Ha v New South Wales

The facts can be stated shortly. The State of New South Wales and other defendants, as applicants on this summons, move the court for an order that a statement of claim, filed in the original jurisdiction of the court, should be struck out on the ground that no reasonable cause of action has been disclosed. For the purposes of the application, the facts to be accepted are these: At the times referred to in the statement of claim Ms Ngo Ngo Ha and Ms Sokhieng Lim, the plaintiffs, who are the respondents to this summons, carried on business respectively in Cabramatta and Hurstville, near Sydney in the State of New South Wales. They operated duty-free stores. Affidavit evidence shows that the respondents went out of business at the end of 1994 and early 1995 respectively. It is claimed, on the part of the applicants, that Ms Ha and Ms Lim have paid no franchise fees and no taxes on tobacco sales made from their stores.

Mr Bruce Buchanan, the second applicant in the summons, is the Chief Commissioner for Business Franchise Licences (Tobacco) for the State of New South Wales (the Commissioner). The Commissioner is appointed pursuant to the Business Franchise Licences (Tobacco) Act 1987 (NSW) (the Act). Mr R G Smith, the third defendant in the action, the third applicant on the summons, is the Director, Compliance and Delegate of the Commissioner (the Director). The Director is authorised by the Act to assess amounts claimed pursuant to s 47 of the Act and to demand payment of such amounts from persons from whom they are alleged to be payable. Ms Ha and Ms Lim, in the course of their businesses, sold cigarettes to overseas travellers upon which State taxes are not claimed. However, they also sold cigarettes to members of the public in New South Wales. The applicants contend that the sales to the public are liable to the payment of franchise fees and taxes imposed by the Act. At the relevant times, these stood at $10 for the franchise fee and an equivalent of 75% of the value of tobacco sold, together with a further amount by way of penalty equal to twice the amount of 75% of the value of tobacco sold, less any remissions that were applicable.

The Director issued to Ms Ha and Ms Lim notices of assessment claiming specified sums under the Act. These sums have not been paid. The notice of assessment in the case of Ms Ha claims an amount of $1.4 million approximately. The notice in the case of Ms Lim claims an amount of $0.9 million approximately. Ms Ha and Ms Lim have filed their statement of claim in the original jurisdiction of this court, contending that they are not liable to pay the amounts demanded, or any of them. They so assert upon the ground that the relevant sections of the Act upon the basis of which their liability is said to arise (which they identify as s 28, 29, 30, 34, 36 to 41 and 45 to 48) are invalid because they impermissibly impose duties of excise. By s 90 of the Constitution such duties of excise are reserved exclusively to the Federal Parliament.

Motion for summary dismissal of a constitutional challenge

Ms Ha and Ms Lim seek a declaration that the Act is, to the extent challenged, invalid and of no effect and that the notices of assessment issued to them are likewise invalid and of no effect. The claims which they make involve the interpretation of the Constitution, s 90. In accordance with s 78B of the Judiciary Act 1903 (Cth), notice of the proceedings before the court was given to the law officers of the Commonwealth, State and Territories. No other party sought to intervene in the proceedings.

The applicants now move for summary dismissal of the statement of claim pursuant to O 26 r 18 of the Rules of Court. That rule reads, relevantly:

(1) The Court or a Justice may order a pleading to be struck out on the ground that it does not disclose a reasonable cause of action …

(2) In that case, or in case of the action … being shown by the pleadings to be frivolous or vexatious, … a Justice may order the action to be stayed or dismissed, or judgment to be entered accordingly, as is just.

The argument for the applicants is that the point involved in the statement of claim is bound to fail because of the series of authoritative holdings of the court to which I have previously referred. Specifically, it is said that the New South Wales Act in question was considered by this court in Coastace Pty Ltd v New South Wales (1989) 167 CLR 503, where the court held that such Act was indistinguishable, for constitutional purposes, from the Victorian Act which had been considered and upheld in Philip Morris Ltd v Comr of Business Franchises (Vic) (1989) 167 CLR 399. In that case, the court by a majority held that the Victorian Act did not impose an excise duty. The same conclusion was reached in Coastace in respect of the Act of New South Wales as it then stood. The applicants argued that, on that footing, the statement of claim was bound to fail. They should therefore be relieved from being troubled by it.

The strike out application raises once again the principles which govern a claim for peremptory relief such as is here sought. I take the applicable principles to be:

The rule of law requires that, ordinarily, a claim should be heard on its merits in open court and determined after all pleading and interlocutory proceedings have been completed. The jurisdiction to strike out a claim must be sparingly used. It must be conserved to a very clear case, although the establishment of that case may take time and argument: see Dey v Victorian Railways Comrs (1949) 78 CLR 62 at 91; General Steel Industries Inc v Comr of Railways (NSW) (1964) 112 CLR 125 at 130 .

The striking out of a constitutional challenge is available as is demonstrated in a number of cases: eg Coe v Commonwealth (1978) 52 ALJR 334; 18 ALR 592; Coe v Commonwealth (1979) 53 ALJR 403; 24 ALR 118. However, such jurisdiction must be exercised with a proper degree of caution, at least where there has been an interval since the last holding on the point in issue or where there is a change of potential relevance in the legislation which is impugned.

Amongst the reasons for particular hesitation in striking out challenges to the constitutional validity of a law are the fundamental character of the Constitution as the basic law of the nation and the rigidity of the procedures for securing formal amendments. Windeyer J, in R v Phillips (1970) 125 CLR 93, mentioned these and other considerations, invoking the words of two justices of the Supreme Court of the United States of America in doing so. Windeyer J said (at CLR 114-15):

[S]crupulous regard for language need not dispel a remembrance of something that Holmes J once said in the Supreme Court of the United States … Speaking of certain provisions of the American Constitution that learned justice said: "Their significance is vital not formal; it is to be gathered not simply by taking the words and a dictionary, but by considering their origin and the line of their growth": There are times when we can say of our Constitution, as Frankfurter J said of the Constitution of the United States: "While the language of the Constitution does not change, the changing circumstances of a progressive society for which it was designed yield new and fuller import to its meaning."

Adherence to the rule of law also requires that all justices of this court, including a single justice dealing with a practice summons, should observe the holdings of the court where they state the applicable law: see O'Toole v Charles David Pty Ltd (1991) 171 CLR 232 at 268. This court has accepted that the principle of stare decisis is applicable to constitutional cases. In the context now under consideration, the court has laid particular emphasis on the importance of that principle in adhering to past holdings and in applying what it has taken to be settled principles. In Capital Duplicators Pty Ltd v Australian Capital Territory (No 2) (1993) 178 CLR 561 at 591-2; 27 ATR 1 at 11-13, the majority, comprising Mason CJ, Brennan, Deane and McHugh JJ, said, speaking of the State tax and excise duty line of cases:

[T]here are very strong practical reasons why the rule of stare decisis should be observed in relation to those decisions. Not only was the authority of Dennis Hotels Pty Ltd v Victoria (1960) 104 CLR 529 acknowledged in Bolton v Madsen (1963) 110 CLR 264, but also that decision was itself followed in the unanimous decision in Anderson's Pty Ltd v Victoria (1964) 111 CLR 353. Later, in Dickenson's Arcade Pty Ltd v Tasmania (1974) 130 CLR 177, the court refused to depart from Dennis Hotels and, subsequently, in HC Sleigh v South Australia (1977) 136 CLR 475, the court followed and applied the two earlier decisions. Since then, the court has twice refused to reconsider the correctness of Dennis Hotels and Dickenson's Arcade.

Nonetheless, a party may always ask the court to reconsider its past authority, including in matters of constitutional law. The court will sometimes, for good cause, do so. It has devised a procedure under which leave must be sought to that end: see Evda Nominees Pty Ltd v Victoria (1984) 154 CLR 311; cf John v FCT (1989) 166 CLR 417 at 438; 20 ATR 1 at 13-14. My own tentative preference is for the minority view expressed in Evda by Deane J, repeated by his Honour in Philip Morris (1989) 167 CLR 399 at 409. But that matters not in the present application. Ms Ha and Ms Lim intend, if necessary, to seek leave of a Full Court to challenge the correctness of the line of authority, starting with Dennis Hotels. The grant or denial of such leave is reserved to a Full Court. It cannot be given or refused by a single justice in a practice summons such as the present. At least where the foreshadowed request is not manifestly hopeless and clearly doomed to fail, its fate must be reserved for decision to a Full Court.

A Full Court may hear a constitutional challenge in one of the following ways:

(a) by reference of a matter to the Full Court by a single justice pursuant to s 18 of the Judiciary Act 1903 (Cth). This was one position which Ms Ha and Ms Lim adopted by their own summons but as a fallback to their primary submission that the applicant's summons should be dismissed;

(b) by the single justice adopting the course of stating a case for the opinion of the Full Court pursuant to s 18 of the Judiciary Act. This was another course sought by Ms Ha and Ms Lim;

(c) in cases of prerogative constitutional relief by a reference of the application to a Full Court pursuant to O 55 r 2. This was the course which I adopted in the recent decision in Re Turner; Ex parte Homestead Award Winning Homes Pty Ltd (unreported, 19 April 1996); or

(d) by dismissing the application for peremptory relief so that the statement of claim will take its ordinary course and be heard by a single justice or otherwise dealt with as the court orders, having regard to its decision as to the course which is expedient.

It is the court's practice that on matters raising constitutional questions the court endeavours to ensure that all available justices sit to participate in their disposal: see Judiciary Act 1903, s 23(1). Doubtless this rule reflects the fact that the answers to such questions are usually important, affect parties other than those in suit, can sometimes involve differences of judicial view and occasionally result in changes of doctrine over time, having regard to new social circumstances, new constitutional insights and the participation of new justices appointed to the court. This is another reason, as it seems to me, for particular caution in striking out a statement of claim raising constitutional controversies. The justice who does so might then be disqualified from sitting in the substantive appeal. If a party were to contest such an order, that judge could not sit in an appeal from the order of striking out if that process were accepted by the Full Court as presenting the constitutional controversy for substantive decision.

Conclusion: the constitutional challenge is not unarguable

I do not say that cases would not arise, including in constitutional matters, where the power provided in general terms by O 26 r 18 would be appropriate and would be used, as indeed such powers have been. If, for example, a constitutional claim or defence were raised within a very short time of a previous holding on the same point, the impugned statute were unchanged or substantially unchanged, and the other circumstances were relevantly identical, such a constitutional question might be seen as appropriate for peremptory dismissal.

However, that is not the present case. Nor is it, in my view, a case of a manifestly hopeless argument or one so clearly bound to fail that it should be terminated now without a hearing on the merits. Ms Ha and Ms Lim contend that the Act in its present form is distinguishable in principle from the statutes which were considered in the previous authorities which I have mentioned. The principal point of distinction upon which they rely is the fee which is imposed by the State of New South Wales. They contend that this is now so great as "to deny a regulatory character to the law which imposes it". In such a case they argue that "the validity of the fee … require[s] close consideration" in determining the characterisation of the law as a permissible State tax or a forbidden duty of excise: see Capital Duplicators Pty Ltd v Australian Capital Territory (No 2) (1993) 178 CLR 561 at 593; 27 ATR 1 at 13.

I acknowledge the powerful arguments put for the applicants that this court, after such a long series of decisions, has recognised the need for a clear rule. That it has "quarantined" the case of tobacco and alcohol and has treated those products as presenting a special case. The path to that position has been a rocky one. There have been strongly expressed dissenting opinions. Thus Brennan and McHugh JJ earlier criticised the unconceptual character of the suggested distinction and its apparent defiance of history which discloses that, at the time of Federation, taxes on alcohol and tobacco were the very duties of excise in which the colonies were engaged and which, by s 90 of the Constitution, were arguably thereafter to be reserved to the Federal Parliament.

The dissenting opinions have recommended themselves, as a matter of logic, to State appellate courts which nevertheless felt bound to follow the contrary opinions of the majority (see eg Seboa v Comr of Business Franchise [1993] 2 VR 124 ), in respect of which special leave to appeal was refused by this court: see (1994) 5 "Legal Reporter" SL 4. Having been recently re-endorsed in Capital Duplicators, including with the participation of the justices who formerly dissented from that opinion, there may be strong arguments for urging upon the court that it should not re-open the question but should hold itself bound by the statements of principle set out in that case. However, it cannot, in my opinion, be said that the argument is clearly without merit or bound to fail. Nor can it be concluded that it is such as should not even be considered by a Full Court. At least in some of the opinions to which I have been taken, the quantification of the State or Territory tax has been said to be a factor relevant to the characterisation of the tax as a duty of excise or not. I would not foreclose Ms Ha and Ms Lim from advancing that argument. The issue is a serious one for them. It is also important for the revenue of the State. The point is by no means unarguable.

I have given thought to the proposal that I should simply return this present application before a Full Court. However, I see no utility in doing so. I would emphasise that, in my view, the State and the other defendants will have a full opportunity to advance before a Full Court all of the arguments on the merits which were advanced, necessarily in an abbreviated way, before me today.

I would also emphasise that, for my own part, I have reached no final opinion on the merits of any of these arguments of substance. It is enough that I consider the points to be arguable such that the statement of claim and the proceedings should take their ordinary course.

The plaintiffs have prepared a draft stated case for the opinion of a Full Court. However, as this document was only produced to their opponents this morning, it is not possible for me to consider it with appropriate assistance and, if suitable, to settle its terms. The parties, especially the State, foreshadowed the urgency of the case, the State relying upon the fact that Ms Ha and Ms Lim have ceased to carry on business and that they have not, as it is said, paid any of the taxes levied on them. Any application for expedition or for other or different relief to protect the State's claims upon the assets of Ms Ha and Ms Lim will have to be the subject of separate proceedings. I make no orders in respect of any of those suggestions.

1. The defendants' summons to strike out the plaintiffs' statement of claim is dismissed with costs.

2. The plaintiffs' summons for reference of the matter to the Full Court is dismissed.

3. The plaintiffs' draft stated case is referred to the Registrar's list to be re-listed after consideration by the parties.