Australian Capital Territory v Queanbeyan City Council [2010] FCAFC 124

ACTEW/AGL Partnership Facilitation Act 2000 (ACT) s10

Australian Capital Territory v Queanbeyan City Council [2010] FCAFC 124 | Case summary | Zoe

[93]

In recent years water and wastewater customers in the ACT have endured both substantial price increases and water shortages. ACTEW's urban water prices are currently the highest in Australia (and are substantially higher than in some capital cities) and at the date of this final report Stage 3 restrictions are in place. In 2007-08, larger water customers - those using more than 300 kilolitres per annum - are paying more than twice what they paid for water in 2004-05. The higher prices and restrictions are primarily due to factors which could not reasonably be foreseen. Bushfires in 2003 and an unprecedented drought have imposed additional costs on ACTEW and substantially reduced supply. During these tough times the ACT community has responded well by reducing consumption but the Commission recognises that water restrictions must never be more than a short to medium term solution as the economic and social costs of restrictions are high. ... In October 2007, the ACT Government announced a number of water security measures, including enlarging the Cotter Dam (at a cost the Commission has determined to be $145 million in 2006-07 dollars) and transferring water from the Murrumbidgee river to Googong Reservoir (at a cost the Commission has determined to be $96.5 million in 2006-07 dollars). [The Cotter Dam is to be enlarged from 4 GL to 78 GL.] ... The drought In recent years there has been much debate in the media, politics and within the general public about water management and water pricing. The current drought has focused attention on the scarcity of water and the importance of effective resource management regimes and pricing methodologies. A common theme, which appears to be emerging, is that water is under-priced, so water prices need to increase to reflect the true value of water being consumed. Related to this issue are suggestions that water pricing can be used as a demand management tool during times of water shortage. ... The Act Government currently applies a water abstraction charge (WAC) of 55 cents per kilolitre of water delivered to customers and the revenue received is passed by ACTEW to the ACT Government. The first 25 cents per kilolitre is used to offset costs incurred by the ACT Government related to catchment management, the scarcity value of water and environmental costs such as environmental flows. The revenue received from the remaining 30 cents per kilolitre 'provides a return on a valuable resource and assists in managing demand'. The WAC is currently an additional charge levied on customers in addition to their ACTEW charges. [The quotation is from a response by the ACT Treasurer to a question on notice during the 2006 Select Committee on Estimates.] ... It is important to understand that the Commission has no role in determining the level of the WAC, although it has previously advised the ACT Government on a methodology for calculating the WAC.

[105]

Professor Rupert Grafton is Professor of Economics and Research Director at the Crawford School of Economics and Government at the Australian National University. He was asked to express an opinion on whether there was a discernible relationship between the value of water for urban supply in the ACT and the WAC at each of the levels fixed above 10 cents per kilolitre and also whether any relevant matters had emerged post October 2003 which might bear upon that question. Professor Grafton's opinion was that the ACT could, and should, have charged more for the abstraction of water than it actually did at any relevant period in time. His approach involved a form of retrospective justification for the amounts charged. QCC responded to Professor Grafton's report with a report by Dr Stephen Beare, Principal Economist and Head of Modelling at Concept Economics. Dr Beare specialises in quantitative economic analysis. He also was asked to express an opinion on whether the WAC had a discernible relationship with the value of untreated water taken by ACTEW at the various levels above 10 cents per kilolitre. Dr Beare argued that direct charges were a highly inefficient method of constraining demand and in particular they were much less effective than water restrictions. He challenged the methodology adopted by the ICRC in 2003 of including the flow charge component of the WAC saying: "The scarcity or flow charge component of the WAC has not been determined using sound economic or accounting principles and overstates the opportunity cost to downstream users of water abstracted in the ACT." He challenged Professor Grafton's approach. He opined that: "The manner in which environmental costs have been taken into account is fundamentally incorrect". This criticism was made of both ICRC and Professor Grafton. He also challenged the way in which the ICRC and Professor Grafton dealt with the scarcity value of water. Commencing with the components of the WAC calculated by the ICRC in 2003 Dr Beare concluded that no amount should have been included in the WAC to reflect flow costs (i.e. scarcity value or environment costs) and that in lieu of the levels of the WAC fixed by the ICRC at 20 cents per kilolitre and the ACT government at 25 cents and 55 cents per kilolitre the appropriate charge would have been 10.2 cents, 10.5 cents and 24.4 cents per kilolitre respectively.

[129]

... the Act and the Regulations abrogate the public right to fish for abalone in the State fishing waters and confer private statutory rights on the several licence holders, commercial and non-commercial, to take limited quantities of abalone. Although any member of the public may apply for and be granted a non-commercial licence, not every member of the public is a licence holder, and those who may lawfully take abalone do so not in exercise of a public right to fish but in exercise of the statutory right of a licensee. As licensees under the Act are the only persons who enjoy the right to take abalone from the Tasmanian fishery, the public being excluded, the right they enjoy is similar to the common of piscary - a right of fishing in another's waters to the exclusion of the public. Such a common law right is a profit à prendre (see Halsbury's Laws of England, 4th ed., vol. 6, p. 215, pars 581, 582) but at common law it is not available in tidal waters. When a natural resource is limited so that it is liable to damage, exhaustion or destruction by uncontrolled exploitation by the public, a statute which prohibits the public from exercising a common law right to exploit the resource and confers statutory rights on licensees to exploit the resource to a limited extent confers on those licensees a privilege analogous to à profit a prendre in or over the property of another. A limited natural resource which is otherwise available for exploitation by the public can be said truly to be public property whether or not the Crown has the radical or freehold title to the resource. A fee paid to obtain such a privilege is analogous to the price of a profit à prendre; it is a charge for the acquisition of a right akin to property. Such a fee may be distinguished from a fee exacted for a licence merely to do some act which is otherwise prohibited (for example, a fee for a licence to sell liquor) where there is no resource to which a right of access is obtained by payment of the fee.

[157]

But it is objected that the Act does not involve any imposition of taxation because a miller has an option of not paying money to the Government. If a miller does not repurchase his flour from the Crown-or if he is not "deemed" so to have done by dealing in it-he does not pay the difference between the "fair and reasonable price" and the "standard price." In that event the Government receives no money, and it cannot be said that any tax is exacted. An examination of the Act, however, shows that the option is quite illusory. A miller cannot sell his flour without being deemed to repurchase it (sec. 6 (3)). Accordingly, if he does not repurchase it, so as to become liable for the difference in the two prices, he must go out of business. Even if he obtained other flour than that which he gristed the Minister could acquire that flour under sec. 4. If he does not repurchase his flour he can recover only the fair and reasonable price or the amount actually realized, whichever is the lesser amount (sec. 6 (6)) at such future time as the Minister may select for disposing of the flour (sec. 6 (6)) subject to deductions for loss or deterioration, and in the meantime he must store the flour for nothing (secs. 3 (8) and 4 (7)). It is obvious that it would not be practicable to conduct any flour mill upon such a basis. Further, the Act shows that it is intended that there shall be a difference between a lower "fair and reasonable price" and a higher "standard price" which shall produce a fund to be used for the relief of farmers (sec. 6 (7)). Thus the apparent option is quite unreal and is obviously intended to be unreal. But, it is further argued that, when the miller agrees to repurchase his flour (or is deemed so to agree), and accordingly becomes bound to pay the difference between the two prices, it is by virtue of his agreement that the liability arises, and, it is said, a sum paid under an agreement cannot be regarded as a tax. This argument has at least the merit of an ancient and hoary lineage. "Voluntary loans" and "gracious offerings" and "forced benevolences" are not unknown in our history. 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 (Attorney General v. Wilts United Dairies Ltd; Commonwealth v. Colonial Combing, Spinning and Weaving Co. Ltd.). Thus, in my opinion, the difference between the two prices is something which the miller is in practice compelled to pay to the Government and amounts to a tax. (Footnotes omitted).

[159]

The course of conduct in the present case consists in no more than the regular payment to the Treasury of money calculated according to a defined or ascertained measure. Upon the face of the statute and the proclamations considered together, and indeed of the statute considered alone, it appears that it was the purpose of the provision now in question to obtain such payments from millers of flour in New South Wales. When the desired contributions are obtained not by direct command but by exposing the intended contributor, if he does not pay, to worse burdens or consequences which he will naturally seek to avoid, the payment becomes an exaction. The fact that no legal obligation to pay is imposed enforceable by direct legal remedies, civil or criminal, will not, in my opinion, prevent the exaction fulfilling the description of a tax; because in truth it is exacted by means of sanctions designed to that end, sanctions consisting in the detriments arising from the adoption by the taxpayer of the alternative left open by the legislation. That the only alternative left open involves detriments so substantial as to form a powerful deterrent to its adoption I am unable to doubt. That it was intended to have such an effect appears from an examination of the statute and from the difficulty of discovering any other object it was designed to achieve. There are thus three features present, viz., a course left open to the producer of flour involving contributions to the Treasury for a public purpose, an alternative course, the only alternative if production continues, which involves detriment to the producer who takes that course, and a purpose of so inducing him to make the contribution. If all this had been done by the State legislature itself, I should have thought that it amounted to the imposition of a duty of excise. But an essential part of the plan is the adoption of a standard price that exceeds the fair and reasonable price fixed by the committee and the duty or power of fixing the standard price is delegated to the executive. It sufficiently appears from the Act itself that it contemplates the adoption of a standard price in excess of the committee's price. For it assumes in its provisions that there will be a difference payable to the Minister by the miller and that there will be a resulting fund for farmers' relief. But, in any case, as the act of the Executive must depend upon the power conferred by the legislation, if it is the Executive determination which completes the plan that results in the imposition of an excise, the attempt to confer the power so to complete the plan must infringe upon the exclusiveness of the federal legislative power to impose duties of excise. It is, perhaps, needless to add that the complicated scheme of State enactment is to be accounted for by the absence of power to impose duties of excise. It is an attempt to raise a fund by contributions obtained as flour is milled and sold, contributions working out at a rate per ton. The fact that it is an attempt to secure the same result as would have been obtained by a duty of excise if such a duty fell within the legislative power of the State Parliament does not necessarily mean that the attempt fails. The same ends may be attainable by different means. Some means may be within power, others may be outside it. But it does explain what otherwise might appear the strange form and policy of the enactment. It explains why it is that on a close examination of the statute and a consideration of its actual operation, it turns out to be a means of imposing what in truth is a duty of excise.

[162]

Partly as a result of water scarcity during recurrent droughts, access to and use of water in New South Wales has long been regulated by statute. However, it is useful to consider aspects of the common law position before the passing of pre-Federation water legislation, as such statutes were expressly intended to move away from the common law. For example, the Irrigation Act 1886 (Vic) provided: "The right to the use of all water at any time in any river stream watercourse lake lagoon swamp or marsh shall ... be vested in the Crown" (emphasis added). The relevant Minister, Mr Alfred Deakin, explained that the provision was designed to overcome perceived difficulties with riparian rights developed in England by the common law. New South Wales followed suit. The Water Rights Act 1896 (NSW) (the 1896 Act) provided: "The right to the use and flow and to the control of the water in all rivers and lakes ... shall ... vest in the Crown." Section 6 of the 1912 Act retained this language. Similar language was adopted in water legislation in other parts of Australia. Of significance for this case is that the vesting of rights to the "use" and "control" of water constituted an exercise of sovereignty in the sense that the rights so vested were based on the political power of the state. Accordingly, the reasoning of the Full Court of the Supreme Court of New South Wales in Hanson v The Grassy Gully Gold Mining Co, that the 1896 Act vested in the Crown the common law rights of riparian owners, is to be preferred to the slightly delphic observation of Fullagar J in Thorpes Ltd v Grant Pastoral Co Pty Ltd suggesting that riparian rights survived those vesting provisions. The assertion of control over water was assumed to include the power to issue licences. The second point of interest is that the language of the 1896 Act and the 1912 Act does not disturb the common law notion that water, like light and air, is common property not especially amenable to private ownership and best vested in a sovereign state. The common law position in relation to flowing water, which adapted Roman law doctrine, was settled in Embrey v Owen. Baron Parke adopted the view of Chancellor Kent that flowing water is publici juris in the sense that no-one has "property in the water itself, but a simple usufruct while it passes along". This reflected Blackstone's classification of water as a "moveable, wandering thing" which was "common" property. As such it is "beyond individual appropriation and alienation". Riparian rights did not depend on ownership of the soil of a stream; they attached to land in either lateral or vertical contact with a stream. This can be contrasted with the common law position in relation to groundwater settled in England in Chasemore. Lord Chelmsford distinguished between "water flowing in a definite channel, and water whether above or underground not flowing in a stream at all, but either draining off the surface of the land, or oozing through the underground soil in varying quantities". Such water could be intercepted by a landowner. The proposition that water in general cannot form the subject matter of property had the consequence that the grant by a landowner to another of a watercourse did not mean the grant of the water itself. The grant of "a watercourse" meant, as Sir George Jessel MR explained in Taylor v Corporation of St Helens, an easement or right to the running of water, or, if there was a relevant context, either the channel, pipe or drain containing the water, or the land over which the water flowed. (Footnotes omitted).

[263]

The levy made by the Chicory Marketing Board is not ascertained by direct reference to the quantity or value of the chicory produced. It is imposed upon a producer, and presumably under the definition of that word he must actually obtain some chicory from the crop he has sown before he satisfies that description. But the basis of his assessment is not what he garners but what he plants. By calculating the levy upon the number of half acres which the producer plants with chicory the board makes it at least theoretically possible that owing to a failure of his crop the levy upon him has little or no relation to his actual production of chicory. But the basis adopted for the levy has a natural, although not a necessary, relation to the quantity of the commodity produced. Although many other factors go to the determination of the actual quantity of chicory produced, the area planted is, if not the chief, at all events a controlling element. By adopting area planted as the criterion of the amount of the levy upon each producer the board has taxed the production of the commodity as effectually as if it had selected, for instance, the weight of the chicory gathered in its raw state, the quantity treated or the gross returns. For it has placed upon an essential step in production, namely, planting, an impost computed quantitatively. There is no distinction of substance and scarcely any even of form between levying a tax upon the area planted and levying a tax upon the act of planting the area. The levy is directed to the normal case of a man reaping even as he sows. The fact that the tax would also fall upon a chicory farmer whose expectations are disappointed through some of the mischances of agriculture does not seem to me to make the levy any less a tax upon production. The natural or practical relations between manufacture or production and activities or conditions chosen as the tests or standards of liability to taxation depend, not upon logical definitions, but upon the actual course of industrial organization and technique and of the productive arts.

[268]

The present exaction cannot be an excise so far as it relates to the plaintiff's stock horses; they are in no sense themselves goods in the stream of production and distribution; since they do not appear to be used for breeding purposes it cannot be argued that to tax them is to tax, as articles of commerce, their progeny in the course of production. Of the remaining stock all will ultimately be converted into beef, pork, mutton and all the products of the tannery and fellmongery; in that sense they are themselves articles of commerce in the stream of production. The sheep also occupy another and rather different position, they are themselves productive units, producing wool which is an article of commerce; were any of the plaintiff's cattle dairy cows, which they are not, the same could no doubt be said of their milk. To the extent that some of the stock is used for breeding purposes, the progeny being articles of commerce, such stock may again be seen as productive units. To tax an owner of livestock by reference to his beasts when he grows them so that he may sell them for their meat and the other products of their carcasses, the incidence of the tax being as provided by the present Acts, is in my view to impose a duty of excise. The tax has at least a "natural", although not perhaps always a "necessary", relation to the quantity of the commodities produced and is upon an essential step in production (Matthews v. Chicory Marketing Board (Vict). It directly affects those commodities while they are in the line which reaches from the earliest stage in production to the point of receipt by the consumer (Dennis Hotels Pty. Ltd. v. Victoria , per Kitto J). It is a tax directly related to those commodities and imposed at some step in their production before reaching the hands of consumers (Bolton v. Madsen). The fact that, while the plaintiff's sheep fall within the scope of the tax, many of them are raised primarily for their wool and not for meat production, so that they play the role of producers of a commodity rather than representing a commodity itself in the course of production, does not, in my view, prevent the present tax from being, in respect of them, a duty of excise. If the sheep's quite secondary role as ultimately yielding meat be disregarded, a tax directly related to them will nevertheless, in my view, answer the description of an excise duty upon their wool. Likewise in the case of some of the plaintiff's cattle and pigs; their primary use is for the purpose of breeding progeny. Once again I see no reason to distinguish the tax imposed in respect of such animals from that applicable to those raised primarily for their meat. In all cases the tax is directly related to the particular animal and, hence, to the particular commodity, be it meat, wool or progeny, for the production of which that animal is being used. (Footnotes omitted)

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