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Chordia, Shipra --- "Section 96 of the Constitution: Developments in Methodology and Interpretation" [2015] UTasLawRw 13; (2015) 34(2) University of Tasmania Law Review 54


Section 96 of the Constitution: Developments in Methodology and Interpretation

SHIPRA CHORDIA[*]

Abstract

In a practical sense, s 96 of the Constitution is critical to the operation of the Australian federal system; it facilitates financial transfers from the Commonwealth to the States within a system that displays a high degree of vertical fiscal imbalance. In the High Court’s orthodox interpretation of the provision, s 96 has been given a literal reading. In particular, it has been held largely immune from limits derived from elsewhere in the Constitution, thus permitting the Commonwealth to attach ‘terms and conditions’ to grants and, on occasion, coerce the States into accepting them. This interpretation has, unsurprisingly, attracted criticism for leading to results that sit uneasily with the federal structure of the Constitution. However, since the orthodox cases on s 96 were decided, significant shifts have taken place in the interpretive methodologies prevalent in the High Court’s jurisprudence, both in relation to legalism and federalism. This article explores what these shifts might mean for future developments in interpretation of the provision and for its place within the broader federal system.

I INTRODUCTION

Over the course of Australia’s constitutional history, s 96 of the Constitution has come to play an increasingly critical role in the practical operation of the nation’s federal system.[1] While the Commonwealth controls over 80 per cent of all tax revenue, the States bear a disproportionately high burden of service-delivery responsibilities.[2] This phenomenon – commonly known as ‘vertical fiscal imbalance’ – necessitates a redistribution of revenue from the Commonwealth to the States to meet the latter’s expenditure requirements. After the early demise of the surplus distribution mechanism in s 94 of the Constitution,[3] s 96 became a primary mechanism for effecting this redistribution.[4] The sums involved are considerable: in 2015-16, Commonwealth financial grants for ‘specific purposes’ are projected to reach $50 billion, representing approximately 11.5 per cent of all federal government expenditure.[5]

Section 96 permits the Commonwealth to attach ‘terms and conditions’ to grants of financial assistance. The provision reads:

During a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides, the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit (emphasis added).

It has long been held that the authority to attach terms and conditions ‘as the Parliament thinks fit’ does not permit the Commonwealth the ‘power to make laws with respect to a general subject matter’.[6] Consequently, the High Court has held that the Commonwealth cannot legally compel a State to accept a financial grant. The Court’s underlying concern appears to have been that coercive legislation binding on the States might lead to the expansion of the Commonwealth’s regulatory capacity beyond constitutional limits.[7]

However, while the High Court has proscribed legal compulsion, it has not prohibited the Commonwealth from making s 96 grants in practical circumstances, frequently of the Commonwealth’s own design, that have left the States no real choice but to accept.[8] Moreover, the Court has taken the view that there is no constitutional impediment to the Commonwealth attaching terms and conditions to s 96 grants that require the implementation of Commonwealth policy[9] even in areas outside its constitutional competence.[10] As Mason J observed in 1986, this has often left the States ‘with little or no say at all in how the moneys are to be spent’.[11] It has also generated means for the Commonwealth to coercively ‘engage in policy making outside the subjects of federal legislative power’,[12] inviting criticism that the Court’s interpretation displays ‘ad hoc’ characteristics and yields ‘results that do not withstand close scrutiny’.[13]

The practical ramifications of the Court’s position are readily observable. In the recent cases of Williams v Commonwealth (‘Williams (No 1)’)[14] and Williams v Commonwealth (‘Williams (No 2)’),[15] the High Court held that direct Commonwealth expenditure on a scheme funding school chaplains in State schools was invalid. Determined to continue funding the scheme, the Commonwealth redirected its financial support through conditional grants to the States under section 96. In initial negotiations, New South Wales, Tasmania, South Australia and the Australian Capital Territory (ACT) publically indicated that they would be seeking to amend the existing terms of the program so that schools were given the option to choose either religious or secular support workers, depending on their needs.[16] The Commonwealth, however, remained stalwart in its resistance to funding secular alternatives. Amidst the threat of losing their funding entirely, New South Wales, Tasmania and the ACT soon capitulated to the Commonwealth’s demand that religious qualification remain a necessary requirement for appointment under the scheme.[17] The other States and territories soon fell into line also.[18] The example is a stark illustration of the way in which the interpretation given to s 96, coupled with the Commonwealth’s financial dominance, presents a real challenge to the autonomy of State regulation even in areas in which the Court has held that the Commonwealth has no relevant legislative power under the Constitution.[19]

An explanation for the High Court’s approach to s 96 may be found in the dominant post-Engineers’[20] methodology that has been influential for much of the Court’s history.[21] This methodology was shaped by a commitment to legalism, and at times literalism,[22] which in turn manifested in certain hallmark features of majority judgments, including paying almost no attention to the provision’s practical operation within the context of wider schemes, doggedly adhering to precedent, and downplaying the role of implications drawn from the federal system. Arguably, in the course of applying its legalistic methodology to s 96, the Court failed to develop an overarching framework for the provision that ensured that it operated consistently with the structure of the Constitution as a whole.

Sir Owen Dixon once famously commented to Geoffrey Sawer that ‘the Commonwealth should not be able by the medium of s 96 to make the States a mere conduit pipe for expenditures otherwise beyond federal power, but it is now difficult to see how such a restriction on the scope of s 96 could possibly be established’.[23] The tone of resignation in that observation is telling. However, since the orthodox cases on s 96 were decided, there has been a noticeable shift in the interpretive methodology of the Court away from ‘strict and complete legalism’.[24] While this shift has waxed and waned in prominence,[25] it has gained renewed ascendency from the Court itself in recent decisions.[26] When considered alongside the more favourable approach seen in recent decisions towards drawing implications from the federal structure of the Constitution, it might now be conceivable for the Court, in an appropriate case, to reconsider its approach towards s 96.[27]

With that in mind, the objectives of this article are, first, to explain the ways in which legalism has influenced the jurisprudence on s 96[28] and, second, to explore how discernible shifts in methodology might open the way for future developments in interpretation of the provision. On the other hand, while assessing the relative merits of various competing interpretive methodologies is an area of ongoing academic interest, it is outside the scope of this article to engage in the intricacies of that debate, which are being developed elsewhere.[29] It is also beyond the intention of this piece to engage in a normative evaluation of the relative financial positions of the Commonwealth and States, or to consider the repercussions of fiscal centralisation. Engaging discussions of this kind can, again, be found in other literature.[30]

In seeking to achieve its more modest objectives, this article is divided into three substantive parts. Part II surveys the High Court’s orthodox treatment of s 96 and traces the influence of legalism on the Court’s interpretation of the provision. In Part III, the article considers shifts in Court’s methodology, which may have implications for contemporary interpretations of the provision. Finally, Part IV reflects upon whether the provision might now be read as subject to limitations arising from the federal structure of the Constitution, albeit in light of the need for preserving cooperative federalism.

II THE ORTHODOX INTERPRETATION OF S 96

Legalism is a term that has often been employed to mean different things.[31] It has sometimes been defined broadly, with Sir Owen Dixon describing it as nothing more than ‘close adherence to legal reasoning’.[32] Others, such as Jeffrey Goldsworthy, have likened it to interpretivism, which, in their view, permits examination of non-textual materials to inform interpretation.[33] At least one form of legalism is the ‘strict and complete legalism of the literalist who purports to look only at the plain meaning of the actual language of the text’.[34] Under this form of legalism, of which Latham CJ was probably the greatest proponent,[35] ‘contextual and consequential factors of a political, economic and social nature are not taken into account’ and the approach is said to display a ‘preference for abstract categories and technical distinctions’.[36] Of course, the degree to which even the decisions of Latham CJ were immune to broader political or cultural considerations might be challenged,[37] yet it seems clear in the cases on s 96 that legalism was sufficient to provide a methodology for producing results that maintained at least a veil of neutrality in intergovernmental controversies. The cost, however, was to shape the provision in a way that has opened a troubling flaw in the practical operation of the Australian federal system.

The first case in which s 96 was subject to judicial consideration was Victoria v Commonwealth (the ‘Federal Roads case’).[38] At issue in the Federal Roads case was a post-war Commonwealth scheme for the construction of roads by way of the Federal Aid Roads Act 1926 (Cth). The Act scheduled a form of an intergovernmental agreement to be entered into between the Commonwealth and the States under which the Commonwealth would make s 96 grants to the States on condition that the States would spend those grants on the construction and repair of designated roads. The States were also required to match the Commonwealth grants.

Two States – Victoria and South Australia – objected to the Commonwealth’s use of s 96 to implement the scheme.[39] Victoria, amongst other things, argued that the Federal Aid Roads Act 1926 (Cth) was invalid as it could be characterised as ‘a law relating to road-making and not a law for granting financial aid to the States’.[40] South Australia argued that to be a valid exercise of s 96, the financial assistance provided must be more than merely incidental to the carrying out of the Commonwealth’s purpose.[41] The full High Court, led by Knox CJ, delivered a six-line judgment dismissing the submissions of both States.[42] It held, rather caustically, that the Act was ‘plainly warranted by the provisions of section 96 of the Constitution’.[43] The Court did not, however, provide reasons for reaching this conclusion[44] and commentators have lamented the ambiguity created by the Court’s failure to elaborate.[45] In particular, it is difficult to tell why the Court rejected the States’ arguments regarding the satisfaction of the requirement to provide financial assistance.

The next instance in which the provision came before the Court produced a more enlightening judgment, and one in which the influence of literalism on the substantive outcome of the case becomes more discernible.[46] In Deputy Federal Commissioner of Taxation (NSW) v W R Moran Pty Ltd (‘Moran’s case’),[47] the Commonwealth and the States agreed to establish a wheat subsidy scheme under the terms of which the Commonwealth would charge an excise on the production of flour. The proceeds of the excise would be allocated to the States in proportion to the size of their wheat-growing industry on the condition that the States would distribute this as a subsidy to their respective wheat farmers. However, the scheme was to operate differently in Tasmania. That State was recognised as a special case because it did not have a notable wheat-growing industry. To circumvent the effect that Tasmanian flour millers would be subject to the excise but there would be little returning subsidy to the State’s wheat-growers, the Commonwealth agreed to make a special grant to Tasmania with no attached conditions. The Tasmanian Parliament was therefore free to enact a law enabling it to distribute its proportion of the excise to flour millers, rather than wheat growers.

Unlike the scheme which was the subject of the Federal Roads case, the scheme in Moran’s case was a joint one, devised cooperatively by the Commonwealth with the full support of the States. As Latham CJ observed:

...the Commonwealth and the State Governments agreed to ask their Parliaments to pool their constitutional powers for the purpose of bringing about a result which admittedly neither the Commonwealth Parliament alone nor the State Parliaments alone could achieve.[48]

The challenge to the scheme this time came not from the States, but from a private corporation whose tax liability was affected by the arrangement and thus in whose interest it was to oppose the scheme’s constitutional validity. The primary basis for the challenge was that the Commonwealth could not positively discriminate in favour of Tasmanian flour millers through the scheming this way since the overall effect of the scheme was to achieve a result that would have been constitutionally prohibited by s 51(ii) had it been enacted by the Commonwealth alone.[49]

According to Latham CJ, on one hand the Acts operated together and ‘in a readily intelligible sense form[ed] part of one scheme’.[50] On the other hand, when considering the issue of validity, the taxation Acts were to be quarantined from the revenue distribution elements of the scheme. The Commonwealth tax was imposed in general terms, without any discrimination between States, thus escaping the limitation imposed by s 51(ii) in a strict legal sense. The discrimination was technically effected by the redistribution of revenue, which took place with the support of s 96. Since s 96 contained no restrictions on discrimination, the scheme was constitutionally valid and the challenger’s argument failed.

Of course, the majority’s literalist approach, breaking the scheme into its constituent elements, was not the only course open to it. Evatt J, in dissent, preferred to view the scheme in terms of its substantive operation, and thus characterised it as one which achieved a result that ‘practically nullifies a great constitutional safeguard’[51] through a ‘slight alteration in the modus operandi’.[52] In his view, the Court’s constitutional task was to ‘look behind names, forms and appearances to determine whether or not the legislation is colourable or disguised’.[53] On appeal, while the Privy Council did not agree with Evatt J’s conclusion, the Committee nevertheless similarly cautioned against veiled attempts at overcoming constitutional safeguards:

Cases may be imagined in which a purported exercise of the power to grant financial assistance under sec. 96 would be merely colourable. Under the guise or pretence of assisting a State with money, the real substance and purpose of the Act might simply be to effect discrimination in regard to taxation. Such an Act might well be ultra vires the Commonwealth Parliament.[54]

At least to some degree, the underlying motivation for the majority’s approach in Moran’s case may have been the fact that the scheme in question was one devised by cooperation between the Commonwealth and the States.[55] Intergovernmental cooperation was not, however, a feature of the set of circumstances that confronted the Court in the two most significant cases to be decided on s 96: the First and Second Uniform Tax cases.[56] In these cases, the Court was once again faced with a plea to consider the validity of each impugned Act not on an individual level, but with regard to the wider circumstances surrounding their operation. Unlike Moran’s case, the plea originated from the States themselves rather than a third party. The cases involved the Court’s first real engagement with the line of argument regarding the permissibility of Commonwealth coercion in the context of s 96, and the reasoning in each demonstrates the substantive influence of the Latham Court’s literalism and Dixonian legalism, respectively.

As is well-known, the First Uniform Tax case arose out of a strategy by the Commonwealth to increase federal income tax revenues in order to fund wartime efforts. It involved the passage of a scheme of four separate Commonwealth Acts. The first of these – the Income Tax Act 1942) (the ‘Tax Act’) – imposed a new Commonwealth income tax, set at a rate equivalent to that which had been previously imposed by the Commonwealth and the States jointly. Under the second Act – the States Grants (Income Tax Reimbursement) Act 1942) (the ‘Grants Act’) – the Commonwealth provided that on condition that a State refrained from imposing its own income tax, the Commonwealth would pay a scheduled amount as ‘financial assistance’ to that State. The third Act – the Income Tax Assessment Act 1942) (the ‘Assessment Act’) – imposed priority of payment for Commonwealth income tax over the discharge of any State income tax liabilities. The final Act – the Income Tax (War-time Arrangements) Act 1942) (‘Wartime Act’) – was a wartime arrangement for the transfer of State income tax officers to Commonwealth tax offices. The combined effect of the Acts was to cause the States to ‘lose (taking the average) 63 per cent of their total tax revenue’,[57] thereby placing them, it was argued, ‘in a helpless financial position’.[58]

There were two major strands to the challenge to the validity of the four Acts. In submissions that strongly resembled the arguments of the plaintiff in Moran’s case, the States contended that the Acts constituted a ‘single legislative scheme’ and as such should be construed together.[59] Victoria emphasised that once the Acts were considered a single scheme, the operation, character and purpose of the entire legislative scheme would need to be given due consideration.[60] That consideration would show that the scheme was attempting to achieve the unconstitutional purpose of compelling the States to ‘abandon their constitutional right to impose taxation on incomes’.[61]

The second strand relied on establishing the first. The States argued that the imposition of the condition that the States refrain from imposing their own income tax was not ‘a valid exercise of the power conferred by s 96 of the Constitution to give financial assistance to the States’.[62] Once the scheme was considered as a whole, it was clear that the Commonwealth was itself generating the States’ ‘need’ for financial assistance by increasing the rate of federal income taxation and imposing priority. The plaintiffs thus argued that this was ‘a means, in effect, of compelling submission by a State to the surrender of its constitutional powers’.[63] They submitted that where an ‘inducement practically amounts to coercion’[64] it ought to be held an impermissible use of s 96.

The Court refused to admit in evidence any speeches from Parliament or the report of a Parliamentary committee which recommended the scheme.[65] A majority also rejected both strands of the States’ arguments. Adhering to the Moran line of reasoning, Latham CJ refused to consider the validity of the Acts by reference to their operation as a broader scheme. In his opinion, ‘Parliament, when it passes an Act, either has the power to pass that Act or has not power to pass that Act’.[66] Thus, while the intention of Parliament might have been that ‘the States should cease to tax income’, [67] this intention was ascertainable from each of the Acts independently of any general ‘scheme’.[68] Further, although the scheme may have been seeking

to accomplish indirectly what the Commonwealth Parliament cannot do directly’,[69] this did not colour the constitutionality of each component piece of legislation since the issue of validity was ‘not to be determined by the motives or the “ultimate end” of a statute.[70]

In rejecting the second strand of the argument, the Chief Justice distanced his characterisation of the States’ position from one in which they ‘had no practical alternative at all’.[71] Instead, he preferred to view the arrangement as one in which the States were being offered ‘a very attractive inducement’ or ‘temptation’ to comply:

The Grants Act offers an inducement to the State Parliaments not to exercise a power the continued existence of which is recognised – the power to impose income tax. The States may or may not yield to this inducement, but there is no legal compulsion to yield.[72]

Latham CJ thus concluded that the Commonwealth could not pass laws that legally compelled the States to accept s 96 grants, since that would be analogous to physically propelling the hand of another person against his will to strike a blow.[73] On the other hand, any grant proposal that did not involve legal compulsion was permissible, irrespective of the surrounding circumstances, since such a proposal could only ever amount to an inducement or temptation, not compulsion.[74] The other majority justices took similar approaches.

In 1957, in the Second Uniform Tax case,[75] the States mounted a fresh challenge to the system of uniform income taxation. This time, however, they abandoned any serious attempt to characterise the component taxation and grant-making statutes as a single scheme. Although they did make a weak attempt to argue that the interconnection between the Acts was material to considering the purpose and validity of each on its own,[76] the strength of the argument was very much hindered by the fact that they had already conceded the validity of the taxation legislation.[77] Thus, the States were left to challenge each of the remaining statutes – including the States Grants (Tax Reimbursement Act) 1946-48 (the ‘States Grant Act’) – as standalone pieces of legislation.[78]

Despite this significant setback, the States nonetheless contended that in the context of s 96, due regard could be given to ‘practical as opposed to legal coercion’.[79] They argued that through practical coercion, the States Grant Act was designed to control the exercise of State governmental functions in contravention of the federal design of the Constitution. It was ‘nothing to the point’ that the outcome was ‘not achieved by direct legal enforceable command’.[80]

In order to support these contentions, the States relied on two important and contemporaneous cases. The first was Melbourne Corporation v Commonwealth,[81] which had been decided since the First Uniform Tax case. Victoria argued that that case stood for the proposition that the Commonwealth could not burden the exercise of the constitutional powers of the States. Since the Constitution was fundamentally federal in its design, it provide for ‘the Commonwealth and States as separate organs independent of each other and co-ordinate in their respective spheres’.[82] This contention reflected Dixon J’s observation in Melbourne Corporation that it could be ‘plainly seen in the very frame of the Constitution’ that the Commonwealth was not authorised to make ‘a law aimed at the restriction of or control of a State in the exercise of its executive authority.’[83]

The second case relied upon by the States was Attorney-General (NSW) v Homebush Flour Mills Ltd.[84] New South Wales had established a scheme whereby flour produced in the State was expropriated and the flour miller was compensated at a fixed price. The flour miller was also given a first right to repurchase the flour at a standard price, and the difference between the standard price and compensation price was required to be paid into a ‘special fund for the relief of necessitous farmers’.[85] Although the statute ‘did not impose upon the miller any obligation enforceable at law to re-acquire the flour he gristed’,[86] there was a financial risk of loss if he did not. The question was whether this was the imposition of an excise on the production of flour and thus in contravention of s 90 of the Constitution. In finding that it was indeed an excise, Rich J made the following observation:

I think it would be absurd for a court to say that because the consequences of failure to pay the money are a more unpleasant alternative which the party is free to choose and payment is not enforced by means familiar as legal remedies, therefore the actual constraint which they effectually impose to pay the money may be ignored and the payment treated as voluntary or contractual and not as an exaction.[87]

Similarly, Dixon J held:

When the desired contributions are obtained not by direct command but by exposing the intended contributor, if he does not pay, to worse burdens or consequences which he will naturally seek to avoid, the payment becomes an exaction. The fact that no legal obligation to pay is imposed enforceable by direct legal remedies, civil or criminal, will not, in my opinion, prevent the exaction fulfilling the description of a tax...[88]

Yet despite his position in Homebush Flour Mills, in his leading judgment in the Second Uniform Tax case, Dixon CJ now felt bound by the existing line of authority on s 96. In his view, these cases had the effect of ‘amplifying the power and tending to a denial of any restriction upon the purpose of the appropriation or the character of the condition’.[89] He lamented that had the provision had come before him for interpretation for the first time,[90] he might have held that

the true scope and purpose of the power which s 96 confers upon the Parliament of granting money and imposing terms and conditions did not admit of any attempt to influence the direction of the exercise by the State of its legislative or executive powers.[91]

He also considered that a ‘very extended meaning’ had been given to the words ‘grant financial assistance’, with perhaps an ‘application beyond that suggested by a literal interpretation’.[92] Nonetheless, since adherence to precedent was a central pillar of Dixonian ‘strict and complete legalism,[93] the Chief Justice felt that the course of decisions on 96 had put such an interpretation of the provision out of his reach.[94] Following the approach taken by the majority in the First Uniform Tax case, Dixon CJ limited the scope of non-permissible coercion in the context of s 96 to legal compulsion.[95] The Melbourne Corporation aspect of the States’ submissions was also dismissed since the Commonwealth could not legally compel acceptance of a grant under s 96. If a State could technically refuse a grant offer, then it could not be said to be burdened in the Melbourne Corporation sense.[96]

As a consequence of these decisions the wide parameters for Commonwealth activity through on s 96 were set. Latham CJ’s highly formalist approach in Moran’s case and First Uniform Tax case, which has been described as an ‘atomistic method that splits up the scheme and analyses each part separately, disregarding the purpose of the whole’,[97] invariably assigned a ‘premium on form over substance’.[98] Likewise, the value placed on precedent in Dixonian ‘strict and complete legalism’ circumscribed an interpretation of the provision that paid greater attention to its operation with the federal constitutional structure. The orthodox approach to s 96 thus failed to conduct ‘a realistic assessment’ of the constitutional implications of Commonwealth financial grants.[99]

III DEVELOPMENTS IN METHODOLOGY

A A Broad Shift in Interpretive Approach

It has been contended for some time that ‘strict and complete legalism’ cannot achieve its own stated aims.[100] That is, as Stephen Gageler has put it, ‘a neutrally based a priori approach to constitutional line drawing is in its own terms impossible’.[101] A court is invariably drawn into choosing between several reasonable alternatives in interpretation and by necessity that exercise requires reference to values, principles or opinions from outside the strict confines of the text of the provision itself.[102] It is argued that those who adhere to strict legalism and promote its objective of relying solely on logic to produce legal doctrine are merely unaware of the true nature of the judicial exercise, in which reliance on non-textual considerations may be highly influential even when not overtly acknowledged.[103] Unyielding adherence to legalism can lead to not just obfuscation in reasoning,[104] but also the reproduction of ‘hidden values’ in later judgments that apply precedent ‘even though the community values may have changed’.[105] The concern is particularly acute in the context of constitutional interpretation, where provisions have often been framed in general terms to deliberately leave room for adaptation as norms and values evolve.[106]

Since the height of ‘strict and complete legalism’,[107] members of the High Court have been increasingly willing to acknowledge that laws will have both a practical and legal effect, and that both ought to be taken into account when deciding cases. The jurisprudence on the customs and excise power in s 90 and the freedom of trade and commerce guarantee in s 92 are perhaps most illustrative of the influence of this mounting acceptance.[108] The literal approach adopted by the early Court towards s 90 is best summarised by Latham CJ’s observation in Attorney-General (NSW) v Homebush Flour Mills:[109]

I do not accept any argument which, ignoring the form of the statute now under consideration, contends that it is invalid because “in substance” it imposes an excise duty for the reason that the practical effect of the legislation is the same as that which would follow from a statute avowedly imposing an excise duty.[110]

In the subsequent case of Dennis Hotels Pty Ltd v Victoria[111], the Court adopted an approach to the provision that characterised an impugned law exclusively according to its legal operation. In accordance with this approach, it developed a striking exception to the general rule that any tax on a step in the production, sale or distribution of goods up to the point of consumption constituted an excise.[112] That exception held that where a State levied a licence fee calculated on volumes sold during a period other than the licence period, it would not be considered an ‘excise’ for the purposes of s 90.

In a series of cases in the early 1970s,[113] opposing views towards the provision emerged. In Western Australia v Chamberlain Industries Pty Ltd,[114] Barwick CJ and Kitto J disagreed over whether, in characterising a tax in order to determine whether it is an excise, the Court should look to the practical or substantial effect of the provision, or limit the exercise to examining its strict legal operation. Unlike in Samuels v Readers’ Digest, however, this time the Court was divided, with Windeyer and Owen JJ substantively agreeing Barwick CJ and McTiernan and Walsh JJ reasoning along the lines of Kitto J.[115] In the later case of Dickenson’s Arcade Pty Ltd v Tasmania,[116] unable to overrule Dennis Hotels, Barwick CJ attempted to limit its authority ‘to the statutory and factual situation it resolved’.[117]

The issue arose again in the later case of Philip Morris v Commissioner of Business Franchises (Vic).[118] In that case, Mason CJ and Deane J criticised an approach that characterised laws purely by reference to their legal operation as producing the ‘artificial result’ of the Dennis Hotels exception.[119] Although they disagreed with the decisions in Dennis Hotels and Dickenson’s Arcade, they felt they could not overrule the decisions ‘because of the need to ensure certainty in the area of State business franchise fees relating to alcohol’.[120] In dissent, however, Brennan J and McHugh J each argued separately that the franchise case exception should not be applied formulaically. There were ‘several substantial features’ of the licence fee in question in Philip Morris which marked it ‘in substance’ as a tax on tobacco sold rather than a mere fee for a licence. In the view of Brennan J, in particular, features such as the fact that impugned legislation was ‘revenue raising’ and had a ‘non-regulatory purpose’ took it outside the Dennis Hotels exception.[121]

The approach taken by Brennan and McHugh JJ in Philip Morris finally gained majority acceptance in Ngo Ngo Ha v New South Wales.[122] Here, the plaintiff argued that a licence fee applied to the sale of tobacco infringed upon the freedom contained in s 90 even though it ostensibly appeared to comply with the formula established in Dennis Hotels. A majority of the Court agreed. In doing so, they resisted application of the exception in a legalistic manner and preferred to look to the actual substance of the impugned legislation, relevantly observing:

When a constitutional limitation or restriction on power is relied on to invalidate a law, the effect of the law in and upon the facts and circumstances to which it relates – its practical operation – must be examined as well as its terms in order to ensure that the limitation or restriction is not circumvented by mere drafting devices. In recent cases, this court has insisted on an examination of the practical operation (or substance) of a law impugned for contravention of a constitutional limitation or restriction on power.[123]

An analogous development is observable within the Court’s jurisprudence on s 92 of the Constitution. In Hospital Provident Fund v Victoria,[124] Dixon J held that the validity of a law regulating interstate commerce was to be determined by its direct legal effect rather than ‘some secondary effect or consequence’.[125] There was therefore a distinction between laws that sought to impose burdens on trade and commerce directly, which were prohibited by s 92, and those that imposed burdens upon things that were antecedent or collateral to trade and commerce, which were not prohibited. Dixon J’s legalistic distinction, known as the ‘criterion of operation’ test, gained ascendency within orthodox doctrine, receiving approval from the Privy Council in Hughes v Vale Pty Ltd v New South Wales[126] and a majority of the High Court in Grannall v Marrickville Margarine Pty Ltd[127] and Beal v Marickville Margarine Pty Ltd.[128] In the ‘margarine cases’, in particular, the criterion of operation test came to stand for the proposition that only an impugned law’s direct legal effect was relevant to the question of validity, not its practical or economic consequences.

Following his appointment to the position of Chief Justice, Sir Garfield Barwick advocated an approach to s 92 that looked not just to a law’s strict legal operation but whether ‘in a practical sense’[129] it constituted a burden upon trade, commerce or intercourse. In dissent in Samuels v Readers’ Digest, the Chief Justice argued that, following the authority of Commonwealth v Bank of NSW,[130] the ‘practical or economic effects of the legal operation of an Act’ could not be ignored.[131] He met, however, with strong resistance from Kitto J, who, following the orthodox line of authority that began with Dixon J in Hospital Provident Fund, maintained that laws that affected ‘trade, commerce and intercourse as a matter only of economic or practical consequence’ were not caught by the prohibition in s 92.[132] In Samuels v Readers’ Digest, Kitto J was joined in the majority by McTiernan, Taylor and Menzies JJ.

Ultimately, however, it was Barwick CJ’s view that prevailed. In the watershed case of Cole v Whitfield,[133] the full Court unanimously abandoned Dixon J’s criterion of operation doctrine, describing it as ‘artificial’[134] and observing that it was ‘concerned only with the formal structure of an impugned law and ignored its real or substantive effect’.[135] The Court emphasised that the practical operation and economic consequences of the law had to be given due consideration in considering whether ‘factual’ not just ‘legal’ discrimination had occurred.[136] Once it had been discerned that the law, in a practical sense, discriminated against interstate trade, if the object of the law was protectionist then the law was invalid. Interestingly, even if the object of the law was not protectionist, the Court would test whether the way in or extent to which the law pursued that object was sufficient to characterise the law as ‘protectionist’.[137] This later approach was extended and applied by Mason CJ, Brennan, Deane, Dawson and Toohey JJ in their joint judgment in Castlemaine Tooheys Ltd v South Australia.[138] In that case, the Court invalidated a law that ostensibly pursued the object of protecting the environment of South Australia, but did so in a way that their Honours considered was not ‘appropriate and adapted’ to that object.[139] The approach has led some commentators to observe that the Court has been willing to engage, in some cases, in ‘a degree of balancing of social interests’.[140]

It might be contended that the shift away from legalism reached its zenith with the Mason Court.[141] Various factors such as stability within politics and the Court itself, and a renewed sense of national identity that followed the passage of the Australia Act 1986 (Cth), have been said to account for this relatively unusual time in the Court’s history.[142] Certainly, after this period it becomes increasingly difficult to characterise the various interpretive approaches within the Court as unified.[143] On the one hand, the decisions of Brennan CJ have been described as displaying characteristics ‘as “activist” as any of the Mason Court’s innovations’,[144] while on the other hand, Gleeson CJ publicly reiterated once more that legalism, precedent and logical analysis all had their proper place in constitutional interpretation.[145]

Yet there can be no doubt that even within later configurations of the bench, some of the more progressive aspects of the Mason era had not been entirely abandoned.[146] In Betfair Pty Limited v Western Australia (Betfair (No 1)),[147] the Court was faced with the challenge of deciding the validity of laws regulating internet commerce that had taken place across state boundaries. The joint judgment of Gleeson CJ, Gummow, Kirby, Hayne, Crennan and Kiefel JJ adopted and applied the Castlemaine Tooheys ‘appropriate and adapted’ formulation. In doing so, their Honours dismissed the caution expressed in the earlier case that deciding whether a measure was a ‘necessary’ solution to a particular problem was ‘in large measure a political question best left for resolution to the political process’.[148] Instead, they considered that necessity was an attribute of validity that the Court was committed to determining in exercise of its federal judicial power.[149] In doing so, the majority of the Court conceded the notion that the Court would be engaged in making evaluations of policy positions in determining whether the least restrictive measure had been employed in pursuing a non-protectionist legitimate end.

In Betfair Pty Ltd v Racing NSW (Betfair (No 2)),[150] the Court was faced with a challenge to the New South Wales licensing scheme, under which fees were imposed for the use of race field information originating from that State. Betfair argued, as a low cost operator, that the fees had a disproportionate impact on its business as compared with its competitors. The Court rejected the contention on the simple basis that any disparate effect on Betfair had no connection with interstate trade, as required by s 92. In the course of their joint judgment, French CJ, Gummow, Hayne, Crennan and Bell JJ endorsed the approach taken in Betfair (No 1) towards necessity analysis,[151] although they did not need to apply it.

Finally, in a case heard concurrently with Betfair (No 2) – Sportsbet Pty Ltd v New South Wales[152] the appellant company challenged certain fee exemptions granted to wagering operators whose turnover did not exceed a set amount. After concluding that these exemptions were ‘facially neutral’ and displayed no legal discrimination in a protectionist sense,[153] the joint judgment went on to consider the practical operation or effect of the provision before dismissing the appellant’s challenge. Importantly, and in stark contrast to the approach taken in Moran’s case and the First Uniform Tax case, their Honours warned in dictum that the ‘combination of otherwise apparently innocuous elements in a legislative scheme may disclose a protectionist measure which engages s 92’, although this was not a case of that kind.[154]

B Recent Cases Relating to s 96

The relevance of the broad shift in interpretive methodology that occurred with respect to ss 90 and 92 of the Constitution becomes apparent when consideration is given to the language adopted by members of the French Court in more recent cases that have reflected on s 96. In these more recent cases, the Court seems to be prepared to approach its interpretive task by more than just the narrow language of the provision and its strict legal operation. The majority’s reasoning in these cases suggests an openness to deviation from the orthodox approach to s 96 in three significant ways: first, by showing a willingness to read the provision as subject to constitutional guarantees even though, unlike s 51, it is not expressed to be ‘subject to this Constitution’; second, by downplaying the breadth of the express words of s 96, which provide that Parliament may make grants on ‘such terms and conditions as the Parliament thinks fit.’; and third, by favouring a methodology that looks not just to the legal form but also the practical effect of the impugned law. The parallels here with the shift in interpretive methodology towards ss 90 and 92 of the Constitution are difficult to ignore, and suggest that some attention should be given to the influence that that shift might have in any future decisions involving s 96.

The bellwether case is ICM Agriculture Pty Ltd v Commonwealth.[155] In 2004, the Commonwealth entered into an intergovernmental agreement with a number of States, including New South Wales, called the National Water Initiative. Relevantly, the agreement provided for a reduction in the water extraction entitlements of bore licence holders in central New South Wales in exchange for the provisions of structural adjustment payments to those licence holders. It was agreed that funds for the payments were to be provided equally by the Commonwealth and New South Wales, but the State itself would be responsible for making the relevant payments to affected licence holders. In ICM Agriculture,[156] the plaintiffs argued that the reduction in their water allowances amounted to an acquisition of property by the Commonwealth. They contended that the inadequacy of the structural adjustment payments made by New South Wales therefore contravened the ‘just terms’ guarantee contained in s 51(xxxi) of the Constitution. The Commonwealth and the intervening State parties[157] countered that the Commonwealth’s legislative power under s 96[158] ‘extends to the grant of financial assistance to a State for the purpose of the State acquiring property on other than just terms’.[159]

The joint judgment of French CJ, Gummow and Crennan JJ was a nuanced but significant one in the context of jurisprudence on s 96. Signalling what might be some readiness to depart from the orthodox cases, the substantive section of the judgment began by citing Dixon CJ’s observation in the Second Uniform Tax case that ‘in s 96 there is nothing coercive’.[160] Although the joint judgment did not explicitly lay down any criticism of that statement, their Honours at least cast some doubt on its correctness by making two subsequent observations. The first was that agreements made under s 96 have ‘some but not all of the characteristics of a contract’.[161] The second was that the incidental power in s 51(xxxix) has on occasion been used to ensure the implementation of s 96 funding agreements by creating legal sanctions for non-compliance.[162] The obvious implications arising from these observations are twofold. First, funding arrangements are capable of having a coercive character, at least when it comes to ensuring that they are followed. Second, the coercion may arise not directly out of the s 96 grant itself, but from its surrounding circumstances, such as the agreement it is contained in, or the laws which are enacted in connection with it to ensure compliance. Although the example given by French CJ, Gummow and Crennan JJ is one in which the circumstances (i.e. the offences) are ‘legal’ rather than ‘practical’ in nature, the observation nonetheless represents a significant step away from the orthodox approach to the provision. In those cases, the Court refused to acknowledge the role in generating coercion of any circumstances external to the grant itself.

The real significance of the French CJ, Gummow and Crennan JJ judgment in ICM Agriculture, however, lies in its treatment of two earlier cases: PJ Magennis Pty Ltd v Commonwealth[163] and Pye v Renshaw.[164] In Magennis, the majority held invalid a Commonwealth Act that scheduled an agreement between the Commonwealth and New South Wales under which the latter would acquire land for the Commonwealth. In the leading majority judgment, Latham CJ held that the Commonwealth Act was a law for Commonwealth acquisition of property and was therefore subject to the ‘just terms’ guarantee contained in s 51(xxxi) of the Constitution. Latham CJ (somewhat at odds with the methodology he applied in the First Uniform Tax case) reached this conclusion notwithstanding that under the Commonwealth Act, the Commonwealth itself was not directly undertaking any acquiring. To reach this finding of invalidity, then, Latham CJ had to look beyond the form of the impugned law and to its practical operation within a wider context.

In the later case of Pye v Renshaw, by contrast, the Court adopted an approach decidedly more legalistic in its character. At issue in that case was whether the scheme found invalid in Magennis was now valid. After Magennis had been handed down, New South Wales and the Commonwealth had entered into an informal arrangement (documented in a series of letters) whereby New South Wales would continue to acquire property but no mention would be made of this within the Commonwealth statute granting financial assistance.[165] The acquisitions, although still on behalf of the Commonwealth, were now effected purely under State legislation. Their Honours dismissed the plaintiff’s arguments that the Commonwealth Act should be found invalid.[166] The Court also declined to entertain any consideration of the informal arrangement between New South Wales and thus the wider scheme in which the financial assistance was being provided. It reached the conclusion that since the impugned Act made no mention of the acquisitions, it did not itself ‘induce’ the States into acquiring land on the Commonwealth’s behalf and therefore could not be held invalid.[167]

In ICM Agriculture, French CJ, Gummow and Crennan JJ,[168] with whom Heydon J concurred on this point,[169] dismissed the Commonwealth’s contention that its legislative power under s 96 extends to the grant of financial assistance to a State for the purpose of the State acquiring property other than on just terms. In doing so, the majority seemed to suggest a preference for the Magennis approach over the method adopted in Pye v Renshaw.[170] Acknowledging ‘developments in interpretation of the Constitution’,[171] the majority held that a relevant consideration was that the construction of s 51(xxxi) ‘involves looking beyond matters of legal form and to the practical effect of the law in question.’[172]

The majority also noted with approval certain obiter observations made in Attorney-General (Vic); Ex rel Black v The Commonwealth (‘DOGS’ case).[173] The question in that case was whether the provision of Commonwealth funds to church schools via s 96 grants to the State of Victoria involved a contravention of the prohibition contained in s 116 of the Constitution against the making of a law establishing any religion. The issue of the validity of the s 96 grants did not strictly arise since the majority formed the view that there was no law establishing a religion. However, the separate judgments of Gibbs J and Mason J at least suggested that notwithstanding Pye v Renshaw, in their view s 96 ought to be read subject to the constitutional prohibition contained in s 116.[174] Wilson J further considered that, despite the later authority of Pye v Renshaw, for him the Court’s judgment in Magennis remained ‘a persuasive analogy’.[175]

The remaining justices in ICM Agriculture – Hayne, Kiefel and Bell JJ – were the view that no acquisition had taken place, so strictly speaking the issue of whether or not Commonwealth legislative power under s 96 was subject to the just terms guarantee did not arise for them.[176] Notwithstanding, in their joint judgment there seemed to be some suggestion that they too would have preferred the Magennis approach.[177] In responding to Dixon J’s dissent in Magennis where he argued that the considerations relevant to characterising a law should be confined to the rights and duties it creates and not its practical effect, they observed:

First, it is now well established that the practical operation of a law is not irrelevant to questions of characterisation. Of course, the character of the law must be determined by reference to the rights, powers, liabilities, duties and privileges which it creates. But the practical operation of the law must also be considered in determining the sufficiency of the connection[178] (emphasis added).

One important question French CJ, Gummow and Crennan JJ left open in ICM Agriculture was whether the existence of an informal arrangement – that is, an arrangement existing outside of legislation or a formal intergovernmental agreement – would be a relevant consideration in deciding the proper characterisation of a s 96 grant.[179] Any conclusion of that sort, and therefore a direct overruling of Pye v Renshaw was unnecessary in ICM Agriculture since the arrangement had been documented in the National Water Initiative. However, a similar issue also arose in the case of Spencer v Commonwealth.[180]

In Spencer, the primary matter before the High Court was a procedural one, confined to whether Mr Spencer’s challenge had been validly dismissed by the full Federal Court for having no reasonable prospect of success under s 31A(2) of the Federal Court of Australia Act 1976 (Cth). Mr Spencer was a farmer in New South Wales and had instituted a case against the Commonwealth for land clearing restrictions imposed on him under Commonwealth and State legislation that were linked together by financial grants agreed within a series of intergovernmental agreements. He argued that the restrictions amounted in effect to an acquisition of property other than on just terms and therefore contravened s 51(xxxi).

The full Federal Court dismissed Mr Spencer’s claims, but did so before the decision was handed down in ICM Agriculture. The leading judgment of Jagot J, with whom Black CJ and Jacobsen J agreed, held that the operation of s 96 and the authority of Pye v Renshaw could not be overlooked and since there was no direct legal link between the Commonwealth and State Acts analogous to that in Magennis, the submission that the Commonwealth/State arrangements were a circuitous device to circumvent s 51(xxxi) could not be accepted.[181]

The High Court, in unanimous agreement on this point,[182] overturned the decision of the full Federal Court on the procedural issue. In doing so, it did not directly answer the question left open in ICM Agriculture of whether informal arrangements between the Commonwealth and the States might be used in the characterisation of laws of the Commonwealth that provided for grants to be made to a State under s 96.[183] It did, however, say that the question raised ‘complex and difficult questions of both law and fact’,[184] and that in light of the findings in ICM Agriculture those were at least open to the primary judge on Mr Spencer’s amended statement of claim. Perhaps most relevantly for the present discussion, French CJ and Gummow J observed:

Given the existence of the Commonwealth Acts and the relevant intergovernmental agreements, it is likely that there are negotiations and communications between the Commonwealth and the State of New South Wales, records of which might flesh out or cast light upon the practical operation of the Commonwealth and State funding arrangements[185] (emphasis added).

That the Court no longer considered Pye v Renshaw as necessarily authoritative on this point is the strongest indication so far that it may be open to shifting its interpretive approach towards s 96 to encompass a more complete understanding of the practical operation of the provision within the context of wider schemes. Of course, this cannot be overstated since the case was not determinative on the issue,[186] but it does at least suggest a willingness on the part of some members of the bench to entertain a departure from the strict legalism of the earlier authorities.

C Federal Constraints on Commonwealth Power

Apart from these recent cases relating to s 96, there are some indications that a shift may also have occurred in the Court’s approach towards federalism, and in particular towards making use of federal considerations as constraints on Commonwealth power. This shift may signal that at least some members of the Court are willing to distance their interpretive method not only from legalism itself, but also from the more substantive opposition towards judicial interference in federal disputes that underpinned the very notion of Dixonian ‘strict and complete legalism’.[187] That orthodoxy was summarised by Gleeson CJ in his address to the Australian Bar Association in 2000:

If the High Court is not to resolve federal conflicts by a legalistic method, what other method is it to employ? Different lawyers have different ideas as to the techniques that are appropriate to strict and complete legalism, but who would care to suggest an alternative to legalism? A complaint that a judgment is literalistic is one that I can understand, and with which, on occasions, I may agree. But what exactly is the meaning of a complaint that a judgment is legalistic? Judges are appointed to interpret and apply the values inherent in the law. Within the limits of the legal method, they may disagree about those values. But they have no right to throw off the constraints of legal methodology. In particular, they have no right to base their decisions as to the validity of legislation upon their personal approval or disapproval of the policy of the legislation. When they do so, they forfeit their legitimacy.

...

In the case of the resolution of federal issues, it is fidelity to the Constitution, and to the techniques of legal methodology, which is the hallmark of legitimacy.[188]

This position has led to what Professor Cheryl Saunders has described as a ‘curious reluctance to accept the use of implications derived from federalism, even though that is... obvious[ly] a fundamental feature of the Constitution’.[189] Perhaps the high watermark of that reluctance is to be found in the joint judgment in New South Wales v Commonwealth (‘Work Choices Case’).[190] In that case, a majority of the Court dismissed arguments put by the plaintiffs on the basis that they ‘implicitly invoked notions of federal balance’ to limit the breadth of the interpretation given to the corporations power in s 51(xx) of the Constitution.[191] Technically, the majority’s rejection of the utility of the notion of ‘federal balance’ centred on the plaintiffs’ failure to give it any content.[192] Yet, it seems their Honours would have been minded to dismiss arguments based on a more concrete version of the concept in any case, having earlier referred with approval to the discarding of the doctrines of intergovernmental immunities and reserved powers in Engineers, which each rested on notions of state power within a static ‘federal balance’.[193] The majority’s line of reasoning is consistent with earlier observations that extant state legislative capacity cannot operate as a constraint on Commonwealth legislative power, as was articulated by Mason J:

Loss of state legislative capacity to regulate areas of activity falling within the reach of paramount federal powers is an element in the federal balance for which the Constitution itself provides when, by section 109, it gives federal laws paramountcy over state laws. Accordingly, the fact that the states effectively sustain loss of legislative power is not a matter that can bring the implied prohibitions into play. If they have a part to play, it is confined to legislation that discriminates or affects the capacity of the states to function as governments.[194]

The rhetoric adopted more recently by members of the Court in Williams (No 1) and given the additional impetus in the joint judgment in Williams (No 2) stands in contrast to the orthodox approach to federal constraints. In holding that Commonwealth executive power is limited not just by considerations of responsible government but also federal considerations deriving, ostensibly, from the text and structure of the Constitution,[195] the Court gave life in these cases to a line of reasoning that has not received majority approval since aspects of the intergovernmental immunities were resurrected, in heavily qualified terms, in Melbourne Corporation.[196] In the context of Commonwealth executive power, the Court eschewed the principle that the words of s 61 ought to be construed with all the generality they admit.

One strand of federal reasoning in the Williams decisions is perhaps of greatest note for present concerns. It was first alluded to in the opening paragraphs of French CJ’s judgment, in which he quoted Alfred Deakin’s observation, that: ‘[a]s a general rule, wherever the executive power of the Commonwealth extends, that of the States is correspondingly reduced’.[197] The Chief Justice expanded on this notion later in his opinion:

Expenditure by the Executive Government of the Commonwealth, administered and controlled by the Commonwealth, in fields within the competence of the executive governments of the States has, and always has had, the potential, in a practical way of which the Court can take notice, to diminish the authority of the States in their fields of operation.[198]

These considerations were more forcefully expressed in the joint reasons in Williams (No 2) in response to the Commonwealth’s application to have the decision in Williams (No 1) overturned. Reflecting on the Commonwealth’s underlying contention that, in light of Australian constitutional heritage, federal executive power ought to be interpreted as broadly as the power of the British Executive, their Honours observed:

This assumption, which underpinned the arguments advanced by the Commonwealth parties about executive power, denies the ‘basal consideration’ that the Constitution effects a distribution of powers and functions between the Commonwealth and the States. The polity which, as the Commonwealth parties rightly submitted, must ‘possess all the powers that it needs in order to function as a polity’ is the central polity of a federation in which independent governments exist in the one area and exercise powers in different fields of action carefully defined by law. It is not a polity organised and operating under a unitary system or under a flexible constitution where the Parliament is supreme. [199]

It is difficult to escape the feeling that the emphasis in these judgments on the ‘fields of operation’ and ‘fields of action carefully defined by law’ as considerations relevant to limiting the scope of Commonwealth executive power are not dissimilar to references to a federal balance defined by reference to extant powers in the legislative sphere. At the very least, they embody an unambiguous rebuke of the Engineers proclamation of executive government carried on in the name of the Crown as ‘one and indivisible’.[200] Nonetheless, the broader implications of Williams (No 1) and Williams (No 2) have not yet emerged. In particular, it is not at this stage apparent whether the Court’s willingness to construe federal limits based, at least in part, on fields of ‘operation’ or ‘action’ is confined to its interpretation of Commonwealth executive power or whether it will also have some, however subtle, influence over its interpretation of federal legislative powers.[201] Commonwealth executive power is one of those areas in which strict and complete legalism most obviously fails to provide an adequate response to questions regarding its scope, for while s 61 vests federal executive power, ‘[i]ts specific limits have to be determined aliunde’.[202] Moreover, the sheer weight of authority leans against the possibility of a change in approach towards legislative power[203] – a factor the Court did not have to contend with to the same degree in Williams (No 1) with respect to executive spending. If a dichotomy in methodology is thus emerging, which interpretive approach is the more appropriate in the context of s 96?

There is no doubt a superficial attraction to maintaining a broad construction of s 96, without limitation. Unlike Commonwealth executive power, s 96 is drafted in specific terms and the application of federal constraints to its operation would involve implying limitations that derive from beyond the text of the provision itself, despite an absence of the qualifying words ‘subject to this Constitution’. Yet, the more recent cases on s 96, discussed above, indicate a willingness on the part of the Court to view s 96 as subject to constraints arising from other parts of the Constitution, such as 51(xxxi) and possibly also s 116. An application of limits deriving from the federal system, at least as they are established by the text and structure of the Constitution itself, would not then be an inconsistent development.

Paying attention to the way in which s 96 grants are made in practice reveals that the exercise of Parliament’s power under that provision is driven by executive impetus. Financial assistance grants are commonly part of a package negotiated into an intergovernmental agreement by executive governments behind closed doors. Those negotiations have the potential to politically bind Parliament in a way that not only undermines the proper relationship between it and the executive under ordinary principles of responsible government,[204] but also obscures the relationship of accountability that exists between the Australian people and their respective levels of government.[205] It would be entirely inconsistent for the Court to express concern regarding the direct expenditure of public moneys by the Commonwealth to achieve regulatory outcomes in spheres of executive responsibility occupied by the States, as it did in Williams (No 1) and Williams (No 2), while turning a blind eye to a mechanism that operates largely in the same way.

Furthermore, the issue of paramountcy of Commonwealth laws that attends under s 109 does not arise under s 96. The Court has always accepted that s 96 cannot – at least in law – operate as a general legislative power extending Commonwealth paramountcy beyond the textual limits in ss 51, 52 and 122. Once the words of those provisions have been construed with all the generality they admit,[206] it follows that the States must have exclusive jurisdiction over the ‘residue’ of powers that have not been assigned to federal Parliament, since ‘a polity must possess all the powers that it needs in order to function as a polity’.[207] Thus, any attempt by the Commonwealth to assert regulatory power in these areas ought to invite close scrutiny from the Court, for an essential feature of a federal system is that each governing unit ‘has a reasonable degree of autonomy within its prescribed competence’.[208]

This is not reasoning of the reserved powers kind that was discarded in Engineers.[209] The position of the Court has never been that any implications derived from the federal division of powers are ‘necessarily wrong’ – a point emphasised in the more recent cases.[210] Rather, the concern is that implications ought not to draw upon a priori demarcations of ‘federal balance’. The close judicial scrutiny invited here does not rest on any generalised assumptions about the fields to which exclusive State power ought to extend, such as the ‘domestic or internal affairs of the states’ or their ‘traditional areas of law-making power’.[211] Rather, it follows the ordinary principles of constitutional interpretation in requiring, first, that Commonwealth legislative power be broadly construed, and only then determining whether a field of authority falls within the exclusive legislative jurisdiction of the States.[212]

Such an approach would be consistent with the ‘true scope and purpose’[213] of s 96 as envisaged by the framers. As the report of the 1899 Premiers’ Conference recorded, s 96 was to empower Parliament ‘to deal with any exceptional circumstances which may from time to time arise in the financial position of the States’.[214] Thus, as early as 1901, Quick and Garran drew the conclusion that the section was ‘intended as “the medicine, not the daily food,” of the Constitution’ and that it was ‘not intended to diminish the responsibility of State Treasurers, or introduce a regular system of grants in aid’.[215] The ‘tied’ nature of s 96 grants was a characteristic intimately linked with the limited usage envisaged for it as a provision only to be deployed in rare circumstances and for the alleviation of need out of the ordinary.

IV SECTION 96: FEDERAL CONSTRAINTS AND COOPERATIVE FEDERALISM

In the contemporary context, where s 96 is used to influence the States in the exercise of their legislative power in the course of the ordinary redistribution of revenue, ‘tied’ grants sit uneasily with the federal structure established by the Constitution. As Dixon CJ acknowledged even far back as the Second Uniform Tax case, if interpretation of the provision had come before him for the first time he might have held that:

[T]he true scope and purpose of the power which s 96 confers upon the Parliament of granting money and imposing terms and conditions did not admit of any attempt to influence the direction of the exercise by the State of its legislative or executive powers.[216]

But even if this view were now to be accepted, the question still to be answered is: what might the Court look for as a measure of invalidity? For it cannot be that all s 96 grants attaching terms and conditions of a regulatory nature in fields of exclusive State legislative jurisdiction are invalid. While cooperative federalism ‘is not a constitutional term’,[217] it is an increasingly critical area of governmental activity[218] and through intergovernmental agreements (which often include provision for s 96 financial grants) the Commonwealth and the States are capable of achieving together what they could not as individual governments acting alone. Where genuine agreement is reached reflecting ‘the result of a State and the Commonwealth legislating within the powers conferred on them by the Constitution’,[219] it is difficult to see that a constitutional objection can legitimately be raised. This kind of genuine cooperation is ‘inherent in the federal idea’[220] and fundamental to the successful operation of the federation in practice, particularly where vertical fiscal imbalance is such a dominating feature of that landscape. It has been argued that such ends ‘ought, as a general rule, to be fostered and encouraged’[221] in order to enable Australian governments to address problems of national concern in an increasingly dynamic and competitive political environment. Thus, in the context of s 96, Chief Justice French has observed extra-curially:

Additional grants by the Commonwealth to the States under s 96 of the Constitution have been seen as part of a mechanism, sanctioned by the High Court, to allow the Commonwealth to enter, through the conditions it imposes, into fields of regulation otherwise beyond its legislative powers. In this way, the Commonwealth has been able to play an important role in areas such as secondary and tertiary education, hospitals, roads, and many others.[222]

However, a real difficulty arises when agreements containing offers of financial assistance are not genuine, such as when they are coloured by circumstances amounting to practical coercion. In such circumstances, regulatory overreach by the Commonwealth cannot – in substance – be properly characterised as an instance of a State exercising the powers conferred upon it since, in that case, it has no reasonable choice but to accept the Commonwealth’s terms.

The idea that s 96 has a ‘consensual aspect’ is not a new one. In 1967, Geoffrey Sawer observed that federalism is ‘consistent with any degree of common or co-operative or parallel action between the unit governments, provided it is in a substantial degree voluntary’.[223] More recently, in Williams (No 1), a number of justices were concerned that direct and unconstrained Commonwealth spending might result in the ‘bypassing of s 96’.[224] For Gummow and Bell JJ, this concern appeared to be linked to a passage from Barwick CJ’s judgment in Victoria v Commonwealth and Hayden (‘AAP case’):[225]

Section 96... has enabled the Commonwealth to intrude in point of policy and perhaps of administration into areas outside Commonwealth legislative competence ... But a grant under s 96 with its attached conditions cannot be forced upon a State: the State must accept it with its conditions. Thus, although in point of economic fact, a State on occasions may have little option, these intrusions by the Commonwealth into areas of State power which action under s 96 enables, wear consensual aspect.[226]

Hayne J also expressed concern that the ‘consensual aspect’ of which Barwick CJ spoke might be ‘obliterated’ in certain circumstances.[227] If the ‘consensual aspect’ of s 96 is indeed a primary concern for these judges, and if it can be accepted that orthodox methodological constraints that limited the Court’s attention to legal attempts at compulsion have now been lifted, then it would be within the range of possibility for the Court to now accept that real consent from the States must be preserved not just in a legalistic sense, but also in a meaningful practical sense.

Real consent can only be produced in circumstances that are free from all forms of coercion, whether practical or legal and whether found in the structure of the grant itself or external to it. Acceptance of this by the Court would give effect to the federal division of powers by ensuring that the Commonwealth cannot institute policy in areas outside its constitutionally mandated spheres of power except with the true cooperation of the States. The role of the exception is to ensure that the constraint on s 96 does not unduly limit what would otherwise amount to legitimate instances of intergovernmental interaction between the Commonwealth and the States. In that way, the operation of s 96 may be brought into alignment with the broader federal structure of the Constitution in both its coordinate and cooperative modes.

While it could be argued that the approach advocated here may raise factual difficulties and draw the Court into political ‘area[s] of controversy it has sought to avoid,’[228] a number of observations may also be made. First, the Court has always been remarkably cognisant of the practical realities surrounding s 96 grants, even while it ostensibly maintained its ‘strict adherence’ to legalism. In the First Uniform Tax case, for example, Latham CJ acknowledged that the ‘Tax Act imposes a tax at rates such that there is left little practical room for State income tax’[229] and that ‘the scheme... could be applied to other taxes so as to make the States almost completely dependent, financial and therefore generally, upon the Commonwealth’.[230] In his view, however, it was not the Court’s proper place to consider these observations as relevant factors,[231] and it was the overriding consideration of judicial restraint that prevented him from giving practical coercion any weight,[232] not any empirical problem with identifying the existence of the coercion itself.

Secondly, a distinction ought to be drawn between decisions that are made as a result of ‘current political views by judges of a political frame of mind’,[233] and judgments that are made in consideration of matters of law and fact, but which may have political ramifications in the sense that they affect the scope of governmental powers.[234] As Kirby J observed in Bennett v Commonwealth,[235] ‘giving effect to constitutional requirements in a federation will often, as Dicey recognised, involve political judgments in the broad sense’.[236] Judicial recognition of practical coercion and its effect in the context of s 96 would fall into this ‘broad category’, since it would only require the identification of coercion as a matter of fact, not the making of value judgments based on political views or a priori value sets. Although, historically, the Court has been reticent to judicially notice facts that are not ‘very general and enduring in character’,[237] its more recent decisions on the financial provisions demonstrate a willingness to take account of a greater array of factual circumstances, including in relation to intergovernmental negotiations.[238]

Thirdly, while US Supreme Court judgments are not always instructive on matters of domestic constitutional law, there are significant parallels between s 96 and the conditional spending power in the American Constitution. The latter permits the US federal government to make conditional offers of funds to the American states. Furthermore, until recently, the ‘dichotomy between law and practice’ was also ‘a feature also of United States grant law’.[239] That dichotomy has now weakened. In National Federation of Independent Business v Sebelius (‘Medicaid’),[240] the US Supreme Court acknowledged for the first time that the federal executive had stepped beyond the bounds of the conditional spending power on the basis that it ‘coerced’ the States into acceptance.[241] The essence of the test was explained in the joint opinion of the majority:

[T]he legitimacy of attaching conditions to federal grants to the States depends on the voluntariness of the States’ choice to accept or decline the offered package. Therefore, if States really have no choice other than to accept the package, the offer is coercive, and the conditions cannot be sustained under the spending power.[242]

On the facts, the majority justices held that the financial incentive used by Congress was much more than relatively ‘mild encouragement’. Since non-acceptance by a state meant that it not only lost that particular financial incentive but also its entire pre-existing allocation of Medicaid funding, the proposal was considered ‘a gun to the head’[243] and a use of financial inducements to ‘exert a ‘power akin to undue influence’’.[244] Thus they concluded that impugned legislation ran ‘contrary to [the American] system of federalism’.[245]

In view of these considerations, the concerns that have been taken into account in reaching the conclusion that the Commonwealth cannot legally compel the States into accepting financial grants ought to now be considered equally applicable in circumstances of practical coercion. In a context where the Commonwealth is seeking to achieve, through the terms and conditions attached to a financial grant, that which it could not otherwise achieve within the limits of its constitutional powers, any form of compulsion upon the States – whether legal or practical – takes the exercise outside the realm of intergovernmental cooperation and into an area akin to a ‘power to make laws with respect to a general subject matter’.[246] Recognition of a federal constraint in a manner unhindered by artificial distinctions between legal and practical effects would ensure that s 96 is interpreted consistently with the broader structure of the Constitution.

V CONCLUSION

One State Attorney-General has observed recently that ‘it is possible that there will be a challenge to a law for financial assistance to the States that contains conditions that go beyond “mild encouragement”’.[247] Whether or not the High Court, in such a case, takes up the opportunity to revisit the orthodox approach to s 96 is yet to be seen. In the event that it does, there may be cause to speculate that a new era of intergovernmental relations between the Commonwealth and the States may ensue. The threat of a credible constitutional challenge could lead to greater caution on the part of the Commonwealth in placing excessive reliance on s 96 to achieve policy outcomes in areas outside its constitutionally defined mandate. In turn, this may initiate a wider cultural shift that re-defines, at least to some degree, the current power imbalance between the different levels of Australian governments. That kind of shift would have the potential to renew the health of Australian federalism, contributing to the evolution of more productive forms of cooperation between governments and establishing clearer lines of accountability to the Australian people.


[*] BSc (Hons 1) UNSW, LLB (Hons 1) USyd.

[1] George Winterton, ‘The High Court and Federalism: A Centenary Evaluation’ in Peter Cane (ed) Centenary Essays for the High Court of Australia (Lexisnexis Butterworths, 2004), 220; Sir Harry Gibbs, ‘Decline of Federalism?’ (1994) 18 Queensland Law Journal 1, 5; Alan Fenna, ‘Commonwealth Fiscal Power and Australian Federalism’ [2008] UNSWLawJl 30; (2008) 31 University of New South Wales Law Journal 509, 517; Chief Justice Robert French, ‘Australia’s Constitutional Evolution’ (Paper presented at John Fordham Law School, Constitutional Law Master Class, 20 January 2010); Geoffrey de Q Walker, ‘The seven pillars of centralism: Engineers’ Case and federalism’ (2002) 76 Australian Law Journal 678, 695.

[2] Fenna, above n 1, 509.

[3] New South Wales v Commonwealth [1908] HCA 68; (1908) 7 CLR 179.

[4] Note, however, that in Victoria v Commonwealth [1957] HCA 54; (1957) 99 CLR 575, 656 (Second Uniform Tax case), Fullager J suggested that the Commonwealth may have possessed the power to grant financial aid with terms attached even if the clause had not been included in the Constitution.

[5] Commonwealth Government, Budget 2015-2016, Budget Paper No 3, Part 1: Australia’s Federal Relations (12 May 2015) <http://www.budget.gov.au/2015-16/content/bp3/html/bp3_02_part_1.htm> .

[6] Second Uniform Tax case [1957] HCA 54; (1957) 99 CLR 575, 609.

[7] See Victoria v Commonwealth and Hayden [1975] HCA 52; (1975) 134 CLR 338, 357-8 (Barwick CJ).

[8] South Australia v Commonwealth [1942] HCA 14; (1942) 65 CLR 373 (‘First Uniform Tax case’); Second Uniform Tax case [1957] HCA 54; (1957) 99 CLR 575.

[9] First Uniform Tax case [1942] HCA 14; (1942) 65 CLR 373; Second Uniform Tax case [1957] HCA 54; (1957) 99 CLR 575, 607 (Dixon CJ), 656 (Fullagar J).

[10] See, eg, Victoria v Commonwealth [1951] HCA 8; (1926) 84 CLR 58; Attorney-General (Vic) (Ex rel Black) v Commonwealth (1981) 146 CLR 559.

[11] Sir Anthony Mason, ‘The Role of a Constitutional Court in a Federation – A Comparison of the Australian and the United States Experience’ [1986] FedLawRw 1; (1986) 16 Federal Law Review 1, 14.

[12] Leslie Zines, ‘Changing Attitudes to Federalism and its Purpose’ in Robert French, Geoffrey Lindell and Cheryl Saunders (eds), Reflections on the Australian Constitution (Federation Press, 2003) 91.

[13] Cheryl Saunders, ‘Towards a theory for section 96: Part II[1988] MelbULawRw 15; (1988) 16 Melbourne University Law Review 699, 702.

[14] [2012] HCA 23; (2012) 248 CLR 156.

[15] [2014] HCA 23; (2014) 252 CLR 416.

[16] Alexandra Smith, ‘Piccoli backs secular welfare workers’, The Sydney Morning Herald (30 August 2014), 4; Primrose Riordan, ‘Chaplaincy mavericks deemed not to have a prayer of getting funding’, Canberra Times (16 September 2014), 6; Tom Nightingale, ‘National School Chaplaincy Program: Tasmania wants secular counsellors included in scheme’, ABC Online (27 September 2014) <http://www.abc.net.au/news/2014-09-27/tasmanian-government-wants-secular-workers-in-nscp/5773624> .

[17] Alexandra Smith, ‘Chaplains get the nod over youth workers’, The Sydney Morning Herald (11 October 2014), 3; Kathleen Dyett, ‘School chaplaincy program agreed to by ACT Government’, ABC Online (6 October 2014) <http://www.abc.net.au/news/2014-10-06/school-chaplaincy-program-agreed-to-by-act-government/5791816> Riordan, above n 16.

[18] Council on Federal Financial Relations, Project Agreement for the National School Chaplaincy Programme between the Commonwealth of Australia and New South Wales, Victoria, Queensland, Western Australia, South Australia, Tasmania, the Australian Capital Territory and the Northern Territory, October-November 2014, <http://www.federalfinancialrelations.gov.au/content/npa/education.aspx> .

[19] Williams (No 2) [2014] HCA 23; (2014) 252 CLR 416, 457-463 [38]-[55] (French CJ, Hayne, Crennan, Kiefel, Bell and Keane JJ), 471 [99] (Crennan J).

[20] Amalgamated Society of Engineers v Adelaide Steamship Company Limited and Ors [1920] HCA 54; (1920-21) 28 CLR 129 (Engineers' Case).

[21] See Brian Galligan, Politics of the High Court: A Study of the Judicial Branch of Government in Australia (University of Queensland Press, 1987) 85-98; Jeffrey Goldsworthy, ‘Realism about the High Court’ [1988] FedLawRw 2; (1988) 18 Federal Law Review 27, 28-9.

[22] For broad recognition of this influence, see Galligan, above n 21, 131-2; Cheryl Saunders, ‘The Uniform Tax Cases’ in H. P. Lee and George Winterton (eds) Australian Constitutional Landmarks (Cambridge University Press, 2003) 62.

[23] Geoffrey Sawer, Australian Federalism in the Courts (Melbourne University Press, 1967) 143.

[24] Greg Craven, ‘Cracks in the Façade of Literalism: Is there an Engineer in the House?’ [1992] MelbULawRw 2; (1992) 18 Melbourne University Law Review 540; Greg Craven, ‘After Literalism: What?’ [1992] MelbULawRw 23; (1992) 18 Melbourne University Law Review, 874.

[25] Craven, above n 24, 540-1. It is as yet unsettled whether in the era of the Gleeson Court, there was a return to ‘legalistic’ methodology. For example, contrast Michael McHugh, ‘The Constitutional Jurisprudence of the High Court: 1989-2004’ (Speech delivered at the Inaugural Sir Anthony Mason Lecture in Constitutional Law, Sydney, 26 November 2004) with Michel Coper, ‘Concern about judicial method’ [2006] MelbULawRw 17; (2006) 30 Melbourne University Law Review 554, 564.

[26] See, eg, ICM Agriculture [2009] HCA 51; (2009) 240 CLR 140, 169 (French CJ, Gummow and Crennan JJ), 206 (Heydon J).

[27] Stephen McLeish, ‘Federal implications under the Australian Constitution(2012) 25 Public Law Review 172, 183.

[28] The author acknowledges that methodology may not provide a complete explanation for the Court’s approach in the cases on s 96: Stephen Gageler, ‘Beyond the Text: A Vision of the Structure and Function of the Constitution’ (2009) Bar News: Journal of the NSW Bar Association 30, 33.

[29] See, eg, Galligan, above n 21; Goldsworthy, above n 21, 27; Brian Galligan, ‘Realistic ‘Realism’ And the High Court’s Political Role’ [1988] FedLawRw 3; (1988) 18 Federal Law Review 40; Jeffrey Goldsworthy, ‘Reply to Galligan’ [1988] FedLawRw 4; (1988) 18 Federal Law Review 50; Craven, above n 24; Jeffrey Goldsworthy, ‘Originalism in Constitutional Interpretation’ [1997] FedLawRw 1; (1997) 25 Federal Law Review 1; Jeremy Kirk, ‘Constitutional Interpretation and a Theory of Evolutionary Originalism’ (1999) 27 Federal Law Review 323; Michael Kirby, ‘Constitutional Interpretation and Original Intent: A Form of Ancestor Worship?’ [2000] MelbULawRw 1; (2000) 24 Melbourne University Law Review 1; Jeffrey Goldsworthy, ‘Interpreting the Constitution in its Second Century’ [2000] MelbULawRw 27; (2000) 24 Melbourne University Law Review 677.

[30] See, eg, Leslie Zines, ‘The Federal Balance and the Position of the States’ in Greg Craven (ed), The Convention Debates 1891-98: Commentaries, Indices and Guide (1986), 75; Alan Fenna, ‘The Malaise of Federalism: Comparative Reflections on Commonwealth-State Relations’ (2007) 66 Australian Journal of Public Administration 298; Fenna, above n 1, 517; Anne Twomey, ‘The Future of Australian Federalism – Following the Money’ (2009) 24(2) Australasian Parliamentary Review 11; Andrew Lynch, ‘Commonwealth financial powers – taxation, direct spending and grants – scope and limitations’ (2011) 6 Public Policy 23.

[31] See, eg, Justice Gageler’s comments, expressed before he was appointed to the High Court bench: ‘I have never been sure exactly what legalism means. Strict and complete legalism, like absolutely free trade and commerce, is an emphatic statement of the obscure. It is a statement that is devoid of any fixed or definite meaning. It seems to mean different things to different people’ in Gageler, above n 28, 33.

[32] Sir Owen Dixon, Jesting Pilate (Sydney Law Book Co, 1965) 247.

[33] Goldsworthy, ‘Reply to Galligan’, above n 29, 51.

[34] Galligan, above n 21, 258.

[35] James Stellios, Zines’ High Court and the Constitution (Federation Press, 2015) 641.

[36] Galligan above n 21, 32.

[37] Zelman Cowen, Sir John Latham and Other Papers (Oxford University Press, 1965) 36-7; Fiona Wheeler, ‘The Latham Court’ in Rosalind Dixon and George Williams (eds), The High Court, the Constitution and Australian Politics (Cambridge University Press) 165.

[38] [1926] HCA 48; (1926) 38 CLR 399 (‘Federal Roads case’).

[39] Victoria also argued that the Act was not warranted by any provision in s 51 of the Constitution, including the defence power and s 51(xxxviii): Federal Roads case [1926] HCA 48; (1926) 38 CLR 399, 405.

[40] Federal Roads case [1926] HCA 48; (1926) 38 CLR 399, 405 (Robert Menzies) (during argument).

[41] Ibid 405-6 (Hannan) (during argument).

[42] As to criticism of this judgment, see Graham Fricke, ‘The Knox Court: Exposition Unnecessary’ [1999] FedLawRw 5; (1999) 27 Federal Law Review 121, 125, where Fricke describes the judgment as ‘cavalier and dismissive’ and ‘prematurely rigidifying the development of the law concerning the grants power’.

[43] Federal Roads case [1926] HCA 48; (1926) 38 CLR 399, 406.

[44] Ibid 399.

[45] Enid Campbell, ‘The Commonwealth Grants Power’ (1969) 3 Federal Law Review 219, 223-4; Cheryl Saunders, ‘The Development of the Commonwealth Spending Power’ [1978] MelbULawRw 4; (1978) 11 Melbourne University Law Review 369, 390-2; Fricke, above n 42, 125.

[46] Stellios, above n 35, 642.

[47] [1939] HCA 27; (1939) 61 CLR 735 (‘Moran’s case’).

[48] Ibid 754.

[49] In the alternative, the plaintiff argued that that the payments made by the Commonwealth to the States constituted bounties on the production or export of goods, and because they were not uniform they thus fell foul of s 51(iii). This argument is not relevant to the present discussion.

[50] Moran’s case [1939] HCA 27; (1939) 61 CLR 735, 762.

[51] Ibid 778.

[52] Ibid 785.

[53] Ibid 794.

[54] W R Moran Pty Ltd v Deputy Federal Commissioner of Taxation (NSW) [1940] UKPCHCA 3; (1940) 63 CLR 338, 350.

[55] This appears to have been the impetus behind Starke J’s desire, for example, to distinguish the American authority of United States v Butler [1936] USSC 11; 297 U.S. 1 (1936): ‘It was decided [in United States v Butler], three justices dissenting, that the Act was part of a plan to invade the reserved rights of the State and to trespass upon their authority. But the Commonwealth legislation [in Moran’s case] invades no rights reserved by the Constitution to the States and in no wise [sic] trespasses upon their authority’: Moran’s case [1939] HCA 27; (1939) 61 CLR 735, 777.

[56] [1942] HCA 14; (1942) 65 CLR 373; (1957) 99 CLR 575.

[57] Ibid 405 (Latham CJ).

[58] Ibid.

[59] Ibid 386.

[60] Ibid 392.

[61] Ibid 405.

[62] Ibid 406 (Latham CJ).

[63] Ibid 394.

[64] Ibid 417.

[65] Sawer, above n 23, 106.

[66] First Uniform Tax case [1942] HCA 14; (1942) 65 CLR 373, 411.

[67] Ibid.

[68] Ibid 411-2.

[69] Ibid 412.

[70] Ibid. This approach is particularly difficult to reconcile with Latham CJ’s reasoning in Attorney General (NSW) v Homebush Flour Mills Ltd [1937] HCA 3; (1937) 56 CLR 390, 399 where he held that the ‘object’ of the Flour Acquisition Act 1931 (NSW) was directly relevant to its validity having regard to s 92 of the Constitution.

[71] Saunders, above n 13, 708.

[72] First Uniform Tax case [1942] HCA 14; (1942) 65 CLR 373, 417.

[73] Ibid 417 (Latham CJ).

[74] Ibid.

[75] [1957] HCA 54; (1957) 99 CLR 575.

[76] Ibid 602.

[77] Ibid 601. For criticism of the States’ approach see: Sawer, above n 23, 138.

[78] Second Uniform Tax case [1957] HCA 54; (1957) 99 CLR 575, 601.

[79] Ibid 584.

[80] Ibid.

[81] [1947] HCA 26; (1947) 74 CLR 31.

[82] Second Uniform Tax Case [1957] HCA 54; (1957) 99 CLR 575, 586.

[83] Melbourne Corporation v Commonwealth [1947] HCA 26; (1947) 74 CLR 31, 83.

[84] [1937] HCA 3; (1937) 56 CLR 390 (‘Homebush Flour Mills’).

[85] Ibid 391.

[86] Ibid 410.

[87] Ibid 405.

[88] Ibid 413.

[89] Second Uniform Tax case [1957] HCA 54; (1957) 99 CLR 575, 605.

[90] When the First Uniform Tax case came before the Court, Dixon J was notably absent from the bench due to his appointment as Australia’s Ambassador to the United States from 1942 to 1944.

[91] Second Uniform Tax Case[1957] HCA 54; , (1957) 99 CLR 575, 609.

[92] Ibid 611.

[93] Swearing in of Sir Owen Dixon as Chief Justice (1952) 85 CLR xi, xiv. See also: Sir Owen Dixon, ‘Concerning Judicial Method’ (1956) 29 Australian Law Journal 468. However, see also Dyson Heydon’s argument that Sir Owen Dixon was not a literalist (even though he might have been a legalist) since he was willing to find implications in the Constitution and that involves looking to context: Dyson Heydon, ‘Theories of Constitutional Interpretation: A Taxonomy’ (2007) Winter Bar News: Journal of the NSW Bar Association 12, 26.

[94] Second Uniform Tax Case [1957] HCA 54; (1957) 99 CLR 575, 609.

[95] Ibid 610.

[96] Ibid.

[97] Walker, above n 1 695.

[98] Ibid.

[99] Ibid.

[100] Rae Else-Mitchell, Essays on the Australian Constitution (Law Book Company of Australasia, 1961) xxix; Sawer, above n 23, 58.

[101] Stephen Gageler, ‘Foundations of Australian Federalism and the Role of Judicial Review’ (1987) 17 Federal Law Review 162, 178.

[102] Leslie Zines, ‘Legalism, Realism and Judicial Rhetoric in Constitutional Law’ (2002) 5(2) Constitutional Law and Policy Review 21, 23.

[103] Felix Cohen, ‘Transcendental Nonsense and the Functional Approach’ (1935) 35 Columbia Law Review 809, 820-1; Gageler, above n 101, 180.

[104] Cohen, above n 103, 820.

[105] Sir Anthony Mason, ‘The Role of a Constitutional Court in a Federation – A Comparison of the Australian and the United States Experience’ [1986] FedLawRw 1; (1986) 16 Federal Law Review 1, 5.

[106] Ibid.

[107] According to Geoffrey Sawer, this occurred with the decision in the First Uniform Tax case: ‘it may be regarded as the high-water mark of interpretation on Engineers’ Case principles’: Cases on the Constitution of the Commonwealth of Australia (Law Book Company of Australasia, 1957) 89.

[108] The shift is not confined to Chapter IV and has also come to play an important role in determining the sufficiency of connection with heads of power contained in s 51 of the Constitution. See, eg, Re Dingjan; Ex parte Wagner [1995] HCA 16; (1995) 183 CLR 323, 368-9 (McHugh J); Grain Pool (WA) v Commonwealth (2000) 202 CLR 479, 492 (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ); New South Wales v Commonwealth [2006] HCA 52; (2006) 229 CLR 1, 103 (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ).

[109] Homebush Flour Mills [1937] HCA 3; (1937) 56 CLR 390.

[110] Ibid 402.

[111] Dennis Hotels Pty Ltd v Victoria [1960] HCA 10; (1960) 104 CLR 529, 538 (Dixon CJ) (with whom McTiernan and Windeyer JJ agreed).

[112] Parton v Milk Board (Vic) [1949] HCA 67; (1949) 80 CLR 229, 258-61 (Dixon J); Capital Duplicators Pty Ltd v Australian Capital Territory (No 2) [1993] HCA 67; (1993) 178 CLR 561, 596 (Mason CJ, Brennan, Deane and McHugh JJ).

[113] Western Australia v Chamberlain Industries Pty Ltd [1970] HCA 5; (1970) 121 CLR 1; Dickenson’s Arcade Pty Ltd v Tasmania (1974) 130 CLR 177.

[114] [1970] HCA 5; (1970) 121 CLR 1.

[115] Menzies J did not take a view.

[116] Dickenson’s Arcade Pty Ltd v Tasmania (1974) 130 CLR 177.

[117] Ibid 188.

[118] [1989] HCA 38; (1989) 167 CLR 399.

[119] Ibid 433.

[120] Philip Morris v Commissioner of Business Franchises (Vic) [1989] HCA 38; (1989) 167 CLR 399, 440. They did, however, confine the application of the Dennis Hotels exception to licences to sell alcohol and tobacco. Dawson, Toohey and Gaudron JJ did not consider the issue as they found different reasons to hold that the impugned law was not an excise within the meaning of s 90.

[121] Philip Morris Ltd v Commissioner of Business Franchises (Vic) [1989] HCA 38; (1989) 167 CLR 399, 463 (Brennan J).

[122] Ngo Ngo Ha v New South Wales [1997] HCA 34; (1997) 189 CLR 465.

[123] Ibid 498 (Brennan CJ, McHugh, Gummow and Kirby JJ).

[124] [1953] HCA 8; (1953) 87 CLR 1.

[125] Ibid 18.

[126] [1955] AC 241.

[127] [1955] HCA 6; (1955) 93 CLR 55.

[128] [1966] HCA 9; (1966) 114 CLR 283.

[129] Samuels v Readers’ Digest Association Pty Ltd [1969] HCA 6; (1969) 120 CLR 1, 17.

[130] [1950] AC 235.

[131] Samuels v Readers’ Digest Association Pty Ltd [1969] HCA 6; (1969) 120 CLR 1, 17.

[132] Ibid 30.

[133] Cole v Whitfield [1988] HCA 18; (1988) 165 CLR 360.

[134] Ibid 401.

[135] Ibid 383.

[136] Ibid 399.

[137] Ibid 408.

[138] [1990] HCA 1; (1990) 169 CLR 436.

[139] Castlemaine Tooheys Ltd v South Australia [1990] HCA 1; (1990) 169 CLR 436, 473-4.

[140] Stellios, above n 35, 197.

[141] Ibid 656.

[142] Paul Kildea and George Williams, ‘The Mason Court’ in Rosalind Dixon and George Williams (eds), The High Court, the Constitution and Australian Politics (Cambridge University Press, 2015) 244, 246.

[143] Compare, eg, McHugh J’s prescriptive, rules-based approach to constitutional interpretation in McGinty v Western Australia [1996] HCA 48; (1996) 186 CLR 140, 230 and Re Wakim; Ex parte McNally (1999) 198 CLR 511, 549-551 [35]-[40] with Gummow J’s resistance to ‘the adoption and application of any particular, all-embracing and revelatory theory or doctrine of interpretation’: SGH Ltd v Commissioner of Taxation [2002] HCA 18; (2002) 210 CLR 51 [42]-[44].

[144] Patrick Emerton and Jeffrey Goldsworthy, ‘The Brennan Court’ in Rosalind Dixon and George Williams (eds), The High Court, the Constitution and Australian Politics (Cambridge University Press, 2015) 261, 261.

[145] Murray Gleeson, ‘Judicial Legitimacy’ (Speech delivered at the Australian Bar Association Conference, New York, 2 July 2000).

[146] Bradley Selway, ‘Methodologies of Constitutional Interpretation in the High Court of Australia’ (2003) 14 Public Law Review 234, 249-50.

[147] [2008] HCA 11; (2008) 234 CLR 418.

[148] Castlemaine Tooheys Ltd v South Australia [1990] HCA 1; (1990) 169 CLR 436, 473 (Mason CJ, Brennan, Deane, Dawson and Toohey JJ).

[149] [2008] HCA 11; (2008) 234 CLR 418, 476 [99] (Gleeson CJ, Gummow, Kirby, Hayne, Crennan and Kiefel JJ).

[150] [2012] HCA 12; (2012) 249 CLR 217.

[151] Betfair (No 2) [2012] HCA 12; (2012) 249 CLR 217, 269 [52].

[152] [2012] HCA 13; (2012) 249 CLR 298.

[153] Ibid 318 [17] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ).

[154] Ibid 324 [18] (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ).

[155] [2009] HCA 51; (2009) 240 CLR 140.

[156] Ibid.

[157] Victoria, Queensland, South Australian and Western Australia, but not New South Wales.

[158] Operating with s 51(xxxvi), which provides that the Commonwealth may make laws on matters in respect of which the Constitution makes provision until Parliament otherwise provides.

[159] ICM Agriculture [2009] HCA 51; (2009) 240 CLR 140, 164 (French CJ, Gummow and Crennan JJ).

[160] Ibid 165.

[161] Ibid 166.

[162] Ibid.

[163] [1949] HCA 66; (1949) 80 CLR 382.

[164] (1951) 84 CLR 68.

[165] See description in Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118, 133 (French CJ and Gummow J).

[166] Pye v Renshaw (1951) 84 CLR 68, 83.

[167] Ibid.

[168] ICM Agriculture [2009] HCA 51; (2009) 240 CLR 140, 170 (French CJ, Gummow and Crennan JJ).

[169] Ibid 206 (Heydon J).

[170] The majority refused leave to reopen Magennis despite the Commonwealth’s insistence that it had been wrongly decided: ICM Agriculture [2009] HCA 51; (2009) 240 CLR 140, 169 (French CJ, Gummow and Crennan JJ), 206 (Heydon J).

[171] Ibid 169 (French CJ, Gummow and Crennan JJ), 206 (Heydon J).

[172] Ibid 169-170 (French CJ, Gummow and Crennan JJ), 206 (Heydon J).

[173] (1981) 146 CLR 559.

[174] Ibid 593 (Gibbs J), 618 (Mason J).

[175] Ibid 650 (Wilson J).

[176] ICM Agriculture [2009] HCA 51; (2009) 240 CLR 140, 199 [141] (Hayne, Kiefel and Bell JJ).

[177] Ibid 198-9 [138]-[140].

[178] Ibid 199 [138].

[179] Ibid.

[180] Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118.

[181] Spencer v Commonwealth [2009] FCAFC 38; (2009) 174 FCR 398, 408.

[182] Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118, 133-4 (French CJ and Gummow J), 135 (Hayne, Crennan, Kiefel and Bell JJ).

[183] Ibid 133-4 (French CJ and Gummow J), 135 (Hayne, Crennan, Kiefel and Bell JJ). See also, Stephen Lloyd, ‘Compulsory Acquisition and Informal Agreements: Spencer v Commonwealth’ (2011) 33 Sydney Law Review 138,

[184] Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118, 134 (French CJ and Gummow J), 135 (Hayne, Crennan, Kiefel and Bell JJ).

[185] Ibid 134 (French CJ and Gummow J).

[186] Although the matter was remitted back to the Federal Court for determination of the substantive issues, this particular issue has so far been sidestepped by that Court on the basis that a number of the documents containing the relevant ‘negotiations and communications’ between the Commonwealth and NSW are cabinet documents and are therefore subject to public interest immunity: Spencer v Commonwealth [2012] FCAFC 169; (2012) 206 FCR 309; Spencer v Commonwealth (No 3) [2012] FCA 637.

[187] Sir Owen Dixon, Address on being sworn in as Chief Justice (1952) 85 CLR xi, xiii-xiv. ‘[C]lose adherence to legal reasoning is the only way to maintain the confidence of all parties in Federal conflicts’.

[188] Murray Gleeson, ‘Judicial Legitimacy’ (Speech delivered at the Australian Bar Association Conference, New York, 2 July 2000).

[189] Cheryl Saunders, ‘The National Implied Power and Implied Restrictions on Commonwealth Power’ (1984) 14 Federal Law Review 267, 268.

[190] [2006] HCA 52; (2006) 229 CLR 1.

[191] Ibid 118 [189] (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ).

[192] Ibid 120 [196].

[193] Ibid.

[194] Mason, above n 105, 131.

[195] For an in-depth discussion of these considerations, see Gabrielle Appleby and Stephen McDonald, ‘Looking at the Executive Power through the High Court’s New Spectacles’ [2013] SydLawRw 10; (2013) 35 Sydney Law Review 253, 263-270; Shipra Chordia, Andrew Lynch and George Williams, ‘Williams v Commonwealth: Commonwealth Executive Power and Australian Federalism’ [2013] MelbULawRw 12; (2013) 37 Melbourne University Law Review 189, 198-211.

[196] [1947] HCA 26; (1947) 74 CLR 31. Although the case stands for the proposition that the Commonwealth cannot destroy the constitutional powers of the States or their ability to function as independent entities, the immunity was qualified by Dixon J’s observation that the framers appeared to have ‘conceived the States as bodies politic whose existence and nature are independent of the powers allocated to them’: at 82.

[197] Williams (No 1) [2012] HCA 23; (2012) 248 CLR 156, 178.

[198] Ibid 192-3 [39].

[199] Williams (No 2) [2014] HCA 23; (2014) 252 CLR 416, 469 [83] (French CJ, Hayne, Kiefel, Bell and Keane JJ).

[200] Engineers’ case [1920] HCA 54; (1920) 28 CLR 129, 152.

[201] For an exploration of further considerations relevant to confining the considerations raised in Williams (No 1) and Williams (No 2) to the ‘special case’ of Comonwealth executive power, see David Hume, Andrew Lynch and George Williams, ‘Heresy in the High Court? Federalism as a Constraint on Commonwealth Power’ (2013) 41 Federal Law Review 71, 90-92.

[202] Le Mesurier v Connor [1929] HCA 41; (1929) 42 CLR 481, 514 (Isaacs J).

[203] Hume et al, above n 201, 90-2

[204] Geoffrey Sawer, Cooperative Federalism and Responsible Government in Australia (Cromwell Printing Company, 1970) 7.

[205] See, eg, Geoffrey Sawer’s warning (adopted from Sir Earle Page) against ‘the perils of a situation where one parliament and government raises the money and another parliament and government spends it’. In Sawer’s view, ‘[s]uch arrangements can lead to administrative and legal muddle; the citizen can be left not knowing which officials and ministers he should look to or deal with’: ibid 6-8.

[206] R v Public Vehicles Licensing Appeal Tribunal (Tas); Ex parte Australian National Airways Pty Ltd [1964] HCA 15; (1964) 113 CLR 207, 225 (Dixon CJ, Kitto, Taylor, Menzies, Windeyer and Owen JJ); Commonwealth v Tasmania [1983] HCA 21; (1983) 158 CLR 1, 127-8 (Mason J); Grain Pool (WA) v Commonwealth (2000) 202 CLR 479, 492 (Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ); New South Wales v Commonwealth [2006] HCA 52; (2006) 229 CLR 1, 103 (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ).

[207] Williams (No 2) [2014] HCA 23; (2014) 252 CLR 416, 467-468 [78] (French CJ, Hayne, Crennan, Kiefel, Bell and Keane JJ) (Crennan J concurring at 471 [99]).

[208] Geoffrey Sawer, Australian Federalism in the Courts (Melbourne University Press, 1967) 1.

[209] Engineers’ case [1921] HCA 4; (1920) 29 CLR 129, 144-5 (Knox CJ, Isaacs, Rich and Starke JJ).

[210] Pape v Federal Commissioner of Taxation [2009] HCA 23; (2009) 238 CLR 1, 117 [333] (Hayne and Kiefel JJ); Work Choices Case [2006] HCA 52; (2006) 229 CLR 1, 119 [194] (Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ).

[211] John Quick and Robert Garran, The Annotated Constitution of the Australian Commonwealth (1901, Angus & Robertson) 337.

[212] As was contemplated by Evatt and McTiernan JJ in R v Burgess; ex parte Henry [1936] HCA 52; (1936) 55 CLR 608, 680: ‘the Commonwealth’s powers under secs. 51 and 52 of the Constitution must first be recognized and interpreted before it is possible to determine the extent of “the exclusive powers of the States”’.

[213] Second Uniform Tax case [1957] HCA 54; (1957) 99 CLR 575, 609. See also the dissent of Stark J: First Uniform Tax case [1942] HCA 14; (1942) 65 CLR 373, 443.

[214] John Quick and Robert Garran, The Annotated Constitution of the Australian Commonwealth (1901, Angus & Robertson) 870.

[215] Ibid 871.

[216] Second Uniform Tax case [1957] HCA 54; (1957) 99 CLR 575, 609. See also the dissent of Stark J: First Uniform Tax case [1942] HCA 14; (1942) 65 CLR 373, 443.

[217] Re Wakim; Ex parte McNally (1999) 198 CLR 511, 557 (McHugh J).

[218] See, eg, Justice Robert French, ‘Cooperative federalism – a constitutional reality or a political slogan’ (Paper presented at the Western Australia 2029 Conference, 17-19 November 2004).

[219] Re Wakim; Ex parte McNally (1999) 198 CLR 511, 557 (McHugh J).

[220] Gould v Brown (1998) 193 CLR 346, 477 (Kirby J).

[221] George Williams, ‘Cooperative Federalism and the Rival of the Corporations Law: Wakim and Beyond’ (2002) 20 Company and Securities Law Journal 160, 163.

[222] French, above n 1, 22.

[223] Sawer, above n 23, 2.

[224] Williams No 1 [2012] HCA 23; (2012) 248 CLR 156, 234 [143] (Gummow and Bell JJ), 267-270 [244]-[248] (Hayne J), 347-348 [501]-[503] (Crennan J), 373 [592] (Kiefel J).

[225] [1975] HCA 52; (1975) 134 CLR 338.

[226] Ibid 357-8.

[227] Williams No 1 [2012] HCA 23; (2012) 248 CLR 156, 270 [248].

[228] Enid Campbell, ‘The Commonwealth Grants Power’ (1968) 3 Federal Law Review 221, 223.

[229] First Uniform Tax case [1942] HCA 14; (1942) 65 CLR 373, 411.

[230] Ibid 429.

[231] Ibid.

[232] Goldswothy, above n 21, 31.

[233] Sir Robert Menzies, The Measure of the Years (Cassell Australia, 1970) 240.

[234] See also, Goldswothy, above n 21, 36-8.

[235] [2007] HCA 18; (2007) 231 CLR 91.

[236] Ibid 122.

[237] Sawer, above n 23, 57.

[238] Spencer v Commonwealth [2010] HCA 28; (2010) 241 CLR 118, 134 (French CJ and Gummow J).

[239] Saunders, above n 13, 708.

[240] Medicaid (2012) 132 S. Ct. 2566.

[241] Ibid.

[242] Ibid 2661 (Roberts CJ, Breyer, Kagan, Scalia, Kennedy, Thomas and Alito JJ).

[243] Ibid 2604.

[244] Ibid 2602.

[245] Ibid.

[246] Second Uniform Tax case [1957] HCA 54; (1957) 99 CLR 575, 609.

[247] McLeish, above n 27, 183.


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