Hornsby Shire Council v Commonwealth of Australia & Anor [2023] HCATrans 44 (18 April 2023)

Last Updated: 18 April 2023

[2023] HCATrans 044

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S202 of 2021

B e t w e e n -

HORNSBY SHIRE COUNCIL

Plaintiff

and

COMMONWEALTH OF AUSTRALIA

First Defendant

THE STATE OF NEW SOUTH WALES

Second Defendant

KIEFEL CJ
GAGELER J
GORDON J
EDELMAN J
STEWARD J
GLEESON J
JAGOT J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 18 APRIL 2023, AT 10.01 AM

Copyright in the High Court of Australia
MS R.L. SEIDEN, SC: May it please the Court, I appear with my learned friends MR M.A. ROBINSON, SC, MS E. BISHOP, SC, MR W.R. JOHNSON and MS D.A. WOODS for the plaintiff. (instructed by Diamond Conway Lawyers)

MR S.P. DONAGHUE, KC, Solicitor-General of the Commonwealth of Australia: May it please your Honours, I appear with my friends MR G.A. HILL, SC, MS A. LORD and MS M.A. JACKSON for the first defendant. (instructed by Australian Government Solicitor)

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.O. PULSFORD for the second defendant. (instructed by Crown Solicitor’s Office (NSW))

MR J.A. THOMSON, SC, Solicitor-General for the State of Western Australia: May it please the Court, I appear with MS S.J.K. TEOH on behalf of the Attorney-General for the State of Western Australia, intervening. (instructed by State Solicitor’s Office (WA))

MR M.J. WAIT, SC, Solicitor-General for the State of South Australia: If the Court pleases, I appear with MR P.J.M. LEESON on behalf of the Attorney‑General for the State of South Australia, intervening. (instructed by Crown Solicitor’s Office (SA))

MS R.J. ORR, KC, Solicitor-General for the State of Victoria: If the Court pleases, I appear with MR M-Q. T. NGUYEN on behalf of the Attorney‑General for the State of Victoria, intervening. (instructed by Victorian Government Solicitor’s Office)

MR G.J.D. DEL VILLAR, KC, Solicitor-General of the State of Queensland: May it please the Court, I appear with my learned friend MR K.J.E. BLORE on behalf of the Attorney-General of the State of Queensland, intervening. (instructed by Crown Law (QLD))

KIEFEL CJ: Yes, Ms Seiden.

MS SEIDEN: Thank you, your Honours. Before taking your Honours to the nuances of the legislation, if I may outline the context in which the relevant legislation operates and how the various Acts fit together. The provisions which are sought to be impugned which were brought in by the (Financial Assistance) Amendment Act 2000 were brought in in the context of pre-existing Commonwealth financial grants to States for Local Government purposes going back to at least 1975.

The Commonwealth and the States, having agreed in the interim on a competitive neutrality principle, that, in a nutshell, requires Government businesses – whether Commonwealth, State or local to operate without a net competitive advantage over other businesses as a result of their public ownership, whether that is because of taxes or otherwise. Then, in 2000, the GST was introduced, and the GST Imposition Act carved out, from the requirement to pay GST, any requirement for States to pay tax on its property, conscious of the prohibition in 114 of the Constitution.

When that Act was mooted, the Intergovernmental Agreement was struck between the Commonwealth and the States, and it provided in effect for two things: first, that the Commonwealth would provide the equivalent of the amount of GST collected to the States; and second, that the Local Governments would act as if they were subject to the GST.

This Agreement was given legislative effect in a number of ways. So far as the State was concerned – New South Wales, with the New South Wales Implementation Act facilitating payments of notional GST and annexing in a Schedule the Intergovernmental Agreement. So far as the Commonwealth was concerned, the obligations were split over two discrete Acts. The first was what was then A New Tax System (Commonwealth‑State Financial Arrangements) Act 1999, which ultimately was overtaken by the Federal Financial Relations Act 2009.

That A New Tax System Act provided that the States will grant the equivalent of all of the GST revenue – sorry, the Commonwealth will grant that back to the States. GST revenue was defined, critically, to include not only real GST but also notional GST that was paid and notional GST that should have but was not paid. That Act annexed to it, in the Schedule, the Intergovernmental Agreement.

In parallel, the Financial Assistance Act of 1995, which obviously predates the GST, was amended by including provisions 15(aa) – which the plaintiff contends operates as an enforcement mechanism – and also the impost of the notional GST on local councils, And it also included a reference to the new 15(aa) in the existing 15(c) which requires the States, if it has not withheld in accordance with 15(aa), to repay the Commonwealth. So, we have an enforcement on an enforcement.

That enforcement mechanism, particularly the second one in (c) is not arid, it is submitted, for the reason that, ultimately, it feeds back into the calculation of what is GST revenue, which is the key for calculating the amount that the Commonwealth must give the States. So, if there is a shortfall in the amount of the notional GST, either because it was not paid or it was not withheld, the risk is that the Commonwealth is caught short in the appropriation under what is now the Federal Financial Relations Act, so that is the GST revenue does not factor into the calculation of what local councils get under the Financial Assistance Act and that, it is submitted, is how the various pieces of machinery fit together.

We start then with the Constitution. I do not need to take your Honours to section 114, but it is found in volume 1, page 75. It is accepted, on this special case, that the plaintiff is indeed a State for the purposes of section 114 and, therefore, there is a prohibition against taxing the property of States and it simply cannot be overcome by consent. The text of 114 is absolute – an absolute prohibition on imposition of tax on property of the plaintiff.

If I could then take your Honours in detail to the nuances of the various Acts and Agreements, the Intergovernmental Agreement Implementation (GST) Act – the convenient place to find that is in the New South Wales Implementation Act at volume 2, page 880. The Agreement is Schedule 1 at page 883 – commences at page 883, and at page 885, clause 4:

The Commonwealth will attach the Agreement as a schedule to the A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 –

Which is the precursor to the Federal Financial Relations Act. And:

use its best endeavours to ensure the Act will require compliance with the Agreement. The States and Territories will attach the Agreement as a schedule to relevant State and Territory legislation –

And this Agreement that we are looking at is the attachment to the New South Wales legislation. And:

The States and Territories will use their best endeavours to ensure their legislation will require compliance with the Agreement.

Under the Reform Measures at 5(i):

The Commonwealth will legislate to provide all of the revenue from the GST to the States and Territories –

And that finds expression what becomes the Federal Financial Relations Act. And clause 7:

The Commonwealth will make GST revenue grants to the States and Territories equivalent to the revenue from the GST subject to the arrangements in this Agreement. GST revenue grants will be freely available for use by the States and Territories for any purpose.

And, critically, on page 887, clauses 17 and 18. Clause 17:

The Parties intend that the Commonwealth, States, Territories and local government and their statutory corporations and authorities will operate as if they were subject to the GST legislation. They will be entitled to register, will pay GST or make voluntary or notional payments where necessary and will be entitled to claim input tax credits –

And then:

All such payments will be included in GST revenue.

So, the payments that are voluntary will be included in GST revenue. It is submitted that ultimately this clause and clause 18 are relevant to the construction of 15(aa). And clause 17 ultimately finds expression in this Act, this Implementation Act, at sections 4 and 5, which I will take your Honours back to in a moment. And clause 18:

The Commonwealth will legislate to require the States . . . to withhold from any local government authority being in breach of Clause 17 a sum representing the amount of unpaid voluntary or notional GST payments. Amounts withheld will form part of the GST revenue pool.

This was ultimately legislated – the withholding requirement was legislated by the Amendment Act and finds expression in 15(aa), and the notion that the amounts withheld will form part of the GST Revenue Act revenue pool finds expression in what is now the Federal Financial Relations Act 2009. Finally, before taking your Honours back to the State Act, at page 893 is appendix B to the Agreement. B3 identifies:

The total amount of GST revenue to be provided to the States and Territories in a financial year will be defined as:

(i) the sum of GST collections –

so that is real GST:

voluntary and notional payments made by –

the Agreement:

and amounts withheld pursuant to clause 18 –

So, where the Council pays or the amount is withheld and ultimately amounts that should have been withheld go into the revenue pool. If I could take you back, in the same Act, to page 883, section 4, this is of the Implementation Act:

A copy of the . . . Agreement . . . is set out in Schedule 1.

I have just taken your Honours to that:

It is the intention of the State to comply with, and give effect to –

it. The payment of GST equivalents by State entities is in section 5:

A State entity may pay to the Commissioner of Taxation amounts representing amounts that would have been payable for GST if:

(a) the imposition of that GST were not prevented by section 114 . . . and

(b) section 5 of each of the GST Imposition Acts had not been enacted –

and they do all “things of a kind”. The next piece of legislation is the A New Tax System (Commonwealth‑State Financial Arrangements) Act. Now, that somehow escaped your Honours’ bundle. It is critical for context, and we have copies if – we have handed it up earlier, thank you. This is the precursor to the Federal Financial Relations Act 2009. Section 3 identifies that the GST revenue is to be distributed to the States.

GAGELER J: You are speaking in the present tense. Is it still in force?

MS SEIDEN: No, your Honour.

GAGELER J: Why are we going to it?

MS SEIDEN: It is important for two reasons, your Honour. It annexes the original Intergovernmental Agreement and it will assist with construction of 15(aa). The Agreement in the current Act in 2009 is in slightly different terms and it is submitted that it is important to take your Honours very briefly to this and point out the differences between the 2009 Act and Agreement, and this. Section 15(aa) refers to – is keyed off there being an Intergovernmental Agreement which requires a withholding, and I need to take your Honours through this to explain why that can also – that is found in this Intergovernmental Agreement, which has been overtaken by the 2009 one, and why it is both in that one and in the current one, your Honour. So, the outline – the first paragraph there, paragraph (3) ‑ ‑ ‑

GORDON J: Sorry, where are we now?

MS SEIDEN: It is section 3 of the A New Tax System (Commonwealth‑State Financial Arrangements) Act at page 1 of the reprint. Section 5 on page 4 defines GST revenue, and on page 5, subsection (3) identifies that it includes at (a) amounts of GST collected – real GST – and (b), the:

amount of GST that would have been payable if the Constitution did not prevent tax from being imposed –

so, the notional GST is (b); (d) is:

the amount, determined in a manner agreed by the Commonwealth and all of the States, that represents amounts of voluntary GST payments that should have, but have not, been paid by local government bodies.

So, the notional GST that was not paid, either because it has been withheld or repaid by the State to the Commonwealth under either 15(aa) or 15(c). At page 10 of the reprint the Intergovernmental Agreement is attached at Schedule 2 and section 10(2):

It is the intention of the Commonwealth to comply with, and give effect to, the agreement.

The appropriation is at section 20, on page 16 of that reprint:

Payments under this Act are to be made out of the Consolidated Revenue Fund, which is appropriated accordingly.

So, there are two separate appropriations, ultimately, one that would come out of the 2009 Act which overtakes this one and the other under the Financial Assistance Act. Your Honours will see, starting at page 22, the Intergovernmental Agreement in the form that I have just taken your Honours to.

The next in the series is the extrinsic material to the amendments which introduce 15(aa) – they are in the special case book at, I think, your Honours have a red page numbering at the top right hand, it is page 179, Annexure D. At page 180, at about point 2 on the page:

The Local Government (Financial Assistance) Act 1995 is the basis upon which Commonwealth financial assistance is provided to local government through the states and territories. This financial assistance has two components:

general purpose –

which is what we are ultimately concerned with, section 9 payments; and “local roads”. You can see at about point 4, the:

local government is estimated to be entitled to around $1.32 billion –

that was back then, and at about point 7:

Under clause 17 of the agreement, the states and territories agreed, inter alia, that local government would operate as if it were subject to the GST legislation.

And:

As undertaken in clause 18 of the agreement, the Commonwealth is legislating to require the states and Northern Territory to withhold from the financial assistance grants, for any local government authority in breach of clause 17 of the agreement, a sum representing the amount of any unpaid voluntary or notional GST payments. Amounts . . . are to be paid to the Commonwealth.

It is submitted that this – the extrinsic material and the Intergovernmental Agreement – will ultimately assist your Honours in construing the expression in 15(aa) of “should have, but have not, been paid”. The explanatory memorandum commences at page 181 of the special case and is in similar terms, that identifies at page 182 about point 4, that:

Since 1994–95 the State grants . . . have generally increased annually in line with population –

And, at about point 7:

The Act is also amended to implement the Commonwealth’s undertaking –

which is, in similar terms, that whole paragraph, to what I have just taken your Honours to. Then again, at page 183, at the last paragraph on that page:

Under clause 18 of the Agreement, the Commonwealth has agreed to legislate to require the States . . . to withhold –

Again, it is in the same terms. And the last sentence:

Amounts withheld will form part of the GST revenue pool which will be distributed to the States.

As mentioned, that is under the separate appropriation, which is not under the Financial Assistance Act. So, the withholding occurs under the Financial Assistance Act, and there is an appropriation under that Act for Local Government purposes – but there is also a second appropriation under what is now the Federal Financial Relations Act – which is an amount calculated by reference to the GST, which is withheld under the Financial Assistance Act.

I then take your Honours to the current version of the Local Government (Financial Assistance) Act, which is in the first volume at page 124. Just for your Honours’ reference, the amending Act to which those extrinsic materials relate – the extract is found in volume 3, it starts at page 972, and section 17 is the one that introduces what is ultimately paragraph (aa), and that is found at page 973.

Returning, then, to the Local Government (Financial Assistance) Act – as I take your Honours through this, I will identify the new provisions that were introduced by the amendment ‑ ‑ ‑

KIEFEL CJ: Are you referring to the 2000 Act?

MS SEIDEN: This is the Local Government (Financial Assistance) Act 1995, your Honour, as amended after the 1999 amendments. It commences at volume 1, page 124. At page 128 is the “Objects”. This is a ‑ ‑ ‑

KIEFEL CJ: Most of us have pamphlet copies, so if you just refer to the section number, Ms Seiden.

MS SEIDEN: Thank you. Section 3(2):

The Parliament wishes to provide financial assistance to the States for the purposes of improving:

(a) the financial capacity of local governing bodies –

and:

(c) the certainty of funding

and subsection (3):

The financial assistance is to be provided by the making to the States, for local government purposes, of general grants under section 9 –

That is what we are concerned with – and subsection (5), that there will be a formulation – I should say, subsection (4):

In providing this financial assistance the Parliament’s goals are to:

(a) increase the transparency . . . and

(b) promote consistency

And (5):

To achieve those goals this Act provides for:

(a) the formulation of national principles for the purposes of the allocation of funds –

So, once the State’s entitlement is determined, it is allocated between the local governing bodies in accordance with the section 6. And subsection (1):

The Minister, after consulting . . . must formulate national principles –

The actual national principles document, I do not need to take your Honours to it, but I will give your Honours a reference – it is annexure K of the special case, page 281. The principles are sufficiently identified in this section at subsections (2) and (3). Subsection (2):

In formulating national principles, the Minister:

(a) Is to have regard to the need to ensure that the allocation of funds . . . on a full horizontal equalisation basis –

And there is a minimum amount in (b), and subsection (3):

horizontal equalisation basis is a reference to an allocation of funds that:

(a) ensures that each local governing body in a State is able to function, by reasonable effort, at a standard not lower than the average . . . and

(b) takes account of differences in the expenditure required . . . in the performance of their functions and in their capacity to raise revenue.

And subsection (8) is a new provision that was introduced by the amending Act:

For the purposes of this section –

so, working out the allocations:

any possibility of a reduction in the amount . . . in complying with the condition in paragraph 15(aa) is to be disregarded.

So, in determining the Local Government’s allocation of the State’s grant, whether or not notional GST will be withheld from them, ultimately, is ignored. Section 9 is the State’s entitlement:

Subject to this section and to section 11, each State is entitled to the payment . . . of a general grant –

Which is, in effect, determined by a ratio of population of the State as compared to population of the country. And section 11 is the allocation among governing bodies of the section 9 payments. So, once the State’s entitlement is determined, section 11 determines the allocation to which each Local Governing body is entitled. And subsection (2):

A state is not entitled to payment . . . unless:

(a) there is a Local Government Grants Commission of the State; and

(b) the Commission has made recommendations –

And then (d)(ii), that they are “in accordance with the national principles” of horizontal equalisation. And again, at (3) – it is a new provision, subsection (3):

any possibility of a reduction . . . in paragraph 15(aa) –

is ignored for this purpose. Then we get to section 15. So, prior to the amending ‑ ‑ ‑

GORDON J: Sorry, can I just ask about 14? Do we need to worry about section 14?

MS SEIDEN: Your Honour, that is to deal with section 12 payments, which we are not concerned with. They are the local roads.

GORDON J: Thank you.

MS SEIDEN: Section 15, prior to the amending Act, the States received their entitlement on the condition that it be paid “without undue delay” to the local governing bodies unconditionally. So, that was the position before the amendment; since then, the condition that the State gets the grant is first, that they will pay the amount to local governing bodies but subject to the condition in 15(aa), and that is found – so section 15, the chapeau, and paragraph (a)(i) identifies the unconditional payments, but now we have an additional condition which is in 15(aa), that:

if the payment is one from which, according to an agreement between the Commonwealth and the State, the State is to withhold an amount that represents voluntary GST payments –

Certainly, it is submitted that both the Intergovernmental Agreement that I have already taken your Honours to and the 2009 Agreement both satisfy that precondition that there is in fact an agreement. And, because, for the reason that section 15(aa) expressly refers to the Agreement, it is submitted that it is appropriate for your Honours to have a look to that Agreement to understand what the withholding obligation is. It is:

to withhold an amount that represents voluntary GST payments that should have, but have not, been paid by local governing bodies – the State will withhold the amount and pay it to the Commonwealth –

It is submitted that the withholding is part of the compulsion mechanism to compel payments of notional GST, and the construction is aided by the Intergovernmental Agreement. Then, critically, there is also an addition to subsection (c). The amending Act added the words ‑ ‑ ‑

KIEFEL CJ: You say “critically”, is subsection (c) the focus of your argument in relation to there being a tax?

MS SEIDEN: The primary position is the impost and collection mechanism is in 15(aa), but that is supported by the enforcement mechanism in 15(c), and in the event that your Honours are not satisfied that there is a direct impost by 15(aa) then it is submitted that the mechanism by which the notional GST may be paid, coupled to the withholding in (aa) and the enforcement in (c), which it is submitted is not an arid enforcement, because the reason for (c) that:

the State will repay to the Commonwealth any amount –

not withheld has utility, for the reason that the Commonwealth, ultimately, under the other Act, must provide back to the States all of the GST revenue or an amount equal to the GST revenue, which includes these amounts. So, we say “critically” for the reason, your Honour, that there is almost no practical reality – or there is no practical reality that the State would not undertake its withholding obligation under (aa) in the face of (c). So that if the State does not do what it is required to do in (aa) then it has a duty to repay, which it is submitted would be akin to it – would be able to be a debt to the Commonwealth under the Mallinson principle.

KIEFEL CJ: When it uses the word “repay”, it is repay from the initial grant.

MS SEIDEN: Your Honour, that may not be the position, it may have to be the State’s own funds, for the reason that the State will have paid all of the grant to the various local governing bodies and (c) is not engaged ‑ ‑ ‑

KIEFEL CJ: Yes, but “repay” usually indicates that there has been payment from the source that it is repaying to ‑ ‑ ‑

MS SEIDEN: Indeed.

KIEFEL CJ: ‑ ‑ ‑ and the only payment is the payment of the grant, is it not?

MS SEIDEN: That is the position, your Honour. However, at a practical level, if the State has done what it was obliged to do under (a)(i) and unconditionally given everything to the local councils and has not withheld, in accordance with (aa), and that means the local council has the money, then there is nothing left from the grant unless the State comes back to the local council and says, I have failed to withhold this from you, you must give it to me so that I can repay it to the Commonwealth, and that would be one practical avenue where the funds could actually be a repayment of the grant, but otherwise if the grant has been already fully distributed and no amount was withheld, there would be a shortfall there. However, certainly one way to ‑ ‑ ‑

EDELMAN J: Why would no amount be withheld under (aa)?

MS SEIDEN: Your Honour, we submit there would be almost no scenario in which it would not be withheld, and just at a practical level there is no reason why the – first, say it is a legal compulsion on the State to withhold, however, if for some reason it slipped the net or it was not done, then under (c) the Commonwealth still needs to be made good. However, we rely, your Honour, on the proposition that there will be a withholding no matter what and ‑ ‑ ‑

GORDON J: Under (aa)?

MS SEIDEN: Under (aa). If, for any reason that is not done, then the Commonwealth needs to be made good so that it has sufficient funds for the appropriation under the other Act, and subsection (c) is, if you like, a stick on the State to perform its withholding obligation.

STEWARD J: Well, there might be a disagreement between the Commonwealth and the Local Government about what to tax and supply, for example.

MS SEIDEN: Indeed; and what is property of the State, indeed. But there is one way where it could be repaid from the grant, and that is if the State, realising it has not withheld, says to the local council, I ought to have withheld from you, you now have to give it back to me so I can give it to the Commonwealth. Our learned friends say that that is not the way that the provisions operate. But if one reads the word “repay” as meaning repay from the grant, I think that must be the only way that it could be repaid from the grant, because (c) is only enlivened if the amounts have been fully distributed and the withholding for some reason did not occur. However, the plaintiff’s primary position is that the State would always withhold. There is no reason not to, other than, as Justice Steward has identified, there might be a disagreement about what is what.

GORDON J: I am sorry to go back to 14(3), but are we then to remove 14(3) from the question of law posed in subparagraph (2) of the questions, because I know that that was one of the provisions you relied upon for invalidity, that is, for the impost of a tax. So, are we to remove it from consideration of this – one or more of the combination of these provisions?

MS SEIDEN: Your Honour, could I consider that?

GORDON J: Thank you.

MS SEIDEN: Thank you. I suspect the answer is yes, but, for the reason that we are here, only concerned with the section 9 amounts.

GORDON J: I understand that. It is just that if you look at page 131 of the special case book, sub‑question 68(2), it includes 14(3).

MS SEIDEN: Indeed. And we will ensure your Honour has a considered answer.

GORDON J: Thank you.

MS SEIDEN: The appropriations is at section 19, and that is:

Payments to a State under this Act are to be made out of the Consolidated Revenue Fund, which is appropriated accordingly.

So, this is a distinct appropriation from that under what is now the Federal Financial Relations grant and this particular appropriation is not calculated at all by reference to GST or notional GST, and I think this is in the special case described as something that is in addition to. So, even though the notional GST is withheld under this Act, it is not returned to – or an amount equivalent to it is not returned under this Act, certainly not to the local councils. The next is the current Federal Financial Relations Act, which is volume 1, page 86. Section 3, the Objects, identify:

to provide ongoing financial support for the delivery of services by the States, through:

(a) general revenue assistance, including the provision of GST revenue grants, to be used by the States for any purpose; and –

these specific enumerated purposes, which do not include Local Government. In the definitions, “Intergovernmental Agreement” is the new one – the 2009 one – it is not annexed to this Act but is defined as that 2009 Agreement. Similarly to the earlier Act, section 5 defines the revenue grants, and subsection (1) – the States’ population, multiplied by the revenue, adjusted by total revenue – and it is defined at section 6(3), it includes the GST, so that is the actual GST in paragraph (a)(i):

the payments made to the Commissioner of Taxation representing amounts of GST that would have been payable if the Constitution did not prevent tax –

that is the notional GST, and (c):

the amount, determined in a manner agreed by the Commonwealth and all of the States, that represents amounts of voluntary GST payments that should have, but have not, been paid –

So the language is mirrored from the original Act to this Act, and it is submitted paragraph (c) apprehends both the withholding payments under 15(a)(a) and any repayments under the 15(c) obligation. So, whether they have been withheld or not, the Commonwealth has legislated to calculate the amount of the grants that goes back to the States as the total of the real GST and notional GST. It is for that reason that it is said that the mechanism in 15(aa) and 15(c) – the enforcement mechanism – is not arid for it feeds back into this appropriation. And this appropriation is at section 22. The particular Intergovernmental Agreement that this Act relates to is in the special case ‑ ‑ ‑

GLEESON J: What does “voluntary” mean in section 6(3)(c)?

MS SEIDEN: In the Federal Financial Relations ‑ ‑ ‑

GLEESON J: The section that you just took us to, section 6(3)(c).

MS SEIDEN: Yes, it is submitted it is what one takes from clauses 17 and 18, ultimately, of the Intergovernmental Agreements, that it is tax that – as if the Local Government was subject to the GST, if it could be subject to the GST, that amount – which is not, in reality, voluntary, it is submitted, for the reason that if it is not paid through the BAS then it will be withheld under 15(aa).

So, the voluntariness comes from how one pays the notional GST as opposed to whether one pays the notional GST. We accept the language of “voluntary” has been used and we read that, and urge your Honours to read that, as in that sense as construed with the assistance of clauses 17 and 18, that the Commonwealth and States agreed that Local Governments would indeed pay the GST, pay the notional GST as if they were liable to real GST and if not paid will be withheld under 15(aa). We stress the words “should have, but have not, been paid” in section 15(aa). We say it is no accident that the language in there is of obligation.

The Intergovernmental Agreement that pairs with the Federal Financial Relations Act 2009 is at page 235 of the special case, and clause 4 operates from 1 January 2009. At 10:

The parties have recorded their mutually agreed objectives –

There is at appendix A28, which is at page 248, the equivalent of the old clause 17 from the earlier Agreement. However, by this stage in the history, of course, clause 18 is already executed because there is the new 15(aa) and 15(c) in the Financial Assistance Act. So, there is not an exact mirror of clause 18, however, we say it is implied in D44 and 45 at page 266.

KIEFEL CJ: I am sorry, what was that page number?

MS SEIDEN: Page 266. That:

The Commonwealth will make GST payments to the States and Territories equivalent to the revenue received from the GST.

So, that is the first obligation that the Commonwealth has. And it says it is to:

provide the States and Territories with revenue from a robust tax base that can be expected to grow –

And D45:

The total amount of GST payments . . . will be defined as:

(a) the sum of GST collections, voluntary and notional payments made by government bodies, and amounts withheld from any local government authority representing the amount of unpaid voluntary or notional GST –

Notwithstanding the absence of a direct analogue to clause 18, it is implied from D45 that this is still an agreement that answers the description in 15(aa), being an agreement which has within it a condition to withhold – we say that it is implied. If it equates to the old B3, it is not submitted that there is no Agreement – it is not submitted against us or for any reason that there is no Agreement that answers the description in 15(aa). However, for that reason, the context was relevant.

The GST law is also relevant. The GST Act – some of it – it is in the first volume, page 163 – it commenced on 1 July. What is particularly relevant to the special case is section 9-5, taxable supplies:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise . . .

. . .

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST‑free or *input taxed.

The notional GST is in fact a taxable supply. So, supplies in relation to property of the State falls within the definition of “a taxable supply”. It is neither GST‑free under Division 38, nor input taxed under Division 40. For that reason, it finds space for itself in the BAS in the form of taxable supplies. At 9‑40:

Liability for GST on taxable supplies –

You must pay the GST payable on any *taxable supply that you make.

Then the question is, the notional GST ultimately has no GST payable, but before I take your Honour to the definition, 9-70 identifies that:

The amount of GST on a *taxable supply is 10% of the *value –

And 9-75, the “value” is price times ten‑elevenths. In other words, price is always a GST‑inclusive price. One does not, in effect, charge GST, it is simply one-eleventh of the price. If you lower the price, you do not get rid of the GST, the GST is reduced commensurate with the lower price. Ultimately what goes into the BAS is the net amount, which is at 17‑5, so the sum of all GST less that you are liable on, less input tax credits, however that is an amount of what one is liable for and it submitted that there is no liability for notional GST, for the reason that in the definitions, GST – that is page 189 of my reprint, or page 814 of volume 1:

GST means tax that is payable under the *GST law –

Which would be section 9-40:

and imposed as goods and services tax –

And it is that second condition that is not met by notional GST. It must be payable under the GST law. The starting position is it is – there is a taxable supply, but it is not imposed under one of the various imposition Acts. The Trailblazer that we are here concerned with would be (a):

the A New Tax System (Goods and Services Tax Imposition—General) Act –

I will take your Honours to that in one moment, but it is submitted that even though it is a taxable supply, there is no GST imposed. Nevertheless, at 177‑3, recipients of the supply are entitled to an input tax credit. The GST law – so:

If:

(a) an *Australian government agency –

So, the local council:

(b) . . . is not liable for GST on the supply, but an amount relating to the agency’s notional liability for GST on the supply is included in the *consideration for the supply –

So, if it was, in fact, a taxable supply:

the *GST law applies in relation to the other entity –

The recipient of the supply:

as if:

(c) the supply were a *taxable supply to that entity; and

(d) the amount of GST . . . is notionally liable on the supply is the amount of GST payable on the supply.

So, the recipient is entitled to an input tax credit for the notional GST. And the Impost Act, the general one is at volume 2, page 875:

The tax that is payable under the GST law . . . is imposed by this section under the name of good and services tax (GST).

STEWARD J: Sorry, what section is that?

MS SEIDEN: It is section 3, your Honour, “Imposition”. Apologies.

STEWARD J: Thank you.

MS SEIDEN: Section 3(1).

GORDON J: These are the provisions which are inserted in order to avoid leakage from the system, in order to provide equal treatment of those trading with a State in its more general terms so that they could claim input tax credits.

MS SEIDEN: We would accept that, your Honour. We would say that, for that reason, it can in fact be characterised as a tax. It does what the tax would have done if the Constitution did not prohibit it. It puts the councils in the same position they would be in as if they were subject to the GST and ensures that – to the extent that a price is charged for an item that is subject to notional GST, it includes an amount to compensate for notional GST, then it would have that effect. However, it cannot necessarily be inferred that a price would include the notional – it does in a legal sense, include the notional GST, but whether it raises the price beyond what would be the price if no GST was leviable – and subsection (5) of the Impost Act identifies that:

This Act does not impose a tax on property of any kind belonging to a State.

And subsection 5(2):

Property of any kind belonging to a State has the same meaning as in section 114 –

So, the GST Act expressly identifies that the Constitution prohibits the levying of GST, and the notional GST is said to get around this constitutional prohibition, and the plaintiffs maintain that it does not because it, by different language, nevertheless creates an enforceable exaction – which is a tax, whether it is called that or not.

There are various mechanisms which facilitate the local council from paying the notional GST through the BAS rather than waiting for a withholding. In the special case there is an example of a circular at page 196, and the first paragraph, second sentence:

As you are aware from Circular 01/45, the current approach requires councils to have an independent GST review –

And the next paragraph:

The approach for the 2004/2005 financial year and for all future years, is for councils to supply a certificate of confirmation –

And that example template of the certificate is on page 197. It is entitled “GOODS AND SERVICES TAX CERTIFICATE, Payment of Voluntary GST” – perhaps ironically:

To assist with compliance with Section 114 of the Commonwealth Constitution, we certify that:

• Voluntary GST has been paid –

And then a recent certificate is at page 290 of the special case. The tax invoice for the Trailblazer that we are concerned with is at page 292, and then at page 293 is an example of a BAS. It is not the one that includes the Trailblaze, the Trailblazer was omitted from this and there was a separate payment, which I will take your Honours to. Item 1A is an amount owed to the tax office, and that would be an amount that is – those taxable supplies which have real GST imposed as a practical matter, the notional GST is included there. Total sales at G1 would, in any event, need to include the taxable supplies, whether they were subject to notional or real GST.

Examples of GST-free sales would be things like swimming lessons, which we are not here concerned with. If it was not included in the BAS, it would be apparent because there would be a difference that was not explained by GST-free or exempt supplies between 1A and G1. There would be a mismatch. And then the protest is on page 295 of the Special Case and ultimately, the payment for the Trailblazer is recorded at page 296, which was the net amount of the notional GST after taking into account the input tax credits on the auctioneer’s fees. Your Honours, that concludes the journey through the legislation.

What is proposed next is: what is a tax? And it is submitted that the notional GST falls into the quintessential description of a tax. It satisfies the positive criteria of being a compulsory exaction by a public authority for public purposes and enforceable. There is no suggestion of it having any of the negative indicia that might take it outside the tax, such as a fee for service. The amount goes into consolidated revenue, so it would be, undoubtedly, for a public purpose.

The fact is that it is not brought into existence in an Act that is called a Tax Act also would not be a bar. There are lots of examples of taxes that find expression in other sorts of Acts – and I will take your Honours to one – Air Caledonie. But other examples are: Australia Tape Manufacturers, which was a purported royalty for blank tapes, was a tax; Roy Morgan, the superannuation guarantee charge on superannuation shortfall by an employer; and Homebush Flour Mills, the difference between a standard price on the one hand and the fair and reasonable price, which were the prices that the miller had to sell and buy back the flour – and I will take your Honours to Homebush.

But the real issue, therefore, in the special case, is whether the payment of notional GST is compulsory. If I could start, then, with Air Caledonie – it is in volume 4, page 1066. The legislation is set out at 1068 and at subsection (1), it was the passenger that was liable to “pay the prescribed fee for immigration clearance”. Nevertheless, under subsection (2):

The fee shall be collected by the international air operator –

and (3):

The international air operator shall pay to the Commonwealth the amount of the fee payable by a passenger, whether or not the operator has collected that amount from the passenger.

And then:

An amount payable to the Commonwealth by an international air operator under subsection (3) is a debt –

So, notwithstanding that the liability was with the passenger, the enforcement was upon the air operator, and together that amounted to a tax. The Court at page 466 of the report, or 1070, identified the features of a tax at about point 9 on the page from Matthews v Chicory. So, there is no doubt that we are dealing with the same test. At 1072, page 468 of the report, the last paragraph identifies that it held “all of the positive attributes”:

it was exacted by a public authority . . . for public purposes –

which was the consolidated revenue, and:

it (or its “amount”) was enforceable by law.

It is submitted that it is on all fours with the legislation here that the liability is on the Council, will either be enforced by a withholding – a collection mechanism – that the States will withhold. Just as in Woodhams’s Case, the ‑ ‑ ‑

EDELMAN J: You have to find a duty though, do you not? Can you find the duty in the word “should”?

MS SEIDEN: We do, your Honour.

EDELMAN J: That is ultimately the whole of your case, is not it?

MS SEIDEN: We do, your Honour. We say, either it is in that word “should” – and section 15(aa) is at once an obligation and a collection mechanism, or it is in the device or the ‑ ‑ ‑

EDELMAN J: The practical compulsion.

MS SEIDEN: Indeed, that one starts with the inducement to, or an ability to pay the notional GST, but whether you pay it or not, it is withheld from you, and the choice there, the voluntariness, is not whether one pays GST but only how. We say it is of no moment that ultimately the State might withhold it and repay, and 15(c) enforces that.

EDELMAN J: In that response, you are running together the two concepts of legal and practical compulsion, though. If one just looked at legal compulsion, you have to ignore the words “voluntary”.

MS SEIDEN: We say the word “voluntary” just goes to the payment mechanism, not the obligation, your Honour. We do run two distinct cases, it would be submitted. The first is that the words “should have . . . been paid” is the obligation, the command “should”, and that is a direct – it is not a circuitous device case at all, it is simply the terms and conditions of the grant impose a tax by section 15(aa) as enforced by the second part of 15(aa), the withholding, and also 15(c).

So, the primary case is it is a direct command to pay the notional GST enforced by those mechanisms. If your Honours are not satisfied that that is, on its own sufficient. for the command then we submit that one sees one starts with the notional GST and the provisions work together in the way that I have taken your Honours through them, and whether the way that I have taken your Honours through them is really just part of the construction approach, the approach to construction that one would use when construing those words should have but was not paid, or whether one sees it as indirectly doing what cannot be done – we do put them slightly differently but it is accepted that we borrow from each submission for each part of the argument, your Honour.

The primary case is that the impost is found in 15(aa). If it is not paid it will be withheld, and there is almost a practical certainty that the State will do that, otherwise the State is subject to 15(c), and why would it not do that? There is nothing contrary in the Act to suggest that New South Wales could not in fact recover from the plaintiff if, for some reason, the State did not withhold and an amount was repayable, and, in any event, there is certainty a legal sanction on New South Wales under 15(c), as was identified in Mallinson’s Case. I will not take your Honours to it, but there is a reference to – that case found at volume 8, 3357.

I have already identified the analogy with Woodhams’ Case, which – in that case the employee had the liability for tax, but the employer had the liability to collect, so that was – they were to withhold the PAYG and pay it to the Commissioner. So, there was a duty on the employer but ultimately it was the employee’s tax liability. Just as here, if the State withholds and pays to the Commissioner, what the State is doing is withholding and paying for the local council’s liability.

Your Honours, I notice the time – I was about to ‑ ‑ ‑

KIEFEL CJ: You are going to move on to another case, are you?

MS SEIDEN: I was about to.

KIEFEL CJ: Yes, thank you. That would be a convenient time for the Court to break, Ms Seiden. The Court will adjourn for fifteen minutes.

AT 11.13 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.28 AM:

KIEFEL CJ: Yes, Ms Seiden.

MS SEIDEN: Thank you. The next case is Attorney-General v Homebush. It is in ‑ ‑ ‑

KIEFEL CJ: Ms Seiden, would you mind speaking up just a little?

MS SEIDEN: Yes, thank you.

KIEFEL CJ: Thank you.

MS SEIDEN: Attorney-General v Homebush at volume 4, page 1296. This is one of the forced benevolence cases. The way that we analogise this case to the plaintiff’s case is the way that the tax – or I should say a forced benevolence was considered in this case. They way that in the forced benevolence cases they identified that there was a tax, there was a compulsion, was for the reason that if the apparent option of not paying the tax was taken, the consequences were so dire that it proved the apparent option was illusory. And it submitted that in this case there is a slightly different reason for the apparent option. We do not resile from the proposition that there is a detriment. If we do not pay the notional GST, it will be taken from us ‑ ‑ ‑

GORDON J: It is put against you it is revenue‑neutral.

MS SEIDEN: It is, your Honour. We say that that is an inference that the Court would not readily arrive at for the reason that the price that something is charged includes lots of concepts: price, elasticity of demand, and the choices – commercial choices – about what price might be charged. Certainly, if you lower the price you lower, the amount of the GST, and one might lower the price to a point that one is not taking sufficient consideration to recoup the cost of the thing plus the GST. So, there is no basis to infer that always the Council will be in the same position. They will either have paid – they will have either collected the GST and remitted it, or – collected it, not remitted it, and then had it withheld. That is really quite a complex matter, but underlying ‑ ‑ ‑

GORDON J: Why is it complex? It is just you will either – you get it and you either pay it and remit it, or you keep it and it is deducted from the next grant, is it not?

MS SEIDEN: Your Honour, we would cavil with the very first proposition, with respect, that you just get it, because it depends – the price that you charge for the item ‑ ‑ ‑

EDELMAN J: Nothing is preventing you charging whatever price you want.

MS SEIDEN: Subject to competition and the like, and price elasticity of demand, we could not gainsay that, your Honour. However, we say that, more fundamentally, the reason – in the forced benevolence cases, the reason there was no choice was because the consequences were so dire. Here, the reason that there is no choice is because if it is not paid, it will be withheld. So, it is a difference slightly – we do not resile from the submission that there is a detriment, however, noting all of the submissions put against us on that, we nevertheless maintain that there is a lack of choice as to whether to pay it. It is only voluntary in the sense of how it is paid.

In that sense, the label “voluntary GST” is just its name. It is not real GST because the Constitution forbids that, and the Imposition Act does not levy it. So, it is notional GST, because it is calculated as if it was GST. However, whether it is paid or not is not voluntary, and if it is paid, the full amount of the grant comes to the Council, and if it is not paid, then a different position obtains – it is withheld. So, either way, it is taken, and the decision about whether to pay ‑ ‑ ‑

EDELMAN J: Your submission would be the same, even if the regime were such that it never required or never provided for an option for it to be paid, but the only mechanism was the deduction from the grant that, you would say, that it is still a grant, that is still a tax.

MS SEIDEN: We would have to say – we would, your Honour.

EDELMAN J: It is a tax to deduct from a grant to which one was not otherwise entitled a particular amount.

MS SEIDEN: It would – if I rephrase that, your Honour. It would depend to the language of the statute. Here, we depend on the words “should have, but have not, been paid” and it would depend on the statute about the entitlement to the grant in the first place. There might be a different way of organising the arrangements that we say, for several reasons, the payment or not of the notional GST is not the final integer in the calculation of the grants.

So, in answer to your Honour’s question, it might depend on the answer to that question, whether in this other Act it was simply the final integer in the allocation of the grant. We say, for many reasons, which include the text and the context, one would not construe this grant in that way. So, certainly, it might be the case, your Honour. The other feature is that whether notional GST is paid happens in theoretical year one, and then it is withheld from the grant in year two, so it is ‑ ‑ ‑

GORDON J: So it is a timing question only, really, then? The detriment to you in your best case is a timing question. But it works in certain – where you have not remitted, where you have not paid it, you have the benefit of the dollars.

MS SEIDEN: We would certainly accept that it is a timing detriment. However, with respect, your Honour, we maintain that it cannot be inferred that there is not another detriment, which is not having raised the price sufficiently to cover the GST, the notional ‑ ‑ ‑

STEWARD J: Ms Seiden, is there not as real difference between your situation where there may be a timing difference, as you say, and the detriment faced by the millers in Homebush who, if they did not pay it, would go out of business. There is no suggestion that your council will collapse or be unable to function as a council.

MS SEIDEN: And there is also a difference with the cases that led to the petition of rights. However, we say that what is critical, and the analogy that we seek to draw, is the lack of choice and the illusion that there is an option. We do maintain the detriment case, however, we accept it is a far cry from being imprisoned, as some of those older cases suggested. But nevertheless, we maintain more fundamentally than the detriment is the lack of actual choice about whether the amount ‑ ‑ ‑

STEWARD J: But on that case, you are really saying that the presence of any detriment negates the existence of choice and creates a compulsion. Is not the point about Homebush it is not any detriment; it is ones that are absolutely compelling, that force you to go down one path.

MS SEIDEN: It is submitted that in Homebush it was the fact that the detriment made the option illusory, and that is the principle of the case that we engage with, that the apparent option to not pay is illusory. Now, in those cases, it is accepted that the reason it was illusory was because of the dire consequences. We maintain that there is a detriment here, but fundamentally we say there is a lack of choice. The choice is illusory for ‑ ‑ ‑

STEWARD J: But can you characterise that detriment as a dire consequence, to use your language?

MS SEIDEN: We do not seek to, your Honour. We seek to say that the detriment exists. It is something that your Honours may factor in.

KIEFEL CJ: How do you characterise the detriment?

MS SEIDEN: As the withholding from the entitlement and ‑ ‑ ‑

KIEFEL CJ: Well, that is what occurs, but how are you worse off?

MS SEIDEN: Well, your Honour, on the basis that one cannot assume that the money is simply sitting in the council’s pocket because that would assume quite complex economic factors and that the price may not have risen sufficiently – the price adjustment may not have been in the first place sufficient to cover the notional GST.

GAGELER J: Well, we have a particular transaction here. That was kind of the purpose of focusing on a particular transaction.

MS SEIDEN: Indeed.

GAGELER J: Where is the detriment in this case?

MS SEIDEN: Your Honour, with respect to that particular transaction ‑ ‑ ‑

GAGELER J: That is the only transaction we are concerned with.

MS SEIDEN: Indeed, and the tax invoice demonstrates that the price includes the GST, and I would have to accept that in that case – the problem is we do not even ‑ ‑ ‑

GAGELER J: That case is this case.

MS SEIDEN: Indeed.

GAGELER J: It is the only case we are talking about.

MS SEIDEN: Indeed. Your Honour, could I please consider that, for this reason. In that case, there is at least the timing detriment. Overarchingly, the grants are obviously two and a half per cent of revenue, but your Honour is talking about $3,000, so obviously there is a timing detriment.

GORDON J: I do not know if there is a timing detriment, is my point. You have the money, you have kept it, on one argument. If you have not remitted the GST, you have kept it. Now, you have not in this case, and then what happens in year two is your grant is reduced, so you have had the benefit of the dollars upfront.

MS SEIDEN: Well, in this case, the amount was remitted.

GORDON J: I know it was, but that is what we are asking: what is the detriment?

EDELMAN J: You are better off by not paying immediately because you have the time value of the money for a period of time.

MS SEIDEN: However, in this particular case, it was that the amount was paid and remitted.

EDELMAN J: But that is not a detriment.

MS SEIDEN: Your Honour, so far as the detriment is concerned, there is the timing one only. However, the real focus of the plaintiff’s case by using Homebush and those sorts of cases by analogy is to show that when one is looking at the legal effects, one may ignore apparent options, and it is really for that reason that here the apparent option is to pay the GST through the BAS or not. However, when one realises that if one does not pay it, it is nevertheless taken, it demonstrates that the voluntariness of the payment was never there in the first place. The voluntariness is just the name of the impost. The voluntariness is whether one pays it through the BAS or waits for it to be withheld. That is the choice, but there is no choice about whether it is ultimately paid to the Commonwealth.

We accept that the detriment – that there is an issue there and, nevertheless, do not step back from it entirely, however, use the Homebush Case really just to demonstrate the point that when a piece of legislation, or a series of pieces of legislation, it appears that there is a choice, if one looks at it and sees that there is not in fact a choice then one may be satisfied that there is in fact a tax. In the Homebush Case, the choice seemed to be, well, you must sell us the flour, you do not have to buy it back, but then if you do not buy it back, you are out of business. That was the nature of the – that was the reason that the option to not buy it back was not really there.

We say we have a similar outcome that there is no option but to pay the GST, but for a different reason. At auction, it is not a price‑setting, it is just the market setting the price. One cannot assume even from this Trailblazer that there has not been a detriment in including the GST which is taken and remitted.

STEWARD J: Ms Seiden, you do not contend as part of your case, do you, that you have a compulsory liability to pay because you put the voluntary GST into a BAS, which created a deemed assessment, and thus a liability?

MS SEIDEN: No, your Honour.

STEWARD J: All right.

MS SEIDEN: We say it is compulsory for the reason that if it is not paid, it will be taken from us – although we do say that, to the extent that it is a taxable supply, it should go into that total sales figure, but tax is not imposed.

STEWARD J: All right. Thank you.

MS SEIDEN: Taking your Honours to Homebush, just for that particular purpose – the very narrow purpose that the plaintiff uses it – at page 396 of the report, 1302, it identifies at middle of the page:

The statute does not purport to impose a tax – it purports to operate by voluntary agreement –

Then, at 1304, page 398:

the existence of this objective –

which was said in the earlier sentences – it is about point 7 – to evade the constitutional prohibition:

But the existence of this objective does not establish that the State legislation is invalid. The validity . . . is determined not by its actual practical result, but by its legal character.

It is submitted here that – that is the position here. The legal character is it is taken from us or we pay it. On the next page, at 309:

It is contended that each part of the Act –

was valid. Then at about point 4:

By these steps in reasoning the whole Act is said to be justifiable in law.

This analysis, however, leaves out of account some very important elements.

We say the same here, that if one just considers whether or not one might pay the notional GST leaves out all the other consequences, including that ultimately the amount of the notional GST feeds back into the appropriation under the Federal Relations Act. Then, at point 6 on that page 399:

if the real object of the acquisition . . . is to make it possible to impose taxation, and that taxation is an excise duty, the legislation is invalid.

And then, the then‑Chief Justice identifies that the submission was that, well, there is an option, and at 400:

Thus the apparent option is quite unreal and is obviously intended to be unreal.

So, his Honour is there considering the direct practical consequences rather than some indirect remote, and then his Honour, about the middle of the page, refers to the “voluntary loans” and “forced benevolences.” And about point 8 on page 400:

the difference between the two prices is something which the miller is in practice compelled to pay –

And it is submitted that the notional GST is an amount that the Local Government is, in practice, compelled to pay. Then again, to similar effect, that one looks at the legal consequences – but when one is looking at the legal consequences, one can have regard to whether another option is actually illusory. That is at page 402, at the top of the page:

judged . . . by its legal effect and not by reference to the circumstance that he has found a means of disappointing what may be assumed to be the intention of a legislature.

But here, it is more than that happenstance. The design was, in fact, to ensure that local councils paid this new tax which they called voluntary or notional GST. The legal effect was seen against the backdrop that there is no option. Then‑Justice Rich at page 405 of the report:

it would be absurd for a court to say that because the consequences of failure . . . are a more unpleasant alternative . . . the party is free to choose –

There lies the distinction. Here, we are saying there is a lack of freedom to choose for the reason that there is no choice. It is either paid or held. And, about point 6:

The substance of the legislation is to impose a tax subject to a means of escape which no one would adopt –

And, in our case ‑ ‑ ‑

GORDON J: No one would adopt if you considered the business of pecuniary consequences, which is why the detriment question arises.

MS SEIDEN: Indeed, and we say here, no one would adopt it because it will just be taken. It will just be taken. So, there is again, for a different reason, just simply no choice. Then at page 413, the then‑Justice Dixon:

When the desired contributions are obtained not by the direct command but by exposing the intended . . . to worse burdens or consequences which he will naturally seek to avoid, the payment becomes an exaction.

And here, rather than worse burdens, there is just no alternative:

The fact that no legal obligation to pay is imposed enforceable by direct legal remedies . . . will not . . . prevent the exaction fulfilling the description of a tax; because in truth it is exacted by means of sanctions –

Here, it is just taken in the same sum by the withholding. Either way, the local council is not left with it. It is taken. Then, at page 414:

consideration of its actual operation, it turns out to be a means of imposing what in truth is a duty of excise.

And we would say by analogy, in the way that I have drawn the analogy, it is a tax here. It is sufficient that the notional GST, this new tax, is either paid through the BAS or its amount is taken as a withholding, and because there is no way of escape, it is compulsory. It is really that lack of choice, not for the dire consequences so much as for the actual lack of choice. Somebody will take it. It will be withheld from the grant. That demonstrates there is a compulsory exaction.

The forced benevolence cases are not deployed here to say that we have dire consequences, although it is two per cent of the local council’s revenue for all of the grants. Obviously, the Trailblazer is three‑odd thousand. But we use forced benevolence cases to show that if there is a lack of choice, however that lack of choice arises, then that will demonstrate practical, if not legal, compulsion. And we say that arises just on a direct application of 15(aa), read with 15(c). The primary case is that it is not a circuitous device, it is just there is just a command in the legislation.

GAGELER J: Who is being commanded?

MS SEIDEN: The local council, in the same way that in Air Caledonie the liability was on the passenger, even though the air operator had the liability to pay over the amount and had the debt to the Commonwealth even if the passenger did not pay. So, it is submitted that it is efficient for the sanction to be – the legal sanction – on New South Wales to collect it, to withhold the obligation, and then under (c) to repay it.

GAGELER J: So, your legal compulsion case and your practical compulsion case are just two different ways of looking at the operation of section 15(aa) and section 15(c).

MS SEIDEN: Indeed. To the extent that the circuitous device extends beyond that, it is that one starts with the apparent voluntary notional GST, the choice to put it in the BAS, which is facilitated by section 5 of the New South Wales Act and some provisions in the GST Act – including that recipients may receive input tax credits – and the BAS providing a mechanism to which the notional GST payments might be recorded, and the Commissioner having the administration of the Act, but the device is that that apparent voluntariness is not, in truth, real.

When one recognises that 15(aa) will then enforce the payment in any event, one sees that there was no voluntariness in the first place. So, to the extent that the circuitous device engages an additional element or an additional submission, it is that working at each step, the plaintiff is encouraged to pay the notional GST and then nothing is withheld. But the device or the disguise is in calling it voluntary when, if it is not paid, it is taken in any event. For the reason that the notional GST is an integer in the calculation of the GST revenue, which the Commonwealth has committed to paying the State, it is important to the Commonwealth to get the full amount of the notional GST.

Your Honours, I was proposing to move to different topic, which is the section 96 cases, and whether or not section 96 is affected or limited by 114. Section 114 is a blanket prohibition to protect the States even from their own misadventure. In respect of the cases that have applied 96 on a considered view, they support the plaintiff’s submission that section 96 is, indeed, subject to 114. The terms and conditions of 96 cannot require action that contravenes the prohibition in 114. Unless that is the result, then whether one reads it as a context/text analysis of 114 read with 96, or whether the legislative power finds expression in 51(xxxvi) or (xxxix), to read 96 other than subject to 114, or the other provisions in the Constitution, would be to allow the legislative power of the Commonwealth to be expanded.

KIEFEL CJ: Do you have to read the two together? You cannot just read section 114 as the prohibition?

MS SEIDEN: We would say 114 is indeed a blanket prohibition and that is sufficient, and there is nothing in section 96, it is submitted, that would take away from that blanket prohibition.

EDELMAN J: But if an impost, on its proper character and characterisation is a tax, then it is not financial assistance.

MS SEIDEN: Your Honour, the terms and conditions, it is submitted, may impose a tax. It is submitted that once one satisfies the statutory criteria – not the statutory, I should say, the criteria set down in cases such as Matthews, one has a tax. One might not set out to characterise the law as a law with respect to taxation, but if what one has in truth done is something that answers the description of a tax in Matthews v Chicory or Air Caledonie, then one has imposed a tax, and if it is a tax on property of the State then it is submitted that those terms and conditions would go too far.

So, merely characterising the law as financial assistance in the broader sense does not, it is submitted, shut out the possibility that there is also an impost buried in there. Certainly, the just terms cases have identified that a law could have more than one character, and we are here looking at whether the terms and conditions in fact answer the description of a tax. Here, a different position to that in the First Uniform Tax Case where the State here accepts the grant with the conditions, and why would it not? There is no onerous conditions on the State, whereas, in the First Uniform Tax Case there was an inducement to accept the grant if they had not themselves levied tax.

There was not a third party like there is here, so here the State accepts the grant with the conditions, and there is no reason why the State would not accept the grant and it is accepted that the States never rejected one of these grants. But then, once the grant has been accepted, then the conditions apply and one can look at the result of those conditions, whether it is practical or legal ‑ ‑ ‑

EDELMAN J: Is that anything more than to say that the terms and conditions as Parliament thinks fit in section 96 are terms and conditions that Parliament has the power to impose under the Constitution?

MS SEIDEN: Yes, that is the submission, your Honour. The First Uniform Tax Case, the Court there was dealing with laws under the Tax Act there that imposed Commonwealth income tax and gave it priority over State, and then the Grants Act was that if the States refrained from imposing income tax then they were entitled to a grant similar to the amount that they would have received, had they imposed income tax.

The Court relevantly there did not see the condition on the grant as being a condition that the State was not to impose income tax. It was very much an inducement – if you do not do this, then you will get a grant. So, that was a very different case. Also, the particular arguments there being considered, the State was submitting that this provided an existential threat that they were not to impose income tax and that it was discrimination contrary to 51(ii) or a preference contrary to 99. In that case it was said to be a law with respect to taxation because it touched upon the States’ ability to levy income tax, not like this case, which is the Commonwealth itself imposing a tax on Local Government.

If I could just take your Honours to that case, it is found in volume 11. It is South Australia v Commonwealth, page 4674. The then‑Chief Justice Latham at about the middle of the page ‑ ‑ ‑

GORDON J: What page of the report is it, please?

MS SEIDEN: Page 424, your Honour:

Indirect Effects of Laws. – A law may produce an effect in relation to a subject matter without being a law with respect to that subject matter.

His Honour gives some – at about the fifth line down:

a law is to be determined by what it does, not by the effect in relation to other matters –

His Honour, it is submitted, is there talking about very remote indirect effects. He gives us an example – about the middle of that paragraph:

Similarly a State law may prohibit the carrying on of occupations with the result that they are necessarily abandoned, with perhaps great consequential loss to the Commonwealth in customs duties or income-tax receipts. But the State law does not for this reason become a law with respect to customs duties or income tax.

So, it is quite a remote indirect consequence. One must look – the bottom of that paragraph:

“What does the law do in the way of changing or creating or destroying duties or rights or powers?” The consequential effects are irrelevant for this purpose.

His Honour is looking these indirect consequences or what they are for the reason – his Honour then identified on the next page:

This principle –

that you do not look at indirect remote consequences when considering:

that a Parliament of limited powers cannot do indirectly what it cannot do directly.

If I might just pause and provide a further answer to Justice Edelman’s question, if it was only a question about 96, the plaintiff would then also seek to engage the circuitous device doctrine that one cannot just simply look at one Act without the backup provisions – and the purpose – but the primary submission is that one looks at just the terms and conditions.

Then, on the next page, at 426, his Honour in the middle of the page considers whether these remote consequences will be relevant or irrelevant to construing certain statutes and identifies that, for instance:

If the validity of a State law is in question . . . whether the law is a law for the peace, order and good government –

you would not look at these indirect purposes. His Honour, at the last part of that paragraph says also, you would not look at those indirect remote consequences if you were considering whether an Act trenched:

upon Commonwealth exclusive power, or be opposed to a prohibition –

and gives the example of 114. However, in the next paragraph, his Honour then says, but:

When a power is defined by reference to purpose, other considerations arise –

one can look at purpose. His Honour refers to Moran’s Case, and footnote (3) is a reference to one looking at purpose. And:

also if there were a prohibition against attaining a result by any method whatever. If, for example, the Commonwealth Constitution contained a provision that no Commonwealth law should by any means bring about the result of a discrimination between States, the indirect –

and we would interpose there “remote”:

consequential effects of the law would have to be examined.

It is submitted 114 is as close to a blanket prohibition as one could get. It is prohibiting a result – the imposition of taxation on State property. But his Honour was there not concerned with 114, his Honour was concerned with 51(ii), which required the Act to have a certain character. The Act itself had to have a character of – with respect to taxation for the discrimination prohibition to be enlivened, it had to be in 51(ii). And 99, the preference that his Honour was there concerned with was that the law had to have the character of being for trade or commerce. So his Honour is there saying, well, in relation to the arguments that were put in the First Uniform Tax Case we do not look at these other consequences. But even in this case, his Honour at page 427, about point 3:

The Grants Act authorizes payments to States which choose to abstain from imposing income tax, and is valid by reason of sec. 96 of the Constitution, unless it is bad as involving some prohibited discrimination or preference.

So, his Honour certainly accepts that 96 might be subject to some of the other provisions. And at 428 recognises the theoretical, at least, the theoretical possibility, at about the second paragraph:

It is true that in Moran v. Deputy Commissioner of Taxation the Privy Council pronounced a warning that possibly . . . a grant under sec. 96 might be used for the purpose of effecting discrimination in regard to taxation – “under the guise or pretence of assisting a State with money.” It may be that, with a very misguided Parliament, such a case is perhaps conceivable.

And that would be – his Honour was there talking about an Act which could properly be characterised as an Act with respect to taxation and not even an Act which simply imposes taxation, which, for some reason, might not be characterised thus.

GORDON J: Do you accept that his analysis was influenced largely by what preceded it at pages – way back, it really starts at 415 and onwards when his Honour analyses section 96 and the way in which section 96 works as a voluntary grant and that – what he says is temptation is not coercion.

MS SEIDEN: Yes, we would accept that his Honour’s reasons need to be read coherently with that. However, we say that there is a difference between the nature of the coercion that his Honour was there dealing with and the coercion here. The law there was characterised very much as an inducement. And therefore, the inducement could be refused by refusing the grant. It was not characterised as a condition on the grant that they refrained from imposing tax. It was if they refrain from imposing tax they will get the grant.

Here the other difference is the State – and it very much was an inducement, because the amount of the grant was going to cover, approximately at least, the amount of income tax. Here, the grant is for the State to give to the local council, and the withholding of the GST is – the liability is on the local council. So, even though the local council is a State, it is a separate entity, and once the grant is accepted that the conditions are enlivened, and they were different conditions to that under the First Uniform Tax Case, they would have the opposite character than the ones in the First Uniform Tax Case.

They are not mere inducements; they are a compulsory exaction and so we would distinguish the First Uniform Tax Case and Second Uniform Tax Case. Before leaving that case, for the reason that 114 is addressed to an imposition, it is submitted that “impose” does not invite consideration of the remote indirect effects, but one can look at the immediate practical effects and, when one considers that it is only necessary to satisfy the criteria that the cases such as Air Caledonie and Matthews v Chicory have identified, one need not be concerned with the overarching character of the Act, but one needs to be able to find the criteria satisfied and, if they are satisfied, the plaintiff submits that section 96 does not alter the fact that there is an imposition, and the fact that the imposition is in the terms and conditions of a section 96 grant does not change the reality if your Honours are otherwise satisfied that the Act operates as an imposition.

PJ Magennis is the next case. It is volume 9, 3937. Could I take your Honours to page 398 of the report, at 3953 at the very bottom, point 9:

The motives of the respective legislatures are legally unimportant. The only question is whether the Parliaments of the Commonwealth and, in this case, of the State of New South Wales, have by joint action succeeded in evading the constitutional obligation of the Commonwealth Parliament to provide just terms –

We rely on that. At 3957:

The fact that the settlement of ex‑servicemen is a defence purpose is the circumstance which makes the law a law for a purpose with respect to which the Commonwealth Parliament has power to make laws.

So, this is at page 402, 3957, the very bottom of that page and moving on to the next page. So, it is no answer that it is a law with respect to the defence purpose to say that it is not also a law with respect to the acquisition and we would say by analogy here, even if it is a law with respect to section 96, it can nevertheless impose a tax. At the top of 403, page 3958:

this fact most obviously does not show that it is not also a law with respect to the acquisition of property.

At the bottom of that paragraph:

Similarly there is no substance in the objection that the Act is an Act giving financial assistance to States . . . and is therefore not a law with respect to the acquisition of property.

So, a law may have more than one character. If I could take your Honours to page 423, Justice Williams refers to, at about point 3 on the page:

In Bank of New South Wales v. The Commonwealth it is said in the joint judgment . . . that “s. 51(xxxi.) of the Constitution requires that laws for the acquisition of property shall provide for the acquisition on just terms. The requirement applies whether the law authorizes the Commonwealth or some person or corporation –

At about point 6:

In my opinion the paragraph –

that is, 51(xxxi):

applies to all Commonwealth legislation the object of which is to acquire property for a purpose in respect of which the Commonwealth Parliament has power –

Now, with 51(xxxi), one needs to characterise it as a law with respect to the acquisition of property and, therefore, one needs to look, when one has a section 96 law, which is a law for financial assistance, that the two characters – one looks to see whether the two characters exist because 51(xxxi) is keyed off the character and it must be a law with respect to – whereas 114 is simply about whether there is in fact an impost and it is submitted that in that sense it is easier for the plaintiff to show the connection between 96 and 114. Then, at page 430 Justice Webb sums up, at the very bottom of 430 of the report, page 3985:

If the agreement expressly stated that its purpose was to secure land for discharged soldiers at less than fair prices it would be impossible to hold that the agreement and the Commonwealth statute antecedently authorizing it did not amount to a purported exercise of the defence power . . . invalidated by par. (xxxi.) of the Commonwealth Constitution. But invalidity is not avoided because that purpose is implied and not expressed. It is important to keep in mind that the terms of the agreement are set out in the first schedule –

Here we have a similar situation to the situation that attained in Magennis. We have the Intergovernmental Agreements annexed to the Acts in question with sections of the Act identifying that the Parliament of New South Wales or the Commonwealth intend to be bound by those Agreements.

But, by the time we get to Pye v Renshaw, which is the next case – which is at page 3987 of the same volume, page 58 of the report – the Agreements had been entirely decoupled from the legislation. There, the result was polar opposite to that in Magennis, for the reason that that there was nothing that one Act pointed to that spoke of the Intergovernmental Agreement in the background. So, the funds were provided to the State, and the State used those funds to acquire property on other than “just terms” without the necessary connector.

At 4008, page 79 of the report, identifies that, references to the Agreement – about the middle of the page – have been “deleted”, and again, at about point 7:

Act No.14 of 1950 also deleted from all the relevant legislation –

Agreement, I should say, and at page 80, the third line:

And the effect of Act No. 14 of 1950 is to make it perfectly clear that all relevant legislation . . . is intended to take effect unconditioned by any Commonwealth legislation –

and two lines down:

To adopt the language of Webb J., already quoted, it cannot now be correct to say that, properly construed, the State Acts contemplate the existence of a valid agreement or of any agreement or scheme.

Which was not the position in PJ Magennis.

GAGELER J: Ms Seiden, all of this history was looked at in ICM Agriculture, I think ‑ ‑ ‑

MS SEIDEN: Indeed.

GAGELER J: ‑ ‑ ‑ was brought together in a couple of paragraphs.

MS SEIDEN: Yes, and we rely on that.

GAGELER J: So, what are we relying on it for?

MS SEIDEN: I am trying to tease out some of the nuances, that the reasoning that applies for the section 96 to be read for the just terms extends with even greater force for 114. I will take your Honours straight to the passages in ICM that we rely on – obviously, we rely on Ex rel Black was the – Ex rel Black was, obviously, 116. Again, one had the issue that one needed to characterise it as an Act for establishing religion and, put that aside, there could be no question that it intersected with 96 – and ICM is volume 7, 2874.

In further answer to your Honour Justice Gageler’s question, we also sought to distinguish the First Uniform Tax Case as our learned friends say that, that it, I think, notwithstanding ICM causes a problem, however, for the reasons we have submitted, we submit it does not. However, at page 168 of the report, page 2902, the bottom of paragraph 36:

Section 96 says nothing about purpose. It authorises the making of grants on “such terms and conditions as the Parliament thinks fit”. The constraints imposed by constitutional prohibitions or guarantees will be directed to the range of permissible terms and conditions rather than their underlying purpose.

We see that, really, in further answer to Justice Edelman’s question to me:

Leave to re‑open Magennis –

was “refused” at paragraph 40. The developments we rely on that – the first one – that 81 and 83:

do not confer a substantive spending power and that the power . . . must be found elsewhere –

and, we submit, in like‑fashion, 96, the legislative power would come from 51(xxxvi) or (xxxix). And thirdly, 51(xxxi) is described as:

“a very great constitutional safeguard” –

and we would say, similarly, 114 could be so described. Fourthly, going over to page 170, the reference in Bank of NSW v The Commonwealth to the:

“circuitous device” when concluding that the effect of the federal law was that the banks and their shareholders, in a real sense –

were deprived of control. In other words, one can look at the wider circumstances when looking at the effect. We would deploy that for the impost – whether there is an impost. Then finally, there is the reference to Ex rel Black. Read together, 96 and 116:

the result being that the Commonwealth has power to grant financial assistance . . . on such terms . . . provided that a law passed for that purpose does not contravene s 116.

We draw the distinction between terms and conditions that fill a legislative hole in the Commonwealth’s power and ones that actually contravene a prohibition. The first is permissible and the second, if it contravenes a prohibition, is not. Then, 46:

the legislative power of the Commonwealth conferred by ss 96 and 51(xxxvi) does not extend to the grant . . . on terms and conditions requiring the State to acquire property –

and we would seek to adopt that reasoning for the terms and conditions in 96 and 114. To similar effect, we rely on the passages commencing at page 198 of the report, in particular at 136. The question is raised, whether Parliament may fix terms and conditions as unlimited and it is enough – their Honours did not answer the question, it not being necessary – comments – the matters nevertheless that were raised at 138 through to 141, it is submitted, are particularly apposite and are relied on, that where there is a law that is said to:

contravene the constitutional restraint –

at 139, of:

just terms –

one can look at:

circuitous or disguised –

once it is clear what it is, then it may be an “infringement”. Then, at 140:

Thirdly, no textual or other reason was identified –

other than characterisation, and here we would say that the characterisation is not even – is not necessary, for the reason that an impost is simply an impost, a tax is a tax, is a tax. And we rely on those – and 140 and 141.

It is submitted that looking at the history of the 96 cases with 116 or 51(xxxi) there is great support for the plaintiff’s submission that the terms and conditions under 96 must pay due regard to the prohibitions in the Constitution. And if your Honours are satisfied that viewed either as a part of a circuitous device or simply as a construction of 15(aa) that there is indeed an impost, the fact that it is in an Act purported to be pursuant to the section 96 power, or purported to be solely characterised as that, that that would not be a bar to finding that it was an impermissible impost. With respect to 114, if I could take your Honours to SGH, which is in volume 11, at 4616, at paragraph 45, which is 75 of the report, and 4640:

The second limb of s 114 is one of the few provisions of the Constitution which deals specifically with intergovernmental immunities.

And at 46:

to say . . . that s 114 confers an immunity upon the State is to say that s 114 places a restraint upon the exercise by the Parliament . . . of the legislative power in s 51(ii) which otherwise supports the provisions of the Income Tax Assessment Act –

We rely on that, that 114 provides a limit to the terms and conditions. There is a reference at paragraph 53, Justice Gummow notes that some of the doctrine under which 114 was thought to be a particular expression was “no longer part of the law”, nevertheless the limit is still found in paragraph 54, third line down:

The Constitutional phrase “any tax on property of any kind” belonging to the Commonwealth or a State does not confer exemption upon such property from any form of tax; the tax must be imposed by reference to the relationship between the taxpayer and the relevant property, and tax the ownership of holding thereof.

So, that is, it is submitted, where the limit is found in 114. The limit is not found in whether there might be a tax found in the terms and conditions of a section 96 grant. The Municipal Council of Sydney v Commonwealth, which is in volume 9, page 3564 – it is sufficient if I take your Honours to the judgment of Justice O’Connor at page 240, 3596:

The prohibition against the State imposing taxation on Commonwealth property is the most comprehensive form of prohibition that can be used –

And, on the next page, 241, the fifth line down:

it must be taken that the prohibition extends not only to taxation by a State for the purposes of general government, but also to taxation by an agency under the authority of the State, and deriving its power to levy taxation from the Parliament of the State. To hold otherwise would be to declare that the State might do indirectly what it cannot do directly.

And it is submitted that therefore, 114 is certainly a provision that your Honours may consider, whether by section 90, the section 93 grant, there has been an imposition of tax, albeit indirectly, but that maxim applies to 114, and at about point seven on page 241:

“Impose,” no doubt, includes the giving of legislative authority to levy the tax, but it includes more, it includes the executive act of levying or collecting –

And the section can be made fully effective:

Having regard to the scope and purport of the section . . . as already explained, only by giving a broad and reasonable interpretation to its language, including –

this is on page 242:

the word “impose” both meanings already alluded to, according as the thing to be prohibited is the legislative authority or the administrative Act, and giving to the word “tax” its ordinary grammatical meaning –

One would give the word “tax” in 114 as broad and flexible an operation as is necessary to ensure that the object of 114 is achieved.

We would rely on the words of Justice Dixon in the Bank Nationalisation Case to the effect that where a prohibition is engaged, the paragraph should be given as full and flexible an operation as will cover the objects it was designed to cover. If I could just summarise the position in terms of why it is submitted that the impost here is in fact a compulsory exaction of tax and is not simply the final integer in determining the local council’s entitlement to the grant. It is, in fact, a tax and not simply an allocation – the final factor of the allocation mechanism.

Prior to the latest regime there were grants for Local Government purposes under the Financial Assistance Act and the entitlement was worked out in the same way as it is now worked out, absent the condition in 15(aa). Once the new Act was brought into existence, the amendments were brought in, 15(aa) started to bite and the new condition was introduced. So, prior to that the horizontal equality, the allocation principles existed. Once a State was given its entitlement, the amounts were allocated to local councils. Now that amount that is allocated to local councils is still allocated, but if they have not paid the notional GST, an amount of that entitlement is reduced.

The concept of competitive neutrality, which these measures were designed to foster, could not be achieved without imposing the GST or a GST equivalent. The purpose was to ensure that councils had the same competitive advantage or disadvantage as other businesses, which was achieved only if they paid the GST or its equivalent.

Since ICM, purpose is relevant to characterising an Act, and an Act which sets out to put local councils in the same position as if they were a taxpayer, and achieved that purpose, suggests that the Act is a tax. In that way, the goal of competitive neutrality supports the plaintiff’s proposition that what has happened here is a tax has, in fact, been imposed.

The extrinsic materials identified that the amendments were to give legislative expression to the Intergovernmental Agreements and show that the Commonwealth Act and the New South Wales Act did just exactly what the Agreement wanted, which was to put local councils in the same position they would be in as if they were paying the tax, which could only be achieved by having them pay something which they called voluntary or notional GST.

One needs to have regard to the Intergovernmental Agreements to interpret the expression in 15(aa). Section 15(aa) expressly refers to the Intergovernmental Agreements. The amount is an amount that will be paid in the – it said that in the Intergovernmental Agreements and in 15(aa) it is an amount:

that should have . . . been paid –

The machinery provisions are such that the GST Act was amended so that recipients could obtain income tax credits – input tax credits, and local council circulars facilitated, showed, the local councils how to comply, and there were certificates to demonstrate that the amount has been paid. The text and effect of the legislation, the principles under which the State entitlement is allocated, ignores where the notional GST is paid and, similarly, the local councils allocation ignores whether the amount has been paid.

So, when they are working out what the local council needs, whether they have paid the GST is ignored and then it is taken out in 15(aa) if it has not already been paid. The words “should have, but have not, been paid” cannot be construed other than as a command. If it has not been paid, the State withholds it, and the Commonwealth requires the funds to feed back into the grant that is the subject of a Federal Financial Relations grant. So, no matter what happens, the amount is taken. The GST revenue or the amount calculated under the GST revenue pool does not come back under the financial assistance appropriation. It comes back under the appropriation, or an amount equivalent to it, under the Federal Finance Relations Act.

Section 114 is, it is submitted, an important immunity in blanket terms, and it is as close to an absolute prohibition in language as one could get. The history of the cases leading up to ICM indicates that section 96 and the terms and conditions in it are subordinate to 114.

KIEFEL CJ: Will you be turning to the topic of relief and restitution after the luncheon adjournment?

MS SEIDEN: Indeed.

GAGELER J: Ms Seiden, may I ask you a question about that. If you turn to the questions of law in the special case which are at page 131 of the book, as I understand your argument so far, you have addressed no submissions to question (1). You have focused your argument on question (2), and you contend for an affirmative answer to question (2).

MS SEIDEN: We do, yes.

GAGELER J: Then, if you have an affirmative answer to question (2), the question that arises under question (3) is what relief follows? You say that you are entitled to get the $3,000 back plus interest. Does that mean statutory interest?

MS SEIDEN: Your Honour, could I answer that, please, after the adjournment?

GAGELER J: The only difference between you and the Commonwealth, as I read the submissions in relation to question (3) if the answer to question (2) is yes, is about your entitlement to statutory interest.

MS SEIDEN: Your Honour, we had a discussion with our learned friends this morning. In the written submissions, it did not appear as if any defendant or intervener had in terms said that if we were able to satisfy your Honours that there was an impost, we would not be entitled to restitution. We did not see that in their submissions.

KIEFEL CJ: But the question is by what means, whether in proceedings such as this or at the general law.

MS SEIDEN: That certainly, your Honour. However, this morning, our learned friends have said that restitution – they have a reason why restitution would not be a convenient remedy. I do not want to speak for my learned friends for the Commonwealth, but it may not be as simple as that, your Honour.

Could I just address your Honour’s point about (1). We do say that those particular sections that introduced 15(aa) are, themselves – they purported to impose a tax, or introduce a tax, into the other Act. So, to the extent that our case does not involve a circuitous device, it is the simple case that 15(aa) is itself the impost, then those submissions question (1), and then we would rely on the mechanism that the amending Act tried to bring into another Act which was not in relation to taxation, and therefore section 55 is engaged.

KIEFEL CJ: Well, perhaps we could return after lunch to the question of whether an answer to question (1) is strictly necessary.

MS SEIDEN: Certainly.

KIEFEL CJ: It does not sound as if it is.

EDELMAN J: Could I also just ask you to consider one point over the lunch break in relation to the question (3) about relief.

MS SEIDEN: Yes.

EDELMAN J: And that is whether it makes any difference to your submissions as to what the basis for any restitution is. In other words, whether the basis for restitution is some constitutional principle, whether it is a Woolwich‑type principle, or whether it is just simply a private law principle that money paid under protest and on the basis that it will be refunded if the principle upon which the protest is made, is made good.

MS SEIDEN: We will certainly address that.

KIEFEL CJ: Thank you. The Court will adjourn until 2.15 pm.

AT 12.49 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

KIEFEL CJ: Yes, Ms Seiden. The number of questions I think you were going to address.

MS SEIDEN: Indeed. With respect to the question as to – one of the questions was how was the plaintiff worse off in relation to this particular car. If I could take your Honours to the special case at page 292, the Trailblazer was sold at auction, so it is a market price. The tax invoice discloses the GST amount – which is obviously the notional GST – because, of course, under the GST law, the plaintiff is entitled to the whole of the amount. There is no amount that is imposed in relation to the Trailblazer. Therefore, the starting position is that the plaintiff is worse off because the plaintiff should have been able to retain the $3,181 from the $35,000 bid price at auction, yet it is paid to the Commonwealth and that amount is being included in the GST pool ‑ ‑ ‑

KIEFEL CJ: You say it is not factored into the price.

MS SEIDEN: At a market price – the price, your Honour, is always GST‑inclusive ‑ ‑ ‑

KIEFEL CJ: Yes.

MS SEIDEN: ‑ ‑ ‑ but at an auction, it is just simply the market price. Whatever the price is, under the GST law, the plaintiff would be entitled to keep whatever that amount is.

KIEFEL CJ: So, the detriment arises by the GST law?

MS SEIDEN: By the notional GST law.

KIEFEL CJ: Yes, I see what you mean.

STEWARD J: Sorry, I am not sure I followed any of that. Let us start – so you got a notional input tax credit when the car was bought.

MS SEIDEN: I would have to get instructions on that, but if one ‑ ‑ ‑

STEWARD J: I think you did.

MS SEIDEN: ‑ ‑ ‑ assumes that – one might assume that.

STEWARD J: So, the car then gets sold at auction for $35,000.

MS SEIDEN: Yes.

STEWARD J: And what is your detriment again?

MS SEIDEN: Well, your Honour, the Council – the plaintiff is registered for GST and is entitled to input tax credits in relation to creditable acquisitions which is not keyed off notional GST. The only difference is that when it makes a supply under section 5 of the Imposition Act, it is not liable for the GST on the supply. However, that does not affect the fact that it, nevertheless, gets input tax credits in relation to creditable acquisitions.

So, the starting point is simply that whatever the GST might have been for somebody who is liable to GST at an auction, the plaintiff, absent notional GST, is entitled to the full amount of that price. There is no deduction need to be taken from the price at auction. If there was not the notional GST, there might not be a tax invoice given which includes the notional GST, but if one is just trying to identify the detriment, then we start from the proposition that when the plaintiff makes taxable supplies, even though it is a taxable supply, it is simply not; the GST is not imposed.

STEWARD J: But is that any different to anyone who actually is registered? When you send your fee slip for today’s work, you will have to pay GST on that as well.

MS SEIDEN: However, I do not have the immunity under 114 as it being a ‑ ‑ ‑

STEWARD J: So, the detriment is the payment of a sum of notional GST which you say you are not obliged to pay.

MS SEIDEN: Indeed.

STEWARD J: Okay. All right.

MS SEIDEN: And if we had not paid it if the plaintiff had not paid it, your Honour, then it would have been withheld and taken, in any event.

GAGELER J: I am not sure any of that works as an argument. You are only asking about detriment for the purpose of working out whether there is compulsion. The question is: is there compulsion to pay the amount? It is very hard to say that the payment of the amount equals the detriment, equals the compulsion.

MS SEIDEN: In the sense that the notional GST payment to begin with was not something that should have been paid under the GST law. It is an amount that the notional GST levies, and if it is not paid, it is withheld. So, if the notional GST did not levy a tax, the payment that – the plaintiff would have had the real option of keeping the full $35,000 if the notional GST did not levy a tax, but for the reason that the notional GST levies the tax, the plaintiff either pays $3,000 through the BAS or it is withheld.

GORDON J: So, we are down to two arguments then, are we not? We are down to what is in question (2), excluding section 14(3); that is, whether one or more of those provisions, together with your primary focus, being on 15(aa) and 15(c).

MS SEIDEN: Yes.

GORDON J: Second, if that is not a legal compulsion, then you say it is a practical compulsion, and when you go to the Homebush kind of analysis by way of detriment we are really driven back, are we not, to this time in question, you either withhold it, and if you withhold it then it is going to be deducted from the next grant.

MS SEIDEN: We would not, with respect, characterise that as a timing question. We would say ‑ ‑ ‑

GORDON J: Well, remove the word “timing”; that is the practical effect of your argument.

MS SEIDEN: Indeed, but the lack of choice is that it happens one way or the other, and that makes it the compulsion.

GORDON J: And that is the basis upon which you seek to distinguish it from Homebush or seek to attract the analogy of Homebush.

MS SEIDEN: Indeed, that there is, in fact, a lack of choice, even though the language of the statute is in terms of “notional” or “voluntary”.

GORDON J: And have I missed anything? Is that the two ways it is put, in the way I have put it to you?

MS SEIDEN: That apprehends the plaintiff’s argument. I should ‑ ‑ ‑

GORDON J: The reason why I ask, because it does not really then need any interaction on that analysis between sections 96 and 114, does it? Because if it is a tax, it is a tax, and if it is not a tax, then you do not get to that second question.

MS SEIDEN: Certainly, your Honour. We would absolutely say that the 96 and 114 debate that our learned friends – we seek to engage with what they put against us, but absolutely – and we say that the section 96 cases make it clear that when you are looking – one can look at simply the terms and conditions, and we say section 114 says, have you got an impost, and we look to see the answer to that question.

STEWARD J: I thought your detriment was somewhat more elusive. I mean, if I choose not to remit $10 of GST this year and I receive $10 less funding next year, it is either revenue‑neutral or, if you take into the time value of money, you are better off. You have used the Commonwealth as a bank. So, I thought your detriment was elsewhere, to do with elasticity of pricing or something like that.

MS SEIDEN: Your Honour, we certainly do not step away from that, that one cannot have inferred that we have the benefit of this which is the equivalent of an amount of notional GST that is above what we would otherwise sell the property at. We maintain that, but it is wrapped up in the question of detriment.

STEWARD J: All right.

MS SEIDEN: Your Honour Justice Gordon, I should say that we have looked at the 14(3) question and it is actually part of the machinery, so we sadly cannot take it out.

GORDON J: I see. I thought that you had said to me in answer to my question that it was dealing with a different kind of grant and so therefore it is not part of the machinery of the grant about which you complain. So, is it any more than context?

MS SEIDEN: Yes, it is. For this reason, I need to walk back what I said to your Honour. It is to do with top‑ups which we had not thought would affect this, but for the reason that the grant next year happens, we do not really know whether there might be a top‑up, so if I could take your Honour to section 3(3).

GORDON J: This is of the Local Government (Financial Assistance) Act?

MS SEIDEN: Indeed. Thank you, your Honour. It refers to:

general grants under section 9 –

which is really the way we framed the case, then it says:

and additional funding under section 12.

So, it is theoretically possible that that might be engaged but it operates in exactly the same way – that section 12 is additional funding, and then there are adjustments in section 13, and then there is an allocation, which is in section 14 which mirrors the allocation in section 11 and has the new subsection (3) which was introduced with the Amendment Act.

GORDON J: Is that any more to say that 15(aa) and 15(c) apply?

MS SEIDEN: It would appear that ‑ ‑ ‑

GORDON J: Is that the submission?

MS SEIDEN: Yes, so we do not – we had put the case on the basis that we are really dealing – it is most likely to be 15(aa) is being engaged with the general grants, but if for some reason there is a top‑up, theoretically it might be engaged.

GORDON J: Thank you for that.

MS SEIDEN: With respect to the revenue‑neutrality point, we have a more comprehensive response in our reply at paragraphs 11 and 19. I think the only matter that I did not mention before lunch about it was that if a tax is revenue – if an impost is revenue‑neutral that does not necessarily mean it is not a tax. The fact that the amount goes into consolidated revenue nevertheless demonstrates the public purpose.

GAGELER J: That is not the issue. The only issue is compulsion.

MS SEIDEN: Indeed. We see that, your Honour. In relation to whether – if we have an affirmative answer to question (2), we do not see that we need question (1) answered if question (2) is answered in the affirmative.

GORDON J: Could I ask a different question? Does question (1) add anything to question (2)? So, it does not seem to me to require a separate answer at all, regardless of whether you are right or wrong.

MS SEIDEN: Yes, we do not see that whether – section 1 requires there be a law with respect to taxation, which was the amending Act that we pointed to. We do not think that is any wider or gives any additional point to the plaintiff, and since question (2) is couched in terms of whether any or all of the provisions, we would accept that it does not add ‑ ‑ ‑

KIEFEL CJ: You accept question (1) adds nothing to what is stated in question (2)?

MS SEIDEN: That is accepted.

KIEFEL CJ: Therefore, it is not necessary to deal with question 1?

MS SEIDEN: That is accepted.

KIEFEL CJ: Thank you.

MS SEIDEN: With respect to the Chief Justice’s question in relation to by what means would we be entitled to relief, we would say, in these proceedings under one of the three species of how we got to restitution. And with respect to Justice Edelman’s question about whether there is any difference, we had thought the would be no, for the reason that we, on the special case, the agreed position, the special case, satisfy the common law.

The elements to generate relief under the common law and therefore it would not have been necessary to consider either Woolwich or Kingstreet because we would – the plaintiff answers the basic case, satisfies the basic case. However, we had also thought that there was no real basis upon which the parties or the interveners said that there would be a basis to withhold restitution, if we were entitled. But it appears now that our learned friends are not just softly suggesting, but will be suggesting, saying ‑ ‑ ‑

EDELMAN J: But if that is issues of defences, then that is not for this case.

MS SEIDEN: Yes, it is, whether it is an appropriate remedy at all, and certainly that is something that – because we do not quite know exactly how our learned friends will put the alternative remedy point, I am loathe to shut it out, but the short answer to your Honour’s point is ‑ ‑ ‑

EDELMAN J: You do not know whether it matters yet.

MS SEIDEN: We do not know. However, we think that we satisfy the basic elements of the common law position, therefore it would not be necessary for your Honours to consider Woolwich or Kingstreet, which might be necessary if there was a reason why we did not satisfy the basic case. But until we see why they say we are not entitled to restitution, I think the best answer I can give your Honour is we think it does not matter.

With respect to restitution the position is, as I have just outlined, that on the established premise that notional GST is an invalid tax, and here it was paid under protest, the elements for restitution on the basis of the common law claims moneys . . . . . received must be made out. The defences, we had thought, are not available, time limits, and it is not accepted that objection rights under part 4(c) would be an alternative remedy.

STEWARD J: And why is that? If you have submitted a BAS, you will receive a deemed assessment, you have a right to object ‑ ‑ ‑

MS SEIDEN: The short answer ‑ ‑ ‑

STEWARD J: ‑ ‑ ‑ and the objection will say that the part of this sum is not taxable because of section 114.

MS SEIDEN: Indeed, and not imposed.

STEWARD J: Yes.

MS SEIDEN: Not imposed, and we think that the Commissioner would have to say, we uphold the objection. But then even if we ‑ ‑ ‑

STEWARD J: Hopefully.

MS SEIDEN: Hopefully. However, the problem is that, assume we get through the hurdles of a refund, then we would again be in the situation where the amount of notional GST that should have, has not been paid and it could be taken from the grant in the following year, and we would be back here again.

STEWARD J: But why do you not have rights of objection? You have a deemed assessment which has conclusionary evidentiary provisions which deal with it, which mean, effectively, the Commissioner can seal on it, and it is common to have constitutional grounds of objection.

MS SEIDEN: Your Honour, we say that the Commissioner would not need to even consider the constitutional grounds for the reason that it is simply not GST‑imposed. You would have to agree with that. It is not that ‑ ‑ ‑

STEWARD J: At issue with an amended assessment.

MS SEIDEN: And we have paid it, so there is no collection there. So, it would not avail the plaintiff – it would not get the plaintiff anywhere because the Commissioner would say, I uphold your objection, I agree with your objection, this amount is not real GST and an assessment only includes real GST. So, he would not have to answer the constitutional question.

STEWARD J: He would say if he agreed with you that, you have paid too much tax and here is a refund.

MS SEIDEN: And then we would be in the situation – we accept what your Honour says. We would be in the situation that in the following year, 15(aa), we would have the situation where again it would be taken from us, and then the constitutional question would come up again. Otherwise we have the situation where in year one you pay the GST through the BAS; year two, the amount is not withheld because you have already paid it. But then in year three you object and you get a refund which, unless one reads 15(aa) as speaking again in the following year, you have a mechanism by which this notional GST can be easily thwarted, which cannot be the provision ‑ ‑ ‑

GAGELER J: Ms Seiden, you might be arguing against a bigger proposition than you need to. You only get to question (3) if you have won on question (2).

MS SEIDEN: Indeed.

GAGELER J: At question (3) you say you have a common law action, whether or not you have these other more exotic forms of recovery available to you, and the question you are attempting to meet here is whether that common law action is in some way abrogated by a particular statutory scheme.

MS SEIDEN: Yes, your Honour, we completely accept that and, if we get to (3) then other questions arise. However, in further answer to Justice Edelman’s question, if that is right that might be important policy reasons or important reasons for this Court to consider Kingstreet or Woolwich. However, I do not need to trouble your Honours any further on that particular matter, and if it please the Court I would reserve a position to address it, depending on what my learned friends say.

KIEFEL CJ: Well, Ms Seiden, you should appreciate that the Court takes the view that it will not require any further submissions from the defendants or the interveners in relation to question (3), so anything that you wish to say in relation to the question, I think you should put now.

MS SEIDEN: Thank you, your Honour. Just so that I have not misapprehended the situation, if the special leave question (2) is answered in the affirmative, if I understood you correctly, that that your Honours ‑ ‑ ‑

KIEFEL CJ: The Court does not require any further submissions from the parties or the interveners in relation to question (3).

MS SEIDEN: Including the plaintiff?

KIEFEL CJ: That is a matter for you, but the defendants – they do not require any further response from the defendants or the interveners, but if you wish to add something further, then you are entitled to do so.

MS SEIDEN: Thank you, your Honour. Perhaps I am misunderstanding – it is just that the plaintiff’s position is that if we succeed on question (2), we would then be entitled to restitution, and we have ‑ ‑ ‑

KIEFEL CJ: I know that. All I am trying to say to you is: do not leave it for reply. If you want to add anything further to your written submissions, do it now.

MS SEIDEN: I see. Thank you, your Honour, I apologise for having trouble with that proposition. Then, I think the only thing we need to add is, with respect to what Justice Steward put to us about why the objection rights would not be sufficient, we think we apprehend that might be put against us and ‑ ‑ ‑

STEWARD J: You should not care less, as long as you get your money back.

MS SEIDEN: But the problem for the plaintiff, your Honour, is that we might get our money back on this round, but then 15(aa) would bite again,
and the constitutional – we would be back here – and the Commissioner does not to engage with the constitutional question in order to determine the objection. He would look at, simply, the GST – definition of GST ‑ ‑ ‑

EDELMAN J: But the basis of relief does not affect that – whether your relief is on a Woolwich basis or a failure of consideration basis, that just tells you can get your money back. Any objection, any reason as to whether or not there could be a levy the next year is a matter separate from that.

MS SEIDEN: Yes, your Honour, we were simply addressing the point because I did not quite know how my learned friends were putting, that there may be a scenario where, even if question (2) was answered in the plaintiff’s favour, there might be a reason to withhold restitution that might somehow operate differently for all three. We certainly accept that it should not be so, either where we have satisfied the elements or we have not, and, I think, that is really the position, that there are some ‑ ‑ ‑

EDELMAN J: You are anticipating an argument that the Commonwealth will say, if we have received money that we are not entitled to receive, we have got a prima facie right to keep it.

MS SEIDEN: Indeed. Or that restitution is not our ‑ ‑ ‑

GORDON J: Or you adopt some different route to get it back.

MS SEIDEN: Indeed.

GORDON J: But they are defences, are they not?

MS SEIDEN: We apprehend so, your Honour. And for that reason, I do not think I need to take it any further. If your Honours could just excuse me for one moment. I was also asked about interest, and we said it would be statutory interest.

We otherwise rely on the written submission, may it please the Court.

KIEFEL CJ: The Solicitor-General for the Commonwealth.

MR DONAGHUE: Thank you, your Honours. The central issue raised in this proceeding is whether the various provisions that are listed at question (2) at page 131 of the special case book or some combination of those provisions compel the plaintiff to pay notional GST on dealings concerning its property, so as to bring those provisions within the constitutional description of provisions imposing a Commonwealth tax.

The Commonwealth submits that they do not, as your Honours will have seen, it is joined in that submission by the second defendant, New South Wales, and the four intervening States. In our submission, the actual position is that the impugned provisions, in particular 15(aa) and 15(c) of the Local Government (Financial Assistance) Act do nothing more than impose a condition on grants from the Commonwealth to the States under section 96.

That condition requires the States to return part of a grant to the Commonwealth instead of paying that part to local councils, to the extent that the councils choose not to pay notional GST. That, in our submission, does not involve a compulsory exaction from a council that decides not to pay. What it means is that a council does not receive a payment that would have offset the payment of notional GST – a payment designed to incentivise participation in the GST system.

The Council does not receive the offset if they have no need for the offset because they have chosen not to make the payment of notional GST and to participate in the system. There being no compulsory exaction, there is no tax. There being no tax, there can be no contravention of section 55 or section 114. That is, in summary, our short answer to the case against us.

Can I structure the submissions developing that as follows? First, I will take your Honours to some provisions of the special case you have not seen yet and briefly back to the 1999 Agreement, mainly for the purpose of clarifying precisely what we mean by “notional GST” and to identify the reason it exists.

Second, to develop some submissions concerning section 96 of the Constitution and, in particular, the necessarily voluntary nature of a grant of financial assistance under section 96 which, in our submission, explains why a condition on a grant under section 96 can never be a compulsory exaction. It is just inconsistent for something that is necessarily voluntary to be characterised as a compulsory exaction.

Third, and I will do this very briefly, to take your Honours back to some parts of the legislative regime, but we substantially agree with what my learned friend put to your Honours about most aspects of that regime, so, I will just touch on some parts of it that we seek to highlight. Fourth and, again, fairly briefly in light of the foundation I will have laid, we will address why there is no legal or practical compulsion to pay a tax.

And finally, I had proposed that Mr Hill would address your Honours on the question of relief, but he may be out of Court, from what your Honour the Chief Justice just said.

KIEFEL CJ: Yes.

MR DONAGHUE: It is the second time in a row that my junior has lost their gig. Your Honours, can I start then with notional GST and invite your Honours to turn up the special case book and to turn to page 121.

STEWARD J: Your co‑Senior Counsel.

MR DONAGHUE: My co‑Senior Counsel – as I said that, your Honour, I realised I got it wrong, so thank you for the correction.

STEWARD J: What page was that, sorry, Mr Solicitor?

MR DONAGHUE: Page 121 of the special case book, paragraph 14. Your Honours have here just a little bit of background to the 1999 Agreement. You will see that originally happened in April of 1999 is that the:

Commonwealth, State and Territory governments signed an Intergovernmental Agreement on the Reform of Commonwealth‑State Financial Relations.

Pursuant to that Agreement, Commonwealth was to pay all of the GST to the States and Territories as ended up occurring. But, at that time, part of the deal was that the States and Territories were going to take over from the Commonwealth’s responsibility for paying financial assistance to Local Governments.

There was then, in the period between April 1999 and June 1999, a negotiation that led to a reduction in the revenue base – which you see referred to in paragraph 15 – and, as result of that reduction – the fact that there was less money to be paid out of the GST pool to the States – the Commonwealth ended up agreeing to retain responsibility for the payment of financial assistance to Local Governments.

So, that is the genesis of what one now sees in the payments under the Local Government (Financial Assistance) Acts, which continue to operate in parallel with the quite separate scheme that involves the payment of all of the GST revenue raised by the Commonwealth to the States. That is why you have the complexity of the legislative regime my friend took your Honours to, because you actually have two quite different Acts providing for quite different payments of money. What is called in the special case “notional GST” – you see this in paragraph 17 – are the:

“voluntary or notional payments” referred to in clause 17 of the 1999 Agreement (and clause A28 of the 2009 Agreement) –

both of which you have seen – but I will come back to clause 17 in just a minute. Staying, though, with the special case, if your Honours go back two pages in the special case book to page 119, under the heading, “Commonwealth Grants to States”, you will see it is recorded that under section 96, the Commonwealth makes – paragraph 7 – broadly two categories of grants: general revenue or “untied grants”, and specific purpose or “tied grants”. Then, in paragraph 8, you will see that under the Federal Financial Relations Act that our friends took your Honours to, you have one can reasonably accurately, if slightly generally, be referred to as the payment of GST revenue grants. So, under the Financial Relations Act 2009, all the GST revenue minus administrative costs gets paid to the States. Then in paragraph 9:

Separately –

that is, in a different Act:

the Commonwealth provides grants of financial assistance for local government purposes to States –

Not to Local Governments, but to the States, as section 96 requires under the Local Government (Financial Assistance) Act – and lest there be any doubt about it, on 126 of the special case book, in paragraph 42, the special case expressly records that:

Grants of financial assistance for local government purposes under the Local Government Financial Assistance Act are separate from, and additional to, GST revenue grants made under –

the 2009 Act. So, you have GST, all the money minus administrative cost goes to the States, then separately and additionally, you have an amount of money for which the Commonwealth remains responsible following the Intergovernmental Agreements that the Commonwealth pays as a tied grant to be used to be directed to Local Government purposes.

It is that second limb – notwithstanding that this case is cast as a case about notional GST, it is that second limb and the conditions on grants of that second kind that are actually in play in this case and that are said to constitute a tax.

If your Honours could then go briefly back to the 1990 Agreement – I am working from the version in the special case, but your Honours were taken to the version that – annexed to the New South Wales Implementation Act. It does not matter which version your Honours use, but the version in the special case book starts at page 155. Your Honours have seen quite a bit of this, and I will not take you back through it, but if you go clause 17 on page 158, you see the key clause.

So, remembering that clause 17 and the voluntary and notional payments referred to in clause 17 are the way that notional GST has been defined – so, this is an agreement between the Commonwealth States and Territories, but it provides that:

the Commonwealth, States, Territories and local government –

So, the Agreement applies both to the parties themselves and to Local Governments and their statutory corporations and authorities – will operate not actually subject to GST but:

as if they were subject to the GST legislation. They are entitled to register, will pay GST –

So, they do have to pay GST sometimes, because 114 prevents Commonwealth taxes of State property, but not State services. So, for example, the swimming lessons example that our friends gave, there will be actual GST imposed upon Local Governments in relation to that. So, they have to register, and they have to provide BAS statements and all of those things for their actual GST, but in addition, it is agreed that they will:

make voluntary or notional payments where necessary and will be entitled to claim input tax credits in the same way as non‑Government organisations.

Now, when one then goes to the next clause, 8, there is an agreement that the Commonwealth will legislate in the terms that you now see in 15(aa) of the Local Government (Financial Assistance) Act. But clause 18 refers to Local Governments being in breach of clause 17, which, in our submission, can only mean in context Local Governments have failed to pay – failed to make the voluntary or notional payments to which reference is made in clause 17.

All of this is the terms of an agreement between the polities of the country. This is not a legally‑enforceable document. It is a political agreement of the kind that this Court has long recognised, including in South Australia v Commonwealth in the 1960s, as not resulting in legally‑enforceable obligations. So, at the political level, it has been agreed that this is how the regime will work. There are two points that I seek to develop about that. One: why is it that the Commonwealth and the States and the Territories are making agreements about Local Government?

The answer to that, in our submission, is the same answer that explains why the parties have agreed that the property of the State, for the purpose of 144, includes the property of a local council. We, of course, have not agreed that the local councils are a State, but we have agreed that they are part of a State, or relevantly, that their property is property of the State.

The reason that we have so agreed is that a long time ago in the Municipal Council of Sydney Case [1904] HCA 50; (1904) 1 CLR 208, which I would ask your Honours to go to – it is volume 9, tab 55. This is a case that was, really, about the flip side, in some respects, in that it was not a case about Commonwealth taxes on State property; it was about State taxes on Commonwealth property, which, of course, are also prohibited by section 114.

The particular question was whether a tax imposed by a local council – a municipality – was captured by that provision. The answer given by the Court was that it was. If your Honours turn to page 240, in Justice O’Connor’s judgment, you see from the second half of that page:

It has been urged that, because the prohibition is against a State, and the word “tax” only is used, the section cannot apply to a rate levied by a municipality.

And that is rejected. It is said:

The section would, indeed, fall short of its object if it . . . left Commonwealth property open to taxation by a municipality –

Then, Justice O’Connor says:

The State, being the repository of the whole executive and legislative powers of the community, may create subordinate bodies, such as municipalities, hand over to them the care of local interest, and give them such powers of raising money by rates or taxes as may be necessary for the proper care of these interests. But in all such cases these powers are exercised by the subordinate body as agent of the power that created it . . . “Municipal corporations are mere instrumentalities of the State for the more convenient administration of local government. Their powers are such as the legislature may confer, and these may be enlarged, abridged, or entirely withdrawn, at its pleasure.

So, Local Governments, as was there described, “agents of” or creatures of the State that creates them. That is enough to mean that charges created or imposed by the local municipalities are taxes imposed by a State for 114 purposes. We have not disputed that, reciprocally, it is enough to mean that a Commonwealth tax imposed on the creature of the State – the local municipality – might tax the property of a State.

It is a little odd, to say the least, that when one brings a local council within 114 on that basis to then find the same local council complaining of the inappropriateness of the State that created it, having agreed that it should operate in particular ways. All that one saw – all that one sees in clause 17 is the Commonwealth, the States on behalf of the Local Government, and Territories on behalf of themselves and the Local Governments they create, agreeing at the political level that they will operate in a particular way, as if they were subject to the legislation, including that they will be entitled to claim input tax credits.

Why did they agree that? Two reasons. First, because that assisted to give effect to the competitive neutrality principles that the States and Territories had already agreed as between themselves in 1995. I will not take your Honours to it, but you have the Agreement in the special case book – it starts at 135. The relevant provisions are, particularly, clauses 3.(4) and 3.(5), which both involve Agreements that both significant government business enterprises and smaller agencies but that, nevertheless, carry on business will – the parties agreed to impose upon them, either for Commonwealth, State, or Territory taxes or tax equivalent systems, so as to put them in the same position as other participants in the market.

GORDON J: The point, though, is when you say “they”, that is the Commonwealth and the States.

MR DONAGHUE: That is correct. But, again, on behalf of themselves and Local Governments. The Agreement in – again, you do not need to go there, but on page 139 in clause 7.(1) – this is the Competition Principles Agreement – expressly says that:

The principles set out in this Agreement will apply to local government, even though local governments are not Parties to this Agreement. Each State and Territory Party –

So, not the Commonwealth, the States and Territory:

is responsible for applying those principles to local government.

So, the States took on that obligation. That is one of the reasons that clause 17 says what it says. The other reason is to make GST work, and to explain why I say that – I am not taking your Honours to it as an authority but just as a convenient explanation. Could you go to a first‑instance case in the Federal Court, Landcom v Commissioner of Taxation (2022) 114 ATR 639, which is volume 13, tab 91, where Justice Thawley undertakes a helpful summary of the issue.

So, if your Honours go to page 646 of the report, paragraph 26, there is a heading:

BACKGROUND TO THE JURISDICTIONAL ISSUE

Section 114 is quoted. Section 5(1) of the GST Imposition Act is quoted which, as your Honours have seen, expressly says that the GST legislation:

does not impose a tax on property . . . belonging to a State.

Then, in paragraph 27, his Honour quotes Justice Perram’s explanation in TT‑Line Company v Federal Commissioner of Taxation about the problem that 114 posed for the GST system:

unless the States and the Commonwealth also operated within the GST system, that system could not work in the desired way –

Why not? Because, in effect:

the interposition of a State at any point along the supply chain would have disrupted the process of [input tax] credits upon which the system depends. The introduction of the GST could not practically proceed therefore unless the States voluntarily agreed to subject themselves to it –

His Honour then explains in paragraph 28 why that is so, and I do not need to read your Honours the explanation. But paragraphs 28 through to 31 set out an explanation that we respectfully adopt as to why it was desirable to have the Commonwealth, States and Local Governments operating as if they were the subject of the system. Then, at paragraph 32, his Honour summarises:

In order for the GST system to work as intended, there were at least two issues which it was desirable to –

address:

(1) First, the States and Territories (and the Commonwealth) agreed to participate in the GST system “as if they were subject to the GST legislation” and to pay GST voluntarily –

Second, to allow:

the recipient of a supply from a State –

in effect, to treat the notional supply as if it were subject to GST so as to entitle them to the input tax credits.

The Agreement to notional GST you have seen in clause 17, and the second problem was dealt with, as his Honour explains at paragraph 47, by the terms of 177‑3 of the GST Act, which my friend took your Honours to, that effectively entitles a person who receives a supply from the Commonwealth, State or – well, from an entity that is not liable to GST but where there is an amount of notional liability included to treat it as if it was real GST. So, that is why, going back to clause 17 of the Agreement, it refers to:

Commonwealth, States, Territories and local government –

being:

entitled to register, will pay GST or make voluntary or notional payments . . . and will be entitled to claim input tax credits –

It just puts them into the system ‑ ‑ ‑

GORDON J: I think I put it to Ms Seiden, it avoids leakage and avoids unfairness.

MR DONAGHUE: Yes, both of those things. So, it is entirely understandable, in our submission, that at a political level the States and Commonwealth agreed to this notional GST arrangement, and equally understandable that in order to incentivise voluntary participation in it to prevent local councils from suffering detriment as a result of agreeing to paying notional GST that could not be imposed upon them, that an arrangement is put in place whereby they are granted money by the Commonwealth – financial assistance under section 96 – that offsets any loss that would otherwise occur from their payment of notional GST when they are not actually liable to it. That is what this regime does.

To treat it as an exaction of property is, in our submission, a complete mischaracterisation of what is occurring, because the States never had this money, and they never had a legal entitlement to this money. The money comes to them only to the extent that the Commonwealth government is prepared to offer in particular conditions and that the State is prepared to accept it on those conditions. It was never the councils’ in the first place. It cannot have been exacted from them.

GORDON J: Well, there are two layers, are there not? You went from States then to Local Government. The States never had the money and never had entitlement to it, but at a second level, nor did the local ‑ ‑ ‑

MR DONAGHUE: Nor did the Local Governments. Sorry, your Honour, I probably collapsed things together there. Neither of them ever had an entitlement. But insofar as the local council is saying – the plaintiff is saying, there has been an exaction of our property, they are equating a conditional grant to them to which they have no legal entitlement with the taking of their property, and that equation is erroneous, and it is that equation that is the complete foundation of their case.

STEWARD J: Can I ask a question? When the State makes a payment under 15(aa) where there has been no payment of notional GST, does that payment go into consolidated revenue or into the GST bucket?

MR DONAGHUE: Where the State makes the payment, your Honour?

STEWARD J: Yes.

MR DONAGHUE: So, under – if your Honours have section 15 there of the Act there are two payments being dealt with in this section, and I will come to this in a little more detail later, but basically payment number 1 is the payment referred to in the chapeau of the section, a “Payment of an amount to a State”, from the Commonwealth to a State. That payment is the payment made under section 9 of the Act and it goes into consolidated revenue; it goes into New South Wales consolidated revenue. So, does that answer your Honour’s question, or are you talking about the other payment?

STEWARD J: I am talking about the payment going the other way where there has been default.

MR DONAGHUE: When it goes back?

STEWARD J: Yes.

MR DONAGHUE: Yes, under 15(c), sorry, your Honour.

STEWARD J: Or 15(aa).

GORDON J: Will States withhold under (a) ‑ ‑ ‑

MR DONAGHUE: Yes, and pays it back.

STEWARD J: And pay it to the Commonwealth.

MR DONAGHUE: And pays it back.

STEWARD J: Does it go back to a particular fund or just consolidated revenue, or Commonwealth consolidated revenue.

MR DONAGHUE: I will check, your Honours, but I believe it goes back into Commonwealth consolidated revenue, but it has already been counted as part of the GST revenue formulation, and so has to be distributed to the States under – not under the Local Government Act, but under the Financial Arrangements Act. If we contrast the notional GST, and actually I probably do not need to take your Honours back to it, but your Honours have seen in the actual GST Imposition Acts, that section 5 expressly recognises the constraint the that 114 imposes, and so it, in its terms, says that:

(1) This Act does not impose a tax on property of any kind belonging to a State.

That property of the State having the same meaning as in 114. So, the GST scheme respects the constitutional constraint that we are alleged to have contravened, and, in effect, the plaintiff’s case has to be that even though in its terms the regime does not impose a tax on property belonging to the States, your Honours should nevertheless construe it as having done the opposite of what it said. Now that is possible, of course, but, in our submission, a large burden for our friends to take on and not one they can discharge by reference to the conditions on grants in a separate scheme.

As I have already foreshadowed, our case is that the critical underpinning of the provisions in question are – or the critical to understanding and properly characterising the provisions in questions is that they are conditions on section 96 grants. For that reason, I seek to take your Honours to two cases concerning the law governing section 96 grants to lay the foundations for my proposition that a section 96 grant just does not intersect with section 114.

The two cases are the two Uniform Tax Cases, the first of which my friend took your Honours to, but not the passages that I would seek to emphasise. The First Uniform Tax Cases is South Australia v Commonwealth, it is volume 11, tab 73[1942] HCA 14; , (1942) 65 CLR 373, and when your Honours have that, if you could turn to page 416. Before coming to the detail of what you see there, your Honours will recall that this is a case that concerns the wartime arrangements where the Commonwealth, during the course of the war, sought to very dramatically increase the federal tax take by a series of four related Acts, one of which imposed a Commonwealth income tax, and another of which provided that the Commonwealth would pay a scheduled amount as financial assistance to States on the condition that the States refrained from imposing their own income tax.

It is that aspect of the case – there were challenges of a variety of kinds, but it is the challenge to the conditional grant of financial assistance on condition that the States not impose income tax that is relevant to this case. And your Honours, on page 416 near the top at about point 2, in the first full paragraph see:

The principal provision of the Grants Act is sec. 4, which is in the following terms: “In every financial year during which this Act is in operation in respect of which the Treasurer is satisfied that a State has not imposed a tax upon incomes, there shall be payable by way of financial assistance to that State the amount set forth in the Schedule –

So that language has some obvious echoes in 15(c). Your Honours will note the equivalence. So, if the State imposes income tax, the condition is not met, and it gets nothing by way of the Commonwealth grant. This provision was challenged on Melbourne Port‑type grounds and Chief Justice Latham analyses the effect of section 4 on the balance of 416 and over the page. So halfway down 416 – his Honour is speaking here of making various preliminary comments on the Act, and he says:

(a) The Act does not purport to repeal State income‑tax legislation –

Which, of course, the Commonwealth could not do:

(b) The Grants Act does not require, in order that a State should qualify for a grant, that the State—or rather the State Parliament—should abdicate, or purport to abdicate, its power to impose taxes –

And right at the bottom of that page:

Notwithstanding the Grants Act a State Parliament could at any time impose an income tax. The State would then not benefit from a grant under the Act.

So, the State retained a choice. It could impose its own tax if it wanted to, but, if it made that choice, it would not benefit under the Act. Over the page at the top of the page:

(d) The Grants Act offers an inducement to the State Parliaments not to exercise a power the continued existence of which is recognized—the power to impose income tax. The States may or may not yield to this inducement, but there is no legal compulsion to yield.

Then at the bottom of that page in the last full paragraph:

This identification of a very attractive inducement with legal compulsion is not convincing. Action may be brought about by temptation—by offering a reward—or by compulsion. But temptation is not compulsion.

That I think is the passage your Honour Justice Gordon read to my friend. Justice Latham goes on to analyse a number of the authorities, and I will pass over all of that. At the bottom of page 428, his Honour makes the point in the last few lines on that page:

But it will not be easy to find a case where it can properly be held that an appropriation Act making grants to States is invalid because it involves an infringement of the provision that Acts with respect to taxation shall not discriminate –

His Honour’s emphasis on appropriation Acts and Acts with respect to taxation is, we submit, highlighting the point that I am going to develop, that there is just a real tension between characterising something as a voluntary grant of financial assistance on the one hand, and as a compulsory exaction on the other.

If your Honours could turn then on to page 455, which is in Justice McTiernan’s judgment – I should have said Justice Rich agreed with Chief Justice Latham. Justice McTiernan to relevantly the same effect – in the middle of page 455, perhaps at about point 5 or point 6 says:

It is a misunderstanding of the provisions of the Act to say that it requires the States to cease imposing income tax under penalty of forfeiting the amounts set against their names –

In other words, it is a misunderstanding to say, well, this Act would give them a grant if they did something, and the Act is penalising them if they do not do it.

GORDON J: What about the next sentence, the next clause:

it is also a misunderstanding of the Act to say that the grant is offered upon condition that the States agree not to impose income tax.

MR DONOGHUE: Yes. The point his Honour is making, I think – if one reads further, a few lines further down:

It has left the States free to decide whether they should impose an additional burden of taxation in any year.

So, it has not purported to give up that power. It is free to exercise it at any time. It is just that its choices have consequences. And here they have major consequences because it loses – it says:

The payment is in truth and in fact made to relieve a disability arising from the incorporation of the State in the Commonwealth. The money is paid to reimburse the State for the loss of revenue which it has not been expedient to collect because of the circumstances flowing from the operation of valid Commonwealth law.

Well, we submit that you do not need to change that much to make it applicable to this case. The money is “to reimburse the State” and, through them, their local councils for payments of notional GST that it is expedient that they make for the proper operation of the GST input tax credit system and for giving effect to the national competition principles. But it does not force them to. It just seeks to encourage them to act in that desirable way. To much the same effect, Justice Williams on 463, near the bottom of the page, his Honour says:

There is no illegal interference with the sovereignty of the States, because the matter of levying or not levying their own income tax is left entirely to the discretion of their own Parliaments.

And then a few lines further down:

the Commonwealth offering the State assistance under sec. 96 to offset the loss of revenue it would suffer by –

acting in the way, encouraged in the same way as here, the grant is to offset participation in the notional GST system. Fifteen years after this case was decided in the context of the war, an attempt was made to overrule it, in the Second Uniform Tax Case which is volume 11, tab 80, Victoria v The Commonwealth [1957] HCA 54; (1957) 99 CLR 575. If your Honours go to page 602, Chief Justice Dixon with whom Justices Kitto and Taylor agreed – Justice Kitto agreed with the whole of the judgment and Justice Taylor relevantly did at 659, you see at about point 2 or point 3 on the page:

The question whether s. 96 suffices to support the enactment of the States Grants (Tax Reimbursement) Act 1946-48 is the first matter to decide.

And his Honour then, in the middle of the page, summarises the obligation which is much the same as the obligation that you previously saw in the previous case. Going over the page to 603, you can see at about point 3 on the page, there is a quote that this Act, without going into the details of it, made provision for payments in advance to be made by the Commonwealth to the States. But there was provision to recoup from them, if the State breached the condition. And you can see, at about point 3, the second subsection of section 11 is quoted:

(2) Any such advance shall be made on the condition that the State shall not impose a tax upon incomes in respect of that year, and if, after the close of that year, the Treasurer gives notice in writing to the Treasurer of the State that he is not satisfied that the State has not imposed such a tax, the advances shall be repayable and shall be a debt due by the State to the Commonwealth.

So, again, you can see the clear echo of 15(c). And part of the argument was whether that obligation to repay contravened either Melbourne Corporation or Homebush Flour Mills, upon which our friends of course also rely. Chief Justice Dixon, with the agreement of Justices Kitto and Taylor, said, no. His analysis of the breadth of section 96 starts on 605 of the report, about point 2:

the power to grant financial assistance to any State upon such terms and conditions as the Parliament thinks fit is susceptible of a very wide construction in which few if any restrictions can be implied.

The essential reason for that is set out at the end of that paragraph:

in s. 96 there is nothing coercive. It is but a power to make grants of money and to impose conditions on the grant, there being no power of course to compel acceptance of the grant and with it the accompanying term or condition.

We of course emphasise that as the very clear acceptance of the necessarily voluntary nature of a section 96 grant. His Honour makes the same point again about five pages later, on 610, at the top of the page:

there is nothing which would enable the making of a coercive law. By coercive law is meant one that demands obedience.

Then, in the middle of that page:

The grant of money may supply the inducement to comply with the term or condition. But beyond that no law passed under s. 96 can go.

About point 8 on the same page, his Honour says:

It seems a short step from this to saying that the condition may stipulate for the exercise or non‑exercise of the State’s general legislative power in some particular or specific respect.

It is accepted, in our submission, under section 96, that the Commonwealth can make it a condition of a grant that a State exercise its own legislative powers or, as had happened here, that it not exercise its own legislative powers. Here the conditions that your Honours are now addressing are much less than that. They do not involve any commitment to legislate or not legislate. But the power is of a width that would embrace conditions of that kind. Very briefly, to cover off the other judgments, at the bottom of 636, in Justice Williams’ judgment, his Honour says – the last few lines – the very last line:

It does not compel the States to do anything. It is simply a law authorising grants to be made to the States which they may accept or refuse at their own option. It is for the States to decide whether or not to levy an income tax. If a State decides to do so it will not qualify for the grant. If it decides not to do so it will qualify.

So, it is not the case – as aspects of our friend’s submissions this morning suggested – that something is involuntary if a choice has a consequence that is bad or that it might regard as an undesirable consequence. Here, the choice that the State had was not to receive a very large grant of financial assistance from the Commonwealth, but it was nevertheless accepted that it had that choice.

Justice Webb – I will not take your Honours to it, but at the bottom of 642 and 643 is, in my submission, to relevantly the same effect, and Justice Fullagar on page 656 also accepts the width of section 96 and says, in effect, no limit on the conditions can be found provided that the State has a power to comply with them.

I took your Honours through that somewhat‑laborious process to try to make three points as to why, in our submission, your Honours should conclude that section 96 grants just do not intersect with section 114. The first is that, in our submission, they deal with quite different aspects of the relationship between the same two body politics: the Commonwealth and the States. Section 96 is dealing with voluntary payments to States out of the Commonwealth CRF. Section 114 is dealing with compulsory exactions from States into the Commonwealth CRF. They are mutually exclusive topics.

Second – and I have already probably made this point sufficiently – a law enacted pursuant to section 96 cannot be a compulsory exaction because, if it was, it would not be supported by section 96. Section 96 must be voluntary. So, if the law is validly supported by section 96 so as to enable the Commonwealth to grant financial assistance to the States, in our submission, it follows as a matter of logic that it cannot be an exaction.

Third, and perhaps most controversially – although your Honours, in our submission, do not ultimately need to decide this point – but even if the Commonwealth law – and I pause to emphasise the Commonwealth law here does not do this – but even if the Commonwealth law made it a condition of a grant under section 96 that the State imposed an obligation
on its own instrumentalities, on its own local councils, to make a payment of notional GST – in our submission, that still would not intersect with section 114. I say that for two reasons.

First, in Queanbeyan City Council v ACTEW, which I will not take your Honours to – it is [2011] HCA 40; (2011) 244 CLR 530 – at paragraph 20, six Justices, with Justice Heydon in agreement, in effect said that where a Commonwealth is imposing a charge upon itself – one of its own instrumentalities – that will not be a tax. So that unless Queanbeyan could be distinguished in some way – because it is just internal financial agreements within the State. In the same way that the State’s property is treated under – that the local council’s property is treated for 114 purposes as property of a State, we submit that one would expect it to fall within the Queanbeyan City Council principle.

So, if that be right, then even if New South Wales had not left the Councils with an option – if it had said in section 5, rather than that you may pay notional GST, you shall pay notional GST – that would not be a tax, on Queanbeyan City Council v Actew. But – and this is a separate and independent strand to this argument – even if that be wrong and Queanbeyan could be distinguished on some basis, a State Act that required a State instrumentality to pay notional GST, if it was a tax, would be a State tax. It would not be a Commonwealth tax.

EDELMAN J: It is not this case, but it may be that those propositions are too wide. One could imagine a situation where a term and condition was that the State levied a tax on behalf of the Commonwealth. That might be an extreme case, but it shows they are not hermetically sealed provisions.

MR DONAGHUE: One might be able to turn to – and that, I think, is what Chief Justice Latham was dealing with, actually, in one of the passages your Honours were shown. A possible misconceived Parliament might do something very extreme.

But, leaving aside the extreme case example, your Honours have seen the passage in the Second Uniform Tax Case where it was accepted that a condition could be that a State exercise or not exercise its powers. The not exercise power there was the power to tax. In my submission, equally, had it gone the other way and had said, well, if you impose a tax then we will give you this grant, prima facie that will only happen if the State in the exercise of its own sovereignty says, well, I will choose to exercise my power to tax. And, except in the possibility of an extreme case, 114 depends on a Commonwealth tax. So, unless your Honours were prepared to look at an exercise of legislative power by a State and say that exercise of legislative power has resulted in a Commonwealth tax, there will not be a contravention of 114.

Now, your Honours are quite right you do not need to get there in this case, the other arguments I have already advanced should be enough. But, in our submission, the three points I have just made, either individually or separately, would be enough to support the conclusion that our friend’s challenge based on 114 can not succeed, provided your Honours accept that what you see in sections 9, 11, and 15 of the Local Government (Financial Assistance) Act are grants under section 96, which they obviously are.

Our friends seek to get around that kind of argument by an analogy with the cases concerning 51(xxxi) and 116 in their interaction with a section 96 grant, and I do not propose to linger here long but I should say something brief about both of those. To deal with the suggested analogy with section 51(xxxi), could I ask your Honours to go to ICM, which is volume 7, tab 44[2009] HCA 51; , (2009) 240 CLR 140. The basic – well, no, I will take your Honours to two passages and then I will make my submissions about it.

The first passage is paragraph 42 in the joint reasons of Chief Justice French and Justices Gummow and Crennan, with whom Justice Haydon agreed at paragraph 174. In paragraph 42 of those reasons, you will see their Honours make the point that:

it is settled since Trade Practices Commission v Tooth & Co Ltd that s 51(xxxi) is not confined to the acquisition of property by the Commonwealth or its instrumentalities.

I do not need take your Honours to it, but at paragraph 133 in the joint reasons of Justice Hayne, Kiefel, and Bell, your Honours say the same thing. So, you can have a law with respect to the acquisition of property even though it is not the Commonwealth that is acquiring the property. Why does that matter? Well, it matters because section 51(xxxi) abstracts from other Commonwealth heads of power, including the head of power in section 96.

So, if a section 96 grant requires a State to compulsorily acquire property other than on just terms then the subject matter of that law, the law that is doing the granting, is a law that is, speaking of, requiring someone to acquire property, other than just terms. And once the law is a law that requires someone to acquire property on other than just terms it can be characterised as a law with respect to the acquisition of property under 51(xxxi) because it does not matter who is doing the acquiring. Section 51(xxxi) does not only bite upon Commonwealth laws acquiring, unlike section 114, which does bite on Commonwealth taxes. So, in our submission, all that ICM decides – and you see this decision at paragraph 46:

The result is that the legislative power of the Commonwealth conferred by ss 96 and 51(xxvi) does not extend to the grant of financial assistance to a State on terms and conditions requiring the State to acquire property on other than just terms.

The essential reason for that is because if the Commonwealth law granting financial assistance on those – a Commonwealth law grants financial assistance on those terms, that law would be properly characterised as a law with respect to the acquisition of property and so 51(xxxi) abstracts from section 96 and the law is invalid. There is no parity of reasoning across to 114 because 114 is confined in its relevant operation to Commonwealth taxes.

The same kind of analysis applies to section 116. I do not think I need to take your Honours to the DOGS Case but I think we have given your Honours the – we have given your Honours the pinpoint, it is at the end of paragraph 7 of our oral outline. But there the basic point is that this Court’s jurisprudence in relation to 116 establishes that what matters is the purpose of the Commonwealth law.

So, 116 bites on a law that is for establishing religion, imposing of religious observances or prohibiting the free exercise, and that word “for” was held in Kruger by Chief Justice Brennan at the bottom of page 40, by Justice Toohey at 86, by Justice Gummow with Justice Dawson agreeing at the bottom of 160 and by Justice Gaudron at 132. All of their Honours held that “for” directs attention to the purpose or object of the law, so that if a Commonwealth law granting financial assistance has the prescribed purpose, it will be a law for something that 116 prevents, and so again the section 96 law would contravene – the section 96 grant would contravene the section, not because there can be some equation of things done by the Commonwealth and things done by the State, but because the Commonwealth itself would be pursuing a purpose the Commonwealth is prohibited from pursuing.

Again, in our submission – and I put that maybe a little faster than I should have – but there is no analogy because there is no purposive element to 114, 114 just says the Commonwealth taxes cannot be applied to State property, so it does not – the same breadth that is accorded to 116 that allows it to intersect with section 96 has no analogy.

Your Honours, that is what I wanted to say about the absence of interaction between 96 and 114, and if your Honours are with us that far then, in our submission, we win, subject to your Honours accepting that the laws in question are section 96 grants, and that is the point that I now just seek to cover off.

As I said, I am not going to take your Honours back through most of the legislative scheme, but can you go back to the Local Government (Financial Assistance) Act, volume 1, tab 5. I will not take your Honours – you have seen the objects in section 3, you do not need to go back there, you have seen the national principles in section 6. Could you just go back briefly to section 9. So, section 9 confers, in this Commonwealth Act, an entitlement on the States:

each State is entitled to the payment . . . by way of financial assistance for local government purposes –

It is, in our submission, in its terms, section 9 intersects with the language of section 96, and indeed, I should perhaps have noted, that in the objects – section 3(2), the objects of the Act say:

The Parliament wishes to provide financial assistance to the States for the purposes of improving:

(a) the financial capacity of local governing bodies –

So, there can, in our submission, be no doubt that that is what is happening here. So, section 9 involves the Commonwealth giving financial assistance to the States subject to this section and to section 11. Those payments, under section 9(1), when they are paid to the State, attract the operation of the Local Government Act 1993 (NSW). I will not take your Honours to it, but you have it in volume 3, tab 19. And sections 619 and 620 make it clear that those grants are deposited into the State Treasury Fund from which the Minister may allocate to local councils. So, they go into the State CRF.

Your Honours will also see in 9(4) that the scheme is, so far as practicable, that the amounts are paid to the States “in equal quarterly instalments”. And it is those payments under section 9 that are subject to the conditions in section 15. But the State only has an entitlement to them if it also meets section 11, because of the opening words of 9(1) say:

Subject to this section and to section 11 –

So, our friends said, and I do not think a great deal turns on this, but they said once you have an entitlement under section 9, section 11 governs the distribution. That is not quite right, you need to satisfy section 11, which means, looking at 11(2):

A State is not entitled to payment . . . under section 9 . . . unless –

It ticks all of those conditions. Which, in very summary form, require the State to have a process by which a Grants Commission makes recommendations about the allocation of amounts as between different bodies in accordance with the national principles agreed under section 6 of this Act. And once the Grants Commission has made a recommendation, the State has to follow it, it is required to follow it. But as long as the State has that process and follows the recommendations as to the allocation between councils, it has the section 9 entitlement, subject to the section 15 conditions.

So, if your Honours then go to section 15, and I foreshadowed some of this in answering Justice Steward’s question earlier, but we submit it is important to distinguish between the two payments in play in this section, this being a section that is all about the obligations of the State vis‑a‑vis the Commonwealth. It does not impose any obligation on Local Governments. It is all about conditions that the State has to accept if it is to retain financial assistance payments.

So, the payment, which we start with, is the section 9 payment, relevantly. You can see from (a)(i), (ii), (iii) and (iv) that there are a few different kinds of payments that could be being made under the Act that attracts these conditions. So, (a)(iii), for example, picks up the section 12 payments that your Honour Justice Gordon was asking about, 12 and section 14.

But insofar as we are concerned with section 9 payments – which is the focus of this case – we have a payment from the Commonwealth to the State, which is expressly made subject to three conditions, relevantly: (a), (a)(i), (aa) and (c). Condition (a) is a condition that is subject to another condition – so the condition in (a) is subject to (aa) – and the condition in (a) is that the State, New South Wales:

if the payment is made under section 9 –

so, the payment from the Commonwealth to the State, then the State must:

without undue delay –

make an “unconditional” payment – that is the second payment – from the State to the Local Government body:

in accordance with the allocation determined . . . in section 11 –

that is the Grants Commission recommendation. That is not an entitlement for the Council to receive the money, that is an obligation on New South Wales to distribute the money in that particular way. If it does not do it, then the consequence is the consequence under (c), the money has to be paid back. It is not that the Council gets it – could sue for it – because it is an arrangement between the Commonwealth and the States – condition on the grant.

But, subject to (aa), the State has to pay it on in accordance with the agreed formula under section 11. But that obligation – that condition – which is the only way that the Council ends up getting the money – in its terms recognises the qualification about which the complaint is made – the (aa) qualification.

If your Honours then go to (aa), the condition to which the payment on to the Council – that is, the second payment – is made is that if the payment – so that payment there is, in our submission, the unconditional payment under (a)(i) – it is the second of the two payments – if the payment from the State to the Local Government:

is one from which, according to an agreement between the Commonwealth and the State –

that is the political Agreement your Honours have already seen – according to the Agreement:

the State is to withhold an amount that represents voluntary GST payments that should have, but have not, been paid –

now the grammar of this is a little complex but, in our submission, this “should have, but have not, been paid” is a reference to the amounts that according to the Agreement “should have, but have not, been paid” – that is clause 17 – the payment that clause 18 refers to as a breach. If, under the political Agreement between the Commonwealth and the States, an amount should have but has not been paid by way of what the Act calls voluntary GST, then the condition on the grant is that the State has to withhold and pay back to the Commonwealth.

So, the Local Government, not having made the notional payment which would have disadvantaged it, it does not get the offset. Instead of it getting the offset, the money goes back to the Commonwealth, and it is then, as I said to your Honour Justice Steward, included within the GST calculations, so it then gets paid out, not necessarily back to New South Wales. It gets paid out in accordance with the general distribution formula, so there is no one‑to‑one correlations here. But the offset not being needed because the local council has not played ball, has not agreed to subject itself to the system, the money goes back and then it gets divided up as part of the GST revenue pool.

But the “should have, but have not, been”, in our submission, cannot reasonably be read as our friends seek to read it, as the imposition of an obligation to pay, because in its terms it is referrable to the Agreement between the Commonwealth and the States and it says no more than that this grant, to which the local council could never have been entitled other than in accordance with 15 – other than as a consequence of the State acting under 15(a)(i), which is expressly subject to (aa) – that sentence has got too complicated, so let me start it again. Our friend’s case must depend ultimately on the idea that they can sever a condition that is an integral part of this whole scheme and take the benefit of (a)(i) without the qualification that is built into it. That is their argument in the end, and it is an argument that, in our submission, completely fails to recognise that, far from taking anything that they ever had, this regime deprives them of a benefit that they have chosen not to take because they have chosen to keep the notional GST that the scheme seeks to persuade them to pay.

As to 15(c), your Honours, I have already flagged the parallel with the condition that was at issue in the two Uniform Tax Cases, but this really recognises the possibility of disputes of the kind that your Honour Justice Steward raised earlier, so that if some reason there has not been a withholding, there is a mechanism that allows the Commonwealth Minister to say, I am not satisfied that you have complied with the conditions, at which point the statutory condition is a requirement to repay the Commonwealth.

Our friend’s notion that this could work – if I understood the submission correctly, it was that if the money is being paid out, then it cannot be repaid – that seems to involve some notion of earmarking or tracing into the CRF, because that the payments have to be – are always made into the CRF and, in our submission, all that it means is that the equivalent amount must be paid out of the CRF back to the Commonwealth.

There are temporal complexities to this regime, bearing in mind that the payments have to be made in – as far as practical and equal – quarterly instalments, because one could never know that a local council should have, but has not paid voluntary GST until after the fact. In fact, the reporting regime to the States is an annual reporting regime, not a quarterly one.

So, it may well be that payments will have been by the State believing that it is required to make them as unconditional payments under 15(a)(i), and it then finds out at the end of the annual reporting period that the local council has not been paying notional GST, and at that point, in our submission, (aa) entitles the State – indeed, requires the State – to withhold from the next payment that is to be made the amount in question. That is how we submit it should be construed.

GORDON J: So, we have had a discussion – I think Justice Steward and I both had a discussion about it being either revenue‑neutral or actually providing a benefit to the local council at a pragmatic level.

MR DONAGHUE: We entirely embrace the observations that fell from your Honours in that respect. It seems to us that, if anything, the existence of a choice is demonstrated by the fact that the Council can keep the money in its pocket and get the time value of it, as your Honour Justice Steward put. So, it seems to have a choice that where payment of the notional GST, if anything, is to its disadvantage, whereas it would need the detriment to run the other way if it was to seek to get a practical compulsion out of it. In our submission ‑ ‑ ‑

GORDON J: The only reason why that might be important is – well, might not be the only reason – but because of connection to the argument relying on Homebush and the detriment question and it being adverse consequences, because here, on one view of the facts, they are not adverse, they are actually beneficial.

MR DONAGHUE: I agree, and that was when I was going to come to it, your Honour, to make that very point. But I entirely agree, your Honour. That is all I wanted to say about the Financial Agreements Act. As to the Intergovernmental Agreement Implementation (GST) Act, your Honours have been taken to it by our friends, you do not need to go back to it. The only point I would emphasise is that section 5 of that Act in its terms is empowering, not obligation‑imposing:

A State entity may pay to the Commissioner of Taxation –

Our friends might have a better argument if was “must pay”. For the reasons I have already addressed in my submission, they would still fail at that point, because it is still a condition on a grant. Not a Commonwealth tax, but here we have a permissive regime.

The third Act that was relevant is the Federal Financial Relations Act 2009, which is the Act governing the GST grants – and I do not need to add anything to what my friend said about that this morning and what we have said in writing about it.

The fourth Act was the GST Act itself, and their – the main point is the 177(3) point about integrating the voluntary GST into the scheme. It is sufficiently addressed in the Landcom passage I have already taken your Honours to, so I do not need to go back to it. The other point to note there is that, as your Honour Justice Steward elicited from our friends, there is no claim in this case that the fact of the inclusion of the notional GST which then results in the binding assessment is the tax.

STEWARD J: Well, there will certainly be a liability to pay ‑ ‑ ‑

MR DONAGHUE: Yes, if they voluntarily include it.

STEWARD J: Well, that, and also Dymond’s Case, which says that all of that machinery provision is not imposition.

MR DONAGHUE: Yes, and without – actually, Mr Hill will not end up developing it in light of what has fallen from your Honours, but our basic point is that under the statutory provisions of the Tax Act, as your Honour has put to my friend, it would be possible to recover the amount under that statutory regime. Our point was no more than that that statutory regime displaces the common law that would otherwise have applied. There is nothing more – well, there is some detail to it, but that was the ‑ ‑ ‑

STEWARD J: I think, from memory, that it means you get less interest.

MR DONAGHUE: Yes. In fact, we say, your Honour, that the capacity to recover there probably does not actually depend upon notional GST being invalid, it is just that it is not actually tax, so that it might be that they would not need to clear the hurdle of establishing invalidity because they would just be getting back something that they voluntarily chose to pay.

Your Honours, I think probably on the way through I have said almost all that I need to say about why – this is in our submissions now at paragraph 12 of the oral outline – notional GST is not a compulsory exaction enforceable by law really hitting the headlines. First, 15(aa) and 15(c) create no liability on the part of the plaintiff. Second, the “should have, but have not, been paid” words do not suggest either explicitly or implicitly that the plaintiff is under a legal obligation to pay. The words:

according to an agreement . . . should have . . . been paid –

directs attention, as I have already said, back to the political Agreement, does not create legal obligations. The case I mentioned was South Australia v Commonwealth [1962] HCA 10; (1962) 108 CLR 130 at 141. You do not need to go there, it is volume 11, tab 75.

In fact, in 15(aa) what you see is a provision that expressly contemplates non‑payment. So, rather than there being a legal obligation to pay, this provision only bites when the local council has chosen not to pay, so it is difficult to read a provision that recognises that possible outcome as denying the possibility of that outcome.

Third – and really picking up on the point our friends have developed, mainly in oral argument, as to the possible scenario where a tax is imposed on one person and collected from someone else – in our submission, the difficulty with the analogy that is being drawn with cases like Air Caledonie and Deputy Commissioner of Taxation v Woodhams is that in those cases, there is an express imposition of liability on one party – say, the passenger on the airline – and then an express imposition of a collection obligation on someone else – say, the airline. This case is missing limb one. There is no imposition of the obligation on the Council, and so the analogy falls.

At one point, there is an argument by our friends that there is a compulsory exaction from the State. That, we submit, just collides with the reasoning in the First Uniform and Second Uniform Tax Cases, in the sense that if one analyses this at the level of the State, the State can just choose not to accept the grant. The existence of that choice denies the proposition that there is a compulsory exaction from them.

I think I have said enough about the other points that I sought to raise there. As to Homebush, which is the practical compulsion limb of the case, our friends have now accepted that their case is far removed factually from Homebush. There was an acceptance, in answer to a question from your Honour Justice Stewart, that there is no dire consequence here. The only consequence that I ultimately was able to detect was what your Honour Justice Gordon called the “timing consequence”. And that is a consequence that is suffered if the local council chooses to pay, not a consequence that is suffered if they do not. So, it cannot be a practical compulsion to pay that an adverse timing consequence, such that it is, results from the choice to pay. That would – if it did anything – seem to incentivise the State not to participate in the system.

The true position, in our submission, has been put by a number of your Honours to our friends, that this scheme, on its face, is revenue‑neutral. You either pay the notional GST and get that amount back again, or you do not pay it and you get to keep it. There is no need to get involved in inferences about pricing decisions to see that correlation. It appears on the face of the Act.

If our friends wanted to establish a case that what appears on the face of the Act involves a practical compulsion in relation to the one car, then they needed facts that would have made that case good. Coming back after lunch, all we really heard was that they did not get to keep the GST because they chose to pay it. But, if they had chosen not to pay it, they would have kept that $3,500 – or whatever the exact figure was – and true, at some point down the line, an equivalent $3,500 would have been withheld from them, but that is a long way short of establishing that they had no choice but to include notional GST in their return.

The circuitous device case still seems to be alive in the sense that it has not been abandoned but, as the arguments developed, we have heard nothing that would suggest that if 15(aa) and (c) do not impose a tax, somehow the scheme as a whole does. The other provisions that are captured in the list of provisions in question (2) include the provisions about the payment of GST revenue from the States.

They have, we submit, nothing to do with the question of whether or not conditions under section 15 of the Local Government Act are or are not a tax. So, in our submission, all your Honours have to decide – all that you have heard – the only argument that you have heard could attack the Local Government Act and none of the other provisions.

Where that leaves us in terms of relief or the answers to the questions, I think our friends accept that there was no need to answer question (1). The only complexity that I would perhaps draw your Honours’ attention to is that question (1) identifies the amending Act in 2000 – items 16, 17 and 18 of the amending Act. Those items included section 15(aa), but they also amended section 15(a)(i) and 15(c) so as to make them subject to 15(aa).

If 15(aa) imposes a tax and is invalid for that reason, then we submit that the most and satisfactory relief is to invalidate the amending Act. You should not, in our submission, invalidate, for example, the whole of section 15(c), which is what question (2) would invite you to do, because much of 15(c) was already there and would be entitled to continue to operate quite irrespective of the fate of the amending Act.

So, in the event that your Honours are against us, whether you answered question (1) – if you thought that there was a tax imposed here, you could answer question (1), invalidate the amending Act and then not answer question (2). That would get you to the right answer. If you do not answer question (1) and you answer question (2), in my submission, it is important not to invalidate anymore than what was introduced by the amending Act, which is consistent, as your Honours would know, with the approach the Court took in Air Caledonie where it was the amending Act that was invalidated because that Act had produced an end result which was non‑compliant with the scheme of section 55. So, what you do is you invalidate the Act that creates the non‑compliance with section 55, and the same would be true – well, that we need to deal with both the 55 and 114 case. But, in both cases, our answer is that there is no tax.

Unless your Honours have any questions, those are our submissions.

KIEFEL CJ: Yes, thank you, Mr Solicitor. Solicitor General for New South Wales.

MR SEXTON: If the Court pleases. We were not scheduled to be on until deep into tomorrow. We are just handing up the oral outlines now, your Honour. Your Honours have those?

KIEFEL CJ: We were just receiving them, Mr Solicitor.

MR SEXTON: Yes. If the Court pleases. Your Honours, we are largely content to adopt the submissions of the Commonwealth, and we will just add some additional comments on a small number of issues, if I may. As the Commonwealth has noted, the only issue that is necessary for the Court to determine is whether the various provisions impugned by the plaintiff impose a tax within the established authorities of any kind on the plaintiff.

EDELMAN J: Is that by way of invoking the so‑called prudential approach of this Court to deal with the issue of characterisation and interpretation of legalisation before one gets to questions such as the relationship between constitutional provisions?

MR SEXTON: Well, your Honour, it seems to us that there is just the one question, in a sense, in this case, whether it is framed as constitutional issue or not.

EDELMAN J: Well, in other words, if there is not a tax, one does not need to get to the question of what the relationship is between section 96 and 114.

MR SEXTON: I think that is right, your Honour, yes. We will say something about that relationship, or perhaps more generally about section 96, but that is right.

The plaintiffs refer to the notion of forced benevolence but that, we would say, is only another way of framing the question of whether there is a compulsory exaction and so a tax. Chief Justice Latham noted in Homebush – your Honours, I think, have the citations in the outline – but at 400 in the report, he said:

When such transactions amount to the exaction of money by a government in obedience to what is really a compulsive demand, the money paid is paid as a tax.

Similarly, for there to be a circuitous device with respect to section 114, there still must be an imposition of tax on the property of the plaintiff. Fundamentally, we would say, there is no compulsory exaction of money from the plaintiff in this instance.

The conditions in section 15(aa) and section 15(c) do not impose any obligation on the plaintiff. They only purport to deal with States who accept and receive grants under the Acts. Even assuming that the State acts on the condition stipulated in 15(aa), the situation is that the plaintiff has not paid any notional GST to the Commonwealth, or to the State, so that there has been no exaction. The money that the State would withhold and pay to the Commonwealth would be from the Commonwealth’s grant to the State of financial assistance for Local Government purposes from the consolidated revenue found in accordance with the appropriations made under section 19 of the legislation.

The plaintiff’s argument that it is compelled to pay notional GST appears to be based on the proposition that it is somehow entitled to a grant of financial assistance from the funds granted to the State under section 9 of the Act, but this provision does not confer any entitlement on the plaintiff, only on the State. The State is not obliged to accept these funds and, even if it does accept them, it is not obliged by reason of section 15(aa) to make a payment to a Local Government body that has not paid notional GST.

At some points, the plaintiffs raise the spectre of detrimental consequences, I think, to use their words – paragraphs 46 and 47 of our written submissions – but the plaintiff has a real choice whether or not to pay the notional GST. It can choose to pay and receive the total amount of the allocation of financial grants; it can choose not to pay and the total amount of the allocation will be reduced by corresponding amount. We would say the plaintiff’s net financial position would be identical.

As to the threat of adverse action, non‑payment of notional GST does not contravene any New South Wales law or regulation. Indeed, the Intergovernmental Agreement Implementation (GST) Act confers a discretionary power on the plaintiff to pay notional GST. Section 5 of that Act provides that:

A State entity –

like the plaintiff:

may pay . . . amounts that would have been payable for GST if:

(a) the imposition of that GST were not prevented by section 114 of the Commonwealth Constitution –

In accordance with section 9 of the New South Wales Interpretation Act, the use of the word “may”:

indicates that the power may be exercised or not, at discretion.

There were circulars issued by the State there set out – or some of them – at special case book page 122 – I will not take your Honours to them – allowing a council to certify that it has paid notional GST in a financial year have no statutory force and are provided by way of guidance only, as evidenced from the Office of Local Government Improvement and Intervention Framework, page 210 in the special case book. The circulars are designated to be not mandatory, and they only “provide . . . guidance” and “technical assistance” and “encourage good practice”.

The provisions identified by the plaintiff in the New South Wales Local Government Act concerning actions that may be taken against Local Government bodies in certain circumstances – that is Annexure Q to the special case book at 295 – are directed to the competent performance of these bodies of their functions, and they hardly relate to the question of payment of notional GST.

I should say something about section 15(aa) and section 15(c) in the sense that it is not a necessary element of the defendant’s case – certainly not of our case – that the conditions imposed could not be the subject of legal remedy if not observed by the State in question. But we do raise the question of whether any legal remedy would be available in those circumstances.

The real starting point is to say that section 96 embodies a political and not a legal process. The Commonwealth can offer financial assistance, which the State does not have to accept. If it does accept, notwithstanding the terms and conditions attached, we would say there is a real question of whether they can be enforced or be the subject of legal redress, if they are not observed.

One might ask what form any legal redress would take. Specific performance would seem to be, perhaps, an unlikely remedy. Or the conditions of a repayment of the grant of funds – which is what is proposed here in the Commonwealth legislation. There may, of course, naturally be political penalties in the form of future grants not being made to the State in this or indeed, in other areas.

Your Honours already had reference to South Australia v Commonwealth (1962) 108 CLR130. That was not a case about section 96, of course, but about an agreement on rail standardisation between the Commonwealth and South Australia. The Agreement had been ratified in legislation in both polities, and South Australia argued that the Commonwealth was partly in breach of the Agreement. Justice McTiernan considered that a binding contract between the Commonwealth and the State could be entered into but, in this case, he said at page 149:

The promises on either side are of a political nature, and both parties would understand at the time the agreements were made, that this was the true nature of the promises.

The real nature of the Agreements is that they are political arrangements between South Australia and the Commonwealth for cooperation between them on projects of national importance. To similar effect, Justice Taylor at 149 and Justice Windeyer at 154. Chief Justice Dixon together with Justices Kitto, Menzies and Owen considered that whatever the binding nature of the Agreement, there had not been the breach contended for by South Australia.

Similar comments in John Cooke & Co Pty Ltd v Commonwealth [1922] HCA 60; (1922) 31 CLR 394 concerning an arrangement between the British Government and the Australian Government for the purchase by the British Government of the Australian wool clip, where it was said that this was an arrangement between governments, an arrangement:

of a political nature, not cognizable by Courts of law, creating no legal rights or duties and depending entirely for its performance upon the constitutional relationship between those Governments and their good faith towards each other –

My learned friend for the Commonwealth has taken your Honours to the Second Uniform Tax Case, although not perhaps on this precise point, where there the relevant grants legislation provided that if a State did not comply with the condition of not imposing income tax in a particular year the federal Treasurer could so notify the State and the provision said:

the advances shall be repayable and shall be a debt due by the State to the Commonwealth.

The only member of the Court to really comment on the status of the conditions, and then really not conclusively, was Justice Webb at 643 where he said that:

the Grants Act imposes no obligation on a State except the obligation to repay advances . . . if the situation the Act is designed to relieve against thereafter ceases to exist in the relevant year –

But then his Honour went on to refer to:

the erroneous opinion that a State Parliament can make the non‑exercise of its taxation powers the subject of bargaining and of a binding agreement and that for this purpose the State Parliament can bind its successors.

Justice Fullagar at 657 considered the provision was valid, but did not deal with the question of enforceability. There is some reference to this question in the DOGS Case (1981) 146 CLR 559. Justice Mason appeared to accept at 618 that the conditions attached to the grant place an obligation on the State to observe the conditions, but he did not discuss the question of enforceability. Similarly, Justice Wilson at 660 noted the significance of the necessity for the State:

then to enter into an agreement with the eventual recipient of a grant –

as the conditions required. So, there is, we would say, a real question which your Honours will not have to get to in this case, but it really illustrates, perhaps, also another aspect of why this is essentially a voluntary arrangement and why section 96, as my learned friend from the Commonwealth has said, does not involve any compulsory exaction – why it cannot be the subject of a tax.

GAGELER J: Mr Solicitor, in this respect the plaintiffs relied on but did not take us to Mallinson.

MR SEXTON: I am just about to mention Mallinson, your Honour.

GAGELER J: Good, thank you.

MR SEXTON: I was going to conclude by mentioning Mallinson. I think it was referred to in the plaintiff’s outline of argument at paragraph 3.3 where they suggested that the obligation in section 15(c) would be enforceable, presumably at some sort of suit by the Commonwealth in the courts. We would say that because of the way in which we characterise section 96, we would say that that – although there are no decided authorities on the question – we would say that that is not right.

Mallinson was a suit for award wages under the Commonwealth legislation, the then Conciliation and Arbitration Act. We would say there is just no analogy there with section 96 and with these kinds of provisions, so that it really does not, we would say, take the matter very far, if any distance at all, and we would say there is a real question over the enforceability of those – the legal enforceability as opposed to the political consequences that might follow from the non‑observance of the conditions.

I see the time. Unless the Court has anything else, those are our submissions, your Honours.

KIEFEL CJ: Thank you, Mr Solicitor. The Court adjourns until 10.00 am tomorrow.

AT 4.15 PM THE MATTER WAS ADJOURNED
UNTIL WEDNESDAY, 19 APRIL 2023