Attorney-General (NSW) v Homebush Flour Mills Ltd

56 CLR 390

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(Judgment by: EVATT J)

Between: Attorney-General (NSW)
And: Homebush Flour Mills Ltd

Court:

Judges: Latham CJ
Rich J
Starke J
Dixon J

Evatt JMcTiernan J

Subject References:
Constitutional law
State statute
Validity
Conflict with Constitution (Cth)
Duty of excise
Compulsory acquisition of flour
Proceeds of sale received by Minister
Payment of compensation and administrative expenses
Balance for governmental purpose

Legislative References:
Constitution (Cth) - s 90
Flour Acquisition Act 1931 (NSW) No 10 - s 1(3); s 3(2); s 3(3); s 3(8); s 4(1); s (4); s (7); s 5(1); s 5(2); s 6

Judgment date: 1 May 1937

MELBOURNE (HEARD IN SYDNEY)

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Judgment by:
EVATT J

Section 6 (5) of the New South Wales Flour Acquisition Act 1931 imposes upon an owner of flour the obligation to pay to the Minister for Agriculture a sum of money euphemistically called the "balance of the purchase money." The question raised by the present demurrer is whether such obligation is a duty of excise within the meaning of s. 90 of the Commonwealth Constitution. If it is such a duty, the imposition is rendered void by s. 90 of the Commonwealth Constitution, which takes away from the State Parliaments all power to impose duties of customs or excise, or to grant bounties on the production or export of goods, and gives such power exclusively to the Commonwealth Parliament.

It is plain that the question is one as to the limits inter se of the constitutional powers of the Commonwealth and the State of New South Wales so that, although the demurrer was entered in the Supreme Court of New South Wales, it would, in any event, have fallen to be determined by this court in pursuance of the provisions of ss. 38A and 40A of the Judiciary Act. As it was, an order under s. 40 of that Act was made bringing the matter to this court before any hearing in the Supreme Court.

The true nature of the "balance of the purchase money" in s. 6 (5) of the New South Wales Act is illustrated by examining the claim made against the present defendant by the Government of New South Wales. The claim is for a balance of purchase money amounting to the sum of PD8,479 3s. 9d. The sum is calculated as follows: after the commencement of the operation of the Flour Acquisition Act, 5,652 tons of flour were produced by the defendant-a flour milling company. By the operation of s. 3 (2) of the Act, such flour became vested in the Crown. The rights of the defendant as prior owner of the flour became converted into a claim for compensation under s. 3 (3). Such compensation is assessed on the basis of the "fair and reasonable price of flour," which is fixed by a committee under s. 5 (1) of the Act. In the present case, such price was fixed at PD8 10s. per ton. subsequently, the 5,652 tons of flour were again vested in the defendant pursuant to s. 6 of the Act, which provides for an automatic repurchase by the miller of the expropriated flour upon the miller's selling his flour in the course of his business, i.e., selling the flour, which, until the moment of sale is the property of the Government. The "price" payable on such "repurchase" is fixed by the Government itself under s. 6 (4) of the Act, and is known as the "standard" price. In the present case, the price operating in respect of the subject flour was PD10 per ton, and PD8,479 3s. 9d. is the price arrived at by charging PD1 10s. per ton in respect of each of the 5,652 tons of flour.

It is obvious that the legislative scheme operated as a levy upon the defendant of PD1 10s. per ton of flour produced, i.e., the difference between the two prices of PD10 and PD8 10s. Section 6 (5) of the Act shows that the imposition of this levy is a direct object of the Act, because it provides that the so-called "compensation" money shall be set off against the price payable to the Minister under s. 6 (4), i.e., the so-called "standard" price. The sub-section then goes on to provide that, after such compulsory set-off, the so-called "balance of the purchase money" shall be paid to the Minister "in the manner and at the time prescribed."

What is "prescribed" also illustrates the nature of the scheme of taxation which is so patent on the face of the Act itself. The regulations under the Act provide that "the balance of the purchase money to be paid to the Minister in accordance with sub-s. 5 of s. 6 of the Act" shall not only be paid in a certain way, but that (a) returns shall be made by flour owners in a form which shows that there will be a balance against the owner, measured by the difference between "compensation" and "standard price" in respect of each ton of flour, and (b) that flour owners must enclose the cheque for the "balance of the purchase money" with each return.

By its title, the Act describes itself as one which authorizes the compulsory acquisition of flour in New South Wales, and which provides for compensation in respect of such flour and for its sale and disposal. But such a title only attempts to conceal or camouflage the reality of the matter. The absence from the Act of any permanent machinery for administration shows that it was never intended that the Government should enter into the business of flour merchant. While s. 6 (1) compels the Minister to sell all flour acquired under the Act, it hurries on to provide that the owner of the flour immediately prior to the acquisition, "shall have the first right to purchase the flour in his possession at the time of the ... acquisition." Further, no provision is made for an owner desiring to exercise a right of purchase in respect of part only of the flour taken from him. The owner who, in the typical case, may be regarded as identical with the miller who produces the flour, is not even expected to notify the Government that he is exercising his so-called right of repurchase, because s. 6 (3) states that, if an owner sells or disposes of the flour he produces, that in itself is deemed to be an exercise of the right of repurchase. This is the automatic repurchase already illustrated by reference to the facts of the present case. Further, no change of possession of the flour is contemplated by the Act. The normal working of the Act assumes (see s. 3 (8)) that the owner or producer of it is to hold it on behalf of the Crown, and, unless the Minister takes possession of the flour or the owner exercises his option of repurchase, the flour is to be at the risk of the former owner.

All this roundabout machinery is designed to carry out one scheme, i.e., to compel producers of flour in New South Wales to pay to the Government a sum of money called the "balance of the purchase money." The amount of that sum is really fixed by the Government upon the basis of each ton of flour produced, for the "balance" per ton is always the difference between the compensation per ton fixed by the committee under s. 5 (1) and the "standard price" fixed by the Government under s. 6 (4) of the Act. The latter will always be the higher, because the compensation is always to be set off against it. The Act also contemplates that a fund for necessitous farmers will be created.

What is the answer to the defendant's contention that the obligation to pay the balance under s. 6 (5), which obligation is sought to be enforced in the present action, is a duty of excise within the meaning of s. 90 of the Commonwealth Constitution? First, it was said that no obligation to pay any balance could come into existence unless a miller thought fit to repurchase the flour produced by him, and there was no obligation to repurchase. This argument is not convincing. In the case of a flour miller, the only alternative to repurchasing the flour is to give up his business altogether. If he desires to continue in business, he simply must retain or regain the property in the flour which he has produced, and then proceed to sell it at a profit in the ordinary course of his business. Indeed, the Act also intends that the New South Wales flour miller will continue to produce and sell flour in the ordinary course of his business, because it makes such selling an automatic repurchase by the miller of his own flour. When we investigate the real nature of the obligation to pay the "balance of the purchase money," it stands revealed as a levy, a charge or a tax upon the production of flour. In other words, it is an ordinary duty of excise.

Then it was argued that the State has power to expropriate the flour within its borders and to sell such flour. But all the powers of the parliament of a State, including the power of expropriation, are subject to the Commonwealth Constitution, and no parliament, whether State or Commonwealth, can avoid any of the over-riding mandates of the Commonwealth Constitution by attempting to disguise the real nature and effect of its enactments. A striking illustration of this qualification upon the general power of expropriation was provided by James v Cowan, ^[F30] which shows that such power cannot be used to infringe s. 92 of the Constitution (Cf. R. v Vizzard; Ex parte Hill, ^[F31] at p. 93). And what is true of s. 92 is also true of s. 90 or any other over-riding constitutional provision.

During argument, I inquired whether any miller had, during the period of the operation of the Act, failed to exercise the option of repurchase. It was stated at the Bar that no such case had ever been known. This is not surprising, because the Act and regulations contemplate that no such case shall ever occur. I am strongly of opinion that, where the court has to investigate the question whether a State enactment imposes a duty of excise, it may be necessary to enquire into the actual operation of the enactment. In such cases, a demurrer may be a very inconvenient form of proceeding. It is to be noted that in the Privy Council case of Attorney-General for British Columbia v McDonald Murphy Lumber Co, ^[F32] Lord Macmillan, dealing with a question in some respects analogous to the present, referred to the actual way in which the relevant enactments operated as "the best evidence that the tax was intended to be to all intents and purposes an export tax."

Had the present question been, in my view, susceptible of doubt, I would have favoured an investigation into the operation of the present Act upon the milling business-an investigation which this court could have directed. The annual reports of the Auditor-General of New South Wales would have found a place upon such a hearing. By way of illustration, in the report for the financial year ending 30th June 1932, the Auditor-General thus referred to the results of the Flour Acquisition Act: "To 31st December 1931, the charge collected was at the rate of PD2 15s. per ton; from 1st January 1932, the rate was reduced to PD1 10s. per ton" (p. 63). In the report of the financial year ending 30th June 1933 the accounts were set out with the comment that "the original levy of PD2 15s. per ton was reduced as from 1st January 1932" (p. 191). Finally, in the report for the financial year ending 30th June 1935, the Auditor-General gave a summary showing that the Government had collected PD277,518 2s. 2d. from the Act, and added: "the original levy of PD2 15s. per ton was reduced to PD1 10s. as from 1st January 1932, and operated until repeal of the Act on 3rd December 1933" (p. 176). And it appears from such official accounts that no miller ever failed to exercise his so-called "option," and that the obligation to pay "the balance of the purchase money" was universally regarded as a "levy" or a "charge" upon the millers in respect of each ton of flour produced by them.

In my opinion, evidentiary material of the character summarized above might be of decisive significance if the true nature of the present statutory "obligation" were in doubt. But it seems to me that the present question is not attended with sufficient doubt to require reference to such material.

One further matter may be mentioned. I think that counsel for the State of New South Wales was right in insisting that, as a body, the millers have little or nothing to complain of in respect of the imposition we are here considering, and that any suggestion of hardship is fanciful. But the reason for that is that the Act intends that the millers will pass the tax on to their customers to the intent that the public of New South Wales, as the ultimate consumers of bread, will bear the real burden of the charge or levy. And this fact itself reinforces the conclusion that the "obligation to pay the balance," which is in truth a charge or levy or tax on New South Wales flour producers, is a "duty of excise," a well-known characteristic of which is that it will be passed on to the consumer.

The demurrer of the defendant should be upheld and judgment in the action entered for the defendant with costs, here and in the Supreme Court.