MUTUAL POOLS & STAFF PTY LTD v THE COMMONWEALTH OF AUSTRALIA

Judges: Mason CJ
Brennan J
Deane J
Dawson J
Gaudron J

McHugh J
Toohey J

Court:
Full High Court

Judgment date: Judgment handed down 9 March 1994

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McHugh J

This case stated arises out of a suit which the plaintiff has commenced in this Court for a declaration that the Swimming Pools Tax Refund Act 1992 (Cth) (``the Refund Act'') is invalid. The genesis of the enactment of the Refund Act was the decision of the Court in Mutual Pools & Staff Pty. Ltd. v. Federal Commissioner of Taxation <sup>[159]</sup> 92 ATC 4016; (1992) 173 CLR 450. which held that the Sales Tax Laws Amendment Act 1986 (Cth) (``the Amending Act'') was invalid by reason of its failure to comply with the provisions of s. 55 of the Constitution. Section 55 provides:

``Laws imposing taxation shall deal only with the imposition of taxation, and any provision therein dealing with any other matter shall be of no effect.

Laws imposing taxation, except laws imposing duties of customs or of excise, shall deal with one subject of taxation only; but laws imposing duties of customs shall deal with duties of customs only, and laws imposing duties of excise shall deal with duties of excise only.''

The Amending Act purported to amend the Sales Tax Assessment Act (No.1) 1930 (Cth) by deeming swimming pools constructed in situ to be manufactured goods and consequently subject to sales tax. Although the substantive provisions of the Amending Act were within the power conferred by s. 51(ii) of the Constitution, the Court held that the Amending Act was invalid because it purported to amend the Sales Tax Assessment Act (No.1) in a way which would have meant that that legislation, which deals with duties of excise, would have dealt with something other than a duty of excise, contrary to s. 55.

Prior to the decision of the Court in Mutual , the Commissioner of Taxation on behalf of the Commonwealth entered into an agreement with the Swimming Pool and Spa Association of Australia Ltd. (``SPASA'') which provided that, pending the judgment of this Court in Mutual and in consideration of members of SPASA paying the sales tax purportedly imposed in respect of in situ swimming pools, such payments together with interest would be refunded to the members of SPASA in the event that the Court held that the Amending Act was invalid. After the making of that agreement, the plaintiff, a builder of swimming pools and a member of SPASA, paid sales tax in the sum of $1,522 to the Commissioner in respect of the construction of an in situ swimming pool. The plaintiff passed on the whole of the tax to the purchasers of the pool.

The effect of the Refund Act is to extinguish any liability on the part of the Commonwealth " to make any in situ pool tax refund payment " as the result of the invalidity of the Amendment Act except in accordance with s. 4 of the Refund Act, the principal parts of which provide:

``4.(1) Except as provided by this section, the Commonwealth is not liable to make any in situ pool tax refund payment.

(2) If, before the commencement of this Act or within 2 years after its commencement, the pool builder in respect of an in situ pool tax payment has made a declaration to the Commissioner, in a form approved by the Commissioner for the purpose, of either or both of the following kinds:

• (a) that a specified amount, being the whole or part of the in situ pool tax concerned, was not passed on to the pool purchaser in relation to the swimming pool concerned;
• (b) that a specified amount, being the whole or part of any of the in situ pool tax concerned that was passed on to the pool purchaser in relation to the swimming pool concerned, has been refunded to the pool purchaser;

then the Commonwealth is only liable to make the in situ pool tax refund payment to the pool builder to the extent that it equals the sum of:

• (c) the amount of the tax that was not passed on; and
• (d) the amount of the tax that was refunded.''

Other parts of s. 4 provide for the repayment of the whole or part of the amount of tax to the pool purchaser in cases where the amount of tax was wholly or partly passed onto the pool purchaser. Sections 5, 6, 7 and 8 provide for the payment of interest to the person or persons entitled to recover an amount of tax.

Although the Commonwealth concedes that, prior to the passing of the Refund Act, it was liable to repay the sum of $1,522

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unconditionally to the plaintiff, it contends that it is now liable in respect of that sum only in the manner and to the extent prescribed by the Refund Act. In response, the plaintiff contends that the Refund Act is invalid because there is no constitutional head of power which would support the legislation and that, if there is, the legislation is invalid because it purports to acquire the plaintiff's property otherwise than on just terms, contrary to s. 51(xxxi) of the Constitution.

The case stated asks two questions:

``1 If the said amount of $1,522 was paid pursuant to the SPASA agreement, was the [Commonwealth] legally obliged, before the Refund Act was enacted, to repay the said amount to the plaintiff...

2 Is the Refund Act invalid in its application to the circumstances of this case?''

The validity of the agreement with SPASA

The Commonwealth rightly conceded that the agreement entered into on its behalf between the Commissioner of Taxation and SPASA was a valid agreement and that, absent the provisions of the Refund Act, the Commonwealth was legally liable to repay sales tax paid in accordance with that agreement. Under the Westminster system, the executive government of a polity has implied power to make any agreement on behalf of that polity which is reasonably necessary for the administration of the business of government of the polity ^[160] O'Keefe v. Williams (1907) 5 CLR 217 . . The speedy collection of taxes, imposed by legislative enactment, is one of the most important duties of an executive government. When doubt arises as to the entitlement of the government to collect a tax, an agreement enabling the government to obtain the immediate benefit of the tax furthers the object of the revenue statute and the administration of government, even if the agreement provides that the government will refund any excess payment when the liability of the taxpayer is determined. In Queensland Trustees Ltd. v. Fowles ^[161] Queensland Trustees Ltd v Fowles (1910) 12 CLR 111 . , this Court held that the Chief Commissioner of Stamps, acting for and on behalf of the government of Queensland, had power to enter into an agreement to repay excess succession duty if the value of an estate turned out to be less than the value assessed for the purpose of an interim assessment of duty.

The agreement entered into between the Commissioner on behalf of the Commonwealth and SPASA in this case was within the executive power of the Commonwealth because it enabled the Commonwealth to receive moneys which might otherwise have been withheld and because it avoided the possibility of lengthy and expensive enforcement proceedings. The first question in the case stated must be answered in the affirmative. Indeed, the Commonwealth conceded that this was so.

The Refund Act is a valid enactment

In my opinion, the Refund Act is a valid enactment. It is convenient to summarise my reasons for this conclusion before I set out the detail of those reasons. The substantive powers conferred by ss. 51 and 61 of the Constitution together with the incidental power conferred by s. 51(xxxix) extend to the making of laws which bar remedies otherwise available in respect of the unlawful receipt of moneys or the carrying out of tortious actions by or on behalf of the Commonwealth. While those powers do not extend to making laws which bar remedies in respect of the exaction of moneys or the carrying out of tortious activity in respect of matters over which the Commonwealth has no power to pass laws, nevertheless federal Parliament can bar remedies in respect of such exactions or activities whenever it could retrospectively validate the conduct in question. However, if the exaction of money constitutes or constituted an acquisition of property within the meaning of s. 51(xxxi), federal Parliament can only bar remedies for the recovery of the property if the barring legislation provides ``just terms'' for the retention of property.

In this case, the Amending Act was invalid only because it failed to comply with s. 55 of the Constitution. If it wished, federal Parliament could have re-enacted the substance of the Amending Act and given it a retrospective operation. While Parliament has chosen to repay the moneys unlawfully collected to those who really paid the tax instead of retrospectively validating the collection of the tax, the Refund Act is still a law with respect to taxation within the meaning of s. 51(ii) of the Constitution. Furthermore, neither the Amending Act nor the Refund Act involved or involves an ``acquisition'' of property within the meaning of s. 51(xxxi) of the Constitution. Accordingly, in my opinion, the Refund Act is a valid enactment.

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Barring remedies for unlawful conduct

(i) Section 51 and the incidental power

The powers conferred by s. 51, when read with the incidental power (s. 51(xxxix)), are sufficiently comprehensive to enable the Parliament of the Commonwealth to enact laws retrospectively validating the legality of conduct falling within a head of power conferred by s. 51. The power of the Parliament to pass retrospective criminal legislation is beyond doubt ^[162] Polyukhovich v. The Commonwealth (1990-1991) 172 CLR 501. . Similarly, the federal Parliament can retrospectively validate unlawful conduct either absolutely or conditionally if that conduct is a matter falling within a federal head of power ^[163] Talga Ltd. v. MBC International Ltd. (1976) 133 CLR 622 . . It must follow that the federal Parliament can legislate to prevent the bringing of an action in respect of that conduct, whether or not it decides to validate the conduct in question. The power to validate the legality of conduct must carry with it the power to prevent any action being brought in respect of that conduct.

(ii) Section 61 and the incidental power

The combination of s. 61 and the incidental power is another source of power for validating unlawful executive activity or for barring actions in respect of such activity. That combination is sufficiently comprehensive to enable the federal Parliament to prevent the bringing of an action against the executive government in respect of an act done in good faith on behalf of the Commonwealth which, although not authorised by statute, was reasonably related to a power vested in the executive government. Thus, subject to the Constitution, s. 51(ii) confers power on the Parliament of the Commonwealth to make laws with respect to taxation. Collecting moneys paid in discharge of taxation liabilities, imposed by a federal statute, is a function of the executive government of the Commonwealth. It is part of the executive power of the Commonwealth within the meaning of s. 61 of the Constitution and can properly be regarded as ``incidental to the execution of [a] power vested by this Constitution in the Parliament... or in the Government of the Commonwealth'' within the meaning of s. 51(xxxix) of the Constitution even if the assessment imposing the tax is unlawful. If the action of the executive government was carried out in good faith and could reasonably be referred to such a power, it can fairly be regarded as incidental to that power. In s. 51(xxxix), matters incidental to the execution of the powers specified in that paragraph should not be construed as encompassing only intra vires actions. Mistaken, but honest and reasonable, actions taken to execute and maintain a valid law of the Commonwealth can be regarded as incidental to the execution of a power vested by the Constitution in the government of the Commonwealth.

In Werrin v. The Commonwealth ^[164] (1937-1938) 59 CLR 150. , the Court upheld the validity of s. 12A of the Sales Tax Procedure Act 1934 (Cth) which was passed to prevent the recovery of taxes which ought not to have been paid having regard to the decision of this Court in Deputy Federal Commissioner of Taxation (S.A.) v. Ellis & Clark Ltd. ^[165] (1934) 3 ATD 98; (1934) 52 CLR 85. . That case held that sales tax was not payable on goods which had gone into consumption. After the decision in Ellis & Clark Ltd. , s. 12A of the Sales Tax Procedure Act was enacted and provided that where money had been paid as sales tax in respect of any goods, a person was not entitled to a refund of the tax paid upon the ground that, at the time that the tax was paid, the goods had already gone into use and consumption.

The members of the Court who held that s. 12A was valid gave different reasons for their conclusions. Rich J. said ^[166] Werrin (1937-1938) 59 CLR at 161. that ``it was clearly within the competence of the Federal Parliament to say that a sum of money erroneously collected under a tax Act by administrative officers acting in good faith should be retained''. Starke J. said that the legislation was a law with respect to the subject of taxation. Dixon J. said <sup>[167]</sup> ibid. at 164-165. that probably more than one head of power could be relied upon as enabling the federal Parliament ``to bar a liability otherwise resting upon the Crown in respect of tax mistakenly levied upon the subject under the provisions of a taxing statute''. But his Honour based his decision on the ground that the law was a law with respect to a matter incidental to the execution of a power vested in the government of the Commonwealth within the meaning of s. 61 and s. 51(xxxix) of the Constitution.

Werrin has no binding ratio decidendi . But the judgment of Dixon J. shows that s. 51(xxxix) and s. 61 as well as the various heads of power conferred by s. 51 can be the source of legislation preventing the recovery of money unlawfully collected by the executive government. However in applying the remarks

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of his Honour, the background to the enactment of s. 12A must be kept in mind. Werrin was a case where the taxation authorities had acted in good faith on a view of the legislation which was clearly open. It does not follow that every law purporting to bar the right to recover money unlawfully exacted as a ``tax'' is necessarily a valid law pursuant to the combination of powers conferred by s. 61 and s. 51(xxxix). A law barring recovery which is founded on those two provisions must be incidental to the execution of a power vested in the Parliament or ``in the Government of the Commonwealth''. Barring the right to recover payments will not be incidental to the execution of such a power if what the Executive has done was not done in good faith or had no reasonable connection with a power actually vested in the Executive. However, if the executive government, acting in good faith, has mistakenly collected a tax from a person while purporting to act under a provision of a valid law of the Parliament of the Commonwealth, the combination of s. 61 and s. 51(xxxix) is sufficiently comprehensive to enable the Parliament to enact a law barring recovery of the tax so paid if the exaction of the tax was reasonably referable to the provision relied upon to found the assessment.

Although the combination of s. 61 and the incidental power may be sufficient to validate or prevent action in respect of unlawful executive activity in many cases, the power conferred by the various paragraphs of s. 51 to pass retrospective laws or to bar remedies is more comprehensive. Conduct may be validated under s. 51 even though it was not carried out in good faith or was not reasonably referable to a power vested in the executive government, provided that the conduct in question was within one of the heads of power conferred by s. 51. There can be few, if any, examples of a law validating conduct or barring a remedy concerning a subject matter of s. 51, which would be valid under the combination of s. 61 and s. 51(xxxix) but which would not be valid under the relevant head of power conferred by s. 51 itself. Thus, s. 51(ii) seems the preferable source of power for the enactment of the Refund Act.

Restrictions on the power to validate conduct

The power of the federal Parliament to bar remedies or validate conduct is subject, however, to two restrictions. One is the acquisition of property power (s. 51(xxxi) of the Constitution). The other is the principle that what the Parliament cannot do directly, it cannot do indirectly.

Where the conduct which the federal Parliament seeks to validate or to protect from legal action involves or involved an acquisition of property, any attempt to validate that conduct or to bar a remedy for the recovery of that property will be invalid unless it complies with the provisions of s. 51(xxxi) of the Constitution. That is to say, the legislation validating the acquisition or barring the right to recover the property will be invalid unless it provides ``just terms'' for the acquisition. It is well established that, so far as possible, the powers conferred by s. 51 are to be read subject to the provisions of s. 51(xxxi) which are both a source of power to acquire property and a constitutional guarantee that property will be acquired by the Commonwealth only on just terms ^[168] Johnston Fear & Kingham & The Offset Printing Co. Pty. Ltd. v. The Commonwealth (1943) 67 CLR 314 at 318; Bank of N.S.W. v. The Commonwealth (1948) 76 CLR 1 at 349, 350; W.H. Blakeley & Co. Pty. Ltd. v. The Commonwealth of Australia (1953) 87 CLR 501 at 520; Attorney-General (Cth) v. Schmidt (1961) 105 CLR 361 at 370-372. .

Furthermore, if the federal Parliament had no power to enact the law which gave rise to the conduct or receipt of money or acquisition of property, it would seem to follow that the Parliament cannot validate that conduct, receipt or acquisition or bar remedies in respect of it. In a federation such as Australia, the legislative and executive powers of the federating government are circumscribed. To allow a government of the federation to validate or bar action in respect of conduct purporting to be done under a statute which it had no power to enact would be to usurp the constitutional scheme and set aside the Constitution's allocation of legislative power. If a legislature has no power to enact a statute, its executive government has no power to enforce it. A law purporting to bar the recovery of money collected under such a statute would not be a law with respect to any relevant head of power. Nor would it be a matter incidental to any ``power vested by this Constitution'' in the Parliament or the government of the Commonwealth within the meaning of s. 51(xxxix) of the Constitution. The validity of a law barring the right to recover moneys paid under an invalid enactment cannot depend, therefore, on whether the executive government has acted in good faith and whether its actions are reasonably referable to a ``power'' conferred by the invalid enactment. ``The Constitution is not to be mocked by substituting executive for legislative interference with

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freedom'' of the citizen ^[169] James v. Cowan [lb]1932] AC 542 at 558 per Lord Atkin. . Nor does the federal Parliament acquire any special power to pass validating legislation in cases where the government has spent the moneys raised under the invalid statute. To accept any of these propositions would mean that the taxpayer would be left in the same position as if the statute imposing the tax was within the constitutional power of the government enacting the statute. ``If a State cannot take by unconstitutional means it cannot retain by unconstitutional means.'' ^[170] Amax Potash Ltd. v. Government of Saskatchewan (1976) 71 DLR (3d) 1 at 12 . This is simply an application of the principle that what the legislature cannot do directly, it cannot do indirectly.

In Antill Ranger & Co. Pty. Ltd. v. Commissioner for Motor Transport ^[171] (1955) 93 CLR 83. and Barton v. Commissioner for Motor Transport ^[172] (1957) 97 CLR 633. , the Court held invalid legislation enacted by the Parliament of New South Wales abolishing the legal right of the plaintiffs to recover moneys which had been paid by interstate carriers under legislation which the Privy Council subsequently held was in breach of s. 92 of the Constitution. Because s. 92 withdrew the power to tax interstate carriers, it followed that it prohibited legislation which sought to prevent the recovery of money obtained in breach of s. 92. On appeal in the Antill Ranger Case ^[173] Commissioner for Motor Transport v. Antill Ranger & Co. Pty. Ltd. (1956) 94 CLR 177 at 179-180. , the Judicial Committee said that ``[n]either prospectively nor retrospectively... can a State law make lawful that which the Constitution says is unlawful''. In Deacon v. Grimshaw ^[174] Deacon v Grimshaw (1955) 93 CLR 83 . , the Court also held that the legislation considered in Antill Ranger was invalid in so far as it purported to abolish the plaintiff's right of action for the wrongful detention of his motor vehicle during the course of an interstate journey.

The principle which is the basis of these cases is equally applicable to cases where the Constitution has not granted to a Parliament the power to enact the statute which it purported to enact. It would be a curious result if the Commonwealth, for example, could bar claims in respect of money obtained by ``legislation'' outside the scope of the powers affirmatively granted to it by the Constitution even though it could not bar claims for the recovery of money obtained in breach of s. 92 of the Constitution. In Canada, the Supreme Court has held that the Provinces of Canada cannot bar remedies in respect of conduct purporting to be authorised by a statute going beyond the Constitution's grant of affirmative powers to the Provinces. Thus, in Amax Potash Ltd. v. Government of Saskatchewan ^[175] (1976) 71 DLR (3d) 1. , the Supreme Court held invalid a sub-section of the Proceedings Against the Crown Act , R.S.S. 1965, c. 87 which provided that no proceedings would lie against the Crown in respect of anything done under a statutory provision which is, was or may be beyond the jurisdiction of the Legislature. Dickson J., who gave the judgment of the Court, said ^[176] ibid. at 12. :

``[I]f a statute is found to be ultra vires the Legislature which enacted it, legislation which would have the effect of attaching legal consequences to acts done pursuant to that invalid law must be equally ultra vires because it relates to the same subject-matter as that which was involved in the prior legislation. If a State cannot take by unconstitutional means it cannot retain by unconstitutional means.''

Consequently, where the Parliament of the Commonwealth has no power to create obligations of the kind which it purported to create, any right to retain property received in discharge of those ``obligations'' would seem to depend upon private law principles such as change of position etc. The argument for the Commonwealth did not accept that this was so. The Commonwealth contended that, whatever the position may be in other federations, s. 78 of the Constitution enabled it to enact legislation preventing the recovery of money owed by the Commonwealth to a taxpayer even though that money had been obtained by force of legislation which was outside the power of the Commonwealth to enact. Section 78 provides:

``The Parliament may make laws conferring rights to proceed against the Commonwealth or a State in respect of matters within the limits of the judicial power.''

It would be surprising if s. 78 was intended to enable the federal Parliament to protect itself against the consequences of enacting a statute beyond its constitutional powers. The primary purpose of s. 78 was to ensure that federal Parliament could remove the immunity of the Crown in right of the Commonwealth or the States from actions of tort or breach of contract ^[177] See Official Record of the Debates of the Australasian Federal Convention , Melbourne, 1 March 1898, at 1653-1654. . It is another question whether it was intended to ensure that the Commonwealth could protect itself in respect of conduct which is outside the scope of the powers of the

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Commonwealth. The principle which is the basis of the decisions in Antill Ranger , Deacon , Barton and Amax Potash Ltd. would be set at nought if s. 78 conferred a power so comprehensive that it enables the Commonwealth to protect itself against the consequences of enacting legislation beyond its other powers. It could hardly be thought that s. 78 would authorise the Parliament to protect the Commonwealth against the consequences of a breach of s. 92 of the Constitution. While the powers conferred by s. 51 are conferred ``subject to this Constitution'', that fact provides no reason why any distinction should be drawn between a law which is invalid because it breaches s. 92 and a law which is outside the affirmative grant of powers of the Commonwealth. It seems almost absurd to think that, relying on s. 78, the Commonwealth could bar the right to bring an action for the recovery of, or damages for, property acquired by the Commonwealth otherwise than on just terms, contrary to s. 51(xxxi) of the Constitution.

Section 78 must be read in the context of a constitutional document which allocates powers between the Commonwealth and the States and creates a High Court in which it vests the judicial power of the Commonwealth for the purpose, inter alia, of enforcing the Constitution's allocation of power. Because the Constitution creates the Commonwealth and defines its constitutional powers, rights and duties, the right to sue the Commonwealth in respect of matters concerned with the scope of its constitutional powers is arguably conferred by the Constitution itself (see covering cl. 5 and s. 75(iii)). In a case concerned with the scope of the constitutional powers of the Commonwealth, s. 75(iii) of the Constitution, which declares that the High Court shall have original jurisdiction in all matters ``[i]n which the Commonwealth, or a person suing or being sued on behalf of the Commonwealth, is a party'', might be thought to be intended to give this Court jurisdiction in a suit which is concerned with the scope of the constitutional powers of the Commonwealth. In that respect, it might be thought that the jurisdiction conferred by s. 75(iii) was similar to that conferred by s. 75(v), which this Court has said cannot be taken away by Parliament ^[178] The Commonwealth v. New South Wales (1923) 32 CLR 200 at 216 ; R. v. Hickman ; Ex parte Fox and Clinton (1945) 70 CLR 598 at 614-617 ; R. v. Commonwealth Rent Controller ; Ex parte National Mutual Life Association of Australasia Ltd. (1947) 75 CLR 361 at 369 ; quoted with approval in R. v. Central Reference Board ; Ex parte Thiess (Repairs) Pty. Ltd. (1948) 77 CLR 123 at 130 ; O'Toole v. Charles David Pty. Ltd. (1990) 171 CLR 232 at 292, 306 . , notwithstanding that s. 75(iii) is expressed in terms of parties while s. 75(v) is expressed in terms of remedies. If the Constitution does confer the right to proceed against the Commonwealth in this Court in respect of constitutional matters, the jurisdiction conferred should extend to the determination of any question or claim which is not severable from the determination of the scope of the constitutional powers of the Commonwealth ^[179] cf. Philip Morris Inc. v. Adam P. Brown Male Fashions Pty. Ltd. (1980-1981) 148 CLR 457 . .

In The Commonwealth v. New South Wales ^[180] (1923) 32 CLR 200. , the Court held that s. 75(iii) of the Constitution conferred jurisdiction on the Court to hear an action in tort brought by the Commonwealth against a State without the consent of the State. The decision in The Commonwealth v. New South Wales has never been overruled although later cases have virtually ignored its reasoning and acted as if ss. 75 and 78 of the Constitution and ss. 39, 56 and 64 of the Judiciary Act 1903 (Cth) or some combination of them is the source of the Commonwealth's liability in tort and contract ^[181] See Maguire v. Simpson (1976-1977) 139 CLR 362 ; The Commonwealth v. Evans Deakin Industries Ltd. (1986) 161 CLR 254 at 263-264 ; Breavington v. Godleman (1987-1988) 169 CLR 41 at 68-69 per Mason C.J., 101-105 per Wilson and Gaudron JJ., 117-118 per Brennan J., 139-140 per Deane J., 151-153 per Dawson J., 169 per Toohey J . See also Cowen and Zines, Federal Jurisdiction in Australia , 2nd ed. (1978) at 35-38; Wynes, Legislative, Executive and Judicial Powers in Australia , 5th ed. (1976) at 455-461. . However, even if, as I think is the case, s. 75(iii) is not itself the source of the Commonwealth's liability in tort and contract, it may well be that its inclusion in the Constitution enables an action to be brought against the Commonwealth in this Court in respect of matters concerning, or not severable from, the scope of the Commonwealth's constitutional powers. In that event it would not be open to the federal Parliament to bar the right to proceed against the Commonwealth in respect of the scope of its constitutional powers.

However, irrespective of the basis of the liability of the Commonwealth to be sued in this Court, I am of the opinion that the Refund Act was authorised by s. 51(ii) of the Constitution and does not involve any acquisition of property within the meaning of s. 51(xxxi). It is therefore not necessary for the Commonwealth to rely on s. 78 to support the Refund Act.

The source of validity of the Refund Act

In my opinion, subject to the question whether the Refund Act acquired the property of the taxpayer for the purposes of s. 51(xxxi), it was authorised by the provisions of s. 51(ii) of the Constitution ^[182] If the Refund Act constituted an acquisition of property ``for any purpose in respect of which the Parliament has power to make laws'', the only source of power to make the law would be s. 51(xxxi): Johnston Fear (1943) 67 CLR at 318; W.H. Blakeley (1953) 87 CLR at 521. Thus, a law for the acquisition of a building for the Department of Taxation is a law made under s. 51(xxxi) and not s. 51(ii). . It was not, and could not be, disputed that, if the Federal Parliament had re-enacted the substance of the Amending Act and made it operate retrospectively, such an Act would have been a valid law with respect to taxation within the meaning of s. 51(ii) of the Constitution. Furthermore, it would have been a law with respect to taxation even if it provided that amounts paid under the Amending Act

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were to be ``confiscated'' and credited towards the liability of the taxpayer under the re-enacted legislation ^[183] Air Canada v. British Columbia (1989) 59 DLR (4th) 161 . . Does it make any difference that the Refund Act does not impose a retrospective tax but provides that the moneys refundable by the Commonwealth as the result of the invalidity of the Amending Act are only to be paid in accordance with the provisions of the Refund Act, which in some instances, is to persons other than those who paid the tax?

If the Refund Act had provided for no more than a procedure for repaying the sums collected under the Amending Act to those who had paid those sums, it would undoubtedly be a law with respect to taxation. Although such a hypothetical enactment would not itself impose a tax, the repayment of moneys wrongly collected as taxes is an incident of the subject matter of taxation; a law dealing with the consequences of an invalid attempt to collect a tax is as much a law with respect to taxation as a law providing for the refund of taxes overpaid. Although it is likely that, in many cases falling within the operation of the Refund Act, the repayment of the ``tax'' will be made to a person other than the taxpayer - because the burden of the tax was passed onto that person - the Refund Act is a law which deals with the repayment of moneys unlawfully collected as taxes. It is, therefore, a law with respect to taxation.

Furthermore, the present case is not one which is concerned with an attempt by the Commonwealth to retain moneys obtained or exacted by legislation outside the scope of its constitutional powers. The Amending Act, although invalid by reason of its failure to comply with s. 55 of the Constitution, was nevertheless a law with respect to taxation within the meaning of s. 51(ii) of the Constitution. Furthermore, to uphold the validity of the Refund Act does not undermine the constitutional purpose which is performed by s. 55, for it was open to the Senate to delete or amend any provision of the Refund Act. The Refund Act does not suffer from the defect which brought down the Amending Act.

Accordingly, in my opinion, the Refund Act was a law authorised by s. 51(ii) of the Constitution.

The effect of s. 51(xxxi)

Section 51(xxxi) provides that the Parliament may make laws with respect to ``[t]he acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws''. Whether or not the Commonwealth has acquired property in a particular case is to be examined as a matter of substance and not form <sup>[184]</sup> Bank of N.S.W. v. The Commonwealth (1948) 76 CLR at 349; TPC v. Tooth & Co. Ltd. & Anor (1979) ATPR ¶ 40-127 at 18,364; (1979) 142 CLR 397 at 407. . If legislation involves an acquisition of property for the purpose of s. 51(xxxi), it must comply with the terms of that paragraph <sup>[185]</sup> Johnston Fear (1943) 67 CLR at 318; W.H. Blakeley (1953) 87 CLR at 521; Schmidt (1961) 105 CLR at 371-372. . Section 51(xxxi) is, therefore, both a source of power and a guarantee that the property of a State or an individual citizen will not be sacrificed for the public welfare of the Commonwealth. If the Parliament wishes to acquire property belonging to a State or individual, the cost of the acquisition has to be borne by the taxpayers of the Commonwealth and not by the owner of the property. However, not every taking or receipt of property by the Commonwealth constitutes an acquisition of property for the purpose of s. 51(xxxi). In Attorney-General (Cth) v. Schmidt <sup>[186]</sup> (1961) 105 CLR 361 at 372. , Dixon C.J., with the concurrence of Fullagar, Kitto, Taylor and Windeyer JJ., said that s. 51(xxxi) ``does not mean that property can never pass to or become vested in the Commonwealth or its officers except under a law made in pursuance of'' that paragraph.

When the taking of property is an inevitable consequence of the exercise of a power conferred by s. 51 ^[187] See The Commonwealth v. Tasmania. The Tasmanian Dam Case (1983) 158 CLR 1 at 282 per Deane J. or is a reasonably proportional consequence of a breach of a law passed under one of those powers, no acquisition of property within the meaning of s. 51(xxxi) takes place. Although s. 51(xxxi) abstracts the power of acquisition from other legislative powers in s. 51, it cannot be interpreted so broadly as to render meaningless the legitimate use and operation of other powers conferred by s. 51. The compound conception ^[188] Grace Brothers Pty. Ltd. v. The Commonwealth (1946) 72 CLR 269 at 290 per Dixon J. of an ``acquisition of property on just terms'' predicates a compulsory transfer of property from a State or person in circumstances which require that the acquirer should pay fair compensation to the transferor. When, by a law of the Parliament, the Commonwealth or someone on its behalf compulsorily acquires property in circumstances which make the notion of fair compensation to the transferor irrelevant or incongruous, s. 51(xxxi) has no operation. Thus, property taken from the citizen by taxation is in substance an acquisition of property but it is not an acquisition of property for the purposes of s. 51(xxxi). It has often been

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suggested, however, that taxation is outside the operation of s. 51(xxxi) because taxation consists of no more than the creation and discharge of a debt to the Commonwealth. On this theory, the moneys paid by the taxpayer simply discharge the debt owed to the Commonwealth ^[189] TPC v. Tooth & Co. Ltd. (1979) ATPR at 18,392-18,393; (1979) 142 CLR at 453-454; MacCormick v. FC of T 84 ATC 4230 at 4235-4236; (1984) 158 CLR 622 at 638-639; Australian Tape Manufacturers Association Ltd. & Ors v. The Commonwealth (1993) AIPC ¶ 90-965 at 39,200 (1991-1993) 176 CLR 480 at 527. . However, the purpose behind s. 51(xxxi) would be but a pious aspiration if the terms of that paragraph could be avoided by the device of raising a debt and then requiring the citizen to pay it or have his or her property sequestrated. Furthermore, the creation of debt theory does not explain the provisional tax cases. The Court has held that the system of provisional taxation does not constitute an acquisition of property for the purpose of s. 51(xxxi) notwithstanding that, at the time of payment of provisional taxation, no debt has been incurred by the taxpayer ^[190] FC of T v. Clyne (1958) 11 ATD 428 at 432; (1958) 100 CLR 246 at 263, 270; and see Moore v. The Commonwealth (1951) 82 CLR 547 . . In Commissioner of Taxation v. Clyne ^[191] (1958) 11 ATD at 432; (1958) 100 CLR at 263. , Dixon C.J. said that once it was held that the system of provisional taxation was authorised by s. 51(ii) ``it seems absurd to say that, within the meaning of s. 51(xxxi.), the sums paid or payable as provisional tax constitute property acquired for a purpose in respect of which the Parliament has power to make laws''. His Honour pointed out that the very purpose of the power conferred by s. 51(ii) is to enable the Commonwealth to raise moneys for public purposes.

Although I have previously been attracted to the view that taxation does not involve any acquisition of property by the Commonwealth ^[192] See Australian Tape Manufacturers (1993) AIPC at 39,201; (1991-1993) 176 CLR at 528 where I agreed generally with the reasons of Dawson and Toohey JJ. the elaborate argument on s. 51(xxxi) which the Court heard in this case and the associated cases of Health Insurance Commission v. Peverill ^[193] Health Insurance Commission v Peverill , unreported, 9 March 1994 . and Georgiadis v. Australian and Overseas Telecommunications Corporation ^[194] Georgiadis v Australian and Overseas Telecommunications Corporation , unreported, 9 March 1994 . has convinced me that Deane J. was correct when he expressed the view in The Commonwealth v. Tasmania ( The Tasmanian Dam Case ) ^[195] (1983) 158 CLR 1 at 282. that compulsory taxation does involve an acquisition of property but is nevertheless outside the scope of s. 51(xxxi) ^[196] cf. Epstein, Takings; Private Property and the Power of Eminent Domain , (1985) at 100, 285. . This is because the exercise of the taxation power necessarily involves an acquisition of property from the taxpayer.

Similarly, when a statute provides for the forfeiture of property obtained in breach of Commonwealth law even when the property has passed into the hands of a bona fide purchaser for value, the case is outside s. 51(xxxi). The notion that the Commonwealth should pay fair compensation to the owner of the property in such a situation is simply absurd. In Burton v. Honan ^[197] (1952) 86 CLR 169. , the Court upheld the validity of provisions of the Customs Act 1901 (Cth) which provided, inter alia, for the forfeiture of goods obtained as the result of breaches of the Customs (Import Licensing) Regulations. Dixon C.J. said ^[198] ibid. at 180-181. :

``[T]he whole matter lies outside the power given by s. 51(xxxi.). It is not an acquisition of property for any purpose in respect of which the Parliament has power to make laws. It is nothing but forfeiture imposed on all persons in derogation of any rights such persons might otherwise have in relation to the goods, a forfeiture imposed as part of the incidental power for the purpose of vindicating the Customs laws. It has no more to do with the acquisition of property for a purpose in respect of which the Parliament has power to make laws within s. 51(xxxi.) than has the imposition of taxation itself, or the forfeiture of goods in the hands of the actual offender.''

Similarly, in Schmidt , the Court upheld legislation, the effect of which was (1) to preclude the return to German ownership of property, taken control of in Australia in wartime, and (2) to apply the property in or towards the satisfaction of claims upon Germany for war reparations. The Court held that the legislation was a valid law with respect to the defence power. Dixon C.J. said ^[199] Schmidt (1961) 105 CLR at 373. that the ``whole subject is altogether outside the scope of s. 51(xxxi)''.

Thus, Burton , Schmidt and Clyne establish that, if the purpose of a law passed under s. 51 is to impose sanctions for breach of a law passed under that section or to use the property of alien enemies to satisfy war reparations or to facilitate the collection of taxes, that law is not within the scope of s. 51(xxxi) even though it incidentally or even directly results in the Commonwealth acquiring the property of a State or person. Such a law is not a law for the acquisition of property for a purpose ``in respect of which the Parliament has power to make laws'' but an exercise of the power itself. It would have been absurd, for example, to construe the laws considered in Burton and Clyne as providing for the acquisition of property for the purposes of s. 51(xxxi). The notion of paying compensation for the property acquired was incompatible with the purpose for

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which the law was enacted and the power exercised. The nature of the law considered in Schmidt was no doubt more debatable. However, the three cases are authority for the general proposition that, where the particular implementation of a valid exercise of s. 51 power necessarily involves an acquisition of property or is a reasonably proportional sanction for a breach of a s. 51 law, the acquisition is outside the scope of s. 51(xxxi).

The Refund Act does not involve an acquisition of property for the purpose of s. 51(xxxi)

In the light of these principles, the Refund Act does not involve any acquisition of property for the purpose of s. 51(xxxi).

No doubt the promise made by the Commissioner on behalf of the Commonwealth to repay the money constituted a chose in action enforceable against the Commonwealth. The chose in action was also property for the purpose of s. 51(xxxi) ^[200] Minister of State for the Army v. Dalziel (1943-1944) 68 CLR 261 at 290; Bank of N.S.W. v. The Commonwealth (1948) 76 CLR at 299, 349. . In some circumstances, it could attract the protection of that paragraph. For example, the chose in action would constitute property for the purpose of s. 51(xxxi) if a federal enactment purported to acquire all the property of the plaintiff.

Furthermore, in substance the Commonwealth has acquired the chose in action of the plaintiff. In The Tasmanian Dam Case ^[201] (1983) 158 CLR at 145. , Mason J. pointed out:

``[I]t is not enough that legislation adversely affects or terminates a pre-existing right that an owner enjoys in relation to his property; there must be an acquisition whereby the Commonwealth or another acquires an interest in property, however slight or insubstantial it may be.''

The Refund Act, however, did more than terminate the plaintiff's pre-existing right to payment of the sum of $1,522 and interest. Its effect was to increase, albeit momentarily, the assets of the Commonwealth when the chose in action of the plaintiff was extinguished. True it is that the Commonwealth immediately thereafter came under a new obligation to repay the moneys collected under the Amendment Act. Nevertheless, although in form the Commonwealth did not acquire the debt it owed to the plaintiff, in substance it did. The Refund Act had the effect of increasing the value of its own assets, albeit momentarily, by the precise amount of the debt and interest which it owed to the plaintiff. It is true that the Commonwealth did not obtain any new proprietary interest as the result of the Refund Act. But it was the direct beneficiary of the taking of the plaintiff's property.

In construing an important constitutional guarantee such as s. 51(xxxi), the Court must be astute to ensure that the Parliament does not evade the guarantee by devices which have the effect that in substance, although not in form, the Commonwealth acquires the property of a State or individual without providing just terms. What may be regarded as an extinguishment and not an acquisition of property rights under the general law of property may have to be regarded differently in the context of a constitutional guarantee such as s. 51(xxxi). Thus, when the Parliament legislates so as to extinguish a property right of a person or State which is not dependent for its continued existence on federal law and the effect of the extinguishment is to vest a corresponding benefit of commensurate value in the Commonwealth, the law should be characterised as one providing for the acquisition of the property of that person or State by the Commonwealth. Thus, if the Commonwealth legislates to abolish a right of way over its land, it acquires that right of way even though the legislation does no more than free the land of an encumbrance. Similarly, when the Parliament legislates to abolish a debt of the Commonwealth, the legislation should be seen as an acquisition of property by the Commonwealth. The common law has never treated ``indebtedness in a sum certain for an executed consideration as a mere breach of contract: it is rather the detention of a sum of money'' ^[202] Young v. Queensland Trustees Ltd. (1956) 99 CLR 560 at 567 . . In a case such as the present, the substantial effect of the legislation is that the Commonwealth acquires that sum of money for itself.

Nevertheless, the Refund Act did not involve an acquisition of property for the purpose of s. 51(xxxi). If the Parliament had re-enacted the substance of the Amending Act, given it a retrospective operation, and provided that moneys paid under the invalid Amending Act were to be set off against the taxes levied under the re-enactment, no question of acquisition of property would arise ^[203] cf. Air Canada v. British Columbia (1989) 59 DLR (4th) 161. . If, in those circumstances, the Commonwealth would not have acquired the property of the plaintiff for the purposes of s. 51(xxxi) of the Constitution, how can its election to enact the Refund Act to

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repay those moneys to those who have borne the burden of the invalid tax constitute an acquisition of property for the purpose of s. 51(xxxi)?

The purpose of the Refund Act is to repay the ``taxes'' unlawfully obtained as the result of the enforcement of a law which was authorised by the taxation power but invalid because it breached s. 55 of the Constitution. It is correctly characterised as a law with respect to taxation for the purpose of s. 51(ii). What is validly within s. 51(ii) is outside s. 51(xxxi), for the two powers are mutually exclusive. In so far as the Refund Act acquires property, it does so incidentally. The acquisition of property is merely an incident of a law which seeks to repay invalid taxes to those who have really borne the burden of paying the ``taxes''. An enactment can fall within s. 51(ii) and outside the operation of s. 51(xxxi) even though it provides for the acquisition of property and does not itself impose a tax, provided that it is a law with respect to taxation. Thus, in Clyne , the imposition of provisional tax was held to be outside s. 51(xxxi) even though the liability to pay provisional tax was ``not a separate tax but a liability ancillary to the income tax and social service contribution which s. 17 of the Assessment Act provides shall be levied and paid... for each financial year, upon the taxable income derived during the year of income by any person'' ^[204] (1958) 11 ATD at 430; (1958) 100 CLR at 260 per Dixon C.J. . Consequently, the Refund Act did not effect an acquisition of property for the purpose of s. 51(xxxi).

The questions in the case stated should be answered as follows:

• Q.(1) Yes.
• Q.(2) No.