bank of Australia, to set up publicly owned and controlled banking corporations to infuse confidence amongst depositors in the security of the local banking industry. The fact that a corporate or building society vehicle was used for that purpose in this case did not mean that it was any the less an emanation of the polity creating, and underwriting, that vehicle. To point to general legal duties and to say that their existence robs SGH of its State character is to allow a matter of detail to divert the task of constitutional characterisation from the principal features that derive from the history, purposes, manner of organisation, governance and functions of this particular building society. In my view, that approach is wrong. Constitutional characterisation, above all, requires that the interpreter should avoid narrowing the focus of the legal lens.

107. SGH was only viable because of the funds initially provided by SGIO, which funds continued at all material times. The State (Suncorp) through its board nominees had the power to determine whether dividends would be directed towards itself (as the sole holder of ``B'' class shares) or towards individual depositors (as holders of ``A'' class shares). There is no suggestion that the board ever resolved to take the latter course. The State (Suncorp) through its board nominees and shareholders had the power to ensure that any surplus in winding up was distributed to the State by repayment of the deposits which sustained the ``A'' class shares. The financial nexus to the State was powerful. It was unbroken. And above all, it was maintained and exercised for State purposes.

108. State auditing of SGH : The fact that State financial legislation governs the affairs of the entity is a ``strong indication'' that the instrumentality in question is properly to be characterised as part of the State. <sup>[160]</sup> Inglis v Commonwealth Trading Bank of Australia (1969) 119 CLR 334 at 341 ; State Bank of NSW v Commonwealth Savings Bank of Australia (1986) 161 CLR 639 at 645, 651 . In a sense this is self evident. Unless a body is an aspect or manifestation of the State, it is almost unthinkable that the State Parliament would subject it to the rigours and costs of State auditing. In the present case SGH's financial statements were subject to audit by the State Auditor-General under the Financial Administration and Audit Act 1977 (Q) as a ``controlled entity'' of a ``public sector entity'' within the meaning of that Act. This statutory status, with its coercive consequences, reflects the realities previously described. SGH was a State entity created for State purposes, controlled by the State and performing its functions as a building society precisely because that was considered to be the most effective way of achieving, and then maintaining, the State Government purpose explained at the time of its creation and maintained thereafter.

Conclusion and orders

109. It follows that, in my view, SGH was the ``State'' [ of Queensland] for the purposes of s 114 of the Constitution. I would answer the first question reserved in the affirmative. I would have ordered that the hearing of the proceedings continue so that the remaining question might be answered, and the matter concluded, conformably with the foregoing reasons.

110. It is inherent in my approach that I would leave open a point raised in the submissions of the intervener for South Australia, that inherent in and critical to the capacity of a State to function as a government ^[161] Re Australian Education Union; Ex parte Victoria (1995) 184 CLR 188 at 232 . is its capacity to determine where it will deploy the financial resources of the State, whether in the Consolidated Revenue Fund or in instrumentalities, authorities, or corporations acting as agents of the State and that taxation upon those financial resources necessarily interferes in that capacity. That submission is a reminder of the federal context within which, and a purpose for which, s 114 was included in the Constitution.