The Acquisition of Property Issue
94 This case proceeded on the assumption that the entitlements to draw water from the Lower Murray Groundwater Source under the Water Act 1912, previously held by the applicants, constituted "property" within the meaning of s 51(xxxi). It was further assumed that the Commonwealth legislation referred to is capable of constituting an "acquisition" of such property within the meaning of s 51(xxxi). Specifically, the case proceeded without reference to the proposition that there is no acquisition of property when what is involved is the "adjustment of the competing rights, claims or obligations of persons in a particular relationship or area of activity"; (see Australian Tape Manufacturers Association Ltd v Commonwealth (1993) 176 CLR 480 at 510; Nintendo Co Ltd v Centronics Systems Pty Ltd (1994) 181 CLR 134 at 161); nor when what is involved is an "extinguishment" rather than an "acquisition". (See eg Health Insurance Commission v Peverill (1994) 179 CLR 226.) Finally, there was no issue before this Court as to whether the particular formula for reduction in entitlements, together with the compensation payable, constituted "just terms".
95 Lloyd J held that the reasoning in Pye v Renshaw (1951) 84 CLR 58 was applicable and, accordingly, that the applicants' proceedings revealed no reasonable cause of action. His Honour also held that the High Court's reasons for reaching a different conclusion in P J Magennis Pty Ltd v Commonwealth (1949) 80 CLR 382 did not apply in the present case. In my opinion, his Honour was correct and the decision in Pye v Renshaw does determine the outcome of this case. More recently Emmett J has come to the same conclusion on a comparable legislative scheme in Spencer v Commonwealth [2008] FCA 1256.
96 I have set out at [40] above the distinction Lloyd J drew at [98]-[99] between the position in Magennis and that in Pye v Renshaw in their application to the present case. His Honour emphasised the fact that in Magennis the Commonwealth statute approved a particular agreement, which made express provision for the acquisition of land. That statute could, accordingly, be characterised as an act for the acquisition of property. On the other hand his Honour held that, as in Pye v Renshaw, there was not in the present case a law that could be characterised as a law with respect to the acquisition of property. In my opinion, his Honour was correct.
97 In Spencer Emmett J addressed the issue of reconciling Magennis and Pye v Renshaw. His Honour identified, in my opinion correctly, that the critical issue is the characterisation of a Commonwealth law in order to determine whether it can be said to be a law with respect to the acquisition of property.
98 His Honour went on to say:
"[118] A State can acquire land or other property, by resumption or otherwise, on any terms authorised by its Parliament, whether just or unjust. If a State Act provides for resumption of land on terms which are thought not to be just, that is of no consequence legally: it cannot affect in any way the validity of the State Act or of what is done under it (see Pye v Renshaw (1951) 84 CLR 58 at 79-80). Further, the Commonwealth may provide money to a State under s 96 in order that the State may resume land otherwise than on just terms (see Pye v Renshaw (1951) 84 CLR 58 at 83), presumably because such a law, not requiring an appropriation of property as a condition of a grant of financial assistance, is not a law with respect to the acquisition of property. However, there is no substance in the proposition that a law that is for giving financial assistance to a State or States under s 96 is, by that reason alone, therefore not a law with respect to the acquisition of property (see Magennis Pty Ltd (1949) 80 CLR 382 at 403). Further, it would appear to be ultra vires the legislative power of the Commonwealth to authorise a grant under s 96 pursuant to an agreement, or to authorise an agreement, that requires a State to use its law making powers to acquire property on unjust terms , because such legislation would be with respect to the acquisition of property (see Magennis Pty Ltd (1949) 80 CLR 382 at 399 and 402-403).
[119] There appears to be a distinction between:
- a grant made on the basis or an understanding that a State may use the grant to assist in the financing of acquisitions of property otherwise than on just terms , (which is, subject to other provisions of the Constitution , valid because it is not a law with respect to the acquisition of property otherwise than on just terms) and
- a grant made on the condition that a State acquire property on terms that are unjust (which is invalid because it is a law with respect to the acquisition of property otherwise than on just terms).
(See generally the decisions of the High Court of Australia in Magennis and Pye v Renshaw ).
[120] Accordingly, it may be arguable that an agreement between the Commonwealth and a State will be invalid if, as a condition of accepting a grant of financial assistance, the State agrees to acquire property otherwise than on just terms. Thus, an agreement between the Commonwealth and a State whereby the Commonwealth agrees to offer a money grant by way of financial assistance under s 96 in order to induce a State to exercise its powers to resume land on terms that are not just is arguably invalid.
[121] If a Commonwealth law authorises the making of grants under s 96 on the condition that there is an agreement with a State as to the terms of that financial assistance, the Commonwealth law would ordinarily be interpreted to require a valid agreement. If a Commonwealth law is silent as to whether the agreement may provide for the acquisition of property otherwise than on just terms, the Commonwealth law should be interpreted to authorise only the making of agreements that impose conditions on the granting of financial assistance that would not be constitutionally invalid under s 51 (xxxi) if they were imposed directly as a condition of a grant by a Commonwealth law made under s 96 (see Evans v State of New South Wales [2008] FCAFC 130).
[122] Thus, a purported agreement imposing a requirement on a State that it acquire property on unjust terms as a condition of the Commonwealth's providing financial assistance would be ultra vires the power to enter into agreements under such a Commonwealth law. For that reason, the issue of the Constitutional validity of such an agreement need not arise directly in such a case. Such a Commonwealth law would not be invalid by reason of s 51 (xxxi), because it would not authorise the making of unconstitutional agreements. If a Commonwealth law did expressly, or by necessary implication, authorise the making of unconstitutional agreements, that law would be invalid. However, none of that will lead to the law of a State being invalid, unless the operation of that State law is dependant upon the existence of a valid agreement with the Commonwealth (see Magennis's case)." [Emphasis in original.]
99 I agree with his Honour's analysis.
100 In the present proceedings, the applicants' contention that the NWC Act is invalid is the basis both for its case against the Commonwealth directly and for the contention that the Minister took into account irrelevant considerations when promulgating the 2006 Plan.
101 In each respect the first step is to inquire whether it is reasonably open to characterise the relevant Commonwealth act as a law with respect to the acquisition of property. (This was also the critical consideration in Spencer at [154], [158], [171]-[172].)
102 The Commonwealth statute upon which the applicants relied in submissions to this Court was the NWC Act, s 24 of which provides:
"24(1) The functions of the CEO are:
(a) to administer financial assistance, awarded by the Minister to particular projects relating to Australia's water resources, from:
(i) the Australian Water Fund Account; or
(ii) any other Commonwealth program referred to in subparagraph 7(1)(d)(ii); and
(b) to manage the day-to-day administration of the NWC.
(2) All acts and things done in the name of, or on behalf of, the NWC by the CEO are taken as having been done by the NWC."
103 Section 24(1) confers upon the Chief Executive Officer of the Commission the function of administering financial assistance for water resources projects. This legislation contains no reference to the acquisition of property or to the entry into agreements.
104 Section 24(1), upon which the applicants primarily relied, empowers the CEO to administer financial assistance as awarded by the Minister to particular projects. That occurred pursuant to the terms of the Funding Agreement, not pursuant to the Act. The fact that the CEO executed the Funding Agreement on behalf of the Commonwealth does not change the position.
105 In written submissions the applicant referred to recitals B and H in the Funding Agreement as "evidence" that the Agreement was authorised by the Act. However, recital B does no more than repeat s 23(1) which identifies the administration of financial assistance to be a function of the CEO. Recital H does no more than affirm Commonwealth support for the Project. In any event, the key issue is to characterise the law, and the content of such recitals does not assist in this regard.
106 The applicants also relied on s 24(2), which provides that the acts of the CEO are acts of the Commission. The relevant act, it appears, was the CEO's signature of the Funding Agreement. However, this Agreement was said to be executed by him on behalf of the Commonwealth. It does not appear to me that s 24(2) is the source of the authority to sign the Funding Agreement. Section 24(2) refers to acts done in the name of the Commission. The Funding Agreement, although signed by the CEO, does not make the Commission a party. The relevant party is identified as the Commonwealth "as represented by and acting through the Commission …".
107 In my opinion, the NWC Act is not a law of the Commonwealth which is capable of answering the description of a law with respect to the acquisition of property within s 51(xxxi).
108 As I have noted above, in this Court, the applicants did not make submissions with respect to the Financial Assistance Act, although it is pleaded. This Act authorised the Commonwealth to enter into agreements with States for the provision of financial assistance for natural resources projects and was, it appears, the legislative authority for the Funding Agreement. No doubt this point was not pressed because, on the authority of Pye v Renshaw, it could not be contended that the Financial Assistance Act was capable of being characterised as a law with respect to the acquisition of property.
109 Neither the NWC Act, nor the Financial Assistance Act, relevantly, authorises or requires the State to acquire property, let alone to do so on unjust terms. Whether or not the Funding Agreement is authorised by either statute (or can otherwise be supported as an exercise of the executive power of the Commonwealth) was not directly in issue in these proceedings. The applicants impermissibly sought to treat the provisions of the Funding Agreement, which arguably required the adoption of the 2006 Plan, as if they were contained in a law of the Commonwealth within s 51(xxxi). If those provisions had been in the statute, Magennis may have been applicable. They are not and it is not.
110 The applicants have been unable to identify any law of the Commonwealth within s 51(xxxi).
111 It may be that the difference between Magennis and Pye v Renshaw does not fully reflect contemporary jurisprudence with respect to the preference of substance over form, particularly in matters involving Constitutional guarantees. (See Clunies-Ross v Commonwealth (1984) 155 CLR 193 at 201-202; Telstra Corporation Ltd v Commonwealth [2008] HCA 7; (2008) 82 ALJR 521 at [43] and cf Attorney-General (Vic); Ex rel Black v Commonwealth (1981) 146 CLR 559.)
112 There are statements by individual judges of the High Court which suggest that a different approach should now be taken. (See eg Commonwealth v WMC Resources Ltd [1998] HCA 8; (1998) 194 CLR 1 at 90 per Kirby J; Smith v ANL Ltd [2000] HCA 58; (2000) 204 CLR 493 at [74]-[75] per Kirby J and at [152], [180] per Callinan J.) Where, as is the case here, there is applicable High Court authority, this Court cannot choose to follow observations of this character.
113 With respect to the applicants' irrelevant considerations challenge to the 2006 Plan, there is an alternative basis for reaching the same conclusion. The validity of the Commonwealth legislation itself, and the validity (or more accurately, the existence) of any of the Commonwealth/State agreements (particularly the Funding Agreement), is irrelevant to the legal validity of the 2006 Plan. No doubt the agreements, especially the Funding Agreement, explain how the 2006 Plan came to be adopted. A legal defect in that process does not, however, determine whether the 2006 Plan is, nevertheless, a valid exercise of the statutory power. The applicants advanced no argument to justify their contention that the Plan is invalid because the Funding Agreement is invalid or non-existent.
114 In Magennis, when the statute was found to be unconstitutional, the agreement did not exist as an agreement and, accordingly, could not be adopted as an agreement by the State act. (See eg at 403-404 and 424-425.) The State act was inoperative because it depended on the existence of the Agreement.
115 Between Magennis and Pye v Renshaw the Commonwealth statute remained void. The legal effect of the formal Commonwealth/State agreement was not revived. What had changed was the State Act, which no longer depended for its own operation and effect upon the existence of a valid Commonwealth law. (See at 78-79.) This was also held to be the case for the equivalent Victorian statute in Tunnock v Victoria (1951) 84 CLR 42. (See also Durham Holdings Pty Ltd v New South Wales [1999] NSWCA 324; (1999) 47 NSWLR 340 at [97].)
116 In the present case the applicants advanced no submission to the effect that the operation and effect of the State Act, or the 2006 Plan, was based on a valid or extant Commonwealth/State agreement. Pye v Renshaw appears to me to be directly applicable.
117 The basis of the applicants' case in this regard, as I have noted, is the proposition that an invalid Commonwealth law and/or a non-existent Funding Agreement constitutes an irrelevant consideration with respect to the exercise of the Minister's powers under the State Act. (See pars [14]-[15] above.) I proceed, as the Court did in Pye v Renshaw, on the assumption that there is no valid Commonwealth law or extant agreement.
118 Nothing in the Water Management Act, or the 2006 Plan, suggests that the State Act, or administrative decisions pursuant to the Act, depend on the existence of a valid Commonwealth law or Commonwealth/State agreement. This was, as I have said, the critical difference between Magennis and Pye v Renshaw.
119 The submission that the State Minister took into account an irrelevant consideration is, in my opinion, equivalent to the assertion, rejected in Pye v Renshaw (see at 80), that the power under the State Act had been exercised for an improper purpose. In each case the decision is challenged as ultra vires. The contention should be rejected in the present case, on the authority of Pye v Renshaw. The validity of the Commonwealth law, or the existence of the agreement, is not legally relevant to the promulgation of the 2006 Plan.
120 On the assumption that any Commonwealth act was invalid and the Funding Agreement was not supported by legislation - I put to one side the executive power of the Commonwealth pursuant to s 61 of the Constitution - no State act or administrative decision, relevantly the 2006 Plan, would thereby be invalidated.
121 The second way in which the applicants challenge the Commonwealth's conduct - in this respect only directly and not as a basis for asserting the invalidity of the State decision - is as set out at [16] above in pars [30]-[34] of the Points of Claim. This pleading is, in my opinion, equivalent to par 15C of the Statement of Claim considered in Pye v Renshaw at 62-63 and 82-83. The applicants challenge the allocation of funds by the Commonwealth for the purpose of the acquisition of property. As Pye v Renshaw made clear (at 83), grants under s 96 of the Constitution are valid even if the funds will be used by the State to acquire property on terms which would not be acceptable under s 51(xxxi). The Court applied a long line of authority commencing with Victoria v Commonwealth (1926) 38 CLR 399.
122 Pursuant to the Funding Agreement, the Commonwealth provides funds for reducing entitlements and requires a formula of a character which was less beneficial for the applicants than a different formula would have been. Although grants are made on that basis, it does not follow that any Commonwealth legislation can be characterised as a law with respect to the acquisition of property or that the provision of the funds is invalid. (I put aside for the moment the issue of the standing of a citizen to challenge such funding agreements.)
123 The applicants submitted that Pye v Renshaw did not involve a Commonwealth/State agreement. There was one but it had been rendered inoperative by Magennis. The pleadings referred to the agreement, but pleaded its implications in terms of an "arrangement" between the Commonwealth and the State. (See at 60-63.) The High Court dealt with the relevant pleadings in a manner which indicated that there was no relevant difference between an agreement and an arrangement (at 81-83).
124 The conditions in the Funding Agreement which require the State to carry out the project in the manner which affected the applicants' water entitlements are set out at [26]-[29] above. The State did agree to implement a methodology for reducing entitlements that took into account historical extraction and for the payment of compensation on a particular basis. (See cl 1.6(b) and cl 1.7(e) set out at [23] above.) I can see no relevant difference between these provisions and the acquisition of land on the basis of the valuation formula, for which the Commonwealth/State arrangement made provision in Pye v Renshaw. (See at 60-63.) The State is entitled to accept funds from the Commonwealth on whatever basis it wishes.
125 Furthermore, the Commonwealth involvement in the joint scheme in Pye v Renshaw was of the same order as that in the present case in terms of both the Funding Agreement and the representation on the Committees that implemented the scheme. (See Pye at 82.)
126 The provisions of the Funding Agreement which I have set out above, indicate that the basic purpose of the scheme was to reduce water entitlements. This is reasonably analogous to the position in Magennis where "the whole subject matter of the agreement is the acquisition of property upon certain terms and conditions for certain purposes" (402) or that "the acquisition of the necessary land is the essence of the scheme" (424).
127 Nevertheless, the Commonwealth can, as determined in Pye v Renshaw (at 83) supply funds on condition that the States deploy the funds to acquire property on terms which the Commonwealth could not impose directly. No principled basis for distinguishing Pye v Renshaw in this respect has been advanced. I am unable to identify one.
128 Accordingly, even if, by reason of the application of s 51(xxxi) on some basis which I have been unable to discern, there was no extant Funding Agreement, which was the position in Pye v Renshaw, the applicants' challenge to the provision of Commonwealth funds cannot succeed.
129 Finally, the applicants plead that the Funding Agreement and the 2006 Plan were directed to avoiding the constitutional limits on Commonwealth power and that they constituted a mere "device". (See pars [19]-[20] above.)
130 The applicants submitted that the Commonwealth could not use the State legislation as a mere "device" to avoid the restrictions upon its own powers to acquire property. The reference to "circuitous device" appears in the judgment of Dixon J in Bank of New South Wales v Commonwealth (1948) 76 CLR 1 at 349, in the following passage:
" … this is but a circuitous device to acquire indirectly the substance of a proprietary interest without it once providing the just terms guaranteed by s 51 (xxxi) of the Constitution when that is done."
131 See also the comment by Dixon J in British Medical Association v Commonwealth (1949) 79 CLR 201 at 210 that "The protection which s 51(xxxi) gives … cannot be broken down by indirect means".
132 Dixon J's formulation was adopted in the joint judgment in Australian Tape Manufacturers Association Ltd v Commonwealth (1993) 176 CLR 480 at 510. Subsequent authority focuses upon his Honour's reference to the "indirect acquisition of 'the substance of a proprietary interest'". (See Newcrest Mining (WA) Ltd v Commonwealth (1997) 190 CLR 513 at 595 and 633-634; see also Waterhouse v Minister for the Arts and Territories (1993) 43 FCR 175 at 183-184.)
133 The concept of "circuitous device", when used with respect to the acquisition power, has similar difficulties to those identified in s 92 territory. (See Miller v TCN Channel Nine Pty Ltd (1986) 161 CLR 556 at 575-578.)
134 However, it is sufficient to say that nothing has been identified which is capable of constituting a "device" of any kind.
135 I do not need, for present purposes, to set out the full context of this wide-ranging inter-governmental arrangement. (See Juliet Lucy Water Regulation: The Laws of Australia (2008) Thomson Reuters, at [14.9.540]-[14.9.590], [14.9.640]-[14.9.660], [14.9.800].)
136 The joint venture between the Commonwealth and the State is directed to providing financial assistance to carry into effect the Intergovernmental Agreement on a National Water Initiative which, as indicated in recital D of the Funding Agreement, is concerned with broad based water reform including: "water access entitlements and planning; water markets and trading, best practice water pricing; integrated management of water for the environment and other public benefit outcomes, water resource accounting; urban water reform; knowledge and capacity building and community partnerships and "adjustments" of the Funding Agreement.
137 The Commonwealth provides funding to the States pursuant to what is called the Water Smart Australia Programme. Recital F identifies the wide range of objectives of the Programme. I have also set out recitals G and H above.
138 The applicants contend that part of the arrangement is a "device" to acquire property. However, their submissions did not seek to elaborate how such a conclusion can be justified. The submissions amounted to no more than an assertion that, because they had lost something they once had, and the Commonwealth had a role, the process should be characterised as a "device". In view of the broad policy objectives of national significance which provide the context for the aspects of the Project which led to the reduction of their entitlements, no basis for such a conclusion has been articulated.
139 The water entitlements which existed before the 2006 Plan were a creature of a State act. If there was to be modification it had to be by State legislation. The Commonwealth encouraged, indeed may well have determined, a critical aspect of that modification. It did so by imposing a condition on its financial grant in order to implement a policy which it could not achieve without the co-operation of the State. This cannot be characterised as a "device" just because the Commonwealth could not achieve its policy objectives, or chose not to do so, by force of its own legislative power.