Plaintiff v Defendant

TAXES AND DUTIES - Whether the tobacco levy constitutes a tax - Whether the levy is a compulsory exaction of money imposed by a public authority for public purposes that is enforceable by law - Matthews v Chicory Marketing Board (Vict) [1938] HCA 38; (1938) 60 CLR 263 - Air Caledonie International v The Commonwealth (1988) 165 CLR 462 - Whether the exaction is imposed on an entity that is distinct from the polity - Queanbeyan City Council v ACTEW Corporation Ltd [2011] HCA 40; (2011) 244 CLR 530 - Whether the exaction is a payment for services rendered - Marsh v Shire of Serpentine-Jarrahdale [1966] HCA 77; (1966) 120 CLR 572 - Whether the levy is a payment for goods acquired for value and therefore not a tax.

Legal Services, Corrections Victoria, Department of Justice

1 This proceeding concerns an application by the plaintiff, Mr Knight, in relation to the pricing of tobacco in Victorian prisons.

2 In making this application Mr Knight seeks a declaration that:

(a) the decision taken by the Director, Correctional Services in August 1993 to impose a 'Corrections Victoria Tobacco Levy' of 10% of the Recommended Retail Price on all cigarettes [and] tobacco sold to prisoners in Government-run prisons' [is ultra vires;] and

(b) the decision taken by the Corrections Commissioner in May 2004 to increase that levy to 20% of the Recommended Retail Price' [is] ultra vires,

or for such other declaration as the Court thinks fit.[1]

3 No declaration was sought in relation to the distinct pricing system at privately run prisons, including the Port Phillip Prison at which Mr Knight now resides. Further, no issue as to standing was raised by the defendant.

4 On 19 October 2004, Smith J made an order pursuant to s 21(3) of the Supreme Court Act 1986 that Mr Knight must not commence any legal proceeding without the leave of the Court. Mr Knight sought leave to bring this proceeding and by an order made on 15 December 2011, Daly AsJ granted Mr Knight that leave.

5 In order to understand the application being made by Mr Knight, it is first important to understand how prisons sell cigarettes to prisoners in public prisons in Victoria and the background to the pricing decisions made in 1993 and 2004.[2]

6 In this section, no reference is made to the decision makers and their authority to make the relevant decisions. These matters go to the defendant's authority to make the 1993 and 2004 decisions, and are dealt with in due course.

7 Cigarettes and tobacco are purchased by individual prisons for sale to prisoners. The price at which the individual prisons purchase tobacco products varies between prisons as individual prisons use different suppliers for the purchase of tobacco products. Before 1993, tobacco products were sold to prisoners at a wholesale price.

8 In 1992, at the initiative of the Correctional Services Division, a Smoke Free Environment Taskforce was established ('the Taskforce'). The Taskforce was formed to oversee the 'development and implementation of a smoke free environment across correctional facilities',[3] which was known as the Smoke Free Work Environment Policy.

9 In 1993, the Taskforce recommended an increase in the price of cigarettes to a recommended prison price, being 90% of the recommended retail price. This therefore included a margin between the wholesale price and the price at which prisoners were sold cigarettes.

10 The Taskforce recommended that this margin was to be paid into a fund to be spent on prisoner health programs and facilities, particularly those relating to cessation of smoking to implement the Smoke Free Work Environment Policy.

11 The defendant gave evidence that no record of the specific decision approving the implementation of this policy is available. Nevertheless, it was submitted that the available documentary evidence indicates that a decision was made in 1993 to sell tobacco at the recommended retail price with the margin to be allocated to a fund for the purposes of smoking cessation and health related purposes. The defendant also contended that the available documents establish that:

(a) after arrangements were made for the financial recording of the sale of tobacco products and the collection of the margin on sales, in August 1993, prison governors in Victoria implemented the decision that tobacco products should be sold at the recommended prison price;

(b) from August 1993, tobacco products were sold at the recommended prison price. Any margin between the price at which prisons purchased the tobacco and the recommended prison price was allocated by the prison governors to the Tobacco Levy Trust Fund ('the TLT Fund');[4] and

(c) the funds from the TLT Fund were used for QUIT programs, nicotine replacement therapy, counselling and other associated programs focussing on personal development and health for prisoners.[5]

12 In July 2003, a decision was made to 'review the somewhat sporadic enforcement of the smoke free work environment policy'.[6] The decision to increase the levy to the recommended retail price and the new action plan for the policy were documented in the Commissioner's Requirement 1/2004 dated 8 April 2004.

13 The updated Smoke Free Work Environment Policy was to be implemented in three stages. Stage one of the policy was to:

Promote the policy and implement a range of short-term strategies to reduce the exposure of prison staff and prisoners to environmental tobacco smoke.[7]

14 One of the activities under stage one of the action plan was health promotion and smoking cessation programs, and one of the key tasks under that activity was for the 'Project Officer to ensure the price of tobacco products is consistent with community pricing'.[8]

15 As with the 1993 decision, the 2004 decision reiterated that the prison governors are required to pay any margin between the price at which they purchase tobacco for sale and the price at which tobacco is sold to prisoners into the TLT Fund.

16 The defendant gave evidence that the TLT Fund continues to be used for smoking cessation-related expenditure, predominantly the provision of nicotine replacement patches and QUIT programs - and in particular the 'Quitters are Winners' program, which has been developed specifically for the prison context.[9]

17 The margin between the wholesale price and the recommended prison price, and later the recommended retail price, was referred to as a tobacco 'levy' by Mr Knight and Mr Roderick John Wise, Deputy Commissioner, Operations, of Corrections Victoria.[10] Consequently, for the purposes of this judgment I have referred to the margin as the 'levy'. The levy does not represent a constant percentage above the wholesale price because, as stated above, the margin is dependent upon the price at which the individual prisons purchase cigarettes.

18 Mr Knight's application was made on the following two grounds:

(a) There was and is no statutory head of power or implied power contained in sections 20(2) [and] 21(1) or any other section of the Corrections Act 1986 (Vic), or in any regulation of the previous Corrections Regulations 1988 (Vic) or the current Corrections Regulations 2009 (Vic), or in any other statute, that empowered the defendant's predecessors or which empowers the defendant to impose the "Corrections Victoria Tobacco Levy"; [and]

(b) There is no general power to take action directed to various purposes, which encompasses such activity where it furthers the purposes of the relevant legislation, where it does not specifically refer to the charging of the relevant levy.[11]

19 While not expressly raised in the originating motion, Mr Knight, in his written submissions, also characterises the levy as a tax. The defendant responded to this characterisation in its submissions, and the issue as to whether the levy constitutes a tax was referred to in Daly AsJ's decision to grant Mr Knight leave to bring this proceeding.[12]

20 Therefore, in determining whether the declarations sought should be granted, the relevant issues are:

(a) whether any head of power exists that empowers the defendant to decide to impose a levy on the sale of cigarettes and tobacco in Victorian prisons in 1993, and to raise that levy in 2004; and

Submissions which Fall Outside the Scope of this Application

21 Before addressing the relevant issues, I turn briefly to Mr Knight's submissions on the use of the TLT Fund. Upon the hearing of this matter, this was determined to fall outside the scope of this application, pursuant to Mr Knight's grounds under the originating motion and the decision of Daly AsJ[13] to grant Mr Knight leave to bring this proceeding.

22 Mr Knight contended that the money raised by the levy far exceeded the money required to purchase the patches and fund the program. In support of this contention, Mr Knight submitted that a portion of a State Licence Fee is distributed to QUIT Victoria 'to support programs and sponsor activities that aim to reduce the prevalence of smoking in Victoria', and, it appears by implication that the amount of money allocated to the levy is not required.[14]

23 This was refuted by Mr Wise who gave evidence that, while QUIT Victoria does provide some assistance to Corrections Victoria through the provision of materials, none of the programs is free of charge. Counsel for the defendant noted that the Victorian Government decided to remove the State Licence Fee referred to by Mr Knight in December 1997. This decision was made following the High Court decision of Ha v New South Wales[15] in which the Court held that the New South Wales licence fee on the sale of tobacco was invalid. Therefore, the State Licence Fee has not been a source of funding for tobacco programs in Victoria since that time.

24 Mr Knight also submitted that the funds were being used for ulterior purposes. This was refuted by Mr Wise, who gave evidence that '[m]oneys held in the TLT Fund are used solely for the funding of programs and activities associated with the cessation of smoking, and health and wellbeing initiatives within the Victorian public prison system'.[16]

25 Mr Knight further submitted that the TLT Fund has never been audited, its balance is not reported in the Department of Justice annual reports or elsewhere, and the defendant has failed to provide a full statement of accounts relating to the levy during its 19 year imposition. Counsel for the defendant did not make any submissions in response to these submissions.

26 Nevertheless, while the defendant only dealt with certain points raised in relation to the use of the fund, the defendant submitted that all of the submissions on the use of the TLT Fund were in any case irrelevant to the issues before the Court. The defendant contended that the originating motion in the present application challenges the validity of two decisions, one made in 1993 and one made in 2004. The first was a decision to impose the levy, and the second decision was to increase the margin between the wholesale purchase price and the price at which the product was sold in prison. Those are the decisions that are being challenged in this application.

27 Consequently, the defendant submitted that what needs to be determined is whether either decision is supported by the Corrections Act 1986 ('the Act'). The defendant submitted that the answer to those questions does not depend on how moneys from the TLT Fund have actually been expended or the history of the TLT Fund over the past 19 years. Rather, the critical question, in accordance with the originating motion and the decision of Daly AsJ, is what the was purpose behind the imposition of the levy, at the time each decision was made, and whether that purpose was legitimate. If the evidence shows that one of the purposes was to raise moneys for a particular fund to be used for a particular purpose then that is relevant, but the history of the TLT Fund over 19 years since then is not relevant to this application.

28 I agree with counsel for the defendant that the history of the use of the TLT Fund over the past 19 years is not relevant to the issues arising out of this application. This application raises issues solely about whether the Act authorises the 1993 and 2004 decisions and whether the levy can be characterised as a tax.

The Power to Sell and Fix the Price of Tobacco under the Act

29 The defendant relied upon ss 3, 8, 17, 20(2) and 21(1) of the Act to contend that it had the power to make both the 1993 and 2004 decision.

30 Counsel for the defendant indicated in their oral submissions that, on their instructions, a reprint of the Act dated 10 August 1995 'was as close as we could get to 1993', but that this is the version of the Act that was applicable in 1993. My researches show that this is not correct. For the purposes of the 1993 decision, the relevant sections are set out in the version of the Act reprinted on 24 June 1992[17] as follows.

31 Section 3 of the Act provides:

"Director-General" means the Director-General of Corrections and includes a person acting as Director-General of Corrections under the Public Service Act 1974.

(1) The Director-General may, by instrument delegate to any officer or employee in the Office of Corrections or to any officer within the meaning of Part 5 or Part 9 any function or power of the Director-General under this Act or the regulations or under any other Act other than the Public Services Act 1974, except this power of delegation and the Director-General's powers under section 54A.

(2) The Director-General may under sub-section (1) delegate a function or power to a person or class of persons.

17. Director-General may exercise powers of prison officer

If whilst at a prison the Director-General considers that the security or good order of the prison or the safety of the prisoners is threatened, the Director-General may exercise all or any of the powers or functions of the Governor or of a prison officer.

(2) An officer in charge of prisoners must take all reasonable steps for the safe custody and welfare of the prisoners.

(1) The Governor of a prison is responsible for the management, security and good order of the prison and the safe custody and welfare of the prisoners.

36 For the purposes of the 2004 decision, the relevant sections of the Act are set out in the version of the Act as at 1 January 2004.[18] This latter version incorporates a number of amendments made to ss 3, 8 and 17 of the Act as follows.

(a) Section 3 no longer includes a definition of Director-General, and instead defines 'Secretary' as follows:

"Secretary" means Secretary to the Department of Justice under the Public Sector Management and Employment Act 1998 and includes a person acting as the Secretary to the Department of Justice under that Act.

(b) Section 8 of the Act is in substance the same as those sections outlined above with the only relevant exception being a reference to 'Secretary' in place of 'Director-General', and to 'Department of Justice' in place of 'Office of Corrections'.

(c) Section 17 of the Act differs in substance as follows:

(1) The Secretary has and may exercise all or any of the powers or functions of a Governor of a prison or a prison officer or escort officer under this Act.

(2) The Secretary may exercise the powers and functions under sub-section (1) in relation to a particular prison or class of prisons or in relation to all prisons in Victoria.

(3) An exercise by the Secretary of any power or function under sub-section (1) in relation to a matter, prevails over the exercise by a Governor or prison officer or escort officer of that power or function in relation to that matter.

(d) Sections 20(2) and 21(1) have not been amended since the Act was reprinted on 24 June 1992 and are identical to those sections set out above.

37 The defendant submits that the decision to impose the levy falls within the scope of ss 20(2) and 21(1) of the Act. Before turning to the scope of these sections, it is first important to identify who made those decisions and the sections that provide the decision-maker with the power to make those decisions.

38 The defendant submitted that the available documentary evidence and the inferences from that evidence establish that:

A decision that tobacco products should be sold at the [recommended prison price], with the margin to be allocated to a fund for the purposes of smoking cessation and related purposes, was made by the General Manager, Prison Services, or the Director of Correctional Services.

Those officeholders held delegations of the power under s 17 of the Act, issued by the Secretary under s 8 of the Act. The delegations gave the officeholders authority to exercise the powers or functions of a Governor under the Act, including the powers in ss 20 and 21 of the Act.[19]

39 The evidence referred to by the defendant is the evidence of Mr Wise, who swore a number of affidavits in this proceeding and gave brief evidence at trial, together with a copy of the minutes of a meeting of the Taskforce and an instrument of delegation.

The Power of the Secretary to make a Delegation under s 8 of the Act

40 Mr Wise gave evidence that, at the time of the delegation, the Secretary was acting as the Director-General. According to Mr Wise, this state of affairs was reflected in the Administrative Arrangements Order No 136, made by the Governor in Council on 11 January 1994, with effect from 6 October 1992.[20] On this basis, the defendant submitted that the Secretary, acting as Director-General, had the power to delegate the Director-General's powers and functions powers under s 17.

41 The Administrative Arrangements Order No 136 states that:

1. This Order takes effect on and from 6 October 1992.
2. In respect of the item in the Schedule a reference to the Old Body in any provision of an Act or in any statutory or other instrument made under any provision of an Act specified in Column 2 or in respect of any contract, agreement or other matter specified in Column 2 shall be construed as a reference to the New Body.

...

"Body" means Minister, Department, Administrative Office or Officer.

...

"Old Body" and "New Body" means respectively the Bodies specified in Column 1 and Column 3 of the item in the Schedule.

...

SCHEDULE

42 In his affidavit sworn 14 May 2012, Mr Wise refers to minutes of a Taskforce meeting dated 24 March 1993. These minutes state:

Tobacco Levy - Progress

The tobacco levy has been sent to [the General Manager, Prisoner Operations] for approval.[21]

43 Mr Wise also refers to later minutes of a Taskforce meeting dated 20 April 1993, which state that the 'tobacco levy has been approved by the Executive'.[22]

44 Mr Wise's evidence is that, in his understanding, 'the Executive' referred to senior officeholders within the corrections administration. Although not personally aware of the exact composition of the Executive, Mr Wise stated that he believed that, at a minimum, it would have consisted of the Director of Correctional Services and the General Manager of Prison Operations.

45 Mr Wise does not, however, conclusively identify a decision-maker in his affidavit. When asked in cross-examination, 'have you been able to discover who made the decision to impose the levy?', Mr Wise responded, 'well, it would appear to be the Director of Correctional Services back in 1993'.

Whether the Secretary Delegated the Powers and Functions of the Director-General under s 17 of the Act to the Decision Maker

46 In his affidavit, Mr Wise gave evidence that he believed the Secretary had delegated the Director-General's powers and functions under s 17 to both the General Manager, Prison Operations and the Director of Correctional Services.

47 The government archives do not contain a record of a delegation made by the Secretary either to the General Manager, Prison Operations or the Director of Correctional Services. However, Mr Wise gave evidence that he believes that since 1981, officeholders held delegations from the Secretary. In giving this evidence, he referred to and exhibited a later instrument of delegation dated 24 December 1993. That delegation provides that the:

I, [the] ... Secretary to the Department of Justice in the State of Victoria pursuant to section 8 of the Corrections Act 1986 delegate, functions and powers under the Corrections Act 1986 and the Corrections Regulations 1988 as specified below to the officer of the Correctional Services Division holding, acting in, or performing the duties of the position of General Manager, Prison Operations. The functions and powers delegated by this instrument are: Corrections Act 1986, ... [s] 17 ...[23]

48 Mr Wise gave evidence that he believes that at the time of the 1993 tobacco levy decision, the same instrument of delegation existed as that of 24 December 1993. Mr Wise also stated that:

I would also expect that ... [the] Director, Correctional Services, would have held a delegation from the Secretary of powers of the same or similar scope as those delegated by the instrument of delegation to the General Manager, Prison Operations, as at April 1993.[24]

Whether There Was an Authorised Decision Maker in 1993

49 The defendant's evidence is that the Secretary delegated the Director-General's powers and functions under s 8 of the Act. According to Mr Wise, the Secretary was, at the time of the 1993 decision, acting as the Director-General, and this was said to be reflected in the Administrative Arrangements Order No 136. Mr Wise did not expand upon the reason for his belief that the Secretary was acting as the Director-General, either in his affidavits or oral evidence.

50 In my view, Administrative Arrangements Order No 136 does not provide the Secretary with the authority to act in the position of Director-General at the time that the 1993 decision was made. This instrument allows a reference to the 'Director-General' to be construed as a reference to the 'Secretary', only in respect of Acts proclaimed after 6 October 1992. However, all sections of the Act, meaning the Corrections Act 1986, were proclaimed by 1988, [25] and the Act is therefore outside the scope of Order No 136. Given this, I do not consider Mr Wise's evidence provides a sound foundation to conclude that the Secretary acted as Director-General in 1993.

51 However, even if I were to find, as the defendant submits, that the Secretary was acting in this position in April 1993, the defendant must still establish that an authorised decision-maker made the 1993 decision. The defendant concedes in its submissions that the decision may have been made either by the General Manager, Prison Operations or the Director of Correctional Services. Notwithstanding Mr Wise's oral evidence, I find that the decision was made by either the General Manager, Prison Operations or the Director of Correctional Services.

52 The defendant submits that both officeholders held delegations and were entitled to make the 1993 decision. No instrument of delegation has been located that records a delegation of the Director-General's powers and functions on or before 20 April 1993. An inference is available from the instrument of delegation dated 24 December 1993 that a similar instrument existed at the time of the 1993 decision and provided for a delegation of powers to the General Manager, Prison Operations. There is, however, no evidence before the Court as to a delegation to the Director of Correctional Services, aside from Mr Wise's affidavit evidence that he 'would also expect' such a delegation existed. This evidence provides little assurance to the Court that one of the two possible decision makers held the relevant delegation.

53 In these circumstances, I find that there was no authorised decision-maker in respect of the 1993 decision. In turn, the decision to impose the 1993 levy is ultra vires.

Whether the Exercise of the Powers or Functions of the Governor or Prison Officer Was in accordance with s 17 of the Act in 1993

54 Whilst I have found that the 1993 decision was ultra vires for the reasons set out above, for the sake of completeness, I will briefly consider whether the exercise of the powers or functions of the Governor or prison officer enumerated under ss 20 and 21 was in accordance with s 17 of the Act, as it was in 1993.

55 In 1993, s 17 of the Act stipulates that the Director-General may exercise those powers 'if whilst at a prison the Director-General considers that the security or good order of the prison or the safety of the prisons is threatened'.[26] This is in contrast to s 17 of the Act as at the time of the 2004 decision, which, at this later time, did not provide any restrictions on the circumstances under which the Secretary might exercise all or any of the powers of the Governor or prison officer.

56 Even if s 17 of the Act, as it was in 1993, is not given a literal meaning, the phrase 'whilst at a prison', when combined with the requirement that there be a 'threat', in my view, suggests a narrow power to exercise the powers or functions of a Governor or prison officer under ss 20 and 21.

57 The defendant did not refer to the legislation as it existed at the time of the 1993 decision, and this might well account for the lack of evidence and submissions as to this requirement. Mr Knight made no submissions on this point.

58 Nevertheless, in my view, there is no evidence upon which the Court could be reasonably satisfied that the General-Manager, Prison Operations or the Director of Correctional Services satisfied the requirements of s 17, as it then stood, so as to exercise the powers or functions of a Governor or prison officer under ss 20 and 21, and thus, the 1993 decision is also ultra vires in this basis.

59 In contrast to the 1993 decision, the identity of, and instrument of delegation to, the decision maker in 2004, is relatively straight forward.

60 Mr Wise gave evidence that in 2004 the then Acting Commissioner determined that the pricing of tobacco products in public prisons should be increased to a recommended retail price. The Commissioner's Requirement 1/2004, dated 8 April 2004, documents this decision.[27]

61 Mr Wise also gave evidence that, in 2004, the Secretary, under s 8 of the Act, delegated its powers under s 17 of the Act to the Commissioner, pursuant to an instrument of delegation dated 1 January 2003.

62 In these circumstances, I am therefore satisfied that, in 2004, pursuant to section 8 of the Act, the Secretary delegated its powers under s 17 of the Act to the Commissioner, who decided to raise the price of that levy.

Whether the 2004 Decision Was within the Scope of ss 20(2) and 21(1) of the Act

63 Given my findings that the 1993 decision is ultra vires, I will now turn to consider whether the 2004 decision alone falls within the scope of ss 20(2) and 21(1) of the Act.

Whether There Is a Requirement for Specific Authorisation under the Act

64 Mr Knight submitted that the positive duties imposed by ss 20(2) and 21(1) of the Act do not constitute a 'general power to take action directed to various purposes, which encompasses such activity where it furthers the purpose of the relevant legislation ... even if it does not specifically refer to charging of the relevant fee'.

65 Mr Knight referred the Court to the case of Kent v Minister of State for Works[28] in which Smithers J held:

"A statute only authorizes those Acts and matters which it expressly nominates and those Acts and matters which are necessarily incidental to the Acts so expressly authorized": see Benning v Wong [1969] HCA 58; (1969) 122 CLR 256; [1970] ALR 585, per Barwick CJ.

... a project incidental to the exercise of a statutory power must in its nature have some affinity with the statutory power. It is not enough that it is economic or convenient.[29]

66 The defendant submitted that s 17, in conjunction with ss 20 and 21 of the Act, provides the decision-maker, or her delegates, with the power to:

(a) determine the price at which the tobacco products are sold;

(b) direct the maintenance of an account to hold the levy; and

(c) use funds held in that account for smoking cessation programs and related health promotion activities.

67 The defendant contended that these decisions and actions are both a matter of prison management within ss 21(1) and a matter of prisoner welfare within ss 20(2) and 21(1) of the Act. Further, the defendant submitted that significant matters of prison management are authorised by ss 20 and 21, even if the Act does not make specific reference to those matters.

68 The Court has recognised that the duties imposed by ss 20 and 21 of the Act carry with them broad implied powers to ensure that the duties can be discharged. In making this submission the defendant referred to Kaufman v Smith & Armytage[30] and Binse v Williams.[31]

69 Kaufman v Smith & Armytage was a case in which the Prison Drug Strategy, which included the potential to limit prisoner contact visits and other sanctions, was held to be authorised by ss 20 and 21, given the strategy's connection to addressing drug use within prisons. In that case Eames J held:

In determining whether action taken in purported reliance on the powers and duties of ss. 20 and 21 was lawful the court must have regard to the role and function of the prison system (which is the background to the grant of those powers to prison administrators) and to the experience and expertise which prison administrators must inevitably hold. If the policy is severe, then so too is the problem, and the courts should be slow to tell prison managers what is necessary for the proper management of prisons and for meeting the objectives of s. 21(1) and the duties under s. 20, or in concluding that the action which has been taken is an unreasonable one for the purpose of meeting the obligations and duties under ss. 20 and 21.[32]

70 Binse v Williams was a case in which it was held that the use of physical restraints on prisoners was necessary to prevent injury to prisoners or prison staff or property and was authorised by ss 20 and 21. In that case Charles JA held:

The governor of a prison acquires both duties and implied powers under s. 21(1) of the Corrections Act. The implied powers are to take steps for the management, security and good order of the prison as well as for the safe custody and welfare of the prisoners. Section 20 provides that he must take all reasonable steps to achieve some, but not all, of the objectives specified in s. 21.[33]

71 The defendant contended that these cases demonstrate that there need not be specific reference under the Act to a particular action in order for that action to be authorised.

72 In contrast, Mr Knight submitted that Kaufman v Smith & Armytage and Binse v Williams do not support the defendant's submission that it has the power under ss 20 and 21 of the Act to impose the levy. The reason is that those decisions both concern factual matrixes that are considerably different to this case. On this basis, Mr Knight contended that the reference to the welfare of prisoners should be read down to refer to specific instances of prisoner welfare rather than the general use that has been relied upon by the defendant. However, Mr Knight did not provide any authority to support this submission.

73 While I agree with Mr Knight that the factual matrices of Kaufman v Smith & Armytage and Binse v Williams are different from the facts in the present case, I do not agree that the reference in the Act to welfare should be read down to specific instances of prisoner welfare. In my view, ss 20 and 21 of the Act are broad and general sections that are intended to encompass wide-ranging obligations and powers relating to the 'safe custody and welfare of the prisoners' and carry with them implied powers to ensure that the obligations pursuant to those sections can be discharged. In this respect, I agree with, and follow, the comments of Eames J set out above that the courts should be slow to tell prison managers what is necessary for the proper management of prisons and for meeting the objectives of s 21(1) and the duties under s 20.

Whether the 2004 Decision Is a Decision with respect to Welfare and Management

74 In coming to a determination as to whether the 2004 decision falls within the powers under the Act or, in other words, is a decision with respect to welfare and management, it is important to consider the purpose behind the decision.

(a) the making available to prisoners of products for purchase at the prison canteen is a purpose that relates to prisoner welfare;

(b) the pricing of tobacco products at a price that permits part of that price to be used for smoking cessation and related health purposes, is plainly a purpose relating to prisoner health and welfare; and

(c) the actions taken in relation to pricing and use of the margin from the sale of cigarettes are reasonable and adapted to the achievement of those objectives, and so are authorised by ss 20 and 21 of the Act.

76 In determining the purpose behind the 2004 decision, it is necessary to consider the background and context in which the 2004 decision was made. This is particularly so in the present case as the decision and the purpose behind the decision has not been specifically recorded in any available documents.

77 The 2004 decision stemmed from a review of the Smoke Free Environment Policy. The review of the policy resulted in a three stage action plan. The decision to increase the price of cigarettes to the recommended retail price was contained in stage one of that action plan under the heading 'Health Promotion and Smoking Cessation Programs'. The key tasks listed under that activity are as follows:[34]

Project Officer to liaise with VicHealth, Tobacco Unit - DHS and the Cancer Council of Victoria to explore the potential for obtaining additional funding to expand the current provision of smoking cessation programs for prisoners and to include staff (including the provision of nicotine lozenges). In doing so, the range of 'smoke-free' projects which are currently operating across the prison system should be documented.

Project Officer to liaise with Quit Victoria to explore the feasibility of providing prisoners with access to a toll free 'Quit Telephone Service'.

Project Officer to develop in conjunction with Vic-Health, Tobacco Unit - DHS, the Cancer Council of Victoria and Quit[,] a package of information for prison staff and prisoners. This information may include:

• [V]ideo on smoking and the harms associated with this activity which would be shown to prisoners.
• Posters displaying health warning messages.

Project Officer in conjunction with VicHealth, Tobacco Unit - DHS, the Cancer Council of Victoria and Quit, examine the suitability and appropriateness of prison locations limiting the range and types of tobacco products that are available to prisoners to purchase.

Project Officer to ensure that the price of tobacco products is consistent with community pricing.

78 In my view, this indicates that the 2004 decision to raise the levy was a decision in relation to welfare and was empowered under ss 20 and 21 of the Act. The list of key tasks as set out in the Commissioner's Requirement, when read together, indicate that the purpose behind the decision to raise the price of cigarettes was to fund and explore more alternatives for cessation and health promotion programs and was to decrease the amount of smoking in prisons. While it is not expressly stated in the Commissioner's Requirement that the increase in price was to act as a deterrent to smoking, I am of the opinion that the evidence establishes that this was one of the purposes for increasing the levy.

79 For the above reasons, I find that the 2004 decision was a decision made with respect to welfare and management and is a decision that is reasonably adapted to that end. Therefore, the 2004 decision falls within the scope of ss 20 and 21.

80 Mr Knight submitted that the levy was unlawful because it involves the imposition of a tax, which, if correct, would mean that the levy must be authorised by specific legislative authority in order to be valid.[35] The defendant did not resist the proposition that there must be specific legislative authority for a tax, but nevertheless maintained that the levy does not constitute a tax.

81 Mr Knight submitted that the case of Air Caledonie International v The Commonwealth,[36] sets out the criteria for determining whether a charge is a tax, as follows:

(b) is it made by a public authority for public purposes;

(d) is it a payment for services rendered, or a similar transaction for value?[37]

82 The defendant agreed with the criteria as set out in Air Caledonie International. However, the defendant added, and I agree, that the first three criteria, if answered in the positive, will tend to indicate that the charge is a tax, whereas criterion (d) is effectively an 'exemption', so that if the charge is for a service rendered it is unlikely to be considered a tax. This was clearly set out in the decision of Air Caledonie International v The Commonwealth[38] in which the High Court held that reference to a payment for services rendered was 'but an example of various special types of exaction which may not be taxes even though the positive attributes mentioned by Latham CJ are all present'.[39]

83 Further, the defendant submitted that recently the High Court proposed an additional essential feature of a tax in the case of Queanbeyan City Council v ACTEW Corporation Ltd.[40] The additional feature is that in order for an exaction of money to be considered a tax, it must be an exaction imposed on an entity that, properly characterised, is distinct from the polity itself. Thus, the question in this case is whether the levy was imposed on an entity that is distinct from the government.

84 The defendant therefore submitted, and I agree, that the criteria appropriate for determining whether the levy constitutes a tax are as follows:

(b) is the exaction made by a public authority for public purposes?;

(d) is the exaction a payment for services rendered, or a similar transaction for value?; and

(e) is the exaction imposed on an entity that is distinct from the polity?

85 In his submissions Mr Knight did not address each of the criteria separately. The defendant addressed criteria (a) and (e) only, and, in addition, submitted that the payment is for the acquisition of goods for value, and as such is not a tax.

86 I will first consider whether the levy answers the first three criteria outlined above, which together, if answered in the affirmative, tend to indicate that the levy is a tax.

87 Together, the first three criteria require consideration as to whether the levy is a compulsory exaction of money imposed by a public authority for public purposes that is enforceable by law.

88 The defendant submitted that the implementation of the tobacco levy policy does not involve the compulsory exaction of money. The defendant contended that the present situation is quite unlike the usual situation of the imposition of a tax, where a public authority imposes a compulsory charge on an entity as a condition of that entity being permitted to engage in its normal businesses. In contrast, in the present case, the levy is a pricing decision for the sale of products to prisoners. Accordingly, the defendants submit that there is no compulsory exaction of money from prisoners.

89 I agree with the defendant that the present circumstances differ from the usual circumstances outlined in other cases, as in this case, the imposition is not being imposed on an entity in order for that entity to engage in its normal business. Nevertheless, the cases do not suggest that, in order for a charge to be considered a compulsory exaction of money, those specific facts need to be present.

90 In order to determine whether the levy amounts to a compulsory exaction, an analysis of the meaning of compulsion is required. The authorities indicate that a practical compulsion to pay a charge is enough to render that charge a tax.

91 This is clearly set out by Gibbs J in General Practitioners Society v The Commonwealth.[41] That case concerned whether conditions imposed by the Health Insurance Act 1973 (Cth) requiring, amongst other things, general practitioners to pay a $10 fee in order to become approved pathology practitioners amounted to a tax. Gibbs J noted that while no practitioner is under:

any legal compulsion to seek to become an approved pathology practitioner ... it was argued for the plaintiffs that few practitioners would be able to attract patients, or to make a living from their profession, if medical benefits were not payable in respect of their services, and that therefore, if [the relevant sections of the Health Insurance Act 1973 (Cth)] ... are valid, a practitioner who intends to render pathology services ... is compelled by practical considerations to apply to become an approved pathology practitioner.

...

The facts thus stated establish that the provisions in question leave some medical practitioners with no real choice; to preserve their practices, they must seek to become approved pathology practitioners ... The question whether a law imposes civil conscription cannot be answered in the negative simply because the law does not create any legal liability to perform any medical or dental services; the effect of the law in the economic and other circumstances must be considered, and practical compulsion is enough.[42]

92 In my view, it is incorrect to conclude that simply because something is described or considered a pricing decision on the sale of products, it is not a compulsory exaction and therefore not a tax. In accordance with the reasoning of Gibbs J, the levy amounts to a compulsory exaction of money as the prisoners have no real choice as to whether or not to pay the levy. In order to continue smoking, which they are entitled to do, the prisoners are practically compelled to pay the levy upon the purchase of their cigarettes.

93 Further I am of the view that the levy is clearly an exaction by a public authority, that being Corrections Victoria, for public purposes, that being the purpose of health and wellbeing of prisoners and prison staff.

94 The question then, is whether the levy is also an exaction that is enforceable by law. As stated above, neither party made submissions directly in relation to this question. However, the authorities suggest that just because there is no legal obligation imposed does not mean that the charge is not a tax. This was outlined by the High Court in the case of Attorney-General (NSW) v Homebush Flour Mills Ltd[43] in which the High Court determined that the Flour Acquisition Act 1931 (NSW) imposed a tax on flour millers. The Flour Acquisition Act 1931 (NSW) provided for the compulsory acquisition of all flour milled in NSW and provided that the flour millers had a right to compensation at £8.10 a ton and/or the millers could buy back the acquired flour at £10 a ton. Further under the Flour Acquisition Act 1931 (NSW) the millers were obliged to hold the flour until the Minister sold at his own risk so that, in the event of loss or destruction, he would receive no compensation, unless the Minister sought to take possession of it. In that case, the High Court held that the legislation imposed a tax on the millers, being the difference between the compensation and the repurchase price. In that case, Dixon J held:

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 ... [44]

95 Here, the fact that there is no legal obligation imposed on the prisoners, as there is no law in place requiring the prisoners to purchase cigarettes, does not, as Dixon J held, mean that the charge is prevented from fulfilling the description of a tax.

96 Having regard to the above, I am of the opinion that the levy answers all the positive features of a tax. As such, I will turn now to consider whether, despite exhibiting all the positive features of a tax, the levy does not constitute a tax.

97 Mr Knight contended that the levy has the characteristics of a tax, not a charge. In making this submission, Mr Knight relied upon the statement of Barwick CJ in Marsh v Shire of Serpentine-Jarrahdale[45] in which his Honour held that 'in general a fee is a payment for or in respect of services rendered whereas a tax is not, but rather a means of obtaining revenue for governmental purposes'.[46] In that case, his Honour determined that 'the fee [bore] no relation to the cost of administering [the] licensing system' and was therefore 'not a charge fixed as a reasonable fee for the issue of the licences'.[47]

98 The defendant did not directly address the question whether the levy is a 'fee for services rendered' in its submissions, however it did, as stated above, submit that it is relevant to the determination of whether the levy constitutes a tax.

99 In Air Caledonie International the High Court held that a fee for services rendered is:

... a fee or charge exacted for particular identified services provided or rendered individually to, or at the request or direction of, the particular person required to make the payment.[48]

100 In the later case of Northern Suburbs General Cemetery Reserve Trust v The Commonwealth[49] the High Court held that a levy which had been imposed on employers, and once exacted paid into a government fund to be spent on training programs for those employers, was a tax. The High Court held that in order to establish that the levy amounts to a fee for services rendered there needed to be a 'sufficient relationship between the liability to pay the charge and the provision of employment related training by the ultimate expenditure of the money collected'.[50]

101 In my view, in the present proceedings, the levy cannot be said to be a fee for services rendered as there is no specific identifiable service linked to the levy and the services provided through the Smoke Free Work Environment Policy are not services which are rendered at the direction or request of the prisoners required to pay the levy.

102 Accordingly, I am of the view that there is an insufficient relationship between the payment of the levy and the provision of the services to establish that the levy is a fee for services rendered.

Whether the Levy Is Imposed on an Entity That Is Distinct from the Polity

103 The defendant submitted that the money that the prison governors are required to pay into the TLT Fund is an imposition by an entity within the Victorian government (the Secretary) to another entity in the same government (each prison governor). The defendant characterised the payment as an aspect of the financial arrangements internal to the Victorian government, and therefore not the imposition of a tax. The defendant further contended that the fact that the burden of the levy is passed onto prisoners is an irrelevant consideration.

104 In making these submissions, the defendant referred to the decision of Queanbeyan City Council v ACTEW Corporation Ltd.[51] In that case the Australian Capital Territory imposed charges including a water licence fee and a 'utilities tax' on the Australian Capital Territory Electricity and Water ('ACTEW') Authority in respect of the water supplied by it to Queanbeyan. Queanbeyan contended that the ACT had:

invalidly imposed on ACTEW charges which answered the description of duties of excise within the meaning of s 90 of the Constitution, and that these charges had been wrongly passed on by ACTEW to Queanbeyan.[52]

105 In that case, the High Court, by a majority, held that a charge imposed by one organ of government upon another organ of government is not a tax.[53] The Court went further to state that:

(a) the fee for taking water was not a tax because it was imposed by the ACT on the ACTEW Authority. This was held to be so closely identified with the territory that the exaction of money from the ACTEW were not held to be of the character of taxes; and

(b) the fact the burden of the water licence fee was passed onto Queanbeyan City Council was not relevant.[54]

106 In my view, the defendant's application of the test to the present circumstances is incorrect. I agree with the defendant that the levy involves a direction from one arm of government to another arm of the government. Nevertheless, the imposition relied upon by the defendant is the Secretary's imposition on the prison governors to pay the funds raised by the levy into the TLT Fund. This kind of imposition does not, however, involve the imposition of a charge upon another arm of government, as were the circumstances in Queanbeyan City Council v ACTEW Corporation Ltd.[55]

107 In the case of Queanbeyan City Council v ACTEW Corporation Ltd, the ACT Government imposed a charge directly on the ACTEW. The ACTEW then passed this charge onto the Queanbeyan City Council. In that case, unlike the present case, ACTEW had a legal obligation to pay the charge and, if it failed to do so, the ACT Government had the power to suspend the entitlement of ACTEW to take water until the charge had been paid. By contrast, in the present case, the imposition to pay the charge is being placed directly on the prisoners by a delegation of powers from the Secretary to the Commissioner (or officer as it were) to make a decision with respect to the governor's powers under the Act.

Whether the Levy is a Payment for Goods Acquired for Value and Therefore Not a Tax

108 Counsel for the defendant submitted that the decision to impose the levy is a decision as to the price at which the goods are to be sold.[56] And, it was submitted, the transaction is excluded from the definition of a tax as it concerns an acquisition by prisoners of goods for value, being tobacco products.

109 In making this submission, the defendant placed emphasis on Air Caledonie International, in which the High Court held that a charge for the acquisition of property would be unlikely to be characterised as a tax, notwithstanding that it might otherwise meet the criteria outlined by Latham CJ in Matthews v Chicory Marketing Board (Vict). In this case, the Court noted that:

There are three comments which should be made in relation to the above general statement of Latham CJ. The first is that it should not be seen as providing an exhaustive definition of a tax. Thus, there is no reason in principle why a tax should not take a form other than the exaction of money or why the compulsory exaction of money under statutory powers could not be properly seen as taxation notwithstanding that it was by a non-public authority or for purposes which could not properly be described as public. The second is that, in Logan Downs Pty. Ltd. v. Queensland [(1977) [1977] HCA 3; 137 CLR 59] Gibbs J. made explicit what was implicit in the reference by Latham CJ to "a payment for services rendered", namely, that the services "rendered to" - or (we would add) at the direction or request of - "the person required" to make the payment. The third is that the negative attribute - "not a payment for services rendered" - should be seen as intended to be but an example of various special types of exaction which may not be taxes even though the positive attributes mentioned by Latham CJ are all present. Thus, a charge for the acquisition or use of property, a fee for a privilege and a fine or penalty imposed for criminal conduct or breach of statutory obligation are other examples of special types of exactions of money which are unlikely to be properly characterised as a tax merely because it is described as a "fee for services". If the person required to pay the exaction is given no choice about whether or not he acquires the services and the amount of the exaction has no discernible relationship with the value of what is acquired, the circumstances may be such that the exaction is, at least to the extent that it exceeds that value, properly to be seen as a tax.[57]

110 The defendant also referred to Harper v Minister for Sea Fisheries,[58] a case in which the High Court found that an abalone licence fee imposed under state law was not a tax. In this case, Dawson, Toohey and McHugh JJ noted:

Whilst the proper conclusion is that the amount paid for a commercial abalone licence is not a tax and, therefore, is not a duty of excise, that conclusion flows from all the circumstances of the case. Most important is the fact that it is possible to discern a relationship between the amount paid and the value of the privilege conferred by the licence, namely, the right to acquire abalone for commercial purposes in specified quantities. ... Clearly the line between a price paid for the right to appropriate a public natural resource and a tax on the activity of appropriating it may often be difficult to draw. But what is otherwise a tax is not converted into something else merely because it serves the purpose of conserving a natural public resource.[59]

111 In reliance on these authorities, the defendant submitted that the price of tobacco products, at the recommended prison price or the recommended retail price, is a charge for the acquisition of the product for value. The defendant contended that the price has a clear relationship with the value of what is acquired.

112 As is outlined above, cigarettes were sold at a margin above the wholesale price, being at the recommended prison price from 1993 onwards, and at the recommended retail price from 2004. The recommended prison price was 90% of the recommended retail price. The defendants submitted, and Mr Wise gave evidence, that the recommended retail price is the price at which the community routinely purchases tobacco and is set by the Retail Tobacco Traders' Association.

113 The recommended retail price referred to by the defendant incorporates the cost of federal taxes on tobacco, although, on the evidence before me, the extent to which federal taxes alter what would otherwise be the recommended retail price is not clear. In determining whether there is a discernable relationship between what is paid and the value of what is acquired, this case raises the difficulty that the price paid by the wider community does not only reflect a 'mark-up' by retailers or the value placed on this good by consumers, but rather reflects the impost of a tax.

114 Nevertheless, having regard to the evidence that the price is set with reference to the recommended retail price, I find that there is still a discernable, if not precise, relationship between the value of what is acquired and the amount paid by prisoners for cigarettes, notwithstanding that the recommended retail price incorporates a tax.

115 The test as to what constitutes a tax is not, as was concluded by the High Court in Air Calendonie International, intended to be exhaustive. It is not essential for all the characteristics of a tax to be apparent in order for a charge to be considered a tax. On the other hand, even if all the positive features of a tax are present, a charge may still not constitute a tax. Accordingly, as I have determined that the levy is a payment for goods acquired for value, I find that the levy does not constitute a tax.

116 As noted above, the relief sought by Mr Knight in this proceeding is a declaration that the 1993 and 2004 decisions are ultra vires.

(a) I declare that the 1993 decision is ultra vires and allow the application in so far as it relates to this decision; and

(b) I find that the 2004 decision was valid and dismiss the application in so far as it relates to this decision.

[1] Amended Originating Motion and Statement of Claim filed 13 January 2012, 1.

[2] Note: the parties largely agreed to the factual background.

[3] Commissioner's Requirement, Smoking in Prisons, dated 8 April 2004, exhibit 'RJW-01' to the affidavit of Mr Roderick John Wise sworn 29 July 2011.

[4] Mr Roderick John Wise gave evidence on behalf of the defendant that the fund was referred to in the recommendation as a trust but is not formally established as a trust. It is maintained in accordance with the Financial Management Act 1994, and the monies in the TLT Fund are kept separate from other sources of funds.

[5] Mr Knight disagrees with this evidence. Mr Knight's submissions and the evidence he refers to in relation to this point are set out at [22] - [28] below.

[6] Commissioner's Requirement, Smoking in Prisons, dated 8 April 2004, exhibit 'RJW-01' to the affidavit of Mr Roderick John Wise sworn 29 July 2011.

[8] Ibid attachment 1, 'Implementation Action Plan'.

[9] Mr Knight also disagreed with this evidence. Mr Knight's submissions and the evidence he refers to in relation to this point are set out at [22] - [28] below.

[10] Mr Roderick John Wise has held positions within the prison system since 1981 including, Director, Prison Services, General Manager of Barwon Prison and Governor of Melbourne Assessment Prison. See affidavit of Roderick John Wise sworn on 28 July 2011.

[11] Amended Originating Motion and Statement of Claim filed 13 January 2012, 1(a) - (b).

[12] Knight v Secretary to the Department of Justice (Reasons for Decision, Daly AsJ, 29 November 2011) [22] -[23].

[14] Plaintiff's submissions filed 15 May 2012, [23].

[15] [1997] HCA 34; (1997) 189 CLR 465.

[16] Affidavit of Mr Roderick John Wise sworn 28 July 2011.

[17] The version of the Act dated 24 June 1992 is the version under which the '1993' decision was made on or before 23 April 1993 (see [43] below). After this date, a number of amendments were made to the Act in 1993 by the Corrections (Management) Act 1993 and the Sentencing (Amendment) Act 1993, but not to the relevant sections of the Act, being ss 8, 17, 20(2) and 21(1).

[18] The version of the Act dated 1 January 2004 is the version under which the '2004' decision was made on 8 April 2004 (see [60] below). The subsequent version of the Act is dated 30 August 2004.

[19] Defendant's submissions filed 14 May 2012, [10.1] - [10.2].

[20] Exhibit 'RJW-12' to the affidavit of Mr Roderick John Wise sworn on 14 May 2012.

[21] Exhibit 'RJW-09' to the affidavit of Mr Roderick John Wise sworn 14 May 2012, 8. Note: the minutes refer to the individual holding the position of General Manager, Prison Operations at the relevant time. See the affidavit of Mr Roderick John Wise sworn 14 May 2012, 6.

[22] Exhibit 'RJW-09' to the affidavit of Mr Roderick John Wise sworn 14 May 2012.

[23] Exhibit 'RJW-11' to the affidavit of Roderick John Wise sworn 14 May 2012.

[24] Affidavit of Roderick John Wise sworn 14 May 2012, [10].

[25] Note: as outlined in the endnotes to the Act, the Corrections Act 1986 was assented to on 23 December 1986 and came into operation as follows: ss 1-3, 5, 6, 10, 59, 60, divs 1, 5, 6 of pt 8, s 113, sch 1, items 2, 5(2)(5), sch 2 on 6 May 1987: Government Gazette 6 May 1987, 1004; pts 2, 4-7, 9, 10, divs 2, 3 of pt 8, ss 4, 11, sch 1 items 1, 3-5(1)(3)(4)(6)-(9) on 1 March 1988: Government Gazette 24 February 1988, 363. Section 114 was never proclaimed, and has since been repealed.

[27] Commissioner's Requirement, Smoking in Prisons, dated 8 April 2004, exhibit 'RJW-01' to the affidavit of Mr Roderick John Wise sworn 29 July 2011.

[28] [1972] 2 ACTR 1.

[30] [2001] VSC 420 (7 November 2001).

[31] [1998] 1 VR 381.

[32] Kaufman v Smith & Armytage [2001] VSC 420 (7 November 2001) [43].

[33] [1998] 1 VR 381, 392.

[34] Commissioner's Requirement, Smoking in Prisons, dated 8 April 2004, exhibit 'RJW-01' to the affidavit of Mr Roderick John Wise dated 29 July 2011.

[35] Attorney-General v Wilts United Dairies Ltd (1921) 37 TLR 884, 886-887 (Atkin LJ).

[36] (1988) 165 CLR 462.

[37] Ibid, at 466-7, referring to the decision of Latham CJ in Matthews v Chicory Marketing Board (Vict) [1938] HCA 38; (1938) 60 CLR 263, 276. Later authorities have confirmed that this criteria is broadly appropriate for defining a tax: see Roy Morgan Research Pty Ltd v Commissioner of Taxation of the Commonwealth of Australia and Another [2011] HCA 35; (2011) 244 CLR 97, 109-10; Queanbeyan City Council v ACTEW Corporation Ltd [2011] HCA 40; (2011) 244 CLR 530, 541-2.

[38] (1988) 165 CLR 462.

[39] Air Caledonie International v The Commonwealth (1988) 165 CLR 462, 467.

[40] [2011] HCA 40; (2011) 244 CLR 530.

[41] [1980] HCA 30; (1980) 145 CLR 532 (Gibbs J, with whom Barwick CJ, Stephen, Mason, Murphy and Wilson JJ agreed).

[43] [1937] HCA 3; (1937) 56 CLR 390.

[45] [1966] HCA 77; (1966) 120 CLR 572.

[48] (1988) 165 CLR 462, 470.

[49] [1993] HCA 12; (1993) 176 CLR 555.

[51] [2011] HCA 40; (2011) 244 CLR 530.

[56] Defendant's submissions filed 14 May 2012, [32] - [37].

[57] Air Caledonie International v The Commonwealth (1988) 165 CLR 462, 467.

[58] [1989] HCA 47; (1989) 168 CLR 314.