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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Brennan J

The Chief Justice has exposed the issues in this case and the circumstances from which those issues arise. For reasons with which I respectfully agree, his Honour concludes that, s. 51(xxxi) apart, the Swimming Pools Tax Refund Act 1992 (Cth) (``the Refund Act'') finds support in s. 51(ii) or in a combination of s. 61 and s. 51(xxxix) of the Constitution ^[45] In particular, I respectfully agree that where a taxpayer is entitled to recover moneys exacted as a tax under a purported but invalid law, the question whether a legislature has power to enact a law which does no more than bar such recovery depends on whether the legislature had power to impose the purported tax (as in Werrin v. The Commonwealth (1937-1938) 59 CLR 150) or had no such power (as in Antill Ranger & Co. Pty. Ltd. v. Commissioner for Motor Transport (1955) 93 CLR 83). . That conclusion leads me immediately to a consideration of s. 51(xxxi) and its guarantee of just terms.

Can the extinguishing of a debt be an acquisition of property?

In Mutual Pools & Staff Pty. Ltd. v. Federal Commissioner of Taxation ^[46] 92 ATC 4016; (1992) 173 CLR 450. this Court upheld a challenge to the validity of the law imposing a tax on so much of a swimming pool as is constructed in situ . It is conceded that, in consequence of that decision, the Commonwealth was indebted to the plaintiff in the amount which the plaintiff had paid purportedly as tax in accordance with the impugned legislation and interest on that amount. That debt (whether it be regarded as owing under the agreement made by the Swimming Pool and Spa Association of Australia Ltd. and the Commissioner of Taxation or in restitution) was not a claim created or governed by a statute. It was a common law chose in action vested in the plaintiff and assignable by it. The debt was ``property'' within the meaning of that term in s. 51(xxxi) of the Constitution.

By exercising its legislative power, the Commonwealth can extinguish debts owing by it or interests outstanding against it and thereby obtain a discharge from its liability which a subject could obtain only by purchase or payment of the debt or by transfer or surrender of the interest. If rights against the Commonwealth are extinguished by statute and the rights are proprietary in nature ^[47] A question considered in Health Insurance Commission v. Peverill , unreported, 9 March 1994 . , there is an acquisition of property by the Commonwealth. By force of s. 4(1) of the Refund Act, the Commonwealth's debt to the plaintiff was extinguished. The debt was not discharged by payment, but the debtor - the Commonwealth - was discharged from its liability to pay. The Commonwealth thus received a benefit precisely corresponding with the plaintiff's loss of its property ^[48] See per Deane J. in The Commonwealth v. Tasmania. The Tasmanian Dam Case (1983) 158 CLR 1 at 283. . The legislative extinction of such a debt constitutes an acquisition of property. The more difficult question is whether the extinction of the debt in the present case constitutes such an acquisition of property for the purposes of s. 51(xxxi) : if it does, the validity of the Refund Act depends on whether it provides just terms for the acquisition of the debt; if it does not, the requirement of just terms does not apply and the Refund Act is a valid exercise of the other powers conferred by s. 51(ii) or by a combination of s. 61 and s. 51(xxxix) or by both.

Just terms

If the Refund Act must find support in s. 51(xxxi), it cannot satisfy the constitutional requirement of just terms. True it is that the purpose of the Refund Act is to direct refunds to the pool owners who had borne, or who are likely to have borne, the burden of the purported but invalid tax and thus to deny a

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ATC 4111

windfall benefit to the suppliers who, though they had made the payment of the purported tax to the Commissioner, had passed it on to the pool owners. That consideration is relevant to the character of the Refund Act, but not to the question whether it provides just terms. A law does not provide just terms for the acquisition of property by the Commonwealth from A if it provides for the payment of the price to B. Here, the debt was owned beneficially by the plaintiff and those other suppliers who had made the payment of the purported tax to the Commonwealth, not by the pool owners from whom the suppliers had recouped the payments they had made. It may be that, if a supplier received a refund, he would be bound in restitution to refund to the owner from whom he had previously recouped the purported tax the amount received or the amount recouped whichever is the less. But that is a question which does not arise for present consideration.

The critical question is whether the Refund Act is to be classified as a law with respect to the acquisition of property which must find its support in s. 51(xxxi) of the Constitution.

Classification of laws providing for the taking of property

Section 51(xxxi) of the Constitution has a dual effect. First, it confers power to acquire property from any State or person for any purpose for which the Parliament has power to make laws and it conditions the exercise of that power on the provision of just terms. Second, by an implication required to make the condition of just terms effective, it abstracts the power to support a law for the compulsory acquisition of property from any other legislative power ^[49] Johnston Fear & Kingham & The Offset Printing Co. Pty. Ltd. v. The Commonwealth (1943) 67 CLR 314 at 318, 325; W.H. Blakeley & Co. Pty. Ltd. v. The Commonwealth (1953) 87 CLR 501 at 521 ; Attorney-General (Cth) v. Schmidt (1961) 105 CLR 361 at 371; TPC v. Tooth & Co. Ltd. & Anor (1979) ATPR ¶ 40-127 at 18,387; (1979) 142 CLR 397 at 445. (s. 122 apart ^[50] Teori Tau v. The Commonwealth (1969) 119 CLR 564; Clunies-Ross v. The Commonwealth (1984) 155 CLR 193 at 201. ). Nevertheless, there are sundry laws providing for the acquisition of property which are supported by heads of power other than s. 51(xxxi) and which are not affected by the requirement of just terms. For example, laws providing for the imposition of a tax ^[51] MacCormick v. FC of T 84 ATC 4230 at 4235, 4242; (1984) 158 CLR 622 at 638, 649 . , the compulsory payment of provisional tax ^[52] FC of T v. Clyne (1958) 11 ATD 428 at 432; (1958) 100 CLR 246 at 263, 270; FC of T v. Barnes 75 ATC 4262 at 4267, 4270; (1975) 133 CLR 483 at 494-495, 500 . , the seizure of the property of enemy aliens ^[53] Attorney-General (Cth) v. Schmidt (1961) 105 CLR at 372-373. , the sequestration of bankrupts' property ^[54] ibid. at 372. , the forfeiture of prohibited imports or the exaction of fines and penalties ^[55] TPC v. Tooth & Co. Ltd. (1979) ATPR at 18,365; (1979) 142 CLR at 408; R v. Smithers ; Ex parte McMillan (1982) 152 CLR 477 at 487-489 . have been held to be unaffected by the guarantee of just terms. If the laws considered in these cases had been classified as laws falling within s. 51(xxxi), the acquisitions of property for which they provided would have failed for want of the provision of just terms. Clearly there are some laws which, though they provide for what can properly be described as an acquisition of property, are not classified as laws falling within s. 51(xxxi). The acquisitions of property for which they provide are not acquisitions of property for the purposes of s. 51(xxxi) .

In Australian Tape Manufacturers Association Ltd. v. The Commonwealth , Mason C.J., Brennan, Deane and Gaudron JJ. said ^[56] (1993) AIPC ¶ 90-965 at 39,191; (1991-1993) 176 CLR 480 at 510. :

``In a case where an obligation to make a payment is imposed as genuine taxation, as a penalty for proscribed conduct, as compensation for a wrong done or damages for an injury inflicted, or as a genuine adjustment of the competing rights, claims or obligations of persons in a particular relationship or area of activity, it is unlikely that there will be any question of an `acquisition of property' within s. 51(xxxi) of the Constitution <sup>[57]</sup> ``See, generally, Attorney-General (Cth) v. Schmidt (1961) 105 C.L.R. 361 at pp. 372-373.'' . On the other hand, the mere fact that what is imposed is an obligation to make a payment or to hand over property will not suffice to avoid s. 51(xxxi)'s guarantee of `just terms' if the direct expropriation of the money or other property itself would have been within the terms of the sub-section. Were it otherwise, the guarantee of the section would be reduced to a hollow facade.''

The question here is whether the Refund Act, though it provides for the acquisition of a debt by the Commonwealth and thus falls literally within s. 51(xxxi), is nevertheless to be classified as a law falling under a head of power other than s. 51(xxxi).

Indicia of classification

A grant of legislative power comprehends a power to enact provisions appropriate and adapted to the fulfilment of any objective falling within the power. As Dixon C.J. said in Wragg v. State of New South Wales ^[58] Wragg v State of New South Wales (1953) 88 CLR 353 at 386 . :

``A legislative power, however, with respect to any subject matter contains within itself authority over whatever is incidental to the subject matter of the power and enables the legislature to include within laws made in pursuance of the power provisions which can only be justified as ancillary or incidental.''

In Burton v. Honan ^[59] (1952) 86 CLR 169 at 177. See also British Medical Association v. The Commonwealth (1949) 79 CLR 201 at 274 and Grannall v. Marrickville Margarine Pty. Ltd. (1954-1955) 93 CLR 55 at 77 . , his Honour stated his view to be that ``everything which is incidental to the main purpose of a power is contained

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ATC 4112

within the power itself so that it extends to matters which are necessary for the reasonable fulfilment of the legislative power over the subject matter''. In Nationwide News Pty. Ltd. v. Wills ^[60] Nationwide News Pty Ltd v Wills (1991-1992) 177 CLR 1 at 27 . , Mason C.J. pointed out that the notion of necessity was too narrow to describe the scope of what is incidental to a legislative power. He said:

``If one thing emerges clearly from the decisions of this Court it is that, to bring a law within the reach of the incidental scope of a power, it is enough that the provision is appropriate to effectuate the exercise of the power; one is not confined to what is necessary for the effective exercise of the power.''

I respectfully agree. Although s. 51(xxxi) abstracts from other heads of power the power of acquisition which that paragraph itself confers, it does not thereby abstract the power to prescribe the means appropriate and adapted to the achievement of an objective falling within another head of power where the acquisition of property without just terms is a necessary or characteristic feature of the means prescribed.

In each of the cases in which laws for the acquisition of property without the provision of just terms have been held valid, such an acquisition has been a necessary or characteristic feature of the means selected to achieve an objective within power, the means selected being appropriate and adapted to that end. Therefore a law which selects and enacts means of achieving a legitimate objective is not necessarily invalid because the means involve an acquisition of property without just terms. What is critical to validity is whether the means selected, involving an acquisition of property without just terms, are appropriate and adapted to the achievement of the objective. The absence of just terms is relevant to that question, but not conclusive. Where the absence of just terms enhances the appropriateness of the means selected to the achievement of the legitimate objective, the law which prescribes those means is likely to fall outside s. 51(xxxi) and within another supporting head of power. If it were otherwise, the guarantee of just terms would impair by implication the Parliament's capacity to enact laws effective to fulfil the purposes for which its several legislative powers are conferred. It would be erroneous so to construe grants of legislative power as to fetter their exercise by implying that s. 51(xxxi) precluded the enactment of laws under other heads of power where the laws involved an acquisition of property without just terms, even though laws of that kind are appropriate and adapted to the execution of those powers in the public interest.

It would be erroneous to elevate the constitutional guarantee of just terms to a level which would so fetter other legislative powers as to reduce the capacity of the Parliament to exercise them effectively. When the United States Supreme Court was considering the effect of a charter granted to the proprietors of a bridge on the capacity of the legislature to enact a law affecting the benefits of a franchise created by the charter, the Court wrote ^[61] Charles River Bridge v. Warren Bridge (1837) 11 Pet 420 at 548; 36 US 341 at 431 . :

``The continued existence of a government would be of no great value, if, by implications and presumptions, it was disarmed of the powers necessary to accomplish the ends of its creation, and the functions it was designed to perform, transferred to the hands of privileged corporations.''

This observation, repeated more recently ^[62] Keefe v. Clark (1944) 322 US 393 at 397 . , was not concerned with the reconciliation of different constitutional provisions. The Court was concerned to show that legislative authority is not bargained away by executive contracts ^[63] Perpetual Executors and Trustees Association of Australia Ltd. v. FC of T (1948) 77 CLR 1 at 28. . Nevertheless, the dictum is appropriate to describe the approach to be taken to the reading down of express legislative powers in order to accommodate the guarantee of just terms.

In my view, a law may contain a valid provision for the acquisition of property without just terms where such an acquisition is a necessary or characteristic feature of the means which the law selects to achieve its objective and the means selected are appropriate and adapted to achieving an objective within power, not being solely or chiefly the acquisition of property. But where the sole or dominant character of a provision is that of a law for the acquisition of property, it must be supported by s. 51(xxxi) and its validity is then dependent on the provision of just terms.

Classification of the Swimming Pools Tax Refund Act

The purpose of the Refund Act, as its title indicates, is to direct the making of refunds of the payments made as and for tax purportedly imposed by the provisions inserted into the

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ATC 4113

Sales Tax Assessment Act (No.1) 1930 (Cth). The purported tax was of a kind which is usually passed on to the consumer of the goods or services in respect of which the tax is imposed. It was open to the Parliament to provide that the purported tax collected should be refunded. It was equally open to the Parliament to provide that the refund be made to those who bore, or who are likely to have been the bearers of, the burden of the amounts collected. The Parliament prescribed the manner in which the fund of collected tax should be paid out. That fund would not have sufficed to provide refunds to those who had borne, or who are likely to have borne, the burden of the amount collected if refunds also had to be made to those suppliers who had already recouped their payments of the purported tax from pool owners. Given that the collected tax was treated as the fund from which refunds were to be made, the scheme necessarily involved the extinction of the debts owing to suppliers who had recouped their payments of the purported tax from pool owners. Thereby the fund was kept available to those who were deemed to have the better entitlement to a refund of the amount collected. The critical question is: was the extinction of the debts owing to the plaintiff and other suppliers a necessary feature of providing for the refund of moneys collected as taxes payable under the invalid law to those who bore, or who were likely to have borne, the burden of the amounts collected? The answer must be: yes.

It follows that the extinction of the plaintiff's claim without the provision of just terms is supportable as an exercise of power under s. 51(ii) or under the combined operation of s. 61 and s. 51(xxxix) or under both but not as an exercise of power under s. 51(xxxi). Thus the guarantee of just terms is not attracted and the Refund Act is valid.

I would answer the questions in the stated case:

• 1. Yes.
• 2. No.