Kidd, Ros --- "The Revolutionary Potential of Walsh's Law" [2006] AltLawJl 34; (2006) 31(3) Alternative Law Journal 137

THE REVOLUTIONARY POTENTIAL OF WALSH’S LAW

• Actions against government
• Trusts and fiduciary obligations
• Australian case law
• Protection laws in Queensland
• Accountability in law?
• Conclusion
• Postscript

THE REVOLUTIONARY POTENTIAL OF WALSH’S LAW

ROS KIDD^[*]

Like Australia, the United States and Canada are former colonies of Britain. All have similar doctrine regarding the standing of their Indigenous peoples. They take the view that they, as a more civilised nation, have an obligation to protect the interests of native races who are deemed primitive and vulnerable. All of these countries implemented pervasive controls and employed similar interventions against their Indigenous people: alienation from land, ascribed definitions of status, segregation onto state-managed reserves, personal and community disempowerment, restricted employment and commercial opportunities, social marginalisation. Yet there was a crucial difference. Canada and the United States recognised the independent status of Indian tribes and struck treaties to define the extent and management of reserve territories. The prior occupation rights of Indigenous Australians were simply denied.

Indigenous peoples were hostage to the extraordinary discretionary powers of their colonisers. Until 1972, every Indigenous Queenslander was vulnerable to the extinction of their rights and freedoms as individuals in the general community, on the reserves and as workers and wage earners. The Queensland government controlled child/parent and marital relationships, the locality and conditions of living, the nature and earnings of labour, and the availability and security of private savings. Thousands of Indigenous Australians under government control during the 20th century could not sell their labour or access their savings unless by government consent.

Government records reveal that despite countless warnings, the government failed to remedy systemic defects, including continuing failure to pay pocket money during the work period, chronic problems with thumb printing and signatures on withdrawal forms, long-term knowledge that the earnings of hundreds of illiterate account holders remained vulnerable to fraud, and officially disputed dealings on trust funds. Like wage earners, mothers and pensioners struggled to survive in desperate poverty knowing nothing of moneys withheld and moneys lost. In 1966, people were finally allotted bank passbooks which showed nothing of previous dealings on their savings. Even today, people still have no idea what happened to their ‘stolen wages’, administered at the government’s discretion.

This vulnerability and those discretionary powers are the meat of legal argument about an enforceable fiduciary duty owed by governments to those whose lives and property they controlled.

Actions against government

The former colonies of Canada, Australia and the United States inherited a legal doctrine premised on the supposed impossibility of the Crown committing an illegal act. This derived from the maxim that ‘the King can do no wrong’, an immunity that endured in common law as, over time, the King’s officer became the public officer. A citizen could only sue the government if the government gave permission. In mid-19th century England, the doctrine had been practically abandoned with permission to sue routinely granted. But in the colonies such action was deemed interference in government powers.

In his State of the Union message in 1861, President Lincoln had urged that courts, rather than Congress, be the final arbiters in actions against the government for damages saying: ‘it is as much the duty of government to render prompt justice against itself, in favour of citizens, as it is to administer the same between private individuals’. Congress adopted the recommendation.

A few years later, this unjust anomaly was the subject of a successful private member’s Bill in Queensland’s fledgling parliament. The colonial government had already withheld consent to sue twice, when William Henry Walsh argued in 1865 that there was no reason to assume a government would act justly when its own interests were challenged. Citizens should be able to pursue legal action against the government without seeking consent and they should have ‘as nearly as possible’ the same rights to remedy as would pertain ‘in any ordinary case’ between two persons or entities at law or in equity. Walsh’s law^[1] was revolutionary. It rescinded the Crown’s previous immunity, making governments financially liable for damages.

Constitutional authorities debating Australia’s federation in 1901 agreed with Walsh: ‘There is no earthly reason why the Crown should not be sued, wherever the subject may be … for the simple reason that there is no earthly reason that I can see why government officials should be able to do wrong and a private person have no rights against him’.^[2] They argued the Queen’s officers can do wrong and individuals should have the right to seek a legal remedy. In 1903, the new Australian Commonwealth also passed legislation to allow its citizens redress against government malpractice.^[3]

Although Walsh’s law provides the dominant model in Australian Crown proceedings and legislation today, its potential has not been realised.^[4] Our courts have maintained a reluctance to pass judgment on governments in the exercise of their discretionary powers, a reluctance long discarded by their counterparts in Canada and the United States. As a historian who has worked for 15 years uncovering primary evidence relating to the Queensland government’s control of Indigenous lives, labour and finances, I wanted to understand why, given the wealth of evidence in Queensland of entrenched mismanagement of Indigenous finances, this government would not be held to the same standards of accountability as governments in the United States and Canada. How can the Queensland government not be in an enforceable trust relationship when it called itself a trustee for Indigenous money, in both private and bulk trust accounts, and acted as a trustee in controlling income, interest, access and expenditure of Indigenous money? So began my education in trust and fiduciary obligations.

Trusts and fiduciary obligations

A trust creates a legally binding obligation under which those who control the trust (trustees) hold the trust property for the benefit of another (beneficiary) and not for themselves in their role as trustees. An enforceable trust depends on a proprietary interest. The key component of a fiduciary relationship is power. A fiduciary relationship arises when there is a material discrepancy between the power of one person and the vulnerability of the other, when there is scope for the party to exercise that power or discretion to affect the other person’s legal or practical interests, and that other person is vulnerable or at the mercy of the abuse of that power.^[5]

While trust law is well defined, fiduciary law remains a developing and disputed arena: the categories identified as fiduciary remain fluid. Fiduciary relationships and fiduciary obligations depend on the demands of the particular circumstances. Not all the obligations existing between the parties to a fiduciary relationship are themselves fiduciary in nature.^[6] The courts do not always intervene. When discretionary power was wielded by governments, English courts historically argued a distinction between the ‘true trusts’ of commercial law, and trusts in the political sense. Echoing ‘the King can do no wrong’, the courts in the United Kingdom and its former colonies frequently declined to intervene in relationships they describe as political trusts. These, they said, are expressions of governmental power and obligations assumed for particular purposes and therefore outside the scope of equity’s attention.^[7]

The courts have held this position, even in relation to trusts created by statute and expressed in language that appear to impose an obligation on government. Unless the obligation on the part of the Crown or its servants or agents is expressed in clear words, the relationship will not be treated as a ‘true trust’. Rather, the courts will characterise it ‘as a governmental or political obligation’.^[8] In 1882,^[9] the House of Lords declined to judge whether the Secretary of State for India, as an agent for the Crown, held an enforceable obligation to distribute war booty held by him under Royal Warrant ‘in trust for the use of’ soldiers in the Indian mutiny campaign. It was held that the words ‘in trust for’ might include higher matters between the Crown and the public officers who discharged its duties and functions. In 1887,^[10] the Canadian Supreme Court put it thus: the relationship between the Crown and Indigenous peoples was a ‘sacred political obligation, in the execution of which the state must be free from judicial control’.

Trust doctrine in the USA is said to commence with two cases brought by the Cherokee nation in the early 1830s,^[11] where the Supreme Court recognised the independent status of the Cherokee but declared the nation subject to the ultimate power of the federal government. In the early 20th century’^[12] courts in Canada similarly upheld the doctrine of political trust. The Exchequer Court agreed that proceeds of land sales had been held ‘in trust’ by the Crown for the Mississaugas of Ontario but said this did not mean that the Court had jurisdiction to enforce the trust, nor to pass judgment on the rights of interested parties.

It was not until 1935 that courts in both Canada and the USA asserted a right to adjudicate government obligations in fiduciary relationships. In Dreaver v The King,^[13] the Exchequer Court said that the Canadian government’s powers under the Indian Act 1906 to manage trust funds were subordinate to the explicitly worded terms of the deed of surrender of the Mistawasis band from Saskatchewan. It upheld their claim that the Department of Indian Affairs had misspent income from land sales on supplies and services promised free of charge under treaty; the band was awarded relief of more than $18,300 with interest. In United States v Creek Nation,^[14] the Supreme Court acknowledged the government’s right to control and manage Indian property and affairs in its role as guardian to a ‘dependent Indian community’ but held this executive power was subject to the specific authority of the Court of Claims. The court awarded damages at current market value plus interest for land wrongfully sold in 1891 after incorrect land surveys.

In 1942,^[15] the US Supreme Court held that the government had ‘charged itself with moral obligations of the highest responsibility and trust’ through its self-imposed policies and numerous acts of Congress, a duty which should ‘be judged by the most exacting fiduciary standards’. In 1944,^[16] the Court said it would adjudicate government dealings under ‘the same principles of law as would be applied to an ordinary fiduciary’ because it was ‘settled doctrine’ that the USA was a trustee in its dealings with Indian property. In depleting interest-bearing accounts before accessing non-interest-bearing funds, the government had breached these trust obligations. In 1973,^[17] the Court affirmed that, as trustee, the government’s conduct would be measured ‘by the same standards applicable to private trustees’: the trust must be administered solely on behalf of the beneficiary, the trustee must be accountable for any profit arising out of the administration of the trust, and the trustee had a duty to make trust property productive.

In 1980,^[18] US courts declared the pervasive system of government controls over tribal property was sufficient, in itself, to trigger a fiduciary obligation to affected tribes. The act of taking ‘control or supervision of tribal monies or properties’ imported ‘a normal fiduciary relationship’ even in the absence of an authorising or underlying statute about a trust fund or a trust or fiduciary connection. In 1983,^[19] the Court said a fiduciary relationship necessarily arises ‘when the government assumes such elaborate control over forests and property belonging to Indians’. The following year,^[20] in Canada, the Supreme Court said it was the Crown’s discretionary powers that transformed the relationship between government and Indian tribe into a fiduciary obligation. An enforceable trust arose because Indian land was inalienable except through surrender to the Crown, at which point equity would hold the fiduciary to the strict standard of conduct of a trustee.

In 1996,^[21] Elouise Cobell and four co-plaintiffs filed a class-action lawsuit against the US departments of Interior and Treasury on behalf of half a million past and present Native Americans, charging the government failed to keep proper records and failed to account to beneficiaries for their money. They said the government had ignored all pleas to accurately account for the trust funds and they had no way of knowing the true state of their accounts unless the court compelled the defendants to institute appropriate trust practices and restore funds that had been lost or misused. In 1999,^[22] the District Court judge described the breaches as ‘far more inexcusable than garden-variety trust mismanagement’ of typical trusts, because people did not voluntarily choose to have their lands taken from them, nor did they voluntarily relinquish their money. Legislation had effectively trapped them in a state of coerced dependency that rendered them the poorest people in the nation and helplessly reliant on the trustee for their welfare and livelihood.

The judge said the plaintiffs had a statutory right to a full historical accounting of their funds and acknowledged that they only sought to recover what was rightfully theirs. This was subsequently confirmed by the Appeals Court which held the government’s breach of trust was the failure to provide a full accounting, which applied to all funds irrespective of when they were deposited in the trust. In a Memorandum Opinion in 2003, the judge held that an accounting was due on all individual Indian assets held in trust since 1887 and in accordance with the highest fiduciary standards.

Australian case law

In Australia, meanwhile, not a single case relating to Indigenous claims against governments has upheld an enforceable fiduciary duty, but each of the handful of cases has discussed the possibilities. Following Brennan J in Mabo (No 2),^[23] the fact of surrender of land, if it were in expectation of specific tenure, might be sufficient to attract a fiduciary obligation because those who surrender their title would be critically vulnerable to abuse by government of its discretionary powers to alienate their interests in the land. Vulnerability to abuse of discretionary powers might similarly invoke a fiduciary obligation if, as Brennan J speculated in Northern Land Council (No 2),^[24] the government acted as a conduit for Indigenous money, for instance as distributor of royalties to the Land Council. Clearly, in both scenarios, the Indigenous Australians concerned would hold a valid expectation the government would act in their interests.

In Mabo, Toohey J sourced a fiduciary duty in the ‘extraordinary’ power of the government to destroy or impair Indigenous interests, even if that power were not exercised. The fact of the power, and the consequent vulnerability of Indigenous people to abuse of that power would, he argued, be sufficient to attract the intervention of equity to ensure the position was not abused. Toohey J identified separate grounds for a fiduciary obligation in the comprehensive legislative framework and practices of Queensland’s protection and preservation regime.

In the subsequent Wik case,^[25] Brennan J qualified Toohey J’s opinions. Vulnerability to extinguishment of title by the Crown was not sufficient, Brennan J argued, because it would be contradictory for a government to hold legislative powers to alienate Indigenous land, while at the same time being subject to a fiduciary obligation to protect Indigenous interests in it. To attract a fiduciary obligation in such circumstances, there would need to be an action or function by which government undertook to protect Indigenous land interests or on which the people held a reasonable belief that the government would do so. It was that undertaking or belief that triggered the fiduciary obligation, not just the power to impair or alienate Indigenous interests.

The New South Wales Supreme Court made a similar point in 1999:^[26] the fiduciary obligation had to be found in statute, with there being clear evidence of an intent or implication to so impose the obligation. This was reiterated in 2001:^[27] equity would only intervene if the obligation to act in another’s interest was clearly expressed in the statute. In line with Brennan J in Wik, O’Loughlin J held that a fiduciary obligation could not forbid what the legislation permitted.

Australian courts have utilised several principles from cases from other jurisdictions which have also upheld fiduciary obligations.^[28] These include the inequality of bargaining power, the undertaking to fulfil a duty on behalf of another, the capacity of one party to unilaterally exercise a discretion or power to affect the rights or interests of another, the consequent dependency or vulnerability of the other, and above all, the common requirement of loyalty to the person they serve. In 1999, the New South Wales Court of Appeal^[29] said it is immaterial whether people did or did not expect the government to act in their interests; it is whether such an expectation is ‘judicially prescribed’ by a law which establishes that entitlement:

Thus the question is not whether there is an expectation in fact, but whether the vulnerable party is ‘entitled to expect’ a particular standard of conduct. Professor Finn [says] … ‘the expectation may be a judicially prescribed one because the law itself ordains it to be that other’s entitlement. This may be so … because that party should, given the actual circumstances of the relationship, be accorded that entitlement irrespective of whether he has adverted to that matter.’^[30]

Protection laws in Queensland

There is no doubt that the protection laws in Queensland did prescribe such an entitlement. The codified supervisory policies and practices of the 20th century were the actions and functions by which the government undertook to protect Indigenous financial interests. Under this protection regime, Indigenous workers involuntarily ‘surrendered’ to the government their labour and finances but retained a beneficial interest in their earnings and entitlements that the government had a responsibility to protect. Clearly the government undertook to ‘look after’ those interests and Indigenous account holders of necessity ‘relaxed their self-interested vigilance or independent judgment’^[31] in the reasonable belief that the government would deal honestly and competently with their finances. Following Brennan J in Wik, this should attract an enforceable fiduciary obligation. And unlike native title, there is nothing self-contradictory in the government holding legislative power to control Indigenous money, while at the same time being subject to a fiduciary obligation to protect Indigenous interests in it.

Following Brennan J in Northern Land Council, in acting as conduit for intercepted earnings and entitlements, the Queensland government held a fiduciary duty to protect the interests of contracted workers, endowees and pensioners. Yet the evidence suggests that, in its fiduciary position as guardian for Indigenous wards, the government used its control of wages and welfare entitlements, and its position as banker, to its own profit or benefit. It is not the legislation relating to financial controls which adversely affected the interests of Indigenous account holders, but the policies and practices implemented by the Queensland government under cover of that mandate, many of which were maintained despite official warnings to desist.

The power that Queensland governments wielded over Indigenous lives and finances was certainly as ‘manifestly awesome, perhaps unlimited’^[32]as congressional power in the early 20th century over Indian interests. Like the US government, the Queensland government ‘charged itself with moral obligations of the highest responsibility and trust’ through its self-imposed policies and numerous Acts of parliament and should equally be judged ‘by the most exacting fiduciary standards’.

In assuming the responsibility to manage finances generated by Indigenous endeavour, both directly as savings and entitlements and indirectly as trust fund holdings, the government stood as supervising parent, ostensibly to conserve resources on their behalves. Indigenous Queenslanders did not enter relationships with the government voluntarily. They did not knowingly consent to government interference. They were certainly not free to terminate relationships with government during 70 years of mandatory management.

Accountability in law?

These pervasive controls, the judicially prescribed entitlement to full protection of their interests and the valid expectation by both Indigenous wards and the wider community that the government would not abuse these discretionary powers, suggest a fiduciary relationship enforceable under national law. As Richard Bartlett asserted, ‘the exercise of discretion of power over property, above and beyond that to which people are usually subject, leads to accountability at law’,^[33] such that equity can control ‘unregulated discretions’ and ‘curb abuses of power’.^[34]

Nevertheless, in general, Australian courts still hold a conservative line. In 1999,^[35] noting Canada’s ‘greater willingness’ to extend fiduciary doctrine into new relationships, Abadee J observed this was not shared by Australia or New Zealand, and the United Kingdom’s reluctance was ‘even more marked.’ In rejecting the Canadian precedent, he said that ‘[i]f the common law [in Australia] does not impose a duty of care for a variety of reasons … it is difficult to see why equity should intervene.’ He observed that two recent Australian cases^[36] which found an enforceable fiduciary obligation in a guardian/ward relationship had both involved the protection of an economic interest. In the event, Abadee J rejected claims of a fiduciary duty in the case at hand, ‘even if equity law is not viewed in terms of protecting only economic interests’.

In 2000,^[37] O’Loughlin J held to this convention. He noted that in two further cases,^[38] the High Court had declined to extend equity’s supervision where contract or tort law already applied, and where economic interests were not at stake. In the latter case, the Full Court observed that in Anglo-Australian law, the interests ‘which the equitable doctrines … have hitherto protected are economic interests’. Citing also the most recent case,^[39] O’Loughlin J argued it would be inappropriate for a judge to expand the range of fiduciary relationships to conflicts of interest which did not include an economic aspect.

In 2001, Kirby J observed^[40] that authorities in Canada and the United States were to some extent ‘reshaping the law of [fiduciary] obligations’, blurring distinctions still maintained in the United Kingdom and Australia. Noting the ‘general disinclination’ of our courts ‘to expand fiduciary obligations beyond what might be called proprietary interests into the more nebulous field of personal rights’, he urged Australian courts to stick to the ‘accepted doctrine’ that fiduciary duties adhere to the protection of economic interests.

Conclusion

If it is ‘accepted doctrine’ that fiduciary duties adhere to the protection of economic interests then it should hold that an enforceable fiduciary duty should adhere to the economic interests of Indigenous people around Australia, whose wages, savings, inheritances and welfare entitlements were intercepted and controlled by governments in the states and territories. Each of these governments had a ‘judicially prescribed’ duty to protect the finances of thousands of the ‘poorest people in our nation’ who did not voluntarily choose to relinquish their labour potential or their money. In standing between people and their savings and entitlements, governments were a conduit for private finances. Not only Indigenous wards, but the parliament and the wider public had a valid expectation that governments would wield their extraordinary powers to the benefit of Indigenous interests. A fiduciary obligation to do so is clearly expressed in the statutes and regulations.

It is my belief that it is within ‘accepted doctrine’ to adjudicate government dealings on private Indigenous finances under the same principles of law as would be applied to an ordinary fiduciary, to determine whether a trust was administered solely on behalf of the beneficiaries and to grant beneficiaries the fundamental right to a full historical accounting of their funds. In their control and supervision of private Indigenous moneys, Australian governments should not escape accountability by claiming a ‘political obligation’ outside equity’s attention. It is now 140 years since William Walsh averred ‘it is as much the duty of government to render prompt justice against itself, in favour of citizens, as it is to administer the same between private individuals’ and the Queensland parliament voted to allow individuals ‘as nearly as possible’ the same rights to remedy in claims against the government as would pertain ‘in any ordinary case’ between two persons or entities at law or in equity. It is time Indigenous Queenslanders were accorded this right.

Postscript

In early October 2006, Queensland Public Interest Law Clearing House (QPILCH) is coordinating a visit to Brisbane, Cairns, Sydney and Melbourne of Elouise Cobell, lead plaintiff in the US class action. Legal forums and community meetings will be held at each location. PILCH NSW and PILCH VIC are organising seminars

in those states. For information, email

[e-mail].

*Ros Kidd's book Trustees on Trial: Recovering the Stolen Wages, will be published in mid-September by Aboriginal Studies Press.

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^[*] DR ROS KIDD has been working towards justice for the stolen wages since 1994. She is an adjunct Research Fellow at Griffith University, and Member-at-Large for National ANTaR.*

© 2006 Ros Kidd

email: [e-mail]

^[1] The Claims Against the Government Act 1866 (Qld).

^[2] Sir John Downer, Official Record of the Debates of the Australasian Federal Convention, 3rd session, (1898), 1661, 1663.

^[3] Judiciary Act 1903 (Cth).

^[4] P D Finn, Essays on Law and Government (1996) 25. Similar legislation to limit the immunity of the Crown to legal challenge did not occur internationally until 1910 (New Zealand), 1946 (USA), 1947 (UK), and variously from 1951 to 1974 in the Canadian provinces.

^[5] Norberg v Wynrib [1992] 4 WWR 557.

^[6] Wewaykum Indian Band v Canada [2002] 4 SCR 245.

^[7] P Hogg and P Monahan, Liability of the Crown (2000) 258.

^[8] The Accident Compensation Tribunal, Registrar of Victoria v Federal Commr of Taxation [1993] 117 ALR 27.

^[9] Kinloch v Secretary of State for India [1882] 7 App Cas 619.

^[10] St Catherine’s Milling and Lumber Company v The Queen [1887] 13 SCR 577.

^[11] Cherokee Nation v Georgia [1831] USSC 6; 30 US 1 (1831); Worcester v Georgia [1832] USSC 39; 31 US 515 (1832).

^[12] Henry v The King [1905] 9 ExCR 417.

^[13] (1935) 5 CNLC 92.

^[14] United States v Creek Nation [1935] USSC 104; 295 US 103 (1935).

^[15] Seminole Nation v United States [1942] USSC 105; 316 US 286 (1942).

^[16] Menominee Tribe v United States 101 Ct Cl 10 (1944).

^[17] Manchester Band of Pomo Indians v United States 363 F Supp 1238 (1973).

^[18] Navajo Tribe v United States 624 F 2d 981 (1980).

^[19] United States v Mitchell II [1983] USSC 154; 463 US 206 (1983).

^[20] Guerin v The Queen (1984) 13 DLR (4th) 321.

^[21] See <http://www.indiantrust.com> and <http://www.narf.org/cases/iim.html> at 7 August 2006.

^[22] Cobell v Babbitt 91 F Supp 2d (DDC 1999).

^[23] Mabo v Queensland (No 2) [1992] HCA 23; [1992] 175 CLR 1.

^[24] Northern Land Council v The Commonwealth (No 2) [1987] HCA 52; [1987] 61 ALJR 616.

^[25] The Wik People v the State of Queensland and others [1996] 187 CLR 1.

^[26] Williams v The Minister, Aboriginal Land Rights Act 1983 [1999] NSWSC 843.

^[27] Cubillo v The Commonwealth of Australia [2001] FCA 1213; [2001] 112 FCR 455.

^[28] Pilmer v The Duke Group Ltd (in liq) [2001] HCA 31 (Kirby J), citing Breen v Williams [1996] 186 CLR 71.

^[29] Brunninghausen v Glavanics [1999] NSWCA 199.

^[30] Ibid [101] citing P D Finn, Equity, Fiduciaries and Trusts (1989) 47.

^[31] P D Finn, ‘Contract and the Fiduciary Principle’ (1989) 12 UNSWLJ 94.

^[32] Reid Peyton Chambers, ‘Judicial Enforcement of the Federal Trust Responsibility to Indians’ (1975) 27 Stanford Law Review 1226.

^[33] Cited by Lisa di Marco, ‘A Critique and Analysis of the Fiduciary Concept in Mabo v Queensland’, (1994) 19 MULR 876.

^[34] John Glover, Commercial equity, Fiduciary Relationships (1995) 98.

^[35] Williams v The Minister, Aboriginal Land Rights Act 1983 [1999] NSWSC 843.

^[36] Bennett v Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408; Brunninghausen v Glavanics [1999] NSWCA 199; (1999) 46 NSWLR 538.

^[37] Cubillo v The Commonwealth of Australia [2000] FCA 1084; (2000) 103 FCR 1.

^[38] Paramasivan v Flynn [1998] FCA 1711; (1998) 160 ALR 203; Paramasivan and Breen v Williams (1996) 186 CLR 71.

^[39] Clay v Clay [1999] WASCA 8; (1999) 20 WAR 427.

^[40] Pilmer v The Duke Group Ltd (in liq) [2001] HCA 31.