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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Deane and Gaudron JJ

The issue between the parties to this stated case is whether the Swimming Pools Tax Refund Act 1992 (Cth) (``the Refund Act'') is invalid in its application to the circumstances of this case. The resolution of that issue requires consideration of the prima facie scope of relevant Commonwealth legislative power and the effect of the requirement of ``just terms'' in s. 51(xxxi) of the Constitution. The detailed facts and the relevant statutory provisions are adequately summarized or set out in other judgments and it is unnecessary that we repeat them.

Prima facie legislative power

The Commonwealth relies on a number of distinct grants of legislative power to sustain the competence of the Parliament to enact the Refund Act. It suffices to refer to one of them, namely, the grant of legislative power ``to make laws for the peace, order, and good government of the Commonwealth with respect to: - ... Taxation'' (Constitution, s. 51(ii)).

As Dixon C.J., McTiernan, Webb, and Kitto JJ. pointed out in Grannall v. Marrickville Margarine Pty. Ltd. ^[64] (1955) 93 CLR 55 at 77. , the words ``with respect to'' should never be neglected in considering the extent of a legislative power conferred by s. 51 of the Constitution. All that those words require is ``a relevance to or connection with the subject assigned to the Commonwealth Parliament''. Their Honours went on to say ^[65] ibid. :

``In the next place, every legislative power carries with it authority to legislate in relation to acts, matters and things the control of which is found necessary to effectuate its main purpose, and thus carries with it power to make laws governing or affecting many matters that are incidental or ancillary to the subject matter.''

Section 51(ii)'s grant of legislative power ``with respect to'' taxation ``carries with it power'' to define and regulate rights of refund of amounts paid to the Commonwealth by way of taxation in circumstances where an amount paid was not in fact due or owing either because the legislative provision purportedly exacting the tax was invalid for some procedural reason, such as a failure to comply with the requirements of s. 55 of the Constitution, or because the circumstances of the case were not such as to attract liability to pay tax under that legislative provision ^[66] See Werrin v. The Commonwealth (1937-1938) 59 CLR 150 at 163. . Subject to an important qualification, a law regulating and defining rights of refund of amounts unnecessarily or mistakenly paid to the Commonwealth in discharge of asserted taxation liabilities is a law ``with respect to'' taxation for the purposes of the plenary grant of power contained in s. 51(ii).

The qualification referred to in the preceding paragraph is that, quite apart from the effect of

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s. 51(xxxi), a purported law regulating and defining rights of refund of amounts unnecessarily or mistakenly paid by way of taxation may not be a law within s. 51(ii) to the extent that it extinguishes or modifies the right of a person to obtain a refund of a tax which it was beyond the legislative powers of the Commonwealth to impose. If, for example, a law purporting to impose a tax was outside the legislative power conferred by s. 51(ii) because the imposition of the tax contravened s. 92 of the Constitution, a law which purported to extinguish all rights of recovery of amounts exacted under the invalid law would, at least prima facie, be outside the legislative power conferred by s. 51(ii) because it also would involve contravention of s. 92 ^[67] See Antill Ranger & Co. Pty. Ltd. v. Commissioner for Motor Transport (1955) 93 CLR 83; affd (1956) 94 CLR 177; Barton v. Commissioner for Motor Transport (1957) 97 CLR 633 at 641, 662. . In the present case, however, the taxing legislation was not invalid by reason of any absence of substantive legislative power. Its character was that of a law with respect to ``taxation'' and its enactment fell within the scope of the legislative power conferred by s. 51(ii). Invalidity flowed only from failure to comply with the procedural requirements of s. 55 ^[68] Mutual Pools and Staff Pty. Limited and Anor v FC of T 92 ATC 4016; (1992) 173 CLR 450. .

It is now common ground between the parties that the Refund Act is not itself invalid on the ground that its enactment contravened the requirements of s. 55. It follows from what has been said above that, subject to the applicability and effect of s. 51(xxxi)'s requirement of ``just terms'', it is a valid enactment of the Parliament pursuant to the legislative power conferred by s. 51(ii) of the Constitution. It is, in our view, unnecessary for the Commonwealth to call in aid the augmentation of that legislative power by s. 51(xxxix) and s. 61.

Section 51(xxxi)

Section 51(xxxi) confers upon the Parliament power to make laws for the peace, order and good government of the Commonwealth with respect to: -

``The 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:''

It is now settled that par. (xxxi)'s requirement of ``just terms'' enjoys the status of a constitutional guarantee and ``is to be given the liberal construction appropriate to such a constitutional provision'' ^[69] Clunies-Ross v. The Commonwealth (1984) 155 CLR 193 at 201-202 per Gibbs C.J., Mason, Wilson, Brennan, Deane and Dawson JJ.; and see also Minister of State for the Army v. Dalziel (1943-1944) 68 CLR 261 at 276 per Latham C.J., 284-285 per Rich J.; Bank of N.S.W. v. The Commonwealth (1948) 76 CLR 1 at 349 per Dixon J.; The Commonwealth v. Tasmania. The Tasmanian Dam Case (1983) 158 CLR 1 at 282 per Deane J.; Australian Tape Manufacturers Association Ltd. & Ors v. The Commonwealth (1993) AIPC ¶ 90-965 at 39,190-39,191; (1991-1993) 176 CLR 480 at 509 per Mason C.J., Brennan, Deane and Gaudron JJ.; Re Director of Public Prosecutions ; Ex parte Lawler , unreported, High Court of Australia, 9 March 1994 at 13 per Deane and Gaudron JJ. .

Accordingly, the cases establish that, in its context in s. 51(xxxi), the word ``property'', which has been said to be ``the most comprehensive term that can be used'' ^[70] The Commonwealth v. New South Wales (1920-1923) 33 CLR 1 at 20-21 per Knox C.J. and Starke J.; Australian Tape Manufacturers Association Ltd. v. The Commonwealth (1993) AIPC at 39,190-39,191; (1991-1993) 176 CLR at 509 per Mason C.J., Brennan, Deane and Gaudron JJ. , must be construed as extending ``to every species of valuable right and interest including real and personal property, incorporeal hereditaments... and choses in action'' ^[71] Minister of State for the Army v. Dalziel (1943-1944) 68 CLR at 290; Australian Tape Manufacturers Association Ltd. v. The Commonwealth (1993) AIPC at 39,190-39,191; (1991-1993) 176 CLR at 509. . Money is within ordinary concepts of personal property and the acquisition of money is an acquisition of property. Like other constitutional guarantees, s. 51(xxxi) is concerned with substance rather than form. That being so, the imposition of an enforceable obligation to pay money and the consequent conferral of a chose in action upon the creditor can, depending upon the context in which the obligation is imposed, constitute an acquisition of property by the creditor ^[72] Australian Tape Manufacturers Association Ltd. v. The Commonwealth (1993) AIPC at 39,190-39,191; (1991-1993) 176 CLR at 509-510. .

Similarly, the word ``acquisition'' is not to be pedantically or legalistically restricted to a physical taking of title or possession. Once it is appreciated that ``property'' in s. 51(xxxi) extends to all types of ``innominate and anomalous interests'' <sup>[73]</sup> Bank of N.S.W. v. The Commonwealth (1948) 76 CLR at 349 per Dixon J.; see also The Tasmanian Dam Case (1983) 158 CLR at 145, 246-247, 282-283. , it is apparent that the meaning of the phrase ``acquisition of property'' is not to be confined by reference to traditional conveyancing principles and procedures. Nonetheless, the fact remains that s. 51(xxxi) is directed to ``acquisition'' as distinct from deprivation. The extinguishment, modification or deprivation of rights in relation to property does not of itself constitute an acquisition of property <sup>[74]</sup> See British Medical Association v. The Commonwealth (1949) 79 CLR 201 at 270-271 per Dixon J.; The Tasmanian Dam Case (1983) 158 CLR at 145-146 per Mason J., 181-182 per Murphy J., 247-248 per Brennan J., 283 per Deane J.; Australian Tape Manufacturers Association Ltd. v. The Commonwealth (1993) AIPC at 39,201; (1991-1993) 176 CLR at 528 per Dawson and Toohey JJ. It is relevant to note that the Privy Council has also, in the context of interpreting the Malaysian Constitution, drawn a distinction between deprivations and acquisitions: Government of Malaysia v. Selangor Pilot Association [1978] AC 337 at 347-348 . . For there to be an ``acquisition of property'', there must be an obtaining of at least some identifiable benefit or advantage relating to the ownership or use of property. On the other hand, it is possible to envisage circumstances in which an extinguishment, modification or deprivation of the proprietary rights of one person would involve an acquisition of property by another by reason of some identifiable and measurable countervailing benefit or advantage accruing to that other person as a result ^[75] See, generally, The Tasmanian Dam Case (1983) 158 CLR at 283-284. . Indeed, the extinguishment of a chose in action could, depending upon the circumstances, assume the substance of an acquisition of the chose in action by the obligee.

The general statement that s. 51(xxxi)'s requirement of just terms enjoys the status of a constitutional guarantee must, of course, be understood in the context that the requirement exists as a confining component of the subject- matter of that paragraph's positive grant of legislative power. That means that the requirement's direct operation as a guarantee of

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just terms is necessarily confined within that grant of power. It is in its indirect operation that the requirement of just terms transcends the limits of par. (xxxi) and reaches into other grants of legislative power contained in s. 51. The cases establish that the effect of par. (xxxi)'s express conferral upon the Parliament of the power to make certain laws with respect to the acquisition of property subject to the safeguard of just terms is that the legislative power to make such laws without the safeguard is presumed to be excluded or abstracted from other grants of legislative power contained in that section. And that is so notwithstanding that, were it not for s. 51(xxxi), ordinary principles of constitutional construction would require those other grants of legislative power to be construed as encompassing, either directly or incidentally, the power to make laws with respect to the acquisition of property for the purposes to which they related ^[76] See, e.g., Kohl v. United States (1875) 91 US 367 at 371-372 ; Johnston Fear & Kingham & The Offset Printing Co. Pty. Ltd. v. The Commonwealth (1943) 67 CLR 314 at 317; Attorney-General (Cth) v. Schmidt (1961) 105 CLR 361 at 371. . This indirect operation of par. (xxxi)'s requirement of just terms to reduce the content of other grants of legislative power contained in s. 51 was explained by Latham C.J. in Johnston Fear & Kingham & The Offset Printing Co. Pty. Ltd. v. The Commonwealth ^[77] (1943) 67 CLR at 317-318. :

``The paragraphs of s. 51 should not, in my opinion, in general be read as limiting each other in any way. But there are special characteristics of par. xxxi. which raise special questions with respect to the power to legislate for the acquisition of property. Par. xxxi. gives express power to legislate for the acquisition of property `for any purpose in respect of which the Parliament has power to make laws.' This phrase is used in a general descriptive sense and, in its setting, may fairly be interpreted as referring to all other matters with respect to which the Parliament has power to make laws and, therefore, as including the thirty-eight subjects referred to in the other paragraphs of s. 51... When par. xxxi. is thus construed in relation to a particular purpose it must, I think, be regarded as limiting the legislative power with respect to the acquisition of property for that purpose.''

As Dixon C.J. pointed out in Attorney-General (Cth) v. Schmidt ^[78] (1961) 105 CLR at 371-372. , in a judgment with which the other four members of the Court agreed, that indirect operation of par. (xxxi) to reduce the content of other grants of legislative power is through the medium of a rule of construction, namely, that ``it is in accordance with the soundest principles of interpretation to treat'' the conferral of ``an express power, subject to a safeguard, restriction or qualification, to legislate on a particular subject or to a particular effect'' as inconsistent with ``any construction of other powers conferred in the context which would mean that they included the same subject or produced the same effect and so authorized the same kind of legislation but without the safeguard, restriction or qualification''.

There are two related matters to be noted with respect to s. 51(xxxi)'s operation to confine the content of other grants of legislative power in s. 51. The first is that that operation, being merely indirect as a matter of construction, is necessarily subject to any contrary intention either expressed or made manifest by the words or content of those other grants of power. In particular, some laws which are expressly authorized under other grants of legislative power necessarily encompass acquisition of property unrestricted by any requirement of the quid pro quo of just terms. Laws ``with respect to... Taxation'' are an example. The second is that s. 51(xxxi) is, first and foremost, a grant of power, and only secondarily a guarantee of ``just terms''. For present purposes, it can be described as a power to make laws with respect to acquisition of property on just terms. The presence of the words ``just terms'' indicates that the acquisitions to which the grant of legislative power is directed are acquisitions of a kind which permit of just terms. There are some kinds of acquisition which are of their nature antithetical to the notion of just terms but which were plainly intended to be permissible under laws made pursuant to one or more of the grants of power contained in s. 51. An example of those kinds of acquisition is the compulsory forfeiture to the Commonwealth of money or specific property as punishment for breach of some general rule of conduct prescribed by a valid law of the Commonwealth. Such an acquisition stands apart from the kinds of ``acquisition of property'' which constitute the subject-matter of s. 51(xxxi) and such laws are beyond the reach of the paragraph's guarantee of just terms. Indeed, a law providing for an acquisition of property of a kind which is inconsistent or incongruous with the notion of just terms could validly be enacted pursuant to par. (xxxi) itself. An example is a law providing

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for the payment of a pecuniary penalty for a corrupt breach of a statutory duty imposed by a valid law with respect to the acquisition of property on just terms.

It is because s. 51(xxxi) operates only indirectly to confine other powers in s. 51, and, then, only within the area in which it operates, that the following laws involving acquisition of property without the provision of just terms have been held or indicated, in judgments in the Court, to be supported by a grant of legislative power other than that contained in s. 51(xxxi): the imposition of a tax ^[79] Australian Tape Manufacturers Association Ltd. v. The Commonwealth (1993) AIPC at 39,190-39,191; (1991-1993) 176 CLR at 508-510. ; the imposition of a liability to pay moneys in advance of an actual taxation liability (i.e. provisional tax) ^[80] 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; (1975) 133 CLR 483 at 494-495. ; the forfeiture of illegally imported goods in the hands of an innocent third party ^[81] Burton v. Honan (1952) 86 CLR 169 at 180-181. See also Cheatley v. R (1972) 127 CLR 291 at 307-308 . ; the imposition of a pecuniary penalty by way of civil proceedings ^[82] R v. Smithers; Ex parte McMillan (1982) 152 CLR 477 at 487-489. ; the acquisition by the Controller of Enemy Property of the property of subjects of a former enemy to be applied to reparations payable by an enemy State ^[83] Attorney-General (Cth) v. Schmidt (1961) 105 CLR at 373, 376-377. ; the vesting of a bankrupt's estate in an Official Receiver or Trustee ^[84] ibid. at 372. ; and, the condemnation of prize ^[85] ibid. at 372-373. . In such cases, the law in question is either (or both) clearly within the intended scope of another legislative power so that it is manifest that the rule of construction which gives s. 51(xxxi) its operation as a guarantee of just terms does not operate to deny authority to make that law, or it is a law of a kind that does not permit of just terms in the sense we have explained and, thus, stands outside s. 51(xxxi).

There is another matter to be noted with respect to the area in which s. 51(xxxi) operates and, thus, confines or reduces the content of other grants of legislative power. The requirement of ``just terms'' is directed to laws with respect to the acquisition of property from any State or person for any purpose in respect of which the Parliament has power to make laws. The settled method for determining whether a particular law is or is not of the kind referred to in one or other of the grants of legislative power contained in s. 51 is that of characterization. That being so, the indirect operation of par. (xxxi) does not extend beyond abstracting from other grants of legislative power authority to make laws which can properly be characterized as laws with respect to the acquisition of property for a purpose in respect of which the Parliament has power to make laws. That does not, of course, mean that a law will be outside the reach of par. (xxxi) unless that is its sole or dominant character. For the purposes of s. 51, a law can have a number of characters and be, at the one time, a law with respect to the subject-matter of a number of different grants of legislative power. However, unless a law can be fairly characterized, for the purposes of par. (xxxi), as a law with respect to the acquisition of property, that paragraph cannot indirectly operate to exclude its enactment from the prima facie scope of another grant of legislative power. Put differently, ``it is at least clear that before the restriction involved in the words `on just terms' applies, there must be a law with respect to the acquisition of property (of a State or person) for a purpose in respect of which the Parliament has power to make laws'' ^[86] ibid. at 372; see also The Tasmanian Dam Case (1983) 158 CLR at 282. .

The importance of the limitations on the operation of s. 51(xxxi) is magnified by the fact that the cases establish that the paragraph's implied guarantee is not confined to acquisitions of property by the Commonwealth and its agents. It extends to acquisitions ``by any other person'' <sup>[87]</sup> P.J. Magennis Pty. Ltd. v. The Commonwealth (1949) 80 CLR 382 at 401-402, 411, 422-423, 429-430 ; and see, generally, Jenkins v. The Commonwealth (1947) 74 CLR 400 at 406 ; McClintock v. The Commonwealth (1947) 75 CLR 1 at 23, 36 ; TPC v. Tooth & Co. Ltd. & Anor (1979) ATPR ¶ 40-127 at 18,364-18,365, 18,376, 18,390-18,392; (1979) 142 CLR 397 at 407-408, 427, 451-452; Clunies-Ross v. The Commonwealth (1984) 155 CLR at 202; Australian Tape Manufacturers Association Ltd. v. The Commonwealth (1993) AIPC at 39,191-39,192, 39,200; (1991-1993) 176 CLR at 510-511, 526. . Obviously, many general laws which regulate the rights and conduct of individuals may, for any number of legitimate legislative purposes, effect or authorize an ``acquisition of property'' within the wide meaning of those words as used in s. 51(xxxi). If every such law which incidentally altered, modified or extinguished proprietary rights or interests in a way which constituted such an ``acquisition of property'' were invalid unless it provided a quid pro quo of just terms, the legislative powers of the Commonwealth would be reduced to an extent which could not have been intended by those who framed and adopted the Australian Constitution.

As has been said, the limitations overlap. A law which is clearly authorized under some other grant of legislative power or which necessarily involves an acquisition of property unrestricted by any requirement of just terms, such as a law imposing a penalty for unlawful conduct, may well not be susceptible of independent characterization as a law with respect to the acquisition of property. While there is no set test or formula for determining whether a particular law can or cannot properly be characterized for the purposes of s. 51(xxxi) as a law with respect to the acquisition of property for a purpose in respect of which the Parliament has power to make laws, it is possible to identify in general terms some

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categories of laws which are unlikely to bear the character of a law with respect to the acquisition of property notwithstanding the fact that an acquisition of property may be an incident of their operation or application. One such category consists of laws which provide for the creation, modification, extinguishment or transfer of rights and liabilities as an incident of, or a means for enforcing, some general regulation of the conduct, rights and obligations of citizens in relationships or areas which need to be regulated in the common interest. Another category consists of laws defining and altering rights and liabilities under a government scheme involving the expenditure of government funds to provide social security benefits or for other public purposes. A law falling within either of those categories may, as an incident of its operation or enforcement, adjust, modify or extinguish rights in a way which involves an ``acquisition of property'' within the wide meaning which that phrase bears for the purposes of s. 51(xxxi). Yet, if such a law is of general operation, it is unlikely that it will be susceptible of being properly characterized, for the purposes of s. 51 of the Constitution, as a law with respect to the acquisition of property for a purpose in respect of which the Parliament has power to make laws. The reason why that is so is that, even though an ``acquisition of property'' may be an incident or a consequence of the operation of such a law, it is unlikely that it will constitute an element or aspect which is capable of imparting to it the character of a law with respect to the subject-matter of s. 51(xxxi).

Conclusion

It is now common ground that, subject to the effect of the Refund Act, the defendant Commonwealth is under a contractual obligation to repay to the plaintiff (``Mutual Pools'') the amount of $1,522 paid in respect of Mr and Mrs Chaplin's in situ swimming pool pursuant to the agreement between the Swimming Pool and Spa Association of Australia Limited and the Commonwealth. In circumstances where Mutual Pools has passed on that amount to Mr and Mrs Chaplin and has not made any refund of it to them, the effect of the Refund Act, if it is valid, is to extinguish Mutual Pools' contractual right against the Commonwealth to recover that amount. It is arguable that the extinguishment of that chose in action, to the countervailing benefit of the Commonwealth, either itself involves the substance of an acquisition of the chose in action by the Commonwealth <sup>[88]</sup> But cf. e.g. Werrin v. The Commonwealth (1937-1938) 59 CLR at 160-161, 163, 165-168. or converts the voluntary payment made by Mutual Pools under the agreement into an acquisition by the Commonwealth of the amount of the payment. It is, however, unnecessary to decide whether that is so. Even if the extinguishment of the chose in action constituted or retrospectively gave rise to an ``acquisition of property'' within the meaning of those words as used in s. 51(xxxi), the Refund Act is, both generally and in its application to the present case, outside the reach of the guarantee of just terms contained in that paragraph.

Both generally and in its application to the present case, the Refund Act is a law defining and regulating the entitlement of persons with possibly competing claims (i.e. builders and owners of in situ swimming pools) to a refund of amounts paid to the Commonwealth on account of taxes in circumstances where no tax was, in fact, payable. Its operation is designed to ensure that any refund of amounts so paid is made to a person who has in fact truly borne the burden of the payment. In defining and regulating entitlement to receive such refunds, the Refund Act necessarily affects any rights to a refund which would have existed if it had not been enacted. In some cases, such pre-existing rights are transformed into rights under the Refund Act. In other cases, they are modified or extinguished, without compensation, in favour of some competing claim, such as the claim of a pool owner who has borne the burden of payment and received no refund from the builder who has merely made the actual payment. In the present case where Mr and Mrs Chaplin had borne the burden of the tax, the Refund Act extinguished Mutual Pools' right to receive a refund of the amount paid in respect of Mr and Mrs Chaplin's pool. Any such modification or extinguishment of pre-existing rights without compensation was, however, but an incident of the operation of the law as a law defining and regulating rights of refund and does not impart to any of the provisions of the Refund Act a distinct additional character. It follows that, even if such an extinguishment or modification of some pre-existing right does constitute or bring about an ``acquisition of property'' within the meaning of those words as used in s. 51(xxxi), that incidental operation of the Refund Act does not impart to all or any of

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its provisions the character of a law with respect to the acquisition of property. It follows that the Refund Act is not within the reach of the guarantee of just terms contained in s. 51(xxxi) of the Constitution.

There is one further matter which should be mentioned. It is that, even if the requirement of just terms had been applicable, it would seem to us to be arguable that Mutual Pools' suffered no compensable or measurable detriment by reason of the operation of the Refund Act. Such an argument would depend upon the proposition that, if Mutual Pools had obtained a refund of the amount paid in respect of Mr and Mrs Chaplin's pool, the principles of unjust enrichment would have required it to pass on the amount of the refund to Mr and Mrs Chaplin. The validity of that proposition was not, however, examined in argument and it is unnecessary that we express any view in relation to it.

The questions asked in the stated case should be answered:

• 1. Yes.
• 2. No.