SGH Limited (formerly known as Suncorp Building Society Limited) v Commissioner of Taxation B19/2001 [2001] HCATrans 634 (6 December 2001)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B19 of 2001

B e t w e e n -

SGH LIMITED (formerly known as Suncorp Building Society Limited)

Applicant

and

THE COMMISSIONER OF TAXATION

Respondent

Case Stated

GLEESON CJ

GAUDRON J

McHUGH J

GUMMOW J

KIRBY J

HAYNE J

CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 6 DECEMBER 2001, AT 10.22 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR J.D. McKENNA, for the applicant. (instructed by Clayton Utz)

MR D.M.J. BENNETT, QC, Solicitor-General of the Commonwealth: If the Court pleases, I appear with my learned friends, MR J.A. LOGAN, SC and MR M.L. ROBERTSON, for the respondent. (instructed by the Australian Government Solicitor)

MR P.A. KEANE, QC, Solicitor-General of the State of Queensland: May it please the Court, I appear with my learned friends, MR G.R. COOPER and MS C.A. WATT, of counsel, for the Attorney-General of the State of Queensland intervening in the interests of the applicant. (instructed by the Crown Solicitor for the State of Queensland)

MR D. GRAHAM, QC, Solicitor General for the State of Victoria: May it please the Court, I appear with my learned friend, MR M.K. MOSHINSKY, for the Attorney-General for the State of Victoria intervening in support of the applicant. (instructed by the Victorian Government Solicitor)

MR R.J. MEADOWS, QC, Solicitor-General for the State of Western Australia: May it please the Court, I appear with my learned friend, MR F. SUNDERLAND, on behalf of the Attorney-General for Western Australia, intervening in support of the applicant. (instructed by the Crown Solicitor for the State of Western Australia)

MR B.M. SELWAY, QC, Solicitor-General for the State of South Australia: If it please the Court, I appear with my learned friend, MR P.S. PSALTIS, for the Attorney-General for South Australia, intervening. (instructed by the Crown Solicitor for the State of South Australia.)

Your Honours, we do not seek to put submissions on the questions asked in the case stated. Instead, we seek to alert the Court to another issue which we would ask the Court not to foreclose. So, the Court does not need to deal with that other issue in this case. We simply wish to alert the Court to its existence.

GLEESON CJ: Even so, it would probably be convenient to hear you in the order in which appearances are being announced after Mr Jackson.

MR SELWAY: If it please the Court.

MR M.G. SEXTON, SC, Solicitor-General for the State of New South Wales: If the Court pleases, I appear with my learned friend, MR M.J. LEEMING, for the Attorney-General for the State of New South Wales who intervenes in the proceedings. (instructed by the Crown Solicitor for the State of New South Wales)

GLEESON CJ: Yes, Mr Jackson.

CALLINAN J: Mr Jackson, before you begin, I mentioned at the application for the statement of the case that I had given an opinion in connection with an aspect of this matter. I think Mr Keane knew the details of that. I just mention that again so that if any party has any objection. I cannot remember just what aspect of it I was involved in, but there was an aspect.

GLEESON CJ: Yes, Mr Jackson.

MR JACKSON: Your Honours, could I say in relation to an estimate of time, in view of the number of parties, I would expect to be about an hour and a half. I understand that those intervening in support of our arguments would expect to take about an hour in total.

GLEESON CJ: Thank you.

McHUGH J: Does that mean we are likely to finish today?

MR JACKSON: Possibly, your Honour, yes.

Your Honours, as the Court is aware, the two questions referred to in paragraph 1 of the case stated at page 5 relate to two payments made by the State of Queensland to the applicant in July 1993. Could I take your Honours to paragraph 21 of the case stated at page 14, and your Honours will see in paragraph 21 that the two payments were received, one on 5 July, one of 28 July 1993, one in the sum of $23 million, one in the sum of $2.011 million. Your Honours will see those sums referred to also at page 78 in the accounts. At about line 29, your Honours will see "Capital receipts", $25,013,000, which is the sum of those two amounts.

Now, your Honours, I will come to the argument in just a moment, if I may, but could I say that the sum of $23 million was paid pursuant to section 11(1) of the Building Societies Fund Act 1993 . If I could take your Honours to that for a moment. Your Honours will see in section 11(1) of that Act that it provides for the sum of:

$49,995,000 is to be paid from the Consolidated Fund -

which is consolidated revenue -

(which is appropriated accordingly) to the continuing building societies listed in the Schedule.

If one goes to page 10, your Honours will see the second-last listing, "Suncorp Building Society Limited", $23 odd million. Now, your Honours, that sum was appropriated and to be paid from the consolidated fund - - -

GLEESON CJ: Using the word in a broad sense, what was the consideration for that payment?

MR JACKSON: In reality, your Honour, there is no actual consideration. It is a payment by the - - -

GLEESON CJ: I mean what was the reason for it?

MR JACKSON: I am sorry, your Honour. The reason for the payment, to put it shortly, was this, that there had been two earlier Building Societies Acts. One was the 1886 Act and then one was the 1985 Act. Each of them provided for, commencing in 1976, for there to be a contingency fund. If I could deal with first what it was for. The contingency fund was to be a fund which would be available to cover shortfalls in payments to persons who were depositors, if I could use the term neutrally for the moment, with building societies. If a building society went bad and there was not enough money to pay the depositors in full, then a claim could be made upon the contingency fund. The contingency fund was available for that purpose.

Where the contingency fund itself came from in terms of its funding was, your Honours, that there was provision made by each of the statutes for a particular percentage of the balances of building societies, each day I think, to be remitted to the contingency fund. However, your Honours, it was held in a decision which is referred to in, I think, the case stated - it is certainly in the written submissions - in relation to Metway, which was a building society at the time, that no interest was in the fund, was created in relation to the persons who paid the money into it, that it was a statutory exaction. The money was paid. The money belonged to the State, as it were.

GLEESON CJ: Did the building societies get a tax deduction for payments into that fund?

MR JACKSON: Your Honour, I cannot tell you at the moment. I will endeavour to find an answer to that.

KIRBY J: Are those matters that you have just told us common ground?

MR JACKSON: Your Honour, they are referred to actually in the case stated. Your Honours will see at page 13, paragraphs 14 and 15, a summary of the establishment of the contingency fund and how it was maintained. Then your Honours will also see in paragraphs 16 through to I think paragraph 19 why it was that in the end the money was repaid.

GLEESON CJ: This was, in effect, a prudential requirement that was imposed on building societies?

MR JACKSON: Yes.

GLEESON CJ: Who, by the nature of their business, borrow short and lend long?

MR JACKSON: Your Honour, some did, and your Honours will have seen from the case stated that this body was brought into being because of the fact that a number of building societies in 1976 found themselves in fairly dire straits, to the tune of a possible shortfall of some many millions of dollars.

HAYNE J: Just a minor matter of information. What are precepted loans, referred to in paragraph 15 of the case stated? Do we need to know?

MR JACKSON: I cannot give your Honour an answer to that immediately and one feels - - -

HAYNE J: We may not need to know.

MR JACKSON: I am sorry, your Honour, I will endeavour to find out. One feels that an element of suasion may be involved in them in relation to that but I will endeavour to give your Honour a better answer to that.

I referred your Honours to paragraphs 14 and 15 of the case stated and the succeeding paragraphs to indicate the way in which the contingency fund came into being and the way in which payments were required to be made from it. Your Honours will see the references to the various provisions of the two enactments, the 1886 Act as amended in 1976 and also the 1985 Act, which provided for the contingency fund in similar terms, dealt with in the footnotes to the case stated.

GLEESON CJ: I am just not clear on the terminology. In section 11 it is called the "consolidated fund".

MR JACKSON: No, I am sorry, your Honour, the consolidated fund is ordinary consolidated revenue of the State. What I was going to say was this, that if one stays for a moment with section 11, your Honours will see that it provides that the amount of 49-odd million is to be paid from the consolidated fund, and your Honour will see the appropriation. That is then paid to the building societies in the schedule and it is to be dealt with in the way referred to in subsections (3) and (4). However, the consolidated fund itself was then to be augmented by the balance of the money that had been held in the contingency fund.

GLEESON CJ: So they did not get it back out of the contingency fund?

MR JACKSON: Well, they did, your Honour, in effect. Could I indicate - I said "the balance" because if one goes to page 7 of that copy, your Honours will see then there is an amendment to the Building Societies Act 1985 and, in particular, at the bottom of page 7, there is the insertion of section 147A and what it says, to put it shortly, is that when the contingency fund committee determines that all the claims have been settled and outstanding expenses paid, it pays the balance into the consolidated fund. So the contingency fund, in effect, was paid into the consolidated fund, but the consolidated fund would earlier, by virtue of the Act, pay the money to the building societies.

GLEESON CJ: This may be mere supposition and it may not have any factual basis, but if they just got a tax deduction for paying the money into the contingency fund, I think I know why they would not have paid it back to them straight out of the contingency fund.

MR JACKSON: Your Honour, if I may say in relation to that, that is, with respect, an element of speculation really at two levels.

GLEESON CJ: Yes, and it may be quite baseless because they may not have got a tax deduction in the first place, I do not know.

MR JACKSON: Yes, and also, your Honour, there is simply nothing to that effect in the case stated.

HAYNE J: Do we need to notice the amendment made by section 12(2) of the 1993 Act? Is that significant, that is, the amendment to section 136 by requiring gross assets to go in?

MR JACKSON: Yes, your Honour. What I should have said was that, in effect, the $500,000 that is referred to in subsection (2) there, that your Honour just referred to, was the money that was to be kept, pending the settlement of claims and so on and when that happened the balance of the contingency fund was paid in - paid to the consolidated fund.

GLEESON CJ: And did all this happen because somebody made a judgment that the time had passed when there was a continuing need for this prudential requirement?

MR JACKSON: Well, your Honour, that is true. Your Honour, it was perhaps a little more sophisticated than that in that really two things happened: one was that there was an investigation which your Honours will see referred to as "the Brady Committee" report referred to in the case stated. That is at page 14 paragraph 18, where there was a committee of inquiry. It:

recommended that balances in the new fund be returned to individual building societies.

And your Honours will see from the last sentence of that, a similar view was taken, in effect, nationwide, in relation to State contingency funds for the "Non-Bank Financial Institutions (April 1991)" and the different - although it does not appear, your Honours - it is referred to in the judgment of the Full Court of the Federal Court in the first provincial case, which we have given your Honours a reference, a different system was brought into being, a nationwide system. Your Honours, I am sorry, that is really as far as the material goes in relation to it, but the reason for getting rid of it was that a new system was brought into being.

GLEESON CJ: So these were the building societies, in effect, getting their money - I realise there was no interest in it - back.

MR JACKSON: Yes, your Honour. That puts it, of course, in a colloquial, if I may say so, with respect, way.

GLEESON CJ: Yes, quite, and we do not have to concern ourselves with the question whether that payment was a subsidy or bounty.

MR JACKSON: No, your Honour. We accept for the purposes of the argument, of course, that it was.

GLEESON CJ: That issue remains to be resolved in the Federal Court if it is necessary to come to it.

MR JACKSON: Yes, your Honour. The same issue was resolved adversely to the first Permanent Building Society by the Full Court of the Federal Court in a case I will give your Honours reference to a little later, if I may. That case, to put it shortly, determined that the payment was not one of income on ordinary concepts but was capital, but because of section 26(g) of the Income Tax Assessment Act 1985 fell to be included in assessable income.

Now, your Honours, I have dealt so far with the first sum. The second sum, the $2.01 million, was an ex gratia payment. It is referred to, your Honours, in the case stated at page 15, paragraph 22. To put it shortly, what happened was that the payments that were to be made, that is the $23 million, was, in effect - the passage of the Building Societies Fund Bill was delayed because of litigation instituted by Metway, in which it was saying it had an interest in the funds. The Queensland Court of Appeal held that that was not so, but in the interim there had been some interest earned on the funds and the $2.01 million reflected that interest and was paid as an ex gratia payment.

Now, your Honours, I mention that those two sums were paid in July 1993. They were then treated by the respondent as falling into the applicant's assessable income for the year ended 30 June 1994. The basis, your Honours, without going through all the detail of the assessing, being that although they were not income by ordinary concepts, they fell within section 26(g) of the Income Tax Assessment Act, to which I will take your Honours in a moment, and they were thus to be treated as augmenting assessable income and, in consequence, taxable income.

Could I take your Honours to page 17 of the case stated, paragraph 26? Your Honours, there was an objection to the assessment and then your Honours will see in paragraph 26 the questions and answers resolved upon by the Commissioner of Taxation. The first, your Honours, was a determination, and this is paragraph 1, that, to put it shortly, section 114 was not applicable. The second was that the amounts were not assessable "under ordinary concepts" of income under "s.25(1)". The third, your Honours, was that the amounts were:

bounties or subsidies received and deemed to be part of the proceeds of the business and assessable under paragraph 26(g) -

and, your Honours, that, to put it shortly, was the basis of it.

Now, your Honours, the relevant provisions of the Income Tax Assessment Act - I am not certain that despite the many pieces of paper your Honours have that the actual charging provisions of the Act are amongst them, but your Honours will see them summarised - I will make sure your Honours are given copies of the sections that I am about to refer to - in South Australia v Commonwealth [1992] HCA 7; (1992) 174 CLR 235 at 251.

Your Honours are no doubt familiar with the provisions, generally speaking. In the first new paragraph:

In Australia, under the Act, income tax is imposed "upon the taxable income derived during the year of income" by a taxpayer (s. 17). For present purposes, the "taxable income" of a taxpayer is defined to mean " the amount remaining after deducting from the assessable income all allowable deductions" (s. 6(1)). The assessable income of a taxpayer who is a resident includes "the gross derived directly or indirectly from all sources whether in or out of Australia" which is not exempt income (s. 25(1)). Dixon J said -

and your Honours will then see going through to the remainder of that paragraph.

GUMMOW J: Justice Dawson's judgment puts it most clearly, perhaps, at 260. He tracks through the charging sections.

MR JACKSON: Yes. Your Honour, it is referred to also at page 252 in the reasons of Justice Brennan and Justice McHugh. Your Honours, may I say that I will make sure your Honours have copies of those sections as in force at the relevant time.

Your Honours, could I go particularly to section 26(g) and your Honours should have copies of that. What section 26 does is to provide that the assessable income of a taxpayer shall include a number of things which in some cases may and some cases may not otherwise be income. But paragraph (g) is:

any bounty or subsidy received in or in relation to the carrying on of a business -

and, your Honours, some words in parentheses do not matter -

and such bounty or subsidy shall be deemed to be part of the proceeds of that business.

So, your Honours what is done is to bring in a bounty or a subsidy received in or in relation to the carrying on of a business.

Now, your Honours, that brings me to the - I should mention, I said I would give a reference to First Provincial Building Society, that is First Provincial Building Society v The Federal Commissioner of Taxation 95 ATC 4145 and the payments in that case were characterised in the way in which I indicated earlier, that they were capital on the one hand - - -

GUMMOW J: It is also in 56 FCR 320.

MR JACKSON: That they were capital, your Honours will see that referred to at page 4150, halfway down the left column. There then commences a discussion about the question whether they were a bounty or subsidy and it was held that they were.

GLEESON CJ: I notice an application for special leave to appeal to this Court was refused.

MR JACKSON: Yes.

GLEESON CJ: Do you know the grounds?

MR JACKSON: No, I do not, your Honour, I am sorry. Now, your Honours, that really brings me, in a sense, to the first of the two questions raised by the case stated. Your Honours, may I say that it is perhaps a question which is the more appropriate question with which to start, but they seem to be in that sense equally balanced. May I deal with them in relation to the first of those two, namely, whether the Society, the applicant, was relevantly the State for the purposes of section 114. Your Honours, if I could just take your Honours to the words of section 114 of the Constitution. Your Honours will see that it provides relevantly that:

A State shall not . . . impose any tax on property of any kind belonging to the Commonwealth, nor shall the Commonwealth impose any tax on property of any kind belonging to a State.

Your Honours, I will come in dealing with the second part to the concept of what is a tax on property and the Court's decisions in that regard. But may I come first to the question of what is a State. In our submission, in the first place it is established by decisions of the Court that the term "State" in section 114 bears the same meaning, that is, as referring to a polity and the various emanations of the polity as it does in, for example, section 75(iv).

Your Honours will see that adverted to specifically in Deputy Commissioner of Taxation v State Bank of New South Wales [1992] HCA 6; (1992) 174 CLR 219 at 229. In particular, your Honours will see in the paragraph commencing at the top of the page all the members of the Court, in the second line of that paragraph, adverted to the argument that a "restricted meaning" should be given to "State" because it was part of the prohibition. Your Honours will see that developed through the next few lines and then their Honours say:

But in this respect to give a strict construction to s 114 would be more likely to frustrate than to achieve the attainment of its object, namely, the protection of the Commonwealth and the States from the imposition of taxation by each other in the interests of their respective financial integrity.

Your Honours will see that developed through the remainder of the page and, in particular, after the quotation the words:

Although his Honour made these comments in the context of elucidating s 75(iii) and (iv) of the Constitution, they apply with equal force to s 114.

Your Honours, the concepts of what is a "State" may also be seen in the same case, that is in Deputy Commissioner of Taxation v State Bank of New South Wales. It is one of a number of cases which refer to the fact that the term "State" includes corporations which are agencies or instrumentalities of the State. Could I take your Honours to page 230 and at the bottom of that page your Honours will see the paragraph commencing:

Once it is accepted that the Constitution refers to the Commonwealth and the States as organizations or institutions of government in accordance with the conceptions of ordinary life, it must follow that these references are wide enough to denote a corporation which is an agency or instrumentality of the Commonwealth or a State as the case may be. The activities of government are carried on not only through the departments of government but also through corporations which are agencies or instrumentalities of government.

Then, your Honours, that is referred to in the continuation of the paragraph on page 231. Your Honours, no doubt that includes corporations formed by statute where the statute itself is the constating instrument, as it were, for the body, but there is not, in our submission, any reason why it does not also include corporations formed pursuant to statutes of more general application. Indeed, albeit in a slightly different context, such a view was taken in the Court in R v Portus; Ex parte Federated Clerks Union of Australia [1949] HCA 53; (1949) 79 CLR 428.

Your Honours will see the issue that arose concerned the terms of rules of the Federated Clerks Union but its rules included, as your Honours will see from the head note, to put it shortly:

as eligible for membership "persons employed at a salary rate in connection with air transport who are salaried officers of the Crown." The phrase "salaried officers of the Crown" was defined as including "employees of any . . . corporation employing persons at an annual salary rate on behalf of the Government of the Commonwealth."

Your Honours, the body in question was Qantas which, as appears in Chief Justice Latham's reasons at page 434, Qantas was a public company incorporated in Queensland. It is the paragraph commencing about point 7 on the page. His Honour referred to that fact and he said:

The Commonwealth Government is registered as holder of all the shares except seven, and those seven shares are held by nominees of the Government . . . The articles of association of the company provide that the Commonwealth Minister of State for Civil Aviation shall have the sole right to appoint the directors of the company and substitutes for them and to appoint successors to them. Accordingly the Commonwealth Government has complete control of the company.

He then went on to discuss at page 435, the paragraph commencing about point 4:

The words "on behalf of the Crown" therefore should not be so interpreted as to produce what plainly would be the unintended result of including public servants -

no doubt meaning public servants strictu sensu and no others -

The expression "on behalf of the Crown" is not an expression which has a strict legal meaning. An agent who acts on behalf of a principal -

et cetera. Your Honours will see then, in the next paragraph, that there is a reference to, on the one hand, corporations formed by statute, and on the other hand, corporations formed pursuant to - if I could use that distinction - statute. Your Honours will see that in the first sentence in that paragraph his Honour refers to corporations "created by Parliament" and then goes on to say:

But can the same be said of a public company the relation of the Government to which is that the Government is a shareholder? The fact that the Government owned some shares while other persons owned other shares would not show either that the employees of the company were employed on behalf of the Crown or that they were employed on behalf of the other shareholders. But where the Crown holds all the shares the company is really carrying on its business solely in the interests of the Crown in the same way and to the same extent as in the case of the other authorities mentioned in rule 2. The substance of the matter is the same, whether the corporation is a specially created body or a company formed under a Companies Act.

Your Honours will then see the conclusion following. Your Honours, Justice Rich agreed with the reasons of other members of the Court. Could I refer your Honours to Justice Dixon, page 437, the paragraph first commencing on that page, and also page 438, Justice Dixon, commencing about point 3 on the page, "The expression "on behalf . . . " going through to about point 8 on the page where he says:

The result is that by a use of the machinery of the company law made under the sanction of Federal statute substantially the same practical result is produced as if a statutory authority were set up.

Your Honours, could I refer also to Justice McTiernan, page 440 from about point 4 to the bottom of the page, and Justice Webb, page 441, about point 4 to the end of that paragraph.

GLEESON CJ: Mr Jackson, is there any case which discusses the nature of a building society?

MR JACKSON: Yes, your Honour, perhaps I could give your Honour two references. Perhaps I should start by saying, if one is talking about building societies, of course they depend on a particular statute - - -

GLEESON CJ: Yes, but they are co-operative, are they not?

MR JACKSON: Your Honour, what they have, or what they have been treated as having, is that they are co-operative, on the one hand, but they have what have tended to be called "withdrawable shares".

GLEESON CJ: That is why they have shareholders in the first place. The people who provide the funds are the people who, as it were, benefit from the loans.

MR JACKSON: Yes, that is, in a sense, the 19th century view of it. I will take your Honour to the statute in a moment. Your Honour will see - if I could put it this way - the principal objective of the utilisation of funds during the relevant time was to be in connection with providing residential accommodation.

GLEESON CJ: For members.

MR JACKSON: No, your Honour. I do not think it is quite as limited as that, but in connection with providing residential accommodation. Now, your Honours, one of the sources of funds in relation to the Building Society has been what tends to be called, not so much in the statute but for example, in commentaries on the statute and in cases dealing with it, "withdrawable shares". "Withdrawable" meaning simply this, that unlike companies that have a fixed share capital where the shares cannot be simply cancelled at the whim of the person who is the shareholder, but there has to be something done to cancel the share capital, the capital, provided by the withdrawable shares, can be reduced or increased day by day.

GLEESON CJ: To qualify for a loan from a building society, do you have to be a member?

MR JACKSON: Not necessarily, your Honour, no.

CALLINAN J: I think in the early days you did. Some of them used to conduct something in the nature of lotteries. You could get a very cheap loan, I think, if your number came up, as it were.

MR JACKSON: Your Honour, I think they were called the "Starr Bowkett" ones, and I think came from Scandinavia.

CALLINAN J: Yes. I think initially everybody had to be a shareholder and they became much more expansive organisations later.

MR JACKSON: Yes. I will give your Honours a reference to the passage in Halsbury and to a case in a moment, if I may, your Honour.

GLEESON CJ: Thank you.

MR JACKSON: One sees, your Honour, if I could just say this in relation to building societies, that whilst there have been various cases about them, there really are not very many that actually discuss the concepts in them in at terribly useful way.

McHUGH J: There is one fact that tend to be against you I think, and which distinguishes the case from Qantas, is the existence of the "A" class shareholders to whom the directors would owe fiduciary duties.

MR JACKSON: Your Honour, I am going to come to that. When one comes to it, your Honour, in the end, that is the only point in the case, in our submission, on this issue. There may be other views about that, of course, but may I come to that in just a moment.

Your Honour, I mentioned a case, a decision in Scotland. Cuthbertson v Maxtone Graham (1905) 43 SLR 17. The relevant passage, your Honours, is at page 20 in the right column in the penultimate paragraph on that page. I have ventured to give a general sketch, and your Honours will see that paragraph, for example.

HAYNE J: Before you go on. What is the guidance that you say we get out of Qantas - or out of the Portus Case, given that that concerned a company incorporated under companies legislation, affected by two Commonwealth Acts. What guidance do we get from that for this case, where we are concerned with a different form of body corporate?

MR JACKSON: Your Honour, could I just say in relation to that, first of all, your Honour, I am not endeavouring to make a huge amount from Qantas. What I am seeking to say about it is, first of all, what it does demonstrate is a case where a company formed under the Companies Act was yet, in effect, part of the Commonwealth. Now, certainly - - -

GUMMOW J: Not from the time of its formation, though.

MR JACKSON: No, your Honour, no. It became so, in fact, that - - -

GUMMOW J: Yes. There were various vicissitudes over 20 years that led to the 1946 legislation.

MR JACKSON: Yes. Well, your Honour, some vicissitudes and some improvements, perhaps, and what one sees if one looks at the parliamentary debates indicating the reasons for that enactment was the need for funding really because they were buying the intercontinental aircraft - the Constellations, I think it was - and it was foreseen there would be very large expenditures in the future which it was unlikely a privately owned company could handle. It also was to be, your Honours, in competition with its former associate, BOAC.

Your Honour, I am sorry, what we cite it for your Honours is to indicate that the fact that the company or body is one which is formed pursuant to a statute, as distinct from formed by the statute, does not disqualify it from falling within either the Commonwealth or the State, as the case may be. Now, your Honour mentioned that there were two statutes involved. Your Honour, they referred to it but the statutes did not themselves form the body.

Your Honour, I was just going to give, if I may, the two references in relation to building societies more generally. Your Honours will see in the United Kingdom Halsbury in the fourth edition reissue volume 4(2), para 701 and also para 749, the first dealing with the nature of building societies generally, the second dealing with withdrawal of shares.

McHUGH J: I do not recollect - your submissions do not deal with Bogle's Case, do they? In Bogle was it not held that the company, Commonwealth Hostels or whatever it was, was not the Commonwealth?

MR JACKSON: Yes, it was, your Honour. That was what was held.

McHUGH J: How do you distinguish your case from Bogle's Case?

MR JACKSON: Well, your Honour, the position we would submit at least has gone rather further in determining what is or is not a part of the Commonwealth or a State. That has been more elaborated upon and, in our submission, in effect, expanded by decisions of the Court. The courts have recognised that that is so, that it could be any appropriate authority or emanation of the Crown. When one comes to the particular case, we would submit that Bogle really reflects a view of the particular body in question and what its function was to be, that it was just to be a body that was to provide accommodation, as distinct from being a body that had any particular Commonwealth function, as it were.

Your Honour, undoubtedly there are differences in function. There are differences of degree in all these things but it does not, in our submission, stand for the proposition that the mere fact that the body in question is incorporated pursuant to a statute, as distinct from by, is the end of the matter.

Your Honours, could I turn to the particular case and may I, before going to the terms of the Act and the rules, submit - and I intend to seek to make this refer to the different shareholdings your Honour was referring to earlier - that our submission is that the position is no different in this case from that which obtains when a State operates, for example, a bank or insurance company, if one takes either of those bodies. The business of the building society is, on the one hand, to lend money and, on the other hand, to receive money to lend, and the principal way of receipt is by the concept, the usual concept, in a sense, of having the withdrawable shares.

I will go to the statutory position in a moment, but the expression "withdrawable shares" or "the shares" is the term which, as I submitted earlier, is commonly used to describe the interest which the depositor in the building society obtains on paying money in; they may be withdrawn without the need for there being any reduction of capital. The point we would seek to make essentially is simply this, that what you have is a body which is carrying on business; the business involves the receipt of money by way of the shares, which may be acquired, taken out and so on, but the body which is carrying on the business is, in the particular case, one which can be described as the "State".

Your Honours, could I go first to the Building Societies Act and then after that I will go to the rules. The Building Societies Act 1985 was the enactment which was in force at the time when the moneys were received. There had been the earlier Act, the Building Societies Act 1886 , which was amended in 1976 - I mention this simply for completeness - by bringing in the provisions for the contingency fund and the events that led to the bringing in of the contingency fund also brought about, as your Honours will see from the case stated, the need for this body to be created.

HAYNE J: Which Act governed the formation and, if needs be, rights of members, including rights on winding up of this Society?

MR JACKSON: Your Honour, the one that governed the formation of it was the 1886 Act, as amended to that time. The one that governed the situation in relation to the operations of the body as at the time of receipt of the moneys was the 1985 Act.

HAYNE J: And if a member were to complain that the affairs of the Society were being conducted in a way that in corporate law terms would warrant just and equitable winding up, would that be an application made under 37AA of the 1886 Act? Would it have been made under the 1985 Act?

MR JACKSON: Your Honour, the 1985 Act, would be our submission.

GUMMOW J: It is section 130(2).

HAYNE J: Which would give you a just and equitable winding up, would it not, by the court?

MR JACKSON: Yes, your Honour.

HAYNE J: And therefore the obligations of those who administer the Society are obligations that in part are affected by the right of a member, which would include, would it, a class "A" member, to petition for winding up on just and equitable grounds, such, for example, as the ground that the Society was being conducted solely in the interests of one group of shareholders, class "B", rather than the interest of all?

MR JACKSON: Your Honour, the answer I think is, yes, but may I say there is a specific provision in the Act which sets out the duties of directors of the body - I will give your Honour a reference in a moment if I may - but which is, as one might expect, saying that they must act in the interests of the Society. However, your Honour, one accepts all that. The same would be true, with respect, of really anybody that had directors appointed to it. Could I just say it is not a very surprising thing to find, these days, for example - and it has never been a very surprising in relation to many governmental corporations in Australia - to find that the persons who are on the governing body are ones who, on the one hand, may represent in a loose sense, say, the government, but on the other hand are also other persons such as interest groups, representatives of employees or their unions, or representatives of consumer groups or client groups.

Many of the primary industry bodies that are around are bodies, where, the persons who are members of it - in terms of the governing body - have duties to the body, but equally they are persons who are appointed by other persons including, for example, a majority being appointed by the Crown. If one goes, for example, to the State Bank of New South Wales Case, one sees a situation where the directors have independent duties. Of course, they are duties to the bank. But equally - - -

HAYNE J: Are the interests of the body as a whole, be it the bank or the building society, the same as or necessarily congruent to the interests of, in this case, the "B" class shareholder?

MR JACKSON: Your Honour, there are circumstances. It may be where they are not. However, one does have a situation where, under whatever rights there are, derive from (a) the Act and (b) the rules, and a situation could easily be arrived at where the power under the rules, for example, to bring the society to an end, could be exercised by the holders of the "B" class shares. I will take your Honour to the provision in a moment. One recognises that there may be circumstances where the interests may not be the same. That is always likely to be true in circumstances where one has a government body whose interests, in one way or another, affect other persons the way it is carried on.

GLEESON CJ: A building society is carried on the interests of depositors and borrowers, is it not, not in the interest of the government?

MR JACKSON: If it is, your Honour, a government building society and the government has a shareholding in it, it is carried on in the interests of the body, of course, but the interest may not be the same.

GLEESON CJ: I would still like to understand better than I do, Mr Jackson, the relationship between depositors and "A" class shareholders. If you look at page 77 of the case stated book, there you see set out what constitutes the excitement of a building society, its current liabilities are matched by non-current assets, and the items that match one another, almost precisely, are deposits at line 24 and loans at line 16.

People deposit money with a building society because they get an attractive rate of interest, presumably. Also, do they, in the expectation of becoming entitled to a loan?

MR JACKSON: Yes, your Honour, it is not, if I may say so with respect, quite as simple as that. What I was just about to do before was to take your Honours to the provisions because when building societies were initially set up they had a rather more pristine simplicity, as it were, but the desire to get larger, as it were, and do other things, and compete, no doubt, with other bodies, has changed things a little. First of all, your Honours, I was just going to the Building Societies Act 1985 . Section 31 deals with the objects of the Society and your Honours will see that its objects are:

(a) to raise funds by subscription or otherwise, as authorized by this Act;

(b) to apply those funds, subject to this Act and the rules of the building society, in making advances and in such other ways as are authorized by this Act and the rules; and -

then, to put it shortly, to render other services. Your Honours will then see in section 32 that, subject to the Act and the rules, the Society is to:

employ its funds for making advances to members of the building society, and if the board so resolves -

(i) to its employees; or

(ii) to any person who is not a member.

Then, your Honours, will see in subsection (2) that:

(a) the employment of funds for making advances . . . -

(i) shall, directly or indirectly, be related to providing finance for accommodation for residential purposes;

or may be for -

the other things listed. Now, your Honours, so far no special difficulty. One then goes to section 33(1), which gives rather wider powers. There is also, your Honours, in section 43, the provision for investment of "funds not immediately required". Your Honours will then see, if one is looking to the way in which membership is obtained, section 46(1) says that "The members" are those:

who sign an application for membership . . . and any other persons who are admitted to membership -

Then, your Honours, one sees then in section 51(1):

A building society may . . . raise funds by the issue of shares -

and your Honours will also then see section 53, that allows it to raise money in other ways.

GLEESON CJ: Which includes receiving "money on deposit".

MR JACKSON: Yes.

GLEESON CJ: Are they the depositors referred to in the accounts on page 77?

MR JACKSON: Your Honour, I think that is so. I will endeavour to check that, but I think that is the position. Your Honour, I understand that it is everybody - your Honour referred to "depositors", that, in fact, the people covered by that, where your Honour referred to, is everybody except the "B" class shareholders, everybody except Suncorp.

GLEESON CJ: So it includes "A" class shareholders and depositors who are not shareholders?

MR JACKSON: Yes.

GLEESON CJ: Well then, there are some deposits that are shown in the accounts as current liabilities and some deposits that are shown in the accounts as non-current liabilities. They appear at page 29. Is the difference just the length of term of the deposit?

MR JACKSON: I will endeavour to give your Honour to answer that, but I think the answer is, yes. Now, your Honours will have seen that there were - I will take your Honours to the rule in a moment - two classes of shares in the Society and, in our submission, the notion that I was endeavouring to put before, that it was the State which was carrying on the business, was reflected in there being the two classes of shares, the "B" and the "A" classes.

Your Honours will see the two classes referred to at page 119 of the book, in rule 10(1), and the "B" class shares were all held by or on behalf of the SGIO or Suncorp. Your Honours will see that from the case stated, paragraph 12, page 13.

HAYNE J: What is the statutory provision that permits division of share capital in this way? You may have taken me to it already, I am sorry.

MR JACKSON: Your Honour, it is, I think, section 51.

HAYNE J: Yes.

MR JACKSON: If it is not that, I will get your Honour the right provision.

CALLINAN J: It is agreed that Suncorp is the State, is that right?

MR JACKSON: Yes, it is, yes. Your Honour will see in section 51 "one or more denominations".

HAYNE J: Yes, "denominations", I see, but - - -

MR JACKSON: Well, your Honour, denomination would be perfectly capable of - - -

HAYNE J: Yes.

MR JACKSON: But, your Honours, could I say in relation to rule 10, all the "B" class shares were held by or on behalf of the SGIO. That appears at page 13, paragraph 12 of the case stated. Could I refer also to page 103. Your Honours will see immediately under the heading "Related Parties" a reference to the same effect. Then at page 110 your Honours will see the six directors listed. Of those six, only the last one, Mr Martin, was not also a director of Suncorp. He was chief executive of the applicant. The other five were directors of Suncorp Insurance and Finance.

Now, your Honours, going back to the rules at page 119 and the top of page 120, the "A" class shareholders had limited voting rights except in the event of a loss in any year. Your Honours will see that at the top of page 120:

(d) If in any financial year there shall be a loss from the transactions of the Society then at the Annual General Meeting at which the accounts of the Society for such year are considered, each holder of A shares present in person shall have one vote on the resolutions for consideration of the accounts and the directors report. At every General Meeting each holder of A shares present in person shall have one vote on each resolution for the election of directors in the place of those retiring by rotation. Subject thereto the holders of A shares shall not as such holders be entitled to vote at any general meeting of the society. The holders of B shares shall have the right to vote as set out in Rule 61 hereof.

GAUDRON J: What about an extraordinary general meeting? That is included in any general meeting?

MR JACKSON: Your Honour, it does not appear to be in the definition - I thought it may have been in the definitions, I do not think it is. Your Honour will see in the three parts of paragraph (d) at the top of the page, "annual general meeting" is referred to in the first part, then one comes to "every general meeting" in the second part, about line 7, and then, in the last sentence of the paragraph "the holders of "A" class shares shall not be entitled at any general meeting".

GLEESON CJ: Mr Jackson, there were only "A" class shares and "B" class shares, is that right?

MR JACKSON: Yes.

GLEESON CJ: I cannot quite understand rule 11 at the moment, on page 120.

MR JACKSON: Your Honour, the position in relation to it is that it is unlikely to have had a practical application, in the particular circumstances, but the position seems to have been if it were that further shares of other denominations, if I could use that word, were created, then it may be that, at any time, the directors could have said to a holder of those shares, convert them to "A" class shares. It may also have been the case that if one assumed there was a person who was a person holding "B" class shares on behalf of, beneficially, the SGIO/Suncorp, but that person refused to transfer the shares to someone who was the next nominee on retirement, that what could have been done was simply to say - or the director to convert those shares to "A" class shares and "Here is your dollar" or whatever.

Your Honour, I should also say the original members, the 100 original members, were required - and your Honours will see their names at pages 46 and 47 and pages 50, 51, 52, 53 and 54, that in relation to those, at the time they formed the Society they were simply members and their shares, their one share each, no doubt, could have been required under rule 11 to become an "A" class share.

GLEESON CJ: Their shares had no denomination?

MR JACKSON: Not initially.

GLEESON CJ: They were non-denominational shares?

MR JACKSON: Non-denominational shares, your Honour. Your Honours will also see, in passing, that if one looks at the occupations of those persons, it would come as a great surprise to see that a great many of them were public servants. No doubt someone had the task of going up and down the building seeking willing signatories.

HAYNE J: Had to get them there as well, Mr Jackson, had to get to the meeting.

MR JACKSON: Your Honours, these things can be arranged; some factions in politics seem to make a business of it, as it were. Your Honours, I have referred to the voting rights. As to the directors, there were to be six. Your Honours will see that in rule 64, page 135. Of those six directors, Suncorp was able to nominate three, that is rule 65(a). Suncorp could nominate the chair, rule 65(b). Rule 65(b) does not say that that person, the person so nominated - the chair of the meeting, has to be one of the three appointed, but there is a later provision that seems to make that assumption. I will come to that in a moment, your Honours.

Suncorp could also revoke those appointments. Your Honours will see from rule 65(c) and those directors could not be removed except by Suncorp. That appears at page 135, in the passage which commences at about line 28, "A director appointed by SUNCORP" et cetera.

GLEESON CJ: Who appointed the other three?

MR JACKSON: Your Honour, the other directors were appointed by the general meeting.

GLEESON CJ: Could the "A" class shareholders vote on that resolution of the general meeting?

MR JACKSON: Yes, that is page 120, rule 10(1)(d), your Honour, It is the sentence in the middle of that paragraph, commencing at about line 7.

GLEESON CJ: So, in effect, the capacity to appoint the directors was divided equally between Suncorp and the "A" class shareholders.

MR JACKSON: Yes, your Honour, except that - Your Honour is right, the capacity to appoint was divided in that way. The "A" class shareholders would have a vote. So too would the "B" class shareholders on the appointment of - - -

CALLINAN J: Do chairmen have a casting vote?

MR JACKSON: At meetings of directors, your Honour, yes. Your Honour, can I give you the reference to that in just a moment?

HAYNE J: "B"s get one vote, do they not? The holder of "B" class shares get one vote regardless, is it, of the number of shares held? Or is it one vote per share? Rule 61, which governs "B"s - - -

MR JACKSON: Yes.

HAYNE J: One vote per holder, is it not?

MR JACKSON: Yes.

HAYNE J: So Suncorp would be readily outvoted by "A" class members on a vote for the three remaining directors. Is that right?

MR JACKSON: Your Honour will see that rule 61 says that the holder of "B" class shares has one vote on a show of hands, but on a poll has one vote for every "B" class share held.

HAYNE J: Thank you.

MR JACKSON: Now, your Honours, the quorum for - the three other directors, other than the ones appointed by Suncorp, retired by rotation; that is rule 68 page 136. The quorum for meetings of directors was three, of whom two had to be Suncorp appointed. Your Honours will see that as rule 79, page 137.

The voting power of the Suncorp Directors was augmented, and augmented, your Honours, in the way referred to in rule 77 on page 137. Your Honours will see in the second sentence, commencing at about line 13:

Questions arising at any meeting of directors shall be decided by a majority of the votes and each director present shall have one deliberative vote provided that if there are present only two (2) directors appointed pursuant to Rule 65 hereof-

that is the Suncorp directors -

such one of them as is the Chairman of the meeting -

and, your Honours, that reflects the assumption I was referring to earlier -

shall be entitled to exercise two (2) deliberative votes. In the case of an equality of votes the Chairman of the meeting shall have a casting vote in addition to his deliberative vote or votes.

Your Honours will then see rule 84, in general at page 138, which simply says:

The business and operations of the Society shall be controlled by the Board of directors -

et cetera, which has all the powers of the Society. Now, Your Honours - - -

GLEESON CJ: Could you just state in a summary form then what was the practical consequence of these rules in relation to composition and control of the board of directors?

MR JACKSON: Yes, Your Honour. The practical consequence was this, your Honour. There were, first of all, a board of six directors, of whom three had to be appointed by Suncorp. The other three were appointed by the general meeting. One of the three appointed by the general meeting retired each year, and someone else had to be appointed. At the general meeting the "A" class shareholders had the voting ability, referred to in rule 10(1)(d), that I have taken your Honours to already.

The situation was that when one came then to meetings of directors, the meetings had the result that there could not be a quorum unless there were three, of whom two had to be Suncorp directors. At those meetings one saw that the voting power which was given to the Suncorp directors was that which is referred to in - - -

GLEESON CJ: Does the chairman have to be a Suncorp director?

MR JACKSON: Your Honour, that is not precisely stated, but your Honour will - - -

HAYNE J: Do not the last words in rule 77 require that result:

The Board of Directors shall elect as Chairman the person so nominated -

et cetera?

MR JACKSON: I am sorry, your Honour, I had missed that. Your Honour is right, yes, I am sorry. Could I say in relation to that, what it says is that the person who has to be appointed as chairman of directors is the person who is nominated, to that end, pursuant to rule 65. Rule 65, at page 135, allows a number of things. One is appointment of three persons as directors, then nominate which director of the Society may be chairman. It would be possible for both powers to be exercised but for the person who is chairman not to be one of the three directors - unlikely, no doubt. I said there was an assumption, your Honours, and the assumption is seen in the middle of rule 77, where it says - this is about line 15:

if there are present only two (2) directors appointed pursuant to Rule 65 hereof such one of them as is the Chairman -

and so that seems to indicate that the person who is chairman is to be one of the rule 65 ones.

I was going to submit to your Honours that it is not, in our submission, essential that all the directors of a body be nominees of the State for the body yet to be regarded as the State. In State Bank of New South Wales v Commonwealth Savings Bank of Australia [1986] HCA 62; (1986) 161 CLR 639 at 646, at the top of the page, one sees a description of the directors of that body. There are seven directors:

The directors are appointed by the Governor but one of them shall have been elected by employees of the Bank and shall be a part-time director. Of the remaining six appointees, two are to be full-time and four part-time directors. The full-time directors shall be appointed by the Governor to be the managing director and deputy managing director . . . one of the non-elected part-time directors to be the chairman of the Board.

Your Honours, the fact that not all the directors - I appreciate there is only one in that case - were persons who were selected by the government was adverted to at page 648, for example. Your Honours will see a discussion at page 648, commencing about point 3 on the page, where Mr Hulme's argument is referred to, "Counsel for the appellant argued". Your Honours will see that goes through to the bottom of the page and over to the next page. It is by way of an introduction, in part, to what appears at page 650. Your Honours will see that the fact of there being one director who was not selected by the government was not treated as being a disqualification from the body being part of the State.

Your Honours, I was submitting earlier that there are very many enterprises that one would readily recognise as being State entities, which have "representation", if I could use the expression, on their governing body of, for example, employees or their unions or interest groups or client groups or consumer groups, representation of what one here has described as the stakeholders in the body and one sees, in our submission, participation by them in the government of the body is not decisive in taking away the character as part of the State.

Your Honours, could I go then to our written submissions in relation to this issue and in particular paragraphs 22 to 26. Your Honours, I had not proposed to go to the matters set out there in detail. Your Honours will see that in our written submissions and also those of some of the Attorneys supporting us some issues to which I have adverted are developed and looked at in various ways. We simply seek to rely further on our written submissions and upon the written submissions in support on this issue.

GAUDRON J: But the public character of your Building Society, as it were, did not lie in its building society activities as such, did it? It lay, if at all, in its taking over the earlier failed building societies or the earlier building societies who were in trouble and bailing them out.

MR JACKSON: Your Honour, there are two aspect to it, really. One is that it is perfectly right to say that how it came into the field, as it were, was because of a public reason and that was the imminent collapse of a number of building societies, which is set out in the case stated. But, your Honours, having come into the field for that reason, what one then had was a situation where a public body, the Suncorp body, admittedly the State and plainly so, itself then was placed in the position of carrying on in the future through another entity another activity in addition to the financial activities which it was already carrying on.

GAUDRON J: Well, it was obliged, was it not, one way or another to provide stand-by finance, first of all to invest monies and then provide stand-by finance.

MR JACKSON: And also, your Honour, obliged to have persons who were acting in the management of the building society.

GAUDRON J: Well, it was obliged to have directors?

MR JACKSON: Yes. Well, yes, your Honour.

GAUDRON J: Three directors. It was obliged to provide three directors.

MR JACKSON: Obliged and empowered, your Honour.

GAUDRON J: But I am just wondering, once the bail-out is effected, wherein do you point to the public character of the business?

MR JACKSON: Well, your Honour, once the bail-out is concluded, what one then has is a financially substantial body which has the government involvement, to put it neutrally, to which I have adverted, which then stands in the field in lieu of what had other bodies that (a) might have come into the field without the perceived financial substance and also, your Honours, stands, in effect, in place of those which were there.

GLEESON CJ: What money did the government put up?

McHUGH J: It was only $1 million, was it not?

MR JACKSON: Your Honour, it was at least $1 million. Your Honour will see that referred to at page 12, paragraph 11, of the case stated:

Suncorp maintained at least $1 million on loan, deposited . . . at all relevant times. In the taxation year ending 30 June 1994 Suncorp provided a standby facility to the Taxpayer of $43 million.

McHUGH J: That only means it was its banker, in a sense.

MR JACKSON: Well, a bit more than that, your Honour.

McHUGH J: There is no question here of the State Government guaranteeing the obligations of this Building Society, nor does Suncorp guarantee its obligations.

MR JACKSON: Well, your Honour, the existence of the nature of particular arrangements may be a factor, but there is no reason, in our submission, why one would regard having a stand-by facility of 43 million for a body of this kind has not been as good as, in effect, having a guarantee. I mean, we are talking about government. We are not talking about some fly-by-night supplier of money.

GLEESON CJ: You are not talking about the contingency fund, are you, when you refer to that 45 - - -

MR JACKSON: No, no, your Honour. I am talking about the fact that if our body needed the money, we had the availability to obtain up to $43 million from Suncorp, from the - - -

McHUGH J: Did you have a right or a privilege?

MR JACKSON: Well, your Honour, I do not know that that answer immediately appears from the case stated and I do not want to go out of that. As we would understand it, your Honour, it is what is said there. There is a facility to the tune of 43 million available during the relevant year. That, in the ordinary course of events, would mean that there was the ability to call upon it.

CALLINAN J: Mr Jackson, would you only be able to have recourse to that after you had exhausted any rights that you might have to claim on the contingency fund established under section 134 of the Act?

MR JACKSON: Well, there would be a difficulty in taking that view, your Honour, because the contingency fund provisions seem to allow the making of a claim in circumstances where there is not enough to pay everyone. I will take your Honours to the provisions if your Honour wants me to but - - -

CALLINAN J: No, I have looked at it.

MR JACKSON: Whereas the stand-by facility, one would think, is more related to shortages of money that may occur in the course of carrying on the business, as distinct from shortages of money overall.

McHUGH J: But there is nothing in the stated case which suggests that you under any obligation or the directors are under any obligation to consult the Minister or the government, was there, or to take directions from the Minister?

MR JACKSON: No, your Honour. Well, your Honour, the position was that the persons who were the three directors were persons who were appointed by the State.

McHUGH J: I appreciate that, but 50 per cent of the board is, I suppose in all reality, elected by the "A" class shareholders and all directors would be under a fiduciary obligation to act in the interests of the shareholders as a class. They could not act in the interests of the government if it was contrary to the interests of the shareholders, could they?

MR JACKSON: But, your Honour, that does not - - -

McHUGH J: I know, but it really amounts to a strong argument against this. Is there any case in the books where it has ever been held that where directors are elected by members of the general public and owe fiduciary obligations to those people that it is nevertheless the government or the State or the Commonwealth?

MR JACKSON: Well, your Honour, I cannot give your Honour a case that is precisely that but - - -

McHUGH J: No, I know that but - - -

MR JACKSON: - - - what we are endeavouring to put is this, that what one has here is a situation where there is provision of a building society which, as your Honour Justice Gaudron said, started to bail out particular people once - - -

GAUDRON J: And it absorbed them, did it not?

MR JACKSON: Yes, there was a transfer of engagements, which simply seems to mean transfer of obligations, your Honours, engagements in the contractual sense.

GAUDRON J: Now, there is nothing to suggest that they were then insolvent, is there, rather than there had been a run on them by depositors?

McHUGH J: They were probably insolvent in the technical sense. They were unable to pay their debts as they were due.

MR JACKSON: Well, your Honour, if one goes - there is a little more to it than that, with respect, your Honour. The case stated at page 6, paragraph 6, about line 9, says:

the establishment of the Taxpayer averted the collapse of seven building societies and the consequent loss of depositor's funds.

So it is rather more vivid and immediate, and if one goes to the material that is contained in the second reading speech, there were suggestions of fraud and so on, in relation to them. But, your Honour, their engagements were transferred to the new society and that being so, there was then a new large society which replaced them and then kept on operating.

GLEESON CJ: This would have been partly an exercise in restoration of confidence, I imagine.

MR JACKSON: Yes, your Honour, that is one of the expressions that one sees in the case stated, and in paragraph 6, "averted the" and "to provide investor confidence". Your Honour will see that referred to in paragraph 6. So that, your Honours, there was undoubtedly a public purpose in the creation of the body and - - -

McHUGH J: How did it come about? Unlike in the Qantas Case, you did not have Commonwealth Government legislation requiring shares; what you have, according to the stated case, is 100 adult persons qualified by the rules of the proposed society seeking registration. It all smacks of just being an ordinary building society with some government input.

MR JACKSON: Well, your Honour, page 6, paragraph 6 again, says that it:

was formed, as a matter of State governmental policy in order to provide stability -

and one sees that, at the same time, the Building Societies Act:

was amended to allow the transfer of engagements or property at the direction of the Registrar of Building Societies.

Your Honours will see then, the instructions referred to in paragraph 7, and then the events that took place in paragraph 8. So that, your Honour, one sees it as being an initiative of the Executive Government of the time to cause this to be done. It did it, first of all, by doing it through another governmental body, the Suncorp body, and the Suncorp body then, in effect, caused to be established another body to carry on one aspect of its financial business.

McHUGH J: But apart from the fact that there are State directors on the board, is there any difference in substance between this and, say, the current Ansett problem where the government makes a couple of hundred million or more available for pay-out workers? I mean, it's a rescue operation, but is it any more than that? Is it more than a rescue operation other than the fact they have three directors on there to look after them, otherwise it just seems to be an ordinary building society?

MR JACKSON: Well, your Honour, I would not predict what would happen in relation to Ansett, but if Ansett became the new TAA, in effect, but the new TAA, with some directors who were elected by employees, some who were elected by persons who were to have, say, some joint venture with it - if one took, say, some financiers or people otherwise in business who wanted to be involved in it - it may well be that the body would be, in effect, the old Qantas or the old TAA, it just depends, your Honour.

GLEESON CJ: Well, one way of asking the question is whether or not the directors and shareholders, who were put there to protect the interests of the government, made it the government.

MR JACKSON: Well, your Honour, in a sense they did. That is our submission really. One can put it in different ways, as we have sought to in our written submissions, but in the end, if one looks at the whole business, the way it came into being, the way it was conducted, our submission is that it is something that was the State.

GAUDRON J: Well now, I wonder if, when you say that, one is relying on factual considerations for that statement and not simply an understanding of the constituting documents. It is in the stated case and there has been no challenge to that and one assumes that for the purposes of section 114 you can have regard to such facts, but I would have thought, in the context of this case, the question might be answered - well it is possible that the question might be answered differently, depending on whether you looked at the time of its formation or at the time of its receipt of the moneys, because by the time of the receipt of the moneys, a new regime, if you like, has come into place for contingency moneys and the like or for prudential management and so on. The role of the government seems no longer to be so critical.

MR JACKSON: Your Honour, may I say first in relation to that, as with really any body corporate, the way in which one can characterise it can change from time to time. What I mean by that, if one took the simple case of a company, it may at one time be a subsidiary of another, at another time it may not be.

GAUDRON J: And Qantas was at one time the Commonwealth and one would think is not any longer the Commonwealth.

MR JACKSON: Yes. Your Honour, these things of course can happen and inevitably one is looking at the situation, in this case, as at the time of the payments or at least the 1993/1994 year.

GAUDRON J: What had happened to the stand-by facility by then?

MR JACKSON: Your Honour will see in paragraph 11 at page 12 it was there.

GAUDRON J: It was still there.

MR JACKSON: It was there. It says:

In the taxation year ending 30 June 1994 Suncorp provided a standby facility to the Taxpayer of $43 million.

CALLINAN J: Mr Jackson, the Commonwealth Government, of course, got a dividend out of Qantas and also out of the Commonwealth Bank. There is no financial benefit of that kind that would accrue to the Suncorp or the government here, is that right?

MR JACKSON: I do not think the material discloses any, your Honour. I will check on that but I think the answer - - -

CALLINAN J: Well, a building society cannot pay a dividend, can it, anyway?

MR JACKSON: Your Honour, I think it could.

CALLINAN J: It could?

MR JACKSON: Your Honour, may I check that and give your Honour an answer?

CALLINAN J: Would you check that, thank you.

MR JACKSON: Certainly what tends to happen and certainly, I think, what happened in relation to the "A" class shares, was that interest would be credited as more shares, in effect.

McHUGH J: I thought it did pay dividends to your client.

MR JACKSON: Your Honour, may I just check that? Your Honour will see clause 10(1)(b) at page 119. There was provision made for the ability to declare a dividend.

CALLINAN J: It was either interest or a dividend?

MR JACKSON: Your Honour, may I check to see if one was actually paid?

KIRBY J: What, in your submission, is the way the Court approaches this question? You look at section 114, you look at its purpose in the context of the Constitution. Is all that you do is to, as it were, make a list of the indicia one way or the other, and then make a characterisation decision? Or, are some indicia more heavily weighted in one way or the other and how does that operate in the context of this particular case?

MR JACKSON: Your Honour, one really has to look, in our submission, at all the features and I suppose it is difficult to say that one, rather than another, will be decisive. Control, for example, or the ability to control, has always been regarded as a matter of some significance and a matter really of, in a sense, particular significance. One sees that from the first of the Superannuation Fund Investment Trust Cases in South Australia, In the end, your Honour, one is looking at all the relevant features and having done that one sees what the characterisations are. I do not really think it is possible, your Honour, to say that one can identify one as being absolutely decisive in any case because, ultimately, the question is whether it is an emanation of the State.

KIRBY J: Is there an analogy to this in the United States Constitution? It has the look about it of something which we have inherited.

GUMMOW J: It follows section 125 of the Canadian Constitution.

MR JACKSON: It is, your Honour. It derives, I think, from the Canadian Constitution discussed in some of the cases in the tax on property aspect.

GUMMOW J: The Canadian cases do not talk about this question, I do not think, very much, do they?

McHUGH J: No.

MR JACKSON: No, your Honour.

KIRBY J: What I was searching for in my question was something a little bit better than just a list of pros and cons, but it may be that there is nothing better. It may be that in a characterisation problem one just has to, as it were, list the factors and then weigh then in the balance and come to a conclusion. It is not very satisfactory.

MR JACKSON: Your Honour, the difficulty is, of course, that one is in a situation which is dynamic rather than static. What I mean by that, your Honour, is simply to say that over the years the things have constituted governmental activity themselves have changed, but the way in which governmental activity is carried out has changed significantly. These things, no doubt, ebb and flow.

What there has been in, for example, the last 10 or 20 years, has been greater corporatisation of government activity followed by, in some cases, privatisation. Your Honour, these terms have an element of jargon in relation to those whose area it is to use them, but there are, no doubt, various variations on that. What I am simply seeking to say is that it becomes very difficult to say that it is other than looking in the particular case at the constating documents and also the way in which the body operates.

McHUGH J: Do not all these factors only go to determining the ultimate question, which is, whether or not the purpose of the organisation is so that the State can operate in a particular field through a corporation?

MR JACKSON: Yes, your Honour, or that the purpose of the corporation is a State purpose.

HAYNE J: That may be an ambiguous statement, may it not?

MR JACKSON: Your Honour, I appreciate that.

HAYNE J: If the question concerns the relationship between State and corporation, plainly control is an element, a significant element, query, whether a determinative element. In looking at control, are we to look at the level of control available? Are we to stop at the examination of what control has been exercised? How do we go about this question of control?

MR JACKSON: Your Honour, could I deal with it in two ways? The first is this. If one looks at bodies that are undoubtedly bodies that are the Commonwealth or State, one sees in relation to some of them that the Commonwealth or State has no control over them. They are persons who exercise an independent function. I am not talking about courts but about other persons. An ombudsman is often used as an example. So, the control or the ability to control will often be decisive but the absence of ability to control does not mean the body is not a State or Commonwealth body.

However, one can have circumstances where there is a body which is, for example, a body created pursuant to a statute of general application. In relation to that, your Honour, the situation which would obtain would be, first of all, that if one looked at the ability to control the activities, then, for example, by having 100 per cent of the shareholding of it, then our submission would be that such a body would normally be a body described as being the State or the Commonwealth, as the case might be.

HAYNE J: Part of the reason for that conclusion may lie in the fact that the corporation concerned can then be required to act in whatever way those who hold the control choose, subject only to laws of general application. By contrast the problem that worries me, in this case, is what effect, if any, is to be given to the fact that directors, having the management of this society, seem to be under duties which are hedged about by regard for interests other than the interests of the State.

MR JACKSON: Your Honour, if one took any body that has a governing body of directors, for example, then absent a statutory provision to the contrary, one would expect that their obligation was to act in the best interests of that body. Now, that may well involve acting in an interest or doing something different from the interests of those who are the person controlling it. Now, it may be, your Honours, that the fact that that is so does not prevent such a body being an emanation of the State or the Commonwealth, as the case may be.

GLEESON CJ: But the character of the organisation in question is material, is it not? Presumably a government could run a tobacco store if it wanted to and it could set up a company and completely control the company that was in the business of selling tobacco. But this is a society. Now, I do not want to fall into the trap of oversimplifying anything, but the nature of a building society involves interests in the members, the "A" shareholders, if you like, in the present case. That is what a building society is about.

MR JACKSON: Well, your Honour, the building society, of course, takes in money from the persons who are the members of it, and they are members, it is true. Their rights are rights that are governed by the rules and so on, but, your Honour, having said that, what one is looking at, we would submit, in terms of characterisation in the body is that it is a body in which the State is operating or conducting a building society. The activities that are engaged in and the rights given to those who are, from time to time, members of it are the rights that persons acquire as the State carries on that business.

GLEESON CJ: But you cannot conduct a building society on your own.

MR JACKSON: Well, your Honour, there are not many businesses one can carry on one's own.

GLEESON CJ: Yes, you can have single shareholder corporations carrying on many kinds of business, but a building society requires depositors and members.

MR JACKSON: Your Honour, so does a bank, of course. A bank requires certainly depositors.

GLEESON CJ: Yes, but a bank is not carried on for the benefit of people who lend money to the bank. A bank is carried on for the benefit of its shareholders.

MR JACKSON: Your Honour, the bank may have one or more shareholders but equally, in relation to the conduct of the bank, some activities of the bank are ones that necessarily need to take account of the interests of those who are lenders to it or borrowers from it.

McHUGH J: Mr Jackson, what do you say about paragraph 9 of the stated case, which seems to indicate that it occurred to nobody until 1994 that this might be arguably a State body? The Auditor-General apparently took no part in overseeing its operations until 1994.

MR JACKSON: Your Honour, if one is talking about 1994, in fact it was done. The fact that it may have been required to be done but was not done, is no doubt a fact our learned friends will want to put in there. I do not know if I can take it much further than that. It did not happen - - -

GUMMOW J: What is the provision in the audit legislation?

MR JACKSON: Your Honour, it is referred to in footnote 12, your Honour, on that page.

GUMMOW J: That just brings us to whatever a "controlled entity" is.

MR JACKSON: Yes, your Honour, the "controlled entity" is something, I think, that is defined by regulation from time to time. It may be, your Honour, that it was not the subject of a regulation at relevant times.

GUMMOW J: That is what I am wondering.

MR JACKSON: I do not think the papers give your Honours an answer to that, but I will endeavour to see if there is a regulation that deals with that topic. Your Honours, could I come then to the second issue - - -

GLEESON CJ: Now, Mr Jackson, if this is inconvenient to you please let us know and seek to persuade us not to take this course, but it would be convenient to us if we heard argument from all counsel on the first issue before we moved onto the second issue.

MR JACKSON: I am in the Court's hands, your Honour.

GLEESON CJ: Very well. Mr Solicitor for Queensland.

MR KEANE: Your Honours, if we might take up a couple of the questions your Honours were asking our learning friend, Mr Jackson, earlier. The first in relation to, I think it was your Honour the Chief Justice's question, what money was actually put up. Your Honours will find the circumstances concerning that dealt with, or explained, at page 58 of the case stated book. Your Honours, this is the second reading speech in relation to the amendments that were made as part of the legislative package which involved the amendments to the Building Societies Acts to provide for the transfer of engagements from the seven moribund societies to the new entity to be established - - -

KIRBY J: Which paragraph of the case was it?

MR KEANE: Your Honour, it is page 58, it is the second reading speech, and the occasion for the second reading speech was an explanation of the package of measures that were being introduced. It relates to the question as to what money was put up. Your Honours will see the particular answer to that at page 58 of the book, but it is numbered 3639 in the Hansard, in the left-hand column in the second-last paragraph on the page:

the new society will be known as the S.G.I.O. Permanent Building Society, and it will be formed to take over the deposits and the loans of the five suspended societies. The new society, the total assets and liabilities of which will be of the order of $43,000,000 at its commencement, will have, as I have indicated already, the financial backing of the State Government Insurance Office to the full extent of the society's shareholders' funds and deposits in the initial period.

GAUDRON J: That is the stand-by facility.

MR KEANE: Yes, your Honour, and it goes on to say at the top of the next paragraph:

So there will be a new society established and backed to the extent of $43,000,000, and it will function in the usual way that a building society functions.

While your Honours have that there - - -

GAUDRON J: That does not mean that the $43 million was used.

MR KEANE: No, it was made available, your Honour.

GAUDRON J: It was a stand-by facility.

MR KEANE: Quite.

GAUDRON J: For which they were paying, incidentally, were they not? They were not getting it for nothing.

MR KEANE: Well, your Honour, I suppose one gets what one pays for, but the point that the treasurer then goes on to make on the next page, at page 3640 - and this is, your Honours, starting at line 20 - 3640, left-hand column, line 20:

Secondly, I indicated the offers that have been made to the industry. While some people think that the entry of the SGIO into this particular type of operation is in some way undesirable, it is necessary if we are to provide funds and so protect every person involved in the problems confronting the societies.

The only source from which they could become available and which is accessible to me -

that is the treasurer -

is the SGIO. The industry itself had an opportunity to raise these funds -

and so forth. Then at line 40:

I outlined the way in which I -

the treasurer -

was able to ensure that the SGIO would provide the necessary funds. I indicated that it would be called the State Government Insurance Office Permanent Building Society. It will be in no way different from the National Mutual Building Society, which is run by an insurance company -

and so forth. To return to your Honour Justice Gaudron's point and the point your Honour raised with our learned friend, that the characterisation of the operation may change with time, your Honour, the possibility that the characterisation may change with time and, in particular, with control, was expressly adverted to by Sir Owen Dixon in Portus 79 CLR. Your Honours will see that at 438 point 8, where speaking of the shareholding in Qantas at that particular time, his Honour observed that if the shareholding were to change in the future, that might alter the character of Qantas as an entity carrying on business "on behalf of" the Commonwealth.

GUMMOW J: You get the same idea with the trading or financial corporations - they can go in or out of power.

MR KEANE: Yes, quite, and, your Honours, if we can just turn to one further point in relation to the questions your Honour Justice Gaudron was raising with our learned friend, it is the case, in our respectful submission, that it is clear beyond a shadow of a doubt that the fons et origo of this entity was a State Government initiative designed to preserve the funds of members of moribund societies and to preserve confidence in the industry. That initiative was shored up by reference to shareholder control.

We would, with respect, seek to emphasise that the "B" class shareholding, that is to say, the shareholding which had, really, all the relevant votes except, perhaps, for the election of those members of the board who were rotating - and bear in mind the "B" class shareholders got to vote in respect of that as well and would vote as a block, but that involves questions of fact which we cannot go into - but the point is, with respect, that the initiative that the State Government made would shore it up by shareholder control - not simply control at the board level, but by shareholder control in terms of the "B" class shares, which meant that the only person who could decide whether this initiative would continue, that is to say, whether the State Government Insurance Building Society would continue as a building society, was the State Government Insurance Office because as "B" class shareholders, they could decide not to do it any more.

GAUDRON J: Now, I do not know whether it is relevant or not. I mean, everybody says it is accepted that the State Government Insurance Office is the State and it may well be so, but did that have a degree of autonomy? Is there and act which say that had a degree of autonomy?

MR KEANE: Your Honour, the State Government Insurance Office - - -

GAUDRON J: Do not tell me if it not in the Act.

MR KEANE: Well, the Act does not say it has a degree of autonomy. What it says is it represents the Crown in right of the State of Queensland and its board was appointed by the government.

GAUDRON J: But could the treasurer, for example, have directed the board of SGIO to take proceedings to wind up the Building Society? It would seem not, they - - -

MR KEANE: Your Honour, we would not submit that the State Government or the Suncorp Insurance and Finance Act, which was the relevant provision at the time, that such a direction could have been given. But once one accepts that the State Government Insurance Office is itself relevantly the State, that is to say, it is not independent of it because there is that level of control in terms of the board and if the members of this board do not do it, they could have been removed and a board who would do it could have been put in their place.

GAUDRON J: Yes, but it does not seem to me to follow that because the State Government Insurance Office is the State for constitutional purposes, and the fact that the State Government Insurance Office could remove the board or one-half the board of the Building Society that that makes the Building Society the bank. I mean, it might be otherwise if you could find some power in the government to direct the board of SGIO, but once it has a degree of autonomy, then it seems to me you just do not necessarily make the connection you want.

MR KEANE: Your Honour, can we say two things. The first is that in this area, distinct legal personality is not, it seems to us with respect, to be the issue or, indeed, an issue. We say because of what is said in the excerpt from the Deputy Commissioner of Taxation v The State Bank of New South Wales Case. We have set out the relevant passage at page 3 of our submissions, paragraph 6.

GUMMOW J: Do you say that the notion of "State" with 114 is co-extensive with the notion of "State" in the implication involved in the Melbourne Corporation Case? I know the cases say you look, in construing 114 to - - -

MR KEANE: Section 75(iv).

GUMMOW J: Yes, it seems to me the Melbourne Corporation Case is closer to home. Is one reason for taking a fairly limited view of 114 has been the presence of the Melbourne Corporation Case? The cases seem to suggest that, that tax is aimed at States and so on will be coped with in the Melbourne Corporation doctrine. Now, notions of taxes aimed at States and the Melbourne Corporation Case, would that involve these outsourced State activities that seem to be existing today?

MR KEANE: Your Honour, they may well not because section 114 is concerned explicitly with taxes on property belonging to the State.

GUMMOW J: Yes.

MR KEANE: The Melbourne Corporation principle involves in its application a view as to whether the relevant Commonwealth legislation, assume it be a tax, is apt to destroy the functions of the State.

GUMMOW J: Yes. Now, those functions, do they now include these sort of functions?

MR KEANE: Well, your Honour, we would submit, with respect, that when a government acts under its constitutional power its activities are governmental activities. When a State acts under its constitutional power its activities are State activities. In saying that we are adopting the language of Justice Starke in the Melbourne Corporation Case, which your Honour referred to in the Residential Tenancies Authority Case.

GUMMOW J: Yes.

HAYNE J: What does that mean in the context of an off-balance sheet company?

MR KEANE: Well, to come back to the second part of the answer we were seeking to make to Justice Gaudron, is that it does not seem to us, with respect, that in this context, having regard to the passage at paragraph 6 of our submissions, where one is looking at "the conceptions of ordinary life" and the proposition:

the activities of government are carried on not only through the departments of government, but also through corporations which are agencies and instrumentalities of government -

one is not concerned with whether they are separate entities with notions of Salomon v Salomon in corporate law and if it is a separate entity therefore it cannot be an emanation of. We are looking at really, with respect, a broader notion, that something which is being employed by the polity - and, in that respect, it seems to us - and in this regard can we submit that in response to the question your Honour Justice Kirby asked, as to whether there is some guiding principle, some organising principle, something more than just look at it and see how do you feel - it seems to us, with respect, that that flows from the judgment of Justice Kitto in Inglis v The Commonwealth Bank and that passage we have set out in paragraph 11 of our submissions. That passage is referred to with approval in the State Bank v The Commonwealth Savings Bank. This is the passage at paragraph 11 on page 7 of our submissions. It is a passage which, as we say, has been approved subsequently in this Court by the unanimous judgment of the Court and, as his Honour said:

The question is rather what intention appears from the provisions relating to the respondent in the relevant statute: is it, on the one hand, an intention that the Commonwealth shall operate in a particular field through a corporation created for the purpose: or is it, on the other hand, an intention to put into the field a corporation to perform its functions independently of the Commonwealth, that is to say otherwise than as a Commonwealth instrument, so that the concept of a Commonwealth activity cannot realistically be applied to that which the corporation does?

So to come back to both your Honour Justice Gummow and your Honour Justice Hayne, we submit that it is, in this context, a broad approach to see whether there is a level of control that is such that one can say that this business is not being conducted independently of the State.

HAYNE J: Is it relevant to ask then whether, in this case, the board would have an answer to a complaint about exercise of their powers if they were to say, "We acted as we did because the treasurer or cabinet or some other emanation of the Executive told us to act this way". Is that a relevant inquiry to make?

MR KEANE: Your Honour, it might be in some circumstances. One has to look at the concrete. If the question was, would it be a relevant inquiry to make if the shareholders, the "B" class shareholders had resolved to cease business, then my answer to your Honour's question would be, no.

HAYNE J: I understand the cesser of business case as presenting its own difficulty.

MR KEANE: Without looking at that concrete example, but looking at it in the broad and the abstract, then the answer I would make, your Honour, is that it may be, but that in deciding whether or not the board was acting justly and equitably, whether the affairs of the Society as an ongoing business were being conducted justly and equitably, it would be very relevant to bear in mind in relation to that that the interest of the "B" class shareholders are of a particular order and that the interest of the "A" class shareholders is of a much more, might one say, exiguous nature and that is not because they are being treated at nought. It is simply that that is what they got.

HAYNE J: That is a particular aspect of the more general question of whether a nominated director can look to the interests of the nominating party.

MR KEANE: Your Honour, it is.

HAYNE J: And true it is there is some learning, is there not, on that in company law? I cannot bring to mind the cases.

MR KEANE: Well, your Honour, so far as the shareholders are concerned, of course, it is Pender v Lushington and the shareholder can be as selfish as the shareholder likes, so long as it does not steal from other people or defraud them of their interests.

HAYNE J: But directors and nominators.

MR KEANE: The directors are obliged to exercise their powers in the interest of the company as a whole, whatever that may mean.

McHUGH J: Except in the Radio 2GB Case Justice Jacobs held that nominee directors were entitled to vote in accordance with the interests of those who put them there, but that may be a debatable proposition.

MR KEANE: Quite, your Honour, and there is a debate about that and our learned friends have referred to the Meyer decision in the United Kingdom in 1958. There may be a debate about that but in resolving that debate, questions of justice and fairness and equity, one cannot ignore, to return to your Honour Justice Hayne, the reality that the capital risk in relation to the Society is not borne by the "A" class shareholders.

GLEESON CJ: What are the interests of the "B" class shareholders except in ensuring that the government does not lose its money?

MR KEANE: Quite, your Honour.

GLEESON CJ: There is no other interest. The government has no interest in the conduct of this business, except ensuring that it does not lose its money.

MR KEANE: Well, yes, quite. The business does not fail or that they are not further into it than they wish to be.

GLEESON CJ: So if, for example, to return to a question asked by Justice Hayne earlier, if there were a winding-up petition on the ground that the substratum of the enterprise had disappeared, that would be judged by reference, would it not, to the interests of the "A" class shareholders?

MR KEANE: No, not in our respectful submission, because the "B" class shareholders - the "A" class shareholders - - -

GLEESON CJ: That is the building society part of it.

MR KEANE: Yes. The "A" class shareholders are entitled to be repaid their deposits and if there is a winding up while they remain members, to share. They have limited rights to vote.

GLEESON CJ: Yes, but that is from a negative point. That is their protection. That is the safety net.

MR KEANE: Yes.

GLEESON CJ: But in terms of the purpose of the ongoing business it is a business of a building society.

MR KEANE: It is, your Honour, but the question is, the question according to the Inglis test is whether the conduct of that business, as it has been established is independent of the government. We submit that once one accepts, as one must, that the SGIO, the State Government Insurance Office, is the government, then one must conclude that the conduct of this business is not independent of the government, for it was the government which established it and it is the government, that is to say SGIO as the shareholder, that can decide that it stops.

GAUDRON J: It is not entirely true to say that the government established this business.

McHUGH J: What do we know about the 100 people whose - - -

MR KEANE: Your Honour, nothing from the case stated.

GAUDRON J: It established the legal structure, that is what the government did. The business came with the acceptance of the transfer of the engagements of the other building societies.

MR KEANE: That occurred by the acts of the registrar of the building societies with the approval of the treasurer.

GAUDRON J: Yes, but it also could have happened - - -

MR KEANE: No, your Honour, it could not have happened any other way.

GAUDRON J: Yes, but it could have happened with respect to any amalgamation of any building societies in Queensland into another organisation.

MR KEANE: Your Honour, as to that and as to the point that Justice McHugh was making earlier to our learned friend and then to us, this, with the greatest respect, is not a situation where 100 people went along and thought, would it not be a good idea to set up a building society, for the reason that - and so far as what is in the case stated is concerned, the idea that this is an ordinary piece of commerce that really involved 100 entrepreneur corporators setting up the institution is falsified quite plainly by the circumstance that no one would, as a matter of ordinary commerce, have sought to acquire seven moribund building societies.

McHUGH J: I notice that Sir Gordon Chalk, in the second reading speech used the very term I put to Mr Jackson, that it was a rescue operation.

MR KEANE: Quite, your Honour. To return to a point that your Honour Justice Gaudron was making, it began as a rescue operation. Its continuance was subject to shareholder control by - - -

GAUDRON J: What began? You see, everybody is approaching this on the basis that it began with the 100 shareholders, and in a technical and legal sense, it did. There were, before then, seven building societies in various degrees of difficulty or morbidity who had businesses presumably, or had engagements. This really, when you look at it - the 100 people, if they were doing anything - it was if they were creating a shelf company to be taken over or to take over existing entities, it seems to me. If you analyse it that way it is not correct to say this began as a rescue, a government initiated rescue package, has continued as such, and so forth and so on. That explains what happened and it explains the government's involvement in it but there was something there before then.

MR KEANE: Yes, your Honour, and it explains why what happened meant that various members of building societies who had business that were moribund were put in - - -

GAUDRON J: Where do I find "moribund" in the stated case?

MR KEANE: I am sorry, your Honour, I think "collapsing" might be the word.

McHUGH J: One of the companies was in liquidation, one of the societies was actually in liquidation.

GAUDRON J: I understand from "moribund" that it was not to be carrying on business.

MR KEANE: In the case stated, this is paragraph 6:

that the establishment of the -

case stated -

averted the collapse of seven building societies and the consequent loss of depositor's funds.

McHUGH J: To what extent do we take notice of these annexures and what is in the annexures?

CALLINAN J: I thought we said they form part of the - - -

MR KEANE: They do form part of the case stated.

CALLINAN J: I think we said that, expressly, was it not?

MR KEANE: Your Honour, what happened was that these building societies and their members exchanged their right to look after their own destinies for a different regime under which - - -

GAUDRON J: And they merged into a new entity.

MR KEANE: In respect of which there were rights of control as part of the structure, both at the board level and at the level of shareholding, which trenched upon the rights they previously had, but that was the price of the security they got. With respect, we would make that point in response to your Honour the Chief Justice's question as well. We say it again, with respect to your Honour Justice Gaudron, the creation of this Building Society, in its structure, and the question of whether it continued - - -

GAUDRON J: Of what?

MR KEANE: Of this Building Society in its structure.

GAUDRON J: Yes.

MR KEANE: And the question of whether it continued.

GAUDRON J: But we are not talking about the creation of a business, it seems to me.

MR KEANE: No.

GAUDRON J: That is the point where I interrupted you.

MR KEANE: Your Honour, and then, thereafter then, the creation of the Society and the carrying on of its business, according to Inglis, the question is: was that being done independently of the government? And we submit the answer is, no, for the reasons we have given. Your Honours, finally in relation to your Honour Justice Gaudron's point, that it was a government intervention, we submit, is reflected in the structure and that it was meant to be reflected in the structure and that it was a successful government intervention does not make it any the less government intervention.

Your Honours, it seems to us, with respect - and we will be very brief now if we may - that our learned friends for the respondent really focus the argument in paragraph 18 of their submissions, which is at page 14, where they say:

What is decisive for present purposes is that the applicant served a purely commercial, rather than public, interest, and served that interest free of any direct control by the Executive Government of Queensland.

Those two propositions seem to us, with respect, to be at the heart of the case. As to the first, we say that that is not a consideration that is either decisive nor, indeed, in our respectful submission, of particular significance. That that is so is, in our respectful submission, established by the decision of this Court in the two State Bank of New South Wales Cases, The Deputy Commissioner of Taxation v State Bank [1992] HCA 6; (1992) 174 CLR 219 and the State Bank v Commonwealth Savings Bank [1986] HCA 62; 161 CLR 639 at 644, in particular in that latter judgment, where the unanimous judgment of the Court adopted the test proposed by Justice Kitto in Inglis.

Your Honours, our submission is that the level of control by the State Government Insurance Office makes it quite irrelevant to say that there was an absence of direct control by the State Government. The State Government Insurance Office was assured of the level of control that our learned friend has said for as long as it continued to provide the capital support that it did, and it could use its shares to cease carrying on business, and if it ceased to carry on business, article 27 would have been available to the board to determine to cancel the "A" class shares and repay their funds. So that they would have had no entitlement in a winding up.

GLEESON CJ: Mr Keane, if the rules had provided for all the directors to be appointed by Suncorp or for a majority of the directors to be appointed by Suncorp, what, if any, consequences would that have had for the Queensland Government's accounting or for Suncorp's accounting?

MR KEANE: Well, your Honour, with respect, I do not think it would have had any consequence because the accounting should have been conducted under the Financial Administration and Audit Act 1985 in any event, and it would have been audited by the - - -

GLEESON CJ: I was only trying to work out why they had that board structure.

MR KEANE: Your Honour, I do not think it can be suggested that it was done with a view to avoiding audit provisions.

GLEESON CJ: Or making an off-balance sheet.

MR KEANE: Or making an off-balance sheet. Your Honours, the only other thing we wish to say on this issue is that in our learned friend the respondent's submissions at page 3, paragraph 7 and 8, it said that this can only happen - these statutory corporations that are emanations of the State or the Commonwealth - that can only be done by the act of a legislature. Your Honour, in our respectful submission, when one looks at the references to ascertaining the intention of the Parliament from the cases, what one sees is simply that the courts are looking to the relevant charter to see whether Parliament, which of course can establish a corporation independent of the Commonwealth should it so wish, to see whether the Commonwealth Parliament has done so, or the State Parliament has done so.

GUMMOW J: Does not the Commonwealth get some encouragement perhaps from Justice Mason's judgment in the DOGS case[1981] HCA 2; , 146 CLR 559 at 614 to 615, and what Justice Mason says, well, this is a prohibition. In this case it is a prohibition upon 51(ii), a taxation power, and you limit a prohibition by reference to the state of affairs to which it was initially addressed in 1900. Then the Solicitor for the Commonwealth says it was always legislation in those days.

MR KEANE: And in response to that, your Honour, we simply say that 51(ii) is preceded by the words, "subject to this Constitution", which refers one to 114, and the evident purpose of 114 is, in our respectful submission, to permit the States and the Commonwealth - it works both ways, so there is no reason to read it down because it is not tilting the balance either way - to organise their affairs and to put their capital where they think it is best in the interests of their polity. So that, in our respectful submission, there is no reason to read it down.

McHUGH J: I may be wrong but I thought in a later case in recent years we have backed away - or there is a dictum somewhere in the reports where we have backed - - -

MR KEANE: Certainly the argument that it should be read in a narrow way has been put to the Court a couple of times, I think in Deputy Commissioner v The State Bank and - - -

McHUGH J: It was certainly put by, I think it was Mr Bennett - - -

MR KEANE: Yes it was, and that argument does not seem to us to have ever been accepted; it does not seem to have been given - - -

GUMMOW J: Well, it has been, because the expression "tax on property" has been given something less than its literal meaning.

MR KEANE: Well, your Honour, to that extent, that is so.

GUMMOW J: Yes, and a much narrower meaning than in Canada.

MR KEANE: We would accept what your Honour says, that it seems to be an unduly narrow meaning, but even in the State Superannuation Case it is evident that it was a very close run thing, even in the decision of the majority, and the majority appreciated that the distinction they were drawing - sorry, it is not that case, it is South Australia v The Commonwealth.

GUMMOW J: Yes.

MR KEANE: The majority appreciated that the distinction they were drawing between a tax on property and a tax on income from property is a very, very fine one. That having been conceded, your Honour, that is looking at those words on property belonging to a State and saying, "Well, that means ownership or holding". But when one is looking at what is the State, in our respectful submission, there is no good reason for taking a narrow view of that, particularly in the light of the test posed by Justice Kitto which has been affirmed. Those are our submissions, if it please the Court, on this issue.

GLEESON CJ: Thank you, Mr Solicitor. We shall adjourn now until 2.15 and then we will hear Mr Solicitor for Victoria.

AT 12.43 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.17 PM:

GLEESON CJ: Yes, Mr Solicitor.

MR KEANE: Your Honours, there were just two points that I should have cleared up before concluding, the first, in response to your Honour Justice Gummow's question about approach to the construction of section 114. I think the passage that your Honour Justice McHugh had in mind is in Deputy Commissioner of Taxation v State Bank (N.S.W.) [1992] HCA 6; 174 CLR 219 at 229. The relevant passage is the first full paragraph on page 229:

We turn now to the question whether the tax is imposed on property belonging to the State. The plaintiff argues in favour of a restricted meaning of "State" for the purposes of s. 114, contending that a constitutional prohibition should be construed strictly rather than broadly. In particular, the plaintiff argues that neither the denotation nor connotation of a constitutional prohibition should be permitted to change from time to time. This argument may have some strength in the context of a prohibition which is clearly directed against an identifiable mischief. But in this respect to give a strict construction to s. 114 would be more likely to frustrate than to achieve the attainment of its object, namely, the protection of the property of the Commonwealth and the States from the imposition of taxation by each other in the interests of their respective financial integrity.

I think that is the passage your Honour Justice McHugh had in mind.

McHUGH J: Yes, that is what I had in mind and Mr Bennett was arguing - - -

MR KEANE: That is right, yes. Your Honour the Chief Justice asked about the grounds of refusal of special leave in First Provincial Building Society Limited v Federal Commissioner of Taxation - the transcript of the proceedings of 22 June 1995 - the point was that 26(g) brings into assessable income a:

bounty or subsidy received in or in relation to the carrying on of the business -

of the taxpayer. The point was that the subsidy was not in relation to the carrying on of the business of the taxpayer because it was in relation to the capital structure of the taxpayer. Special leave was refused. Their Honours said:

On a number of occasions this Court has pointed out that in taxation matters the Full Court of the Federal Court is to be regarded as a court of final resort, save where questions of fundamental importance and of general application are involved. The question raised by this application is confined to the application of the relevant provisions of the Income Tax Assessment Act to particular circumstances and, as such, it does not warrant a grant of special leave.

GLEESON CJ: I have the picture.

MR KEANE: Thank you, your Honours.

GLEESON CJ: Yes, Mr Solicitor for Victoria.

MR GRAHAM: If the Court pleases, we had only intended to address oral argument to the Court in relation to the second question. Accordingly, we do not wish to expand upon our written submissions in relation to the first. If the Court pleases.

GLEESON CJ: Thank you, Mr Solicitor. Mr Solicitor for Western Australia.

MR MEADOWS: May it please the Court, we rely on our written submissions and beyond that I do not think there is anything we can usefully add.

GLEESON CJ: Thank you, Mr Solicitor. Mr Solicitor for South Australia.

MR SELWAY: Your Honours, the issues that we wished to arise with the Court only arise if the first question is answered, yes. We do not wish to put submissions on whether it should be answered, yes or no.

GLEESON CJ: Thank you, Mr Solicitor. Mr Solicitor for New South Wales.

MR SEXTON: If the Court pleases, we have only made submissions in relation to question 2 and if it comes to that, well, we may have oral submissions on that question.

GLEESON CJ: Thank you, Mr Solicitor. Mr Solicitor for the Commonwealth.

MR BENNETT: If the Court pleases. Your Honours, there are a number of questions which a number of your Honours asked this morning which I wish to deal with before coming to the body of my argument. Your Honour the Chief Justice asked if the payments into the particular fund were deductible. The answer to that is yes. They would, of course, have been deductible under section 51(1). They might not have been, of course, had they been paid into some guarantee fund over which the particular Building Society has retained some interest. In other words, if they retained a right to reimbursement out of it, then, of course, it might have been simply the provision of security. But that is not the case.

It was referred to in First Provincial v The Commissioner of Taxation 56 FCR 320 at 326. In the judgment of Justice Hill, with which the other members of the Court agreed, at page 326D his Honour said this:

Third, reliance is placed upon the fact that there was in substance, if not in form, a recoupment to the applicant of business expenses previously incurred, namely subscriptions, which the applicant had made to the Fund and in respect of which an allowable deduction had been made.

I suppose, strictly, one cannot look at another case to ascertain facts which are the facts in this case, but it is a fairly strong indication as to what the facts would have been. They go on to say:

But it is not correct to say in the present case that the amount received from the Government was compensation, recouping the business expense -

and that is because it was a simple statutory payment. So the answer to your Honour's question, we would submit, is yes. I hasten to add that answer is not made on instructions from my client as to what occurred. It is made on the basis of that statement in the case and looking at the section.

Your Honour Justice Hayne asked about the word "precepted". It seems to us little more than almost a neologism rather than euphemism for compulsory and one cannot say much more than that about it.

McHUGH J: There is a reference to "precept" in the statute there somewhere, I noticed going through, but not in the context of - - -

MR BENNETT: I think Justice Hayne's concern and mine, your Honour, was the use of a noun as a verb.

HAYNE J: I just wanted to know what it meant.

MR BENNETT: Yes. Your Honour Justice Callinan asked if there had been a declaration of a dividend. At page 111 of the case stated book in the accounts at about line 18 there is a statement that "No dividend was declared" for that year. Commonsense might suggest that the same would have applied for all other years, but one does not know that and there is no evidence.

Your Honour Justice Gaudron asked whether Suncorp itself, the State Government Insurance Office, was the State. Your Honour recalls that was a subject of a concession in this case - - -

GAUDRON J: No, whether they could be directed. I was interested in whether they were subject to directions.

MR BENNETT: Yes. I am not sure of the answer to that question. The Act is the Suncorp Insurance and Finance Act and section 8(3) of that Act provides that:

the Corporation -

(a) shall have regard to the public interest in obtaining indemnity insurance cover at reasonable cost;

and

(b) as an agency of the Government of Queensland, shall endeavour to meet that interest consistently with the prudent conduct of its insurance business.

So there is the sort of general provision one found in the bank cases about operating in the public interest, but I am not certain what the position was in relation to direction, your Honour. Certainly it was looked at, no doubt, when the concession was made and the concession was made freely.

Your Honour Justice Kirby asked a question which really will occupy the remainder of my submissions, and that concerned the question as to whether there is a list of criteria one goes to and how one weighs them. We have provided a schedule, which is directed to answering that question and which provides a convenient framework for the balance of my submissions and, your Honour, it is a - - -

KIRBY J: Well, my question was really anterior to that. It was whether, in a sense, there is a grand theory of the section of the Constitution and whether one can try to understand the particular criteria by reference to the way in which the section is intended to work in our Constitution.

MR BENNETT: Yes.

KIRBY J: What is its purpose? Why is it there? What were the debates that led to its adoption? Has there been a common theme through the history of the operation of the section? There is an unusual number of unanimous decisions of the Court on the point, so one would have thought that after 100 years one could begin to see a common theme, and is there any analogy in Canada or the United States? Otherwise, we really are in the checklist business. We list one group on one side of a ledger and the other group on the other and say, there is more on the first side, and that is it. It is not a very conceptual way to deal with the problem under the Constitution.

MR BENNETT: That is what seems to have been done in the four cases, your Honour, and there are only really four cases and I will come to - - -

KIRBY J: That may be so but essentially there are some, as it were, procedural signposts, the usual ones about not looking at form but looking at substance, and so on. I just think that we should have a conception of the section and what its purpose is rather than just a checklist.

MR BENNETT: Your Honour, when one goes to the convention debates one finds the initial section was much longer. It talked about interference with port charges and wharfage, and matters of that sort. There as almost no debate, the debate covers a few lines in the 1891 convention and a little longer in the 1897 and 1898 conventions, but around less than a page in each, as I recall, may be just over a page in one. They are very short discussions and they are mainly about the importance of wharfage charges.

There is a short discussion of an issue which arose in one of the early cases, namely customs duties, and the distinction between a tax on a transaction and a tax on property, and your Honours will not be surprised to hear that in the course of the debate Justice Griffith gave the same answer that was given by him from the Bench a few years later. There is very little that is very helpful in the debates about the conception. The best one can get is that it was thought there should be some sort of immunity from taxation by one, of the property of another.

There is a discussion, I should say, of the question of whether it would prevent a Commonwealth land tax in States where most rural land was held on leasehold rather than freehold. There was a short discussion of that issue, which also arose in one of the cases, where it was held that a Commonwealth land tax could tax a lessee from the Crown, although the land was owned by the Crown.

KIRBY J: I suppose at a high level of generality, one could say the purposes are that within a federation one part of the polity respects another part of the polity and/or does not have the power, by levying tax on property, to destroy the property and the units of government of the other.

MR BENNETT: Yes, but it is significant, of course, that there was never a suggestion that that would be extended to all taxation. One cannot really find anything very useful as to why it was limited to property. There was certainly no discussion of course of the issue of what is the "State" for this purpose, or what is the "Commonwealth" for this purpose. That is simply not discussed at all.

GUMMOW J: It is odd that the Parliament of the Commonwealth can consent to the imposition of tax of its property by a State. It does not work the other way around.

MR BENNETT: Yes. Your Honours, the four cases which have discussed the issue in recent years; two of them have discussed it in the context of section 114 and two in the context of section 75. They are the four cases we have referred to in the schedule. Each of those cases, while saying that the test is the same under the two sections, has gone through six points. Ticking them off is an inappropriate way to describe what has occurred, because clearly different ones of these are given different weight in different cases. It is instructive to look at these four cases and look at the way the six points were dealt with, because all of them are cases where there were bodies which were very much more governmental than the body here. I will come to the table as I go through.

May I start with the absence of corporators, which perhaps is a long-winded way of saying that this is a corporation incorporated under the general law, in this case the building societies legislation rather than the corporations legislation, but it is a corporation incorporated under a general law for the incorporation of corporations, not a corporation set up by government in the sense that it is set up by legislation.

At first sight one might say, "So what?", and that, in effect, is what my learned friend, Mr Jackson, says. He says, "Well, you can have a company which is controlled just as much", and he points to Qantas and he says, "Why should it make any difference?". Your Honours, there are a number of answers that can be given to that. The first is that the Qantas Case itself is quite distinct. If one looks at it, what was in issue there was not the Constitution, neither section 114 nor section 75, but a clause in an award which used this phrase in the relevant definition:

employees of any . . . corporation employing persons at an annual salary rate on behalf of the Government of the Commonwealth -

Now, the argument in the case was whether Qantas employees were employed on behalf of the Commonwealth and, no doubt, one could debate that as a matter of strict legal theory. Of course, it was in industrial regulation where obviously there was a policy consideration to be borne in mind and the rules of an organisation. In my respectful submission, it is not surprising that in the rules of an organisation the phrase "corporation employing persons on behalf of the Crown" would be construed as including Qantas but it does not have anything to say, we would submit, about the present sort of case as to which a case like Bogle is of far more relevance.

The second aspect is this. When a State goes into business, or decides to embark on an activity, or any government, it can do it in a wide variety of ways. It can do it through a government department. It can do it through a statutory corporation and it can do it in various other ways by setting up various forms of bodies that are set up from time to time.

If it chooses to do it by incorporating a company, one would normally conclude that it is doing that to obtain the advantages of the private corporate regime or, in this case, the building society regime and that it would take the good with the bad. One of the big advantages the Queensland Government obtained in this case was going into a financial minefield with limited liability. Now, had it set up a government corporation or had it, itself, gone into the business, it would not have had limited liability. It limited its liability here. Certainly it had stand-by arrangements and it had some security.

GLEESON CJ: Well, presumably being able to draw down on that stand-by facility would have required compliance with certain conditions, margins borrowing margins, for example.

MR BENNETT: Yes, and the giving of security.

KIRBY J: I do not see why they could not have - assume they set up corporation, they could legislate in whatever way they like for the extent of their liability.

MR BENNETT: They could, your Honour, and if they did we would not be here, but they did not chose to do that. They chose to adopt an existing regime. If one looks at the parliamentary debate on it, one - - -

KIRBY J: But how can this affect the constitutional characterisation? I just do not follow the trend of this argument.

MR BENNETT: Well, your Honour, my learned friend says that - - -

KIRBY J: If in a particular case Qantas can fit the bill, why can not one say in a particular case this can fit the bill?

MR BENNETT: I do not concede totally that Qantas would or could fit the bill; all I have conceded is it is possible it is conceivable a court might hold in an extreme case that a corporation had the requisite characteristics. I suppose one might get that in this way: if the government passed legislation, consequent of having acquired all the shares in Qantas, that the board shall act in accordance with the directions of the treasurer or the Minister for Aviation, that the board shall be appointed and can be removed by the Governor-General and had done various things like that and it had said, and the government guarantees the debts of Qantas and that Qantas shall act to the greatest advantage of the flying public of Australia rather than to its shareholder - - -

KIRBY J: But once again we would not be here, because it is only at the borderline that we are here.

MR BENNETT: Precisely, your Honour, but that is why I say it may be that in an extreme case one could do it, but normally if one sets up a company one is doing it to get advantages of not being the Crown. Your Honour sees that at page 58 of the case stated book, in a passage which has been read to your Honour, but without the emphasis I would like to give to part of it, where your Honours see, the extreme right-hand of the fourth column, so it is the fourth of the four columns, at the very top of the page, where Sir Gordon Chalk says:

there will be a new society established and backed to the extent of $43,000 -

we are not going to back it totally; it is beyond that, it may not be backed, we will have limited liability -

and it will function in the usual way that a building society functions.

That is what is set up here; something that will function in the way a building society functions. It will be a building society, not a - - -

HAYNE J: Well what is different between that and the State banks?

MR BENNETT: There are a number of differences, your Honour, and I can read across the page to tell your Honour what they are: the State banks had in their Acts, like the Commonwealth Bank in the old days, "It shall act to the best advantage of the people of Australia." That is a huge difference to begin with; they had no corporators, no shareholders; nor did the Commonwealth Bank. There was a provision giving the government a right to dictate policy, to a certain extent; borrowing is going to take place with the consent of the treasurer. The Board was appointed by the Governor-General or by the State Government and the ultimate profits and losses were borne by the governments and, as here after a certain date, but not before it, the accounts were audited by the Auditor-General. And, your Honour, that is totally different, we would submit.

GAUDRON J: At the end of the day, was not the test whether it was the government itself conducting banking business by that means?

MR BENNETT: Yes, your Honour, precisely.

GAUDRON J: I suppose, a similar test here is, could you say the government was - again, it is almost a contradiction in terms to say, was the government carrying on the business of a building society, because it is the building society that carries on a building society.

MR BENNETT: Precisely, it was controlling it.

McHUGH J: I know what you say about these tests, but in terms of asking whether something is a State instrumentality, a slightly different test has been used. When the Anti-Cancer Council Case came up here the question that was asked by the Court was, "Did it serve some State Government purpose?". That was the test. If you apply that approach here, maybe you get a different result.

MR BENNETT: You might, your Honour, nothing to do with this case, nothing to do with this test. There is a whole line of cases; the Shire of Dunmunkle Case, and the South Eastern Electricity Board Case, there is a whole string of cases discussing that question, it is just nothing to do with this.

McHUGH J: Why should you distinguish between those cases and section 114 cases where you are looking at an instrumentality?

MR BENNETT: Because, your Honour, the courts have always said that one applies different tests for different purposes. There is another line of cases dealing with the word "authority" and say, "What is an authority of a State?". I think the Western Australian Turf Club Case is the most recent of the leading cases on that. That is a third line of cases. The difference here is - - -

McHUGH J: It does seem to lead to an odd result, that you can get one result for the purposes of an Audit Act or for a Taxation Act, and you get a different result for section 114. Why should we not try to get some coherence in this?

MR BENNETT: Of course, your Honour. The type of immunity one is talking about is a different type of immunity. When one is talking about the sort of immunities one has in the cases dealing with authorities, one is usually dealing with an immunity from something which the same government, the same polity, imposes. Not always, but usually. In this area one is always dealing with an interference by one polity with an instrumentality of another polity, and different tests have been held to apply. It is a different purpose.

McHUGH J: Yes, but you have referred to the recent cases, but the early cases - Steel Rails Case, it was held that, despite 114, States had to pay customs duties on property that they brought in. I cannot remember the result of the cases in the first volume of the CLR, the Sydney - - -

MR BENNETT: There were two of them. Sydney Municipal Council Case, it was held that the Commonwealth was not liable for rates. Your Honour, I had a list which someone has lost but it will no doubt turn up in a few minutes. There is a list which we have of about 20 cases - would your Honour just pardon me? Your Honour, none of those cases, apart from the recent ones, considered the question of what entities are subject to section 114. They were all concerned with the question of what is a tax on property and it was held that rates were.

The argument put by the Sydney City Council as to why is the Attorney-General of New South Wales in that case seems quite incredible after 100 years. He put the argument that these were not taxes because they were rates. In the Steel Rails Case - - -

GLEESON CJ: He might just have meant that was a charge for services. That is what they said about wharfage in the debates. The reason they cut out the reference to wharfage was because they said wharfage is a fee for services, not a tax.

MR BENNETT: Yes, that may have been what was intended, your Honour. The Steel Rails Case, of course, customs duties were held not to be within the power, not to be within the exclusion. In Attorney-General of Queensland v Attorney-General of the Commonwealth it was held that land tax could be imposed on lessees from the Commonwealth. Your Honour, I am trying to find the list but I will have it a few minutes and I can take your Honour through it in a minute or two. It is a very short list.

McHUGH J: I think Justice Gummow mentioned that this comes from section 125 of the British North America Act, does it not?

MR BENNETT: Yes.

McHUGH J: There is no counterpart in the United States Constitution, is there?

MR BENNETT: No, your Honour, no. D'Emden v Pedder 1 CLR was the other one I was thinking of, where it was held that a receipt given by a federal officer for his salary could have stamp duty levied on it by the State. The reason given there was that the receipt, which was given to the Commonwealth by the Commonwealth public servant, was only the property of the Commonwealth in a very narrow technical sense and was not really valuable property in the sense that it was being taxed and, in substance, it was a tax on income, not a tax on the document, although it was a stamp duty.

There is Essendon Corporation v Criterion Theatres which was a tax by a State on the occupation of land, which was held to fall within section 114. Then, of course, there was the First Payroll Tax Case. That was held not to be a tax on State property; and the Fringe Benefits Tax Case where it was held that a fringe benefits tax was not a tax on property.

There is one very recent case, the Accident Compensation Tribunal Case, where it was held that income tax levied on interest and moneys held by the Victorian Accident Compensation Tribunal was not a tax on property because, in equity, the moneys belonged to other people. Your Honours, that is the whole of the history of section 114, plus the cases I have referred to here.

McHUGH J: I do not think it is relevant on this point, more on the second point, but in the Canadian Constitution they have the word "land" in, I think, as well. It is "land and property"?

MR BENNETT: I think that is so, your Honour, yes.

McHUGH J: But it is not in ours for some reason.

MR BENNETT: No, no. As one finds a lot in the constitutional debates, the customs duties, wharfage and movement of goods was the main preoccupation of those who designed these clauses.

GLEESON CJ: But we have it in property of any kind, have we not?

MR BENNETT: Yes, we have. It is fairly broad, your Honour, it is "any property of any kind".

McHUGH J: Yes.

MR BENNETT: But we do submit - - -

HAYNE J: Can I take you back to the bank and building society. Do I understand your proposition to be this, that although the activities undertaken by a building society, namely accepting deposits and making loans, are activities that could be undertaken by a State. Because a building society is a co-operative venture, the conduct of a building society cannot be undertaken by a State?

MR BENNETT: Yes, your Honour, yes, that is certainly part of - that is one aspect of the argument, yes. In relation to a bank, the bank cases, the Commonwealth Bank v State Bank Case might have been very different if they had merely companies in which the Commonwealth or the State had acquired the shares. The question of structure, we submit, is an important one and it is no coincidence that in each of the cases it is the first one the courts come to. Although the phrase used is "absence of corporators", which sounds like a fairly technical distinction, it is, in fact, we would submit, a very important one. We note that in each of the four cases, Inglis, Superannuation Fund Investment Trust, State Bank v The Commonwealth Bank and Deputy Commissioner v The State Bank. In each of the four, there was an absence of corporators.

KIRBY J: But why in concept is that important? It just seems to be an organisational arrangement. States can appear and the Commonwealth can appear in many apparitions. I just do not see why that should be critical. You say it is the most important thing that the Court has latched on. It does not seem very important to - - -

MR BENNETT: Well, we bracket it, your Honour, and we say its true significance is not so much the absence of corporators as what it symbolises, which is the fact that the general law of the incorporation of companies or buildings societies has been used and a corporate body pursuant to that general law, which happens to require corporators, is set up.

GLEESON CJ: Is there not another possible reason and that is that the presence of corporators, at least corporators who are not themselves under the control of the State, brings into existence people in whose interests the affairs of the company must be conducted?

MR BENNETT: Precisely, your Honour. That is the other aspect and the fiduciary duties to them, and they have rights and they have powers, and abilities to do things. I will come to the extent of those in a moment. It is interesting when one looks at the list in the case stated book, a lot of them are public servants but a lot of them are not. There is a retired solicitor; there is a person described politically incorrectly as a "housewife"; there is a number of people described as "clerk, typist or stenographer" who may or may not have been public servants. As my friend says, it may well be that they went round the building and had a whip round, but the suggestion is that the whip round included friends and family, so it is not - - -

GAUDRON J: It does not include any ministers of the Crown, does it?

MR BENNETT: No, it does not, your Honour.

GLEESON CJ: The second reading speech indicates that there were some people who were associated with the failed building societies who wanted to be on this and the government wanted them to be there, too.

MR BENNETT: Yes. Well, your Honour, certainly there is no suggestion that any control was retained over these 100 people. I mean, it may be a bit like getting the article clerks to sign the memorandum and articles of association of a company and then transfer the shares later to get the company incorporated quickly. But, nevertheless, they are 100 people who were required by law and were found. We do stress that the State had the choice as to how to do it and it chose to do it that way, in a way which gave it limited liability and enabled it to have a body which was, for all intents and purposes, a normal building society, except that, because of the provisions of the articles, the shares it held, and so on, it was, in fact, able to control it, and I will come to the significance of that.

GLEESON CJ: Mr Solicitor, in relation to the question that you were asked by Justice McHugh and by Justice Kirby, that is as to the concept here, the word "State" in section 114 presumably has the same meaning the last time it appears as the first time it appears and has the same meaning as in section 115 and 113, and 112. It is the sort of thing that you are prohibiting from raising or maintaining a naval or military force, for example.

MR JACKSON: Yes, I am grateful to your Honour for that assistance. That does assist the argument considerably because it is another reason why one would construe the word "State" or "Commonwealth" more narrowly in this section, regardless of what the court has said about the phrase "tax on property", than one might construe it in a totally different context. As your Honour says, building societies - - -

KIRBY J: Except that the "State coining money" means the Royal Mint in William Street, Melbourne, or in Macquarie Street, Sydney, whereas "State property" is a concept that one would think would move with the times and, as we know and as the 20th century demonstrated, there were vogues of manifestations of the State and they are still going on. There were vogues, I mean, there were periods where things were done through statutory corporations, and then they were done through private corporations, and we have had the privatisation of statutory bodies. I mean, the process is still going on.

MR BENNETT: One does not have many cases of States or the Commonwealth owning all the shares in a company and carrying on an activity through it. It certain happens, and Qantas is the best known. Commonwealth Hostels Limited is another.

KIRBY J: Serum Laboratories, I think, was another case.

MR BENNETT: Serum Laboratories, yes. There are some. I do not know, your Honour, with respect, there has ever been a vogue for that.

KIRBY J: By "vogue" I mean - I think Mr Seddon has written a book on the move to privatisation of out-sourcing of activities of government and government now carries on its business and, in a sense the business of government, in different manifestations.

MR BENNETT: There is a certainly a vogue, your Honour, in relation to what activities governments carry on and do not carry on. In that sense, that is so. As to how they carry them on, whatever vogues there have been, there has not really been a vogue at any stage for carrying it on in this way.

KIRBY J: This may be the beginning of a vogue.

MR BENNETT: Hopefully, your Honour - - -

KIRBY J: The problem is conceptual. If you can do it through a private corporation, why can you not do it through a building society?

MR BENNETT: Your Honour, the very fact that there is not a single bright-line test, and there are the six criteria the courts have looked at, suggest that no one of them is absolute. For that reason, I said that it may be that in an extreme case one could. What we do submit is that it is a very powerful factor against. That really is as far as it can be taken.

The second of the six is that in each of the three bank cases, which are three of the four cases involved, there was a provision that it was the duty of the bank to ensure its policy was directed to the greatest advantage of the State. There was a similar provision, as I have shown your Honours in the Suncorp legislation. That factor was not present in the Superannuation Fund Investment Trust Case where this Court divided on the question of whether it was the Commonwealth or not; two Justices saying it was, two saying it was not, and the fifth not having to decide it. So, in one sense the facts in that case are less significant than those in the three bank cases.

By way of contrast, if one goes to page 116 of the case stated book, your Honours see that:

"The objects of the society shall be -

(a) to raise funds by subscription-

(b) to apply those funds . . . in making advances -

(c) to render such services to its members and depositors -

but nowhere does one see, one searches in vain for an object to save collapsing building societies or to work to the best advantage of the people of Queensland. That is conspicuously absent; no doubt for good reason, from these articles. That, we submit, is a significant matter and it was referred to as the second factor in the various cases. It is also noteworthy, I suppose, that in the State Bank Cases the State Bank had power to make by-laws, something which certainly has not been given here.

The third area concerns the government's say as to policy. This is different to being able in fact to control, which is the next one. This is the enactment of specific provisions saying that the policy, or major aspects of the policy, are subject to government control. Now, your Honours will see, if your Honours go down the table, the Commonwealth Bank - I am sorry, I had assumed your Honours had this table.

KIRBY J: I was trying to follow your submission - - -

MR BENNETT: I am sorry, your Honours. I had ask they be given to your Honours. I assumed it had been. I am sorry.

KIRBY J: Is this a new synthesis of the indicia, is it?

MR BENNETT: Yes, your Honour.

KIRBY J: Because we have your other synthesis with the....incorporated as (a), but (b) is control. (c) is relationship, government financial resources.

MR BENNETT: This is put more precisely in accordance with the six criteria in the cases referred to. The submissions have synthesised them more. I do apologise. I had assumed I was addressing your Honours with this in front of you.

GLEESON CJ: Yes, we have read that. Thank you.

MR BENNETT: Yes, if the Court pleases. Your Honour, the third aspect concerns policy. The Commonwealth Bank in Inglis was a body, which by statute, the treasurer could direct policy of. The Superannuation Fund Investment Trust was not and that was the one the Court divided on and in the two State Bank Cases there was one major restriction, the State Bank could only borrow with the consent of the treasurer, a matter of some importance, one would have thought, in running a bank.

The fourth matter is my learned friend's only strength, his only important strength and that is the control aspect but what is important is that the control here is a control achieved more through the general law and the articles of the company and the ownership of shares than by any statutory means.

In Inglis members of the board were appointed by government. In the Superannuation Fund Investment Trust the board was appointed by the Governor-General, although he had no power to dismiss except for misconduct or incapacity. In the State Bank Cases the State could appoint six of the seven directors, and your Honours have been taken to that.

Here, however, one has something less than that. Now, I concede that if one was asking the question for the purpose of the law of subsidiary and holding company or some other aspect of company law, whether Suncorp controls the applicant, of course one would say that it did but it does so because it has power to appoint and remove three of the six directors and it can appoint the chairperson who has a casting vote. So that gives it control in that manner.

The directors are, of course, paid by SGH, not by Suncorp, and the State has shareholder voting control through the "B" class shares but its major powers, even under the articles, only exist so long as it keeps $1 million there and that, of course, may change. It is in the State's control to change it. I accept that, and that is why I say it has control in that sense. But it is very different to a body where there is a statutory provision which ensures that whatever happens, the State has the power to appoint the board. So, in my submission, while my friend may win that one, he only just wins it and it does not get him anywhere near I get on the others.

The fifth one concerns the ultimate destination of profits or losses. The Commonwealth Bank Case, of course, they went to the State or from the State. In the Superannuation Fund Investment Trust Case 145 CLR it is not completely clear from what I have said here but if your Honours go to the case your Honours will see that there is a statement in the case pointing out that a surplus would go back to the - yes, it is in the judgment of Justice Aickin at page 362 of the report where his Honour points out that at least some of the obligations are paid out of consolidated revenue. This is at point 5 of the page, about eight lines above the paragraph break. Your Honours see:

All amounts in respect of "Age Retirement", whether periodic or lump sum, are payable out of the Consolidated Revenue Fund. Where lump sums are otherwise payable . . . the lump sums are paid out of the Fund to the person entitled and the balance . . . in respect of that employee is paid by the Fund into the Consolidated Revenue Fund.

So there seems to be a considerable relationship with that fund. On page 363 his Honour points out in some detail the relationship between the fund and the consolidated revenue fund and shows how it is used in relation to the particular trust. As I say, in that case their Honours divided 2:2. Justice Aickin held that it was not the Crown, despite all that. He and Justice Stephen took that view; Justices Barwick and Mason taking the opposite view.

GUMMOW J: We have a meaning of "consolidated revenue fund" from section 81 of the Constitution. Do we have a similar route for it in Queensland constitutional law?

MR BENNETT: I do not know the answer to that question, your Honour.

GUMMOW J: No, someone should tell us, I think.

MR BENNETT: Yes, I will have inquiries made about that, your Honour, and find an answer to that.

McHUGH J: But this Society did pay dividends. The statement of cash flows shows that over 4 million in dividends were paid in 1993 and I notice from the reasons of the Commissioner disallowing the objection it was said that dividends are only paid to Suncorp.

MR BENNETT: Yes.

McHUGH J: Curiously, or maybe not curiously, at page 86 of the report showed that they were earning 47 cents a share in 1994 and at page 78, at about point 7 of the page, there is the payment now of dividends.

MR BENNETT: Page 86 of the book?

McHUGH J: Page 86 of the book, the second-last line:

Basic earnings per share 47

MR BENNETT: Yes. I am not sure where the dividend your Honour refers to is.

McHUGH J: The dividend I refer to is on page 78, point 7, dividend paid in 1993. No dividend was paid in 1994.

MR BENNETT: Yes.

McHUGH J: So 4,740,000 was paid out and then in the reasons for decision of the Commissioner at page 33 of the book, about point 6, it says:

The Taxpayer paid dividends to SIF but not to the State of Queensland - - -

MR BENNETT: Yes, so apparently there were dividends paid in some years, yes. But what is important for present purposes, of course, is that there is nothing the other way. There is no guarantee. If the Building Society became insolvent, there would be no obligation on Suncorp or on the State to meet its liabilities beyond the amounts which were specifically allocated in various ways.

The final item of these six is accounts subject to audit by the Auditor-General and, as has been pointed out, that was the case in the relevant year. It was audited, I think we have been told, by KPMG for a period, whereas under the Financial Administration and Audit Act 1985 - I think it was the 1993 Regulations which changed that. But the very fact that for so many years it was able to exist under this structure, being privately audited, is itself a fair indication of the way it was seen.

So when one adds this up, as we submit is appropriate, one has a body which happens to be controlled by the State. Many bodies may happen to be controlled by the a government in all sorts of ways. A corporate taxpayer may owe a lot of tax and give the Commissioner of Taxation an equitable charge over its assets and everything that it has and the Commissioner may appoint a receiver. No one would suggest that that company becomes the Commonwealth even though the Commissioner can, no doubt, control every single aspect of it. Control on its own, de facto control that one is able to enforce, is simply not sufficient.

HAYNE J: It may mask the much more fundamental question of what you mean by "control". Just uttering the magic word "control" does not tell us much at all.

MR BENNETT: Precisely so, your Honour, and, indeed, the cases do not - - -

HAYNE J: Which is all you have done Mr Solicitor. All you have told us is that there is control. The fact is that the control does not equate to absolute ownership.

MR BENNETT: No, your Honour, it does not. That is why in the cases they do not use the word "control". They talk about the fact that the members of the board were appointed by government as one of the indicia, in each case, of course, because of statutory requirements. That is the difference in this case. The reason that people are appointed by the government here is that it has powers under memorandum and articles of association while it owns shares and has money in a particular body. That is very, very different to what occurred in the cases we are concerned about.

KIRBY J: On one view these six - though that is a very helpful analysis and I am much assisted by it - are in a sense the paraphernalia of the case. Getting to the root of the matter one would think that the test is: was it for the purposes of the State; was it one view of achieving the purposes of the government of the polity of a State? If that is the sort of test that is applied, then there is no doubt that what was done here was such an endeavour.

A clever State operative could go through this checklist and make sure they conformed, but if we are looking at the Constitution and whether this is a manifestation of the State, then is it not more fundamental, instead of these sorts of checks, to be asking, "Is this a way by which the State in modern Australia is manifesting its polity to achieve its objectives?".

MR BENNETT: Yes, your Honour. Can I answer your Honour's minor premise first, then the major one? When your Honour says a clever State operative could devise a way to get around that, there is nothing surprising about that. If a State wishes to set up an entity which is, to use the phrase used I think by Sir Garfield Barwick in Inglis, "an emanation of the State", it can do so. To say that it is a clever State operative trying to get around something is not, in my respectful submission, the way one would characterise that. It is the State having decided, "That is what we are going to do". And if the State does that, it is entitled to do it. The question is: has it done it? So the fact that the State can control each of these six and make sure they are complied with, the answer is yes, if you want to create a polity which has the relevant requirements, do so.

The second aspect is this, your Honour. Your Honour asks about purpose. We would not accept that this body has any real continuing governmental purpose. There is not one word anywhere in the stated case book - and I say this, as one always does, subject to correction - but as far as we could find, not one word which suggests there was any continuing political objective after 1976 other than the rescuing, at that time, of seven failed societies.

It is interesting to note if one looks at principal activities, if your Honours go to page 11 of the stated case book and the directors' reports for the relevant year, your Honours will see at the top of the page:

Principal Activities

The principal activity of the economic entity in the course of the year was confined to the provision of building society services to members, within the requirements of the Financial Institutions (Queensland) Code. There has not been any significant change during the year in the nature of the activities of the economic entity.

It is not suggesting that it has some governmental function.

Now, of course, if the government controls a major competitor in the marketplace, a major player in the marketplace, it may be able to influence the market in some ways. I suppose the clearest example of that was when we had Trans-Australia Airlines and Ansett as the two airlines in Australia and the Commonwealth owned one and thereby was able to exercise economic control over the other, but that is not stated anywhere as being the function or purpose of this activity. There was an initial - - -

KIRBY J: I have not read all of it, but was it Sir Gordon Chalk - he was the Minister, and I had the impression of some of his Hansard statements that they indicated that this was done for a public purpose of the State.

MR BENNETT: The rescue was a public purpose, there is no doubt of that.

McHUGH J: The Labor opposition accused them of introducing socialism into the State.

MR BENNETT: Yes, which they were astute to deny, your Honour. It did. It "welcomed them to the fold", I think was the phrase used in one of the speeches.

CALLINAN J: I suppose residential housing is something that the State has an interest in, too.

MR BENNETT: But this was not an area where the State went in and said, "People who want to invest in building societies need a body and we will provide it". There were building societies and they were perfectly solvent ones. This company - certainly, as my learned friend has said, the initial purpose was a governmental purpose and private companies do not go in and rescue insolvent companies in the sort of situation that these other building societies were in.

One can accept that, but the continuation of it beyond that certainly demonstrates a very different purpose, a continuation perhaps, a participating in the market, but there is no evidence anywhere that it is done, or indeed could properly be done, for governmental purposes. There might be a real question as to whether there was a misfeasance if the directors were to say, "We will pay very high interest on the money we are borrowing and charge very low interest to our borrowers because we feel it is important to support the people of the State and give them a cheap facility and make everyone else raise or lower their rates". There would be a real question if that was a proper function for the directors to assume, the way this has been set up.

One could, of course, have set up a State building society, have said its objective is to work for the best advantage of the people of the State, and such a building society, no doubt, could and should act in the way I have described. Such a building society would be on a different side possibly of the ledger in section 114. At least one would have a stronger argument. But here, what has been done is nothing more than to go into the marketplace and the most my friend can say is, "We went into the marketplace with initially altruistic or governmental motives and we have made sure we keep control through means other than - - -

McHUGH J: But maybe that is enough. You will remember that in the bank nationalisation legislation, the Commonwealth had power to put in its own directors over the private banks for a period without acquiring their shares, but did not this Court hold that that was an acquisition of property by the Commonwealth?

MR BENNETT: Yes, your Honour, but the fact acquisition of control can be for certain purposes a - for the purposes of section 51(xxxi), in substance, an acquisition of property is a long way from saying that a State revenue provision which affected such a bank was a provision which was in breach of section 114. The same test would not have applied and that is in the context of a constitutional power in section 51(xxxi) where one has to read it with all the expansiveness that this Court has required on many occasions.

McHUGH J: I am beginning to wonder whether or not it might be a mistake to isolate the notion of the State from tax on property. Why is it not that one way of looking at this case is to look at the legislation under which societies are required to transfer their funds into this organisation? It is there for a period; the interest rates to be given to depositors is to go up, I think, to 91/2 per cent to attract funds, restore confidence. The government puts its own directors in there through Suncorp, a control, and that as long as the operation continues until stability is restored, it is a government operation.

KIRBY J: Mr Keane rather suggests that in his submissions on the second question. There are resonances of what Justice McHugh has just been saying.

MR BENNETT: Your Honour, asking is it a government corporation, we would submit, is simply putting the question a different way.

KIRBY J: No, but it is a more constitutional way to put the question than to ask is it subject to the Auditor-General. That is a matter of detail. It is peripheral. It is not fundamental, it is not conceptual. It is not core.

MR BENNETT: It is not, your Honour.

KIRBY J: Is it a manifestation of the State for a State purpose?

GUMMOW J: One can only answer that by specifics, unfortunately.

MR BENNETT: Precisely, your Honour.

GLEESON CJ: Do governments do anything that is not for a government purpose?

MR BENNETT: Hopefully not, your Honour.

HAYNE J: Your answer will be recorded, Mr Solicitor.

MR BENNETT: Yes. The Auditor-General might have something to say about it if they did.

GLEESON CJ: If the question was whether the government's involvement with the corporation in question was a government purpose, when would the question whether the corporation was the State ever be answered "No"?

MR BENNETT: It would not be, your Honour.

McHUGH J: Well, we asked the - it was answered no in this Anti-Cancer Council Case. It was set up by Victorian legislation and I think it was Chief Justice Brennan, Justice Gaudron and somebody else. I did not sit on it, but I think the Court held there that it was not a State instrumentality and, therefore, for the purpose of rules of one of the unions.

MR BENNETT: There have always been a large range of bodies which are effectively controlled one way or another by State or federal governments which are or are not government instrumentalities for the purpose of an immunity, do or do not have the shield of the Crown, are or are not emanations of the Crown under section 114, are or are not government authorities for the purpose of other legislation.

GLEESON CJ: But in every such case, the government's involvement in them will be for a government purpose.

MR BENNETT: Yes.

HAYNE J: That is to say the activity that is undertaken is an activity that government wishes to have undertaken.

MR BENNETT: Yes. It may not itself be a governmental purpose in the traditional sense. Running an airline is certainly not a government purpose in the traditional sense.

KIRBY J: It used to be thought to be so and, indeed, there was a lot of debate about it. Now we see it in a different light. That is the point I am trying to make to you, that the Constitution being a living document, you have to look at the word "State" in section 114 and say the way the State manifests itself varies over time and it will manifest itself in different ways for different purposes and if that is the way it manifests itself in this decade, well, that is the State that is protected by the Constitution.

MR BENNETT: Yes, your Honour, but it does not normally manifest itself by incorporating a company - - -

GUMMOW J: The question is: what is meant by "manifest"? That becomes the question. How do you tell?

MR BENNETT: That is why the word "emanation" was used.

GUMMOW J: It is not a word in the Constitution.

MR BENNETT: No, it is not, your Honour, but the word "emanation" was used by Sir Garfield, no doubt - - -

GUMMOW J: That is not there either.

MR BENNETT: No, it is not, your Honour. It is no doubt used for the purpose of being synonymous, perhaps, with the verb "to be". The question is: is this a body of the Commonwealth or the State? Not, is it something which the Commonwealth or the State controls, or is it something which has - - -

GUMMOW J: There is a question of the extent to which the States can self-help themselves into the immunity under 114.

MR BENNETT: To a large extent they can, your Honour. They may not be able totally to do so.

KIRBY J: Do you say they have to go through your little checklist, "Here is a handy Commonwealth checklist of six things, do that, no problem, we will never challenge it"?

MR BENNETT: Your Honour, it is not my checklist. It is the Court's checklist.

KIRBY J: Yes, but it is the checklist you are putting forward to us and what I am asking is whether there is not some deeper question that these are simply the indicia in these particular cases that have helped the Court in the characterisation problem. I am just trying to read the word in a Constitution which is of indefinite operation.

MR BENNETT: Yes.

KIRBY J: What is a "State" today? Drop the word "manifestation", what is a "State" today for the purpose of section 114?

MR BENNETT: One can only answer that, your Honour, by looking at the characteristics.

KIRBY J: That is not on a level of Auditor-General. That is at a different level.

MR BENNETT: Your Honour, in none of the cases has the Court been able to formulate a one-sentence test. The nearest one gets to it is a synonymous test of the type Sir Garfield used of saying, "Is it an emanation of the State? Is it the Commonwealth carrying on banking business? Is this the emanation through which the Commonwealth carries on banking business?" One can ask that sort of question, which does not answer it. It merely puts the question in a different form. What the Court has done is taken the checklist - it has not ticked them off in the sense of saying, "You have to score four out of six to pass". It does not do it that way. There are not enough cases to say how many one needs and, in any event, it is not a matter of how many, but which is the second most important. Very often the answer to that particular one in the particular case will not be yes or no. Your Honours see that in our table frequently we have not used the words "yes" or "no". All the Court can do is weigh it up.

GUMMOW J: Take section 85 of the Constitution, that uses the expression "property of the State". Has any attention ever been paid to that in construing section 114?

MR BENNETT: That is the financial arrangements?

GUMMOW J: Yes.

MR BENNETT: Well, I suppose the phrase "property of the State" there takes colour from the fact that it is property used exclusively in connection with a department.

GUMMOW J: Yes.

MR BENNETT: So one is talking in a department - - -

GUMMOW J: It seems to me that is right, and it seems to me it takes colour in 114 too.

MR BENNETT: Yes.

GUMMOW J: It probably helps you.

MR BENNETT: It does, your Honour. The reference to naval and military forces, of course it does; the building societies do not usually raise armies.

GUMMOW J: And the fact that if this tax really significantly burdens the exercise of governmental functions of the State, well, the Melbourne Corporation doctrine looks after it.

MR BENNETT: It is the Melbourne Corporation, exactly. One passes that test, and we had some submissions if we get to that part of the case.

Your Honours, for those reasons, unless there is some specific aspect your Honours wish me to address and for the reasons given in our written submissions, we submit that this is not a borderline case; it is a case which is very, very clearly on the non-governmental side of the line. May it please the Court.

GLEESON CJ: Mr Jackson.

MR JACKSON: Your Honours, first of all, may I just mention in answer to your Honour Justice Hayne, the provision in which one finds a reference to the duty of directors in the Building Societies Act is section 82(1) and I will not take your Honours to it now, but your Honours will see it requires the director to act honestly in the discharge of his duties.

HAYNE J: More than a little similarity to the then Code provisions.

MR JACKSON: Yes. Your Honours, the second thing is in relation to Suncorp itself. Your Honours will see section 11 is the provision that indicates the relationship which it has to the Crown - these are sections of the Suncorp Insurance and Finance Act 1985 . Section 29 is the provision that deals with the situation, if there is a disagreement on a policy matter between the directors and the government and provides for it to be resolved by the Governor in Council.

Your Honours, as to the question whether there was, in fact, a deduction claimed in previous years for the amounts paid into the contingency fund, the short fact is there is nothing in the case stated about it and one really should not judge from the facts in some other case what was done in this case.

Your Honours, could I come then to this, that if one looks, for example, at the State Bank Case 174 CLR 230 and 231, one sees there set out, for example, the various tests applied in relation to what is relevantly a State. Your Honours will see the reference that it includes a corporation, which is an agency or instrumentality of the Commonwealth or State, and I think on page 231 to:

government owned and controlled instrumentalities with independent corporate personalities.

So, your Honours, the concept of a State is one which does include those bodies.

The other thing we would seek to say about it, your Honours, is this. If one looks at the observations made by my learned friend the Solicitor-General for Queensland this afternoon, your Honours have seen the reference to the same case at page 229 in which seven members of the Court took the view that a narrow view of section 114 and the term "State" was not appropriate. Your Honour Justice Gummow referred specifically to the DOGS Case and the DOGS Case, your Honours, one can see as one of the footnotes containing the suggestion that was not rejected. Your Honours, it would be, if I may say so with respect, a large step to read back section 114 in terms of giving the term "State" a smaller signification.

Coming then if I may to something that was said by your Honour Justice Hayne. In relation to a building society and - your Honour, it may be that it was simply a gulf on the issue, but what we would seek to say is this. Your Honour was suggesting to my learned friend that the nature of a building society is such that it cannot be in effect a governmental body. Your Honours, what we would seek to say is this. A building society is an entity in which the persons who are the shareholders, in the sense of persons who have the withdrawable shares, come and go.

In this case, one sees it is the government which remains. The government is the body that, in our submission, conducts the operation within which the shareholders may come and go. Part of the operation is to issue and cancel the shares.

Your Honours, could I just say one last thing, and that is in relation to section 85 of the Constitution. Your Honour Justice Gummow said that perhaps some assistance is to be gained from section 85 and the use in section 85(i) of "all property of the State of any kind". Could we say two things about that, your Honour. The first is that one does see that section 85 is dealing with a very specific situation:

When any department of the public service of a State is transferred to the Commonwealth - - -

GUMMOW J: Section 98 has to be read, too, I think. I am not sure who owned the railways - well, 98 would speak as today to the various corporations that run State railways, I suppose.

HAYNE J: And did then.

GUMMOW J: And did then.

HAYNE J: I think there were corporate bodies then.

MR JACKSON: Yes, your Honour. One sees in, for example, Crouch v Commissioner for Railways is a case where the Commissioner was held to be the State and - - -

GUMMOW J: That is right.

MR JACKSON: Your Honour, certainly, I am not now able to say that all the State railways at, say, Federation, were conducted by corporations, but I think it is probably true that they were. It is referred to by Chief Justice Gibbs, I think, in one of the decisions to which reference has been made already.

GUMMOW J: I think some of the Commissioners were made corporation - - -

MR JACKSON: Yes.

GLEESON CJ: The Solicitor's schedule does not include a column headed "Nature of Activity", but if you look at those passages you just referred us to in the State Bank Case 174 CLR at 232 and 233, in the case of both banks and railways importance seems to have been attached to the fact that, historically, banking and the conduct of railways were regarded as government functions.

MR JACKSON: Well, your Honour, may I say, with respect, that is said in a context which is to indicate illustrations of the fact that the activities carried on by governments are not limited to things that might be regarded as improper governmental functions. If one looks, your Honours, at the bottom of page 230, one sees the expression:

The activities of government are carried on not only through the departments of government but also through corporations . . . Such activities have . . . included the supply on commercial terms of certain types of goods -

and so on. They are illustrations of the ambit of the government activity.

GLEESON CJ: Reference has been made to the fact that opinions change over time as to what is a proper function of government, and for a long time - it is still the case that, in Australia, running railways is regarded as a responsibility of governments and there was a view, for a long time, that running banks was regarded as a responsibility of governments.

What we here are concerned with did not result from a decision that the Queensland Government ought to get into the business of running a building society. It was because the Queensland Government found itself forced to rescue some building societies in the interests of the economy.

MR JACKSON: Your Honour, in relation to that, certainly the occasion for its getting into the business was the fact that the building societies were in trouble. Your Honour would see if one looks, for example, at the second reading speech of the then treasurer introducing the Bill, that he is speaking not just about the past but also speaking prospectively and saying - I think the passage has been read to your Honours already today - that now that this has happened we will have a situation where there is a State Government backed body which was to operate in the field, in effect, in futuro - to operate in competition with others, as is the case in the insurance field, as Suncorp, itself, does so. If I could just go back to the - - -

KIRBY J: The danger of talking about history is that we would have once thought banking, and some would have thought airlines, and railways certainly, to be part of the activities of government, whereas nowadays the received wisdom is that certainly airlines, and banking, are not. That really just teaches the unwisdom of fixing particular categories. Rescuing building societies might well be a business of government; is a business of government.

MR JACKSON: Indeed, your Honour. Could I also say, however - I was just going to add something, if I may, to what the Chief Justice put to me and it reflects what your Honour is saying in a sense. Your Honours will recall that governments in Australia have conducted many commercial activities quite apart from railways and banks. One sees, for example - - -

McHUGH J: Not always successfully.

KIRBY J: Sometimes very successfully. Qantas was an illustration.

MR JACKSON: Government meatworks, government hotels, government - - -

CALLINAN J: Government butcher shops in Queensland for many years.

MR JACKSON: Indeed, your Honour, meatworks, butcher shops, mines, hotels and a variety of other activities.

CALLINAN J: And railways were a commercial activity in other places, except in Australia, at the time of Federation and for much later and are again in the United Kingdom.

MR JACKSON: Yes, your Honour. Of course, there are now in Australia some privately conducted railways.

KIRBY J: Airline guards are going back, and security personnel back to the government even in the United States.

MR JACKSON: I hope so, your Honour.

GUMMOW J: Would this body be an "authority constituted under a State" for section 102? The Constitution is shot through with these considerations, it seems to me.

MR JACKSON: Well, your Honour, my hesitation is really brought about by this, that the concept of an "authority constituted by a State" does perhaps carry with it the suggestion that one is talking about a body which is created by statute.

GUMMOW J: It seems so, yes.

HAYNE J: Having power to affect others too perhaps.

MR JACKSON: Yes, your Honour, or capable of giving a "preference or discrimination" at least.

GUMMOW J: Yes, and then it links up with railways though too you see later in the section.

MR JACKSON: Your Honour, the other thing I was going to say about section 85 was that section 85, of course, was dealing with, primarily, a known situation and when one is speaking of a "department of the public service of a State" being transferred and speaks of the:

property of the State of any kind, used exclusively in connexion with the department -

then, your Honour, that is something that one would think is speaking of real and personal property that is capable of identification as being property of the State department.

CALLINAN J: I suppose one of the most extreme examples of governments carrying on business is gambling business, which until recently was carried on almost exclusively off the race track by government.

MR JACKSON: Yes, your Honours may not be altogether far away from that question, but in another connection. Your Honours, those are, I think, the points we seek to make on that issue.

GLEESON CJ: All right. We will adjourn for a short time to consider the course we will take.

AT 3.41 PM SHORT ADJOURNMENT

UPON RESUMING AT 3.48 PM:

GLEESON CJ: The Court is in a position to announce its decision in this matter now. For reasons that will be given at a later date, the questions reserved for consideration by the Full Court should be answered (a) "No", (b) "Unnecessary to answer". The matter will be listed before Justice Callinan to determine the question of costs and the further conduct of the proceedings.

AT 3.49 PM THE MATTER WAS CONCLUDED