Queanbeyan City Council v ACTEW Corporation Limited

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website.

Fundamental Issues 1 Section 90 of the Australian Constitution reserves to the Australian Parliament the exclusive powers to impose duties of customs and of excise. The exclusivity of the power prevents not only the States but each of the two inland Territories from imposing a duty of excise (Capital Duplicators Pty Ltd v Australian Capital Territory [No 1] (1992) 177 CLR 248). 2 This case concerns allegations that the second respondent ("the ACT") invalidly imposed duties of excise on the first respondent ("ACTEW") which were to be passed on to the applicant ("QCC"). 3 QCC obtains water from ACTEW and supplies it to businesses and residents in and around Queanbeyan, a small city in New South Wales close to the border between New South Wales and the Australian Capital Territory. QCC is established under the Local Government Act 1993 (NSW). 4 The ACT was established as a body politic under the Crown by s 7 of the Australian Capital Territory (Self-Government) Act 1988 (Cth). The Legislative Assembly for the Australian Capital Territory has powers to make laws (s 22). The Australian Capital Territory Executive has the responsibility of governing the Australian Capital Territory with respect to an extensive list of matters including water resources and taxation (s 36 and Sch 4). 5 ACTEW is a statutory corporation owned by the ACT. ACTEW was established under the Territory-Owned Corporations Act 1990 (ACT). Its voting shareholders are Ministers appointed by the Chief Minister of the Australian Capital Territory. The voting shareholders retain an ultimate power of direction and may require ACTEW to act contrary to the wishes and decisions of its own board of directors, although there is no suggestion that such a power has been exercised with respect to any of the issues which arise for consideration in the present case. 6 Amongst ACTEW's functions is the supply of water to residents and businesses within the Australian Capital Territory and to Queanbeyan. ACTEW charges QCC for water pursuant to a set of principles agreed between it and QCC which are based in part upon the premise that ACTEW will recover from QCC its costs of supplying water to QCC. 7 Commencing on 1 January 2000 the ACT began to impose a charge on ACTEW it called a water abstraction charge ("the WAC"). The charge commenced at the level of 10 cents per kilolitre and rose over a period of time to 55 cents per kilolitre. Various reasons were advanced from time to time for its existence and level which will be discussed in due course. Owing to a change in the basis of the charge, from a charge upon water actually delivered by ACTEW to its customers to a charge upon water abstracted by ACTEW, the current level of the charge is 51 cents per kilolitre of water delivered rather than 55 cents per kilolitre of water taken. The change was said to be revenue neutral owing to the fact that there was always some loss between abstraction and delivery. 8 Commencing on 1 January 2007 the ACT also imposed upon ACTEW, and others, a liability to pay a utilities (network facilities) tax ("the UNFT"). The tax was charged upon various networks which were distributing water, electricity, gas, sewerage and telecommunications. The charge applies to ACTEW's infrastructure for the delivery of water to its customers. It is a charge imposed by reference to the length of the network route. 9 Both the WAC and the UNFT were "passed through" from ACTEW to QCC. They were shown as separate amounts in invoices rendered to QCC by ACTEW and were in addition to the recovery of other water supply costs. QCC refused to pay the UNFT and has not paid the WAC since 30 June 2007. It is now seeking to recover the amounts of WAC paid since 1 January 2004 when the level of the WAC was raised from 10 cents per kilolitre to 20 cents per kilolitre. QCC claims that both the WAC (above 10 cents per kilolitre) and the UNFT are duties of excise which may not be levied by the ACT. The fundamental question in the present proceedings is whether those contentions are correct having regard to the characteristics of the charges in question. That fundamental question turns, in the first instance, on whether each of the WAC and the UNFT is properly characterised as a tax. The respondents deny that either of the WAC or the UNFT is a tax, notwithstanding the legislative characterisation by the ACT itself of the UNFT as a tax. If either the WAC or the UNFT is a tax the next question to be determined is whether it is a tax on a step in production, manufacture, sale or distribution of goods. If so, it is duty of excise (see Ha v New South Wales (1997) 189 CLR 465 ("Ha").

Introductory matters 10 Under s 13 of the Water Resources Act 1998 (ACT) ("the 1998 WR Act"), since repealed, the rights to the "use, flow and control" of all water of the Australian Capital Territory were, subject to an exception not here relevant, "vested in" the ACT. Those rights were exercisable by the responsible Minister (see also Legislation Act 2001 (ACT) s 162(2)). Section 7 of the Water Resources Act 2007 (ACT) ("the 2007 WR Act") now makes similar provision. 11 ACTEW possesses various licences authorising it to provide water services and sewerage services and to take water from various places for the purposes of urban water supply. All of the water abstracted by ACTEW lies or flows in areas under the direct control of the ACT. The ACT controls two water catchment areas, one in the Australian Capital Territory, known as the Cotter Catchment, and one in New South Wales. The New South Wales catchment is the Googong Dam Area which was acquired by the Commonwealth in October 1973 for the purpose of the provision of facilities for the storage of water and its supply for use in the Australian Capital Territory. The Canberra Water Supply (Googong Dam) Act 1974 (Cth)) vested the rights to use and dispose of all waters in the Googong Dam Area in Australia but gave the ACT Executive the power to exercise such rights (s 11(2)). Recently the ACT has been granted a 150 year lease by the Commonwealth over the Googong Dam Area. Water is also taken from the Murrumbidgee River within the Australian Capital Territory. 12 The Independent Competition and Regulatory Commission for the Australian Capital Territory ("the ICRC") was established under the Independent Competition and Regulatory Commission Act 1997 (ACT). The ICRC's functions include the provision of price directions and recommendations about price regulation (s 8). The responsible Minister may provide a reference to the ICRC in relation to prices for regulated services (s 15). On 29 June 2001 the ICRC, which also has functions under the Utilities Act 2000 (ACT) ("the Utilities Act"), granted ACTEW a license to provide water services and sewerage services. ACTEW was also granted a licence under s 35 of the 1998 WR Act to take water for the purpose of urban water supply. On 21 February 2008 ACTEW was granted a licence under the 2007 WR Act to take water for the purpose of urban water supply. 13 Various agreements have historically dealt with the supply of water from ACTEW to QCC. Some were called "service level" agreements. The most recent was made on 8 January 2002. It included some basic pricing principles. 14 Schedule 8 set out the agreed pricing principles. They included: "- The charge should reflect cost of supply and be commercially based so as to ensure the price covers the economic cost of supply. … - As a starting basis for price negotiation, annual price changes to QCC will acknowledge any allowed price change in the ACT." 15 Apart from service level agreements there have been a number of 12 monthly agreements about the price of bulk water. At first they were very simple. Over time they became more formal and more complicated. A pricing agreement signed on 30 June 1999 recorded that ACTEW anticipated it would be required to pay a fee for water abstraction. The agreement provided for that charge to be made against QCC as an additional charge. From 30 June 2000 the pricing agreements recorded that ACTEW was required to pay the WAC and that it would charge the same amount to QCC. QCC made such payments from 2 March 2000 to 30 June 2007. 16 On 12 November 2007, QCC commenced the present proceedings. The latest pricing agreement, made for the first time for a five year period (1 July 2008 to 30 June 2013), contained express terms which provided for the cessation of payment of WAC and UNFT in the event that, and to the extent that, QCC succeeds in its present application and for the repayment of any amounts paid with respect thereto under the latest agreement. The WAC has not been paid by QCC to ACTEW since 30 June 2007. No UNFT has been paid by QCC. There would therefore be no amount paid under the latest agreement to be repaid. 17 The parties were agreed that, to the extent QCC succeeds in the present proceedings, unpaid amounts of the WAC or UNFT need not be paid. QCC is seeking an order that payments for the WAC paid from 1 January 2004 to 30 June 2007 be refunded to it. ACTEW argued, in opposition, that there was no legal basis for an order requiring repayment of any amount of the WAC which might be found to have been invalidly imposed on ACTEW, passed through to QCC and paid by it.

The WAC in more detail 18 The statutory scheme pursuant to which the WAC was imposed consists of three interlocking pieces of ACT legislation. Pursuant to the 1998 WR Act, taking water without a licence was prohibited. Section 33(1) provided: "33(1) Subject to this section, a person shall not take water without a licence. Maximum penalty: 50 penalty units. 19 Under s 35 a licence to take water might be granted. It could be subject to conditions. Under s 78 the responsible Minister was given a general power to set fees for the purposes of the Act. Section 78(1) and (3) provided: "78(1) The Minister may, in writing, determine fees for this Act. … (3) A reference in this section to a fee includes a reference to a fee that is a tax." (Original emphasis.) 20 The 1998 WR Act was replaced by the 2007 WR Act which commenced operation on 1 August 2007. Section 28 provided, in similar terms to s 33 of the 1998 WR Act, that water may not be taken without a licence. Licences may be granted pursuant to s 30 and conditions imposed pursuant to s 31 of the 2007 WR Act. Under s 107 of the 2007 WR Act the Minister is given a power to set fees in the following terms: "107(1) The Minister may determine fees for this Act. (2) A determination is a disallowable instrument." 21 The 2007 WR Act does not purport to authorise the Minister to impose a tax. 22 To complete the picture it is necessary to refer to the Legislation Act 2001 (ACT). Section 56(1), (2) and (3) of that Act provide: "56(1) This section applies if an Act (the authorising law) authorises fees to be determined for an Act or statutory instrument (the relevant law). (2) The authorising law authorises a fee to be determined in relation to any matter under or related to the relevant law. (3) To remove any doubt, a fee may be determined for a provision of the relevant law even though the provision does not mention a fee. 23 A limit is set, however, by s 120(1) which is in the following terms: "120(1)An Act is to be interpreted as operating to the full extent of, but not to exceed, the legislative power of the Legislative Assembly. 24 It follows from the legislative scheme I have described that the Minister was not authorised, in the period relevant to the present proceedings, by the Legislation Act, or by either of the 1998 WR Act or the 2007 WR Act, to set a fee which was a duty of excise. Subject to that, and other limitations upon the legislative power of the ACT, the Minister was authorised by both the 1998 WR Act and the 2007 WR Act to set fees in terms sufficiently broad to include the WAC. 25 In September 1998 the Independent Pricing and Regulatory Commission (which later became the ICRC) ("the IPARC") was asked by the ACT to: "advise on the approach to establishing an appropriate water abstraction charge that reflects sound economic and environmental principles as well as providing advice on the structure and level of charges that would apply if that approach were applied." 26 The report of the IPARC was provided in May 1999. It recommended the establishment of a water abstraction charge at around 10 cents per kilolitre. The IPARC reported: "In an ideal situation, water charges would include all costs, including the environmental costs, of resource use. As these (external) costs are not charged for, consumption of the relevant resource is higher than it would otherwise be. Failure to include these costs means that consumption and investment decisions are made without considering the full economic costs of using resources. If environmental costs were included, customers' decisions could be made with an appreciation of the economic and environmental considerations of their consumption of water. However, this implies that environmental costs can be readily measured in financial terms. The Commission has previously stated that given the scarcity of water in the region, a water abstraction levy may well be desirable from a demand management and environmental perspective." (Emphasis added.)

and: "Whether the water abstraction charge should be passed through depends on the effect the pass through has on incentives. The primary reason for a water abstraction charge is to signal impact on the environment. If these signals are to reach end use consumers, the charge must be passed through. The Commission recommends that ACTEW treat the water abstraction charge as a pass through cost and show the charge separately on the water bill." (Original emphasis removed.) 27 It said: "In calculating the charge, consideration must be given to: - the extent that abstraction reduces the quality of water in the catchments - actual costs of water quality maintenance and the maintenance and management of the catchment - environmental management costs - information and evidence on the scarcity effects of water." 28 The IPARC said: "… in the absence of better information, the Commission considers that 7c/kL could be a reasonable proxy for the scarcity value of water within the catchments." 29 The report had already identified a "catchment management cost" of 1.5 cents per kilolitre. It said: "… the Commission suggests that the 1.5c/kL representing the catchment management cost may now be added to the 7c/kL representing the scarcity value of water resulting in a total of 8.5c/kL." and: "In addition to the catchment management cost and the scarcity value (included in the 8.5c/kL) some allowance should also be made for environmental costs as discussed above. Setting the water abstraction charge at around 10c/kL would also make a contribution towards environmental management costs. Taking all the above factors into consideration the Commission finally recommends that the water abstraction charge should be of the order of 10c/kL." (Original emphasis removed.) 30 The WAC was announced in the ACT Budget presented on 4 May 1999 by the Chief Minister and Treasurer, Ms Carnell MLA. She said: "From December, a new Water Abstraction Charge will be introduced to reflect the full cost of water supply and to encourage Canberrans to conserve one of our most precious resources." 31 On 28 February 2000 the IPARC issued a price direction taking effect from 16 March 2000 requiring ACTEW to pass the 10 cents per kilolitre WAC to its customers. 32 In these proceedings no contention was advanced that the WAC at this level was either a tax or a duty of excise. 33 The 2003-04 Budget Papers announced an intention to increase the WAC to 20 cents per kilolitre from 1 January 2004 and 25 cents per kilolitre in 2005-06 in the following terms: "This initiative to increase the Water Abstraction Charge by 10 cents to 20 cents per kilolitre from 1 January 2004 and a further 5 cents in 2005-6 is an interim measure prior to the Government receiving advice from the Independent Competition and Regulatory Commission on the value of water and methodology for assessing the Water Abstraction Charge on a regular basis. The current Water Abstraction Charge is 10 cents per kilolitre ($100 per megalitre). This charge has applied since December 1999. The Water Abstraction Charge is an important part of the overall water management strategy and is consistent with the Council of Australian Government water reform requirements. These require that the full economic cost of obtaining water, including the cost of externalities such as catchment management, be charged. The current severe drought highlights the need for charges to reflect the true value of water. In determining the Water Abstraction Charge, the Government is mindful that consumers have some control over their water usage. If consumers restrict their water usage, as they have done under voluntary and mandatory water restrictions, they will limit the cost faced under the Water Abstraction Charge." (Emphasis added.) 34 On 23 May 2003 the Treasurer asked the ICRC to advise on an appropriate level for the WAC, a methodology for its calculation on an annual basis and "the appropriate components of the charge, including but not limited to catchment management costs, the opportunity cost of water usage, the environmental cost of extraction and the current value of water as a resource". The ICRC reported in October 2003. In a section entitled "Overview" the ICRC said: "The WAC is designed to achieve two goals. First, it sends a signal to consumers about the true costs of water. This encourages efficient water use and investment in water saving devices. Second, the WAC recovers those costs of water provision not covered by the regulation of ACTEW. This ensures that there is appropriate recovery of costs incurred and reduces the potential for cross-subsidisation of costs associated with use of water for consumptive purposes from other sources of revenue available to the Government." 35 The ICRC identified two types of costs, "water supply costs" and "flow costs" which it described as follows: "For the purpose of the measurement of costs the commission considers that costs should fall into two classes. The first class is those costs that apply to all units of water abstracted within the ACT - for example, costs spent on catchment management as well as other government expenditures. These costs are called water supply costs. In calculating the WAC, water supply costs are apportioned over the amount of water abstracted to obtain the cost per kilolitre. The second class is those costs that depend on the amount of water the ACT does not return to the water catchment. Currently, of the 65 gigalitres of water per annum abstracted, only 35 gigalitres are returned through the water treatment facility, with thirty gigalitres lost to the water system each year. Costs that relate to the water not returned to the system are called flow costs, and will vary with the volume of water not returned to the system: the scarcity value of water is such a cost. The scarcity value of water is the opportunity cost of not using this water in an alternative use. In calculating the WAC, flow costs are ultimately apportioned over the abstracted level of water." 36 The ICRC dealt in greater detail with water supply costs and with the two elements it identified within flow costs, namely the scarcity value of water and environmental costs. It explained the way in which, in its view, each type of cost should be calculated. To calculate the scarcity value of water it used "the weighted average of trading prices" for temporary water entitlements. It explained its calculation of environmental costs as follows: "Because the cost of purchasing water entitlements to augment river flows is a capital cost associated with a permanent improvement in flows, calculating the environmental cost component of the WAC involves calculating a return on this capital cost. The commission has applied a risk free rate of return to this investment in order to derive an annual environmental cost." 37 It summarised its conclusions in the following way: "The cost estimates outlined above infer the WAC could be set at approximately 18 cents per kilolitre, comprising the following components: Water supply costs 8.2 cents per kL Flow costs Scarcity value 4.4 cents per kL Environmental costs 5.1 cents per kL Total costs 17.7 cents per kL This estimate excludes anticipated appropriation amounts for water supply costs associated with recovery from the January 2003 bushfires which is expected to add approximately 2 cents to the WAC in the current year, taking it to a total of 20 cents per kL. The commission also notes that additional appropriations for catchment management in the government's 2004-05 budget may increase this number with effect from July 2004." 38 The WAC was, pursuant to s 78 of the 1998 WR Act, increased to 20 cents per kilolitre effective from 1 January 2004. 39 On 10 August 2005 the Minister for the Environment determined increased fees under the 1998 WR Act. Most increases represented a consumer price index adjustment of 2.5%. Two types of fees were not subject to an increase of this magnitude. Water administration fees for a licence to take water in the lower volume categories, which had been substantially increased from 1 July 2004, were not increased at all. The WAC was increased from 20 cents per kilolitre to 25 cents per kilolitre from 1 July 2005. An Explanatory Statement issued in relation to the determination said: "With the exception of four matters, all proposed fees under the Water Resources Act 1998 are a Consumer Price Index adjustment of 2.5% for pre-existing fees. The unaltered fees reflect a decision by the Independent Competition and Regulatory Commission on water abstraction fees to reflect scarcity value, and the Minister's 2004 determination that substantially increases the administration fee for a licence to take water in the lower volume categories." 40 With the exception of the WAC the explanation accorded with the Minister's determination. The explanation given in relation to the WAC did not. The explanation suggested that the WAC was not increased and that it continued to reflect the decision of the ICRC. Neither statement was correct, at least so far as the evidence in the present case shows. However, the 2003-04 Budget Papers had foreshadowed a further 5 cents per kilolitre increase. 41 In the Budget Papers for the 2006-07 Budget the ACT government announced that it would increase the WAC by a further 30 cents per kilolitre (to 55 cents per kilolitre). The Budget Papers said: "From 1 July 2006 the Government will introduce a water fee to be incorporated into the Water Abstraction Charge (WAC), which will increase the WAC by 30 cents per kilolitre. As well as providing the Government with a return on a valuable resource, this initiative will assist in managing demand for water." 42 The Budget Papers also said: "Revenue from the Water Abstraction Charge in 2005-06 is estimated at $13.109 million and is forecast to increase to $27.163 million. This increase mainly reflects the introduction of the water fee." 43 The reference to a "water fee" to be included in the WAC was explained elsewhere in the Budget Papers as follows: "The increase in the Water Abstraction Charge (WAC) to incorporate a water fee is to better reflect the value of water to the Territory. Water is a valuable resource, and prices need to encourage a more efficient use of this scarce resource. This initiative continues the Government's commitment to the Think water, act water strategy, which has a focus on reducing per capita consumption of mains water in the short term." 44 On 27 June 2006 the Chief Minister determined that the increase to 55 cents per kilolitre would take effect from 1 July 2006. In an Explanatory Statement issued to accompany the determination the following statement was made: "The feeunder section 35 for licence holders licensed to take water for the purposes of urban water supply will be changed to reflect the Government's introduction of a water fee to be incorporated into the Water Abstraction Charge (WAC), which will be increased from 25 cents per kilolitre to 55 cents per kilolitre. Currently ACTEW is the only such licensee. This increase in the WAC represents the decision of Government to charge a price for water that more fully reflects its true economic value. This value represents an appropriate price for a scarce resource and is likely to achieve a more economically sustainable approach to water consumption within the Territory." (Emphasis added.) 45 In an April 2008 Chief Minister's "fact sheet", explaining taxes and charges in the ACT, the WAC was explained in the following terms: "The WAC offsets the costs incurred by the Territory and represents a sustainable price for water in the long term. As such the charge comprises the following components: - water supply: these are costs for catchment maintenance and Government expenditure; - scarcity: this is the value associated with the consumption of water preventing its alternative use for other economically valuable purposes; and - environmental: these costs include those that relate to the effect on the environment from the flow of water downstream, including the effect of storing water in dams." 46 However, as QCC pointed out in its submissions, that was the explanation made by the IPARC and the ICRC of the elements of the WAC when they recommended that the WAC be set at 10 cents per kilolitre in 1999 and at 20 cents per kilolitre in 2003 respectively. No explanation or calculation of the kind earlier carried out by the IPARC or by the ICRC was provided by the ACT government to justify either the 5 cent per kilolitre increase to the WAC effective from 1 July 2005 or the further 30 cent per kilolitre water fee which was incorporated into the WAC from 1 July 2006. In particular, the last increase determined by the ACT government is not adequately explained by reference to matters listed in the "fact sheet". It appears to have been principally the result of a political decision to raise additional revenue. 47 In April 2008 the ICRC issued a Water and Wastewater Price Review - Final Report and Price Determination. It recorded: "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." 48 The ICRC referred to the fact that: "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.) 49 In a section entitled "The drought" the ICRC said: "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." 50 When dealing with the WAC the ICRC said: "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." (Emphasis added.) (The quotation is from a response by the ACT Treasurer to a question on notice during the 2006 Select Committee on Estimates.) 51 The ICRC went on: "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." 52 From 1 July 2008 the WAC was calculated on the basis of water extracted by ACTEW rather than on the basis of water delivered to users. Under this approach ACTEW was charged for a greater volume of water than before because approximately 9.64% of water extracted was lost in distribution. At the same time the WAC was reduced from 55 cents per kilolitre of water delivered to 51 cents per kilolitre of water extracted. The change was said to be revenue neutral. The issues in the present case may be addressed, therefore, by reference to the character of the various increases to the WAC before 1 July 2008.

The UNFT in more detail 53 In the Budget Speech presented to the ACT Legislative Assembly on 6 June 2006 the Treasurer, Mr Stanhope MLA, foreshadowed the introduction of an infrastructure charge in the following terms: "Utilities receive considerable benefit from the Territory, through the occupation of government land for infrastructure such as cables and pipes. The Territory incurs the costs of maintaining these land corridors and easements. To reflect that cost and to compensate the Territory, a Utility Infrastructure Charge will be introduced. Net revenue from this measure is estimated at $15 million a year." 54 The proposed utility infrastructure charge was introduced by Mr Stanhope unambiguously as a revenue measure along with other revenue measures. In the 2006-7 Budget Papers the proposed charge on utilities was given the title of Utility Land Use Permit. Those papers said that one of a number of revenue measures introduced in the 2006-07 Budget was as follows: "The Utility Land Use Permit (ULUP) will be a charge on utilities where they occupy unleased Territory land, and will start from 1 January 2007. Utility providers currently occupy unleased Territory land for above ground and underground infrastructure, such as, cables and pipes without charge. The ULUP will therefore extend the revenue the Territory receives for the use of its land. The Utility Land Use Permit Fee will apply from 1 January 2007 and is intended to be based on a rate per linear kilometre of unleased land occupied. The charge is expected to raise revenue of $7.967 million in 2006-07, increasing to $16.525 million in its full year of effect in 2007-08." 55 The impact of various kinds of revenue was estimated, including revenue from taxes of various kinds, revenue from fees and fines and revenue from user charges. The proposed ULUP was nominated as a user charge. In due course however the proposed charge was carried into effect legislatively as a tax rather than as a user charge. 56 The UNFT is authorised by the Utilities (Network Facilities Tax) Act 2006 (ACT) ("the UNFT Act") which came into operation on 21 December 2006. Section 8 of the UNFT Act provides: "8(1) The owner of a network facility on land in the ACT is liable to pay tax in relation to the facility at the rate worked out as follows: determined rate x route length (2) In this section: determined rate means the rate determined under the Taxation Administration Act 1999, section 139." 57 On 21 December 2006 Mr Stanhope, as Treasurer, made a determination of the rate of tax for the purpose of s 8 of the UNFT Act. The determination provided as follows: "1 Name of Instrument This instrument is the Taxation Administration (Amounts payable - Utilities (Network Facilities Tax)) Determination 2006 (No 1). 2 Commencement This instrument commences 1 January 2007. 3 Determination of rate I determine the rate for section 8 of the Utilities (Network Facilities) Act 2006 to be $355 per kilometre of network route length. 4 Payment of fees This is a new tax and, under section 8, is payable to the ACT Government by the owner of a network facility as defined in the Utilities (Network Facilities Tax) Act 2006." 58 On 22 December 2006 Ms Gallagher MLA, Deputy Chief Minister, made a declaration under the Independent Competition and Regulatory Commission Act 1997 (ACT), s 4C(1)(a) in the following terms: "I declare that the tax imposed by the Utilities (Network Facilities Tax) Act 2006 on a network facility on land in the ACT may be passed on in full to consumers of utility services. This instrument commences on 1 January 2007 and ends on 30 June 2008." 59 ACTEW "passed through" the UNFT to QCC but QCC has refused to pay it.

When is a charge a tax? 60 In Matthews v Chicory Marketing Board (Vic) (1938) 60 CLR 263 ("Chicory Marketing Board") Latham CJ stated the characteristics of a levy which would constitute it a tax and, potentially, a duty of excise. He said (at 276): "It is a compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered." (Reference omitted.) 61 A critical element for the purpose of the present case is the negative stipulation that a levy is not a tax if it is "a payment for services rendered". Both the WAC and the UNFT were supported in the present case by the contention that they were payments of a kind which, like payments for services rendered, are not a tax. 62 In Parton v Milk Board (Vic) (1949) 80 CLR 229 the majority was constituted by Rich, Dixon and Williams JJ. Rich and Williams JJ adopted (at 251) the distillation by Latham CJ in Chicory Marketing Board. Dixon J said (at 258) to similar effect, about the levy there under examination: "It is a compulsory exaction. It is an exaction for the purposes of expenditure out of a Treasury fund. The expenditure is by a government agency and the objects are governmental. It is not a charge for services." 63 Latham CJ's distillation in Chicory Marketing Board was applied by the High Court in Browns Transport Pty Ltd v Kropp (1958) 100 CLR 117 ("Browns Transport"). It was then the subject of closer attention in Air Caledonie International v The Commonwealth of Australia (1988) 165 CLR 462 ("Air Caledonie"). 64 After drawing attention to additional negative criteria (that a tax is not by way of penalty and that it is not arbitrary) the High Court said (at 467): "There are three comments which should be made in relation to the above general statement of Latham C.J. 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, Gibbs J. made explicit what was implicit in the reference by Latham C.J. to 'a payment for services rendered', namely, that the services be '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 C.J. 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 characterized as a tax notwithstanding that they exhibit those positive attributes. On the other hand, a compulsory and enforceable exaction of money by a public authority for public purposes will not necessarily be precluded from being properly seen 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." (Emphasis added - footnotes omitted.) 65 The second passage emphasised generated much debate in the present case. One question debated was whether a compulsory exaction for the acquisition or use of property should be tested against a requirement that it should have some "discernible relationship with the value of what is acquired". 66 It was an important part of QCC's challenge to the various increases in the WAC that they had no discernible relationship with the value of water abstracted. Equally important to the argument for ACTEW and the ACT was the proposition that any requirement that a charge not lack a discernible relationship with value does not apply to a charge for the use or acquisition of property. 67 In Air Caledonie a charge was imposed upon passengers arriving in Australia. It was described as a "fee for immigration clearance". The Court found (at 470) that, whatever might be the position regarding the imposition of an immigration clearance fee upon a non-citizen: "A requirement that a returning citizen submit, in the public interest, to the inconvenience of such administrative procedures at the end of a journey cannot, however, properly be seen as the provision or rendering of "services" to, or at the request or direction of, the citizen concerned." 68 In the result, therefore, the conclusion that the fee was a tax, at least in its application to citizens, did not turn on any finding that it had no discernible relationship to value. It was the result of a prior conclusion that no relevant services were rendered. As the amending statute which imposed the immigration clearance fee was a taxing law it could not become part of a non taxation law (the Migration Act 1958 (Cth)) and was declared invalid. 69 The point was made later in Airservices Australia v Canadian Airlines International Limited (2001) 202 CLR 133 ("Airservices Australia") when (at [87]) Gleeson CJ and Kirby J said: "This is not a case like Air Caledonie International v The Commonwealth where there was an issue as to whether the compulsory exaction by a public authority could properly be described as a fee paid for the provision by the public authority of some service. A number of cases in which it was pointed out that no 'particular' service was provided, for which an exaction could be regarded as a charge or fee, were cases in which either no service at all was provided to the person required to make the payment, or there was a colourable attempt to represent that the exaction was in consideration for services." (Footnotes omitted.) 70 Similarly, Gummow J pointed out in Airservices Australia (at [443]) that: "… in Air Caledonie it was unnecessary for the Court to consider the means by which 'value' was to be assessed. The case turned on the lack of services provided." 71 The fact that the observations in the critical passage in Air Caledonie did not require direct application on the facts of that case suggests that the Court was making a point of a general kind. There seems no reason in principle why an exaction justified as a charge for the acquisition or use of property might not also be revealed as truly a tax because it bore no discernible relationship with the value of what was acquired. Such a circumstance might reveal the description of the charge to be colourable or misconceived. 72 The question is ultimately one of characterisation of the charge in question. It seems to me that no universal protection is given to a charge described as one for the use or acquisition of property any more than one described as a fee for services. A charge for the use or acquisition of property is unlikely to be a tax. So is a fee for services. Ultimately, in my view, the true test is whether the charge is appropriately characterised in accordance with the description applied to it. Misdescription will afford no protection against a claim that a particular charge is a tax, whether it is said to be a fee for services or for the use or acquisition of property. 73 More difficult issues arise from the additional suggestion in Air Caledonie that an exaction might be a tax to the extent that it exceeds the value of something acquired without choice. There does not appear to be any case where such a potentially elusive test has actually been applied to characterise part of an exaction, but not all of it, as a tax. In principle, the same question must be examined, namely: to what extent a charge possessed of the necessary "positive" attributes of a tax is not accurately described as a charge of a different character. I cannot imagine that the High Court intended that any court required to make a judgment about the extent to which a particular exaction was a tax, or not, would do so by attempting its own assessment of the policy justification for a particular charge or by any subjective evaluation of the "value" of what was acquired. Clearly, some objective standard would be called for. The suggested criterion, even in a more flexible assessment which might not strike at the whole of a charge, of a lack of any "discernible" relationship with the value of what is acquired suggests that the matter should be beyond reasonable argument and not tested simply by reference to competing opinion or subjective assessment. 74 The view which I take of the significance of the passage from Air Caledonie appears to me to be confirmed by Harper v Minister for Sea Fisheries (1989) 168 CLR 314 ("Harper"). Harper concerned the imposition by the State of Tasmania of a licence fee for taking abalone in State fishing waters which included waters within the limits of the State and the coastal waters of the State which were part of the territorial sea of Australia and also waters of the Australian fishing zone. The licence fee changed from time to time. At the time of the events which prompted the litigation the fee was $28,200 for abalone not exceeding 15 tonnes and $40,000 for abalone exceeding 15 tonnes. The licence fee was found not to be a tax and so not, as alleged, a duty of excise. The leading judgment was delivered by Brennan J. Although there had been arguments related to the existence of a public right of fishing and, in response, a contention that Tasmania was, for various reasons, the owner of the abalone attached to the sea bed in the relevant areas, they were not the arguments upon which the outcome of the case turned. Brennan J said (at 334): "Finally, the defendants embrace an argument which depends not on proprietary rights in the seabed but upon the exercise of legislative power over the abalone fishery in State fishing waters. In my opinion, that argument should be upheld. Accordingly, it becomes unnecessary to consider Tasmania's proprietary rights in the seabed and the arguments that the amounts paid by the plaintiff to obtain a licence are royalties charged by the Crown in right of Tasmania as the owner of the seabed or are payments for a profit ŕ prendre in or over the seabed so owned." 75 His Honour said, in connection with the argument upon which the case ultimately turned (at 335): "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 a profit ŕ 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 ŕ 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." 76 His Honour referred to Air Caledonie and part of the passage which I extracted earlier (from 467) but did not include the remarks concerning the possible consequence of an absence of a discernible relationship with value and then said (at 336): "As the amounts payable to obtain an abalone fishing licence are of the same character as a charge for the acquisition of property, they do not bear the character of taxes. They are not duties of excise." 77 The respondents submitted, in the present case, that this gave support to their proposition that the necessity for a discernible relationship with value is confined to cases concerning a payment described as a fee for service and has no relevance to a charge for the acquisition of property. There is no indication that, in Harper, it was contended that the payment of a licence fee had no discernible relationship with the value of the licence. Accordingly, the analysis and conclusions stated by Brennan J are not dispositive of that area of controversy in the present case. 78 Mason CJ, Deane and Gaudron JJ expressed specific agreement with Brennan J's conclusions and general agreement with his reasons, which general agreement was subject to observations which followed. They said (at 325): "The relevant facts and statutory provisions are set out in the judgment of Brennan J. We agree with his Honour's conclusions and, subject to what is said hereunder, we are in general agreement with his reasons for them." The licensing system which the Fisheries Act 1959 (Tas.) and the Sea Fisheries Regulations 1962 (Tas.) establish in relation to abalone fisheries in Tasmanian waters is not a mere device for tax collecting. Its basis lies in environmental and conservational considerations which require that exploitation, particularly commercial exploitation, of limited public natural resources be carefully monitored and legislatively curtailed if their existence is to be preserved. Under that licensing system, the general public is deprived of the right of unfettered exploitation of the Tasmanian abalone fisheries. What was formerly in the public domain is converted into the exclusive but controlled preserve of those who hold licences. The right of commercial exploitation of a public resource for personal profit has become a privilege confined to those who hold commercial licences. This privilege can be compared to a profit ŕ prendre. In truth, however, it is an entitlement of a new kind created as part of a system for preserving a limited public natural resource in a society which is coming to recognize that, in so far as such resources are concerned, to fail to protect may destroy and to preserve the right of everyone to take what he or she will may eventually deprive that right of all content. In that context, the commercial licence fee is properly to be seen as the price exacted by the public, through its laws, for the appropriation of a limited public natural resource to the commercial exploitation of those who, by their own choice, acquire or retain commercial licences. So seen, the fee is the quid pro quo for the property which may lawfully be taken pursuant to the statutory right or privilege which a commercial licence confers upon its holder. It is not a tax. That being so, it is not a duty of excise." (Emphasis added.) 79 Although, like Brennan J, their Honours did not address any question of discernible relationship with value, and it was not necessary to do so, the reference to the charge being "not a mere device for tax collecting" should be noted. 80 The joint judgment of Dawson, Toohey and McHugh JJ which I will also set out in full said (at 336): "We agree with Brennan J. and would add only the following comment. 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. In discerning that relationship it is significant that abalone constitute a finite but renewable resource which cannot be subjected to unrestricted commercial exploitation without endangering its continued existence. However, the conclusion reached by Brennan J. by no means carries with it the consequence that no exaction of money can constitute a tax if it is demanded for the purpose of conserving a public natural resource. If such an exaction otherwise exhibits the characteristics of a tax it will properly be seen as such. In particular, if 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': Air Caledonie International v The Commonwealth. This may be so notwithstanding that the exaction is one means of ensuring the conservation of a natural resource; there are, of course, other ways in which such a resource may be protected. Clearly the line between a price paid for the right to appropriate a public natural resource and a tax upon 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." (Emphasis added - footnotes omitted.)

81 Their Honours appear to have been concerned about the possibility of encouraging a free standing justification of compulsory charges in the name of conservation. In particular, it would appear that they were not prepared to subscribe unreservedly to the idea that a right to appropriate a limited public natural resource might in every case suffice as the quid pro quo for whatever fee a government might impose as the price of that entitlement. Dawson, Toohey and McHugh JJ must be taken as subscribing to the view expressed by Brennan J that an exaction for the right to take a natural resource has the same character as a charge for the acquisition or appropriation of property. On that approach it might reasonably be supposed that, in their view, the requirement that there not be an absence of a discernible relationship with value is not confined to charges justified as a payment for services rendered or a fee for service. 82 I do not read Mason CJ, Deane and Gaudron JJ as expressing a contrary view. An absence of any discernible relationship with the value of what could only be acquired by payment of a fee or other compulsory exaction might indicate that a charge, whatever its ostensible character, was "a mere device for tax collecting" even if what was acquired was akin to property. Applying the observation in Air Caledonie, that conclusion might be available with respect to so much of the charge as had no discernible relationship with the value of what was acquired. 83 Accordingly, an exaction under colour of a charge for the use or acquisition of property may, in my view, be vulnerable to characterisation as a tax if, or to the extent that, it has no discernible relationship with the value of what is acquired. 84 I propose to test the issues in the present case in that way. However, it is as well to emphasise two matters. The first is that, according to the authorities, no single feature of a charge is normally determinative. The second is that the test suggested by Air Caledonie was not articulated as one involving an assessment of value but whether there was no discernible relationship with the value of what was acquired.

The expert evidence 85 The expert evidence was concentrated on the WAC. Expert evidence was first filed in the proceedings by the ACT. In due course, in final submissions, the ACT contended that all the expert evidence filed, including its own, was irrelevant. QCC substantially agreed with that contention save as to a small number of specific issues. Without intending any disrespect to the experts who made a contribution to the proceedings I agree that their opinions are not helpful in resolving the issues in the present case. I will indicate briefly why that is so. 86 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. 87 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. 88 I do not see it as the function of the Court to enter this debate at all. The question of whether there is no discernible relationship between the WAC and the value of water abstracted by ACTEW, assuming that to be the test, cannot be resolved by the preference for one set of value judgments over another. What is critical to the examination of such a question is not which approach to the estimation of value is to be preferred but whether it can be said that there is an absence of any relationship between the charge and the value of the commodity or service in question. In the end Dr Beare's opinion could not sustain any proposition that there was an absence of such a relationship. At its highest it involved a debate about the justification for a remainder over the specific values which he conceded. 89 The nature of the debate became crystallised in Professor Grafton's rejoinder to Dr Beare's report where he said, for example: "An economically efficient WAC must account for both the short run or 'flow' effects and the long run or 'stock' impacts, and they must be priced separately. A failure to simultaneously account for both impacts (flow or short run effects and stock or long term effects) will result in an economically inefficient outcome."

and: "There are sound economic reasons to support the use of scarcity water pricing instead of water restrictions to help balance supply and demand in periods of low inflows." (Reference omitted.)

and: "The issue is whether the WAC is set at a level that ensures consumers pay for all the costs of water use and not whether this causes social or equity impacts." 90 I have selected only a few examples to illustrate the nature of the debate as it developed. The debate involved disagreement amongst economists. It moved further and further away from an examination of whether it could be said, if necessary, that the WAC, at particular levels, had no discernible relationship with the value of water. 91 Expert evidence was also given by Professor Thomas McMahon, Professor Emeritus in the Department of Civil and Environmental Engineering at the University of Melbourne. Professor McMahon's opinion was directed to the question of whether water was scarce in the ACT at present or would be in the future. He concluded: "…that for the present situation the available water is not scarce. However, under climate change and reduced flows, I conclude that the natural surface flows compared to the demand will be scarce." and: "…I am not prepared to say whether the available water is scarce. However, under climate change, reduced flows and increased demands, I believe the balance of evidence points to the conclusion that the available water in the ACT Catchment Area will be scarce." 92 Professor McMahon was called by ACTEW. His evidence was intended to provide, no doubt, justification for including a component in the WAC for scarcity value. His evidence, also, involved value judgments. More importantly for present purposes, it exposed the fact that any argument that the Court should enter the field of debate is an invitation to pronounce upon matters which are very far removed from the legal and constitutional issues presented by the proceedings. I am quite confident I should not succumb to any invitation to express some view about whether the ACT government, or the ICRC, should attribute a scarcity value to water in the public interest. 93 The expert evidence may, in my view, be put aside in its entirety. The question of its relevance was reserved, during the proceedings, for later consideration. It may now be said, in my view, as the ACT contended, to be not relevant.

The nature of the ACT's interest in water 94 As earlier seen the ACT has full authority to grant licences and control the taking of water from both the Cotter Dam and the Googong Dam as well as the Murrumbidgee River flowing in the Australian Capital Territory. QCC and the ACT appeared agreed that the ACT was also entitled to sell the water if it wished to do so, but the precise character of the interest which the ACT has in the water is, nevertheless, a matter of some complexity. 95 Mr Robertson SC, appearing for ACTEW, referred me to a judgment of the Supreme Court of the Australian Capital Territory in Environment Protection Authority v Rashleigh [2005] ACTCA 42 ("Rashleigh"). In Rashleigh the ACT Court of Appeal was concerned with rights to take ground water below a property and the extent to which they had been limited by a statutory requirement to secure a licence. The Court said: "On a careful review of the authorities it seems to us that, at common law, an owner or lessee of land, while they have a right to access water flowing below that land, does not have property in that water. The position is well stated in Halsbury's Laws of England (4th ed 2004 reissue) Vol 49(2): Water, at [47]: Although certain rights as regards flowing water are incident to the ownership of riparian property, the water itself, whether flowing in a known and defined channel or percolating through the soil, is not, at common law, the subject of property or capable of being granted to anybody. Flowing water is only of public right in the sense that it is public or common to all who have a right of access to it." (Emphasis added.) 96 Unlike a public right to fish, which was recognised in Harper (see also Northern Territory v Arnhem Land Aboriginal Land Trust (2008) 236 CLR 24 at [22]), there is no common law right to simply take water. Water rights are riparian rights. The common law position, so far as it applies in Australia, was stated by Windeyer J in Gartner v Kidman (1962) 108 CLR 12 at 23-24 in the following way: "These rules are very old. They have been applied in England in innumerable cases to determine and define rights and obligations in relation to streams along the banks of which men have been settled for centuries, using the waters and enjoying the benefits of their flow. The conditions of settlement, of climate and of geography in which this body of customary law developed are very different from those prevailing in many parts of Australia. And this is to be borne in mind when particular decisions of English courts are brought forward as analogies. But it is beyond doubt that these rules are a part, and an important part, of the common law that Australia has inherited: e.g. Dunn v. Collins. By the common law the proprietor of land upon the banks of a natural stream of running water, is entitled to have, and is obliged to accept, the flow of water past his land. He cannot either deprive those lower down the stream of its flow nor pen it back upon the lands of his neighbour higher up. These rights and obligations do not depend on prescription or grant. They are proprietary in character, natural incidents of the ownership or lawful possession of the land abutting on the stream: Mason v. Hill; Wood v. Waud; Chasemore v. Richards, per Lord Wensleydale. They do not depend upon the ownership of the bed of the stream, but of its banks: Lord v. Commissioners of Sydney; Lyon v Fishmongers Co., per Lord Selborne. They are thus called riparian rights. It is unnecessary to multiply references to cases in which these rules of the common law have been enunciated and followed in Australia. It is enough to refer to H. Jones & Co. Pty. Ltd. v. Kingborough Corporation, in this Court, and especially to the judgment of Fullagar J. The position of an artificial watercourse, that is a water channel constructed by man as distinct from a natural stream, is entirely different. Generally speaking the owner of land through which an artificial watercourse runs may block or divert it at his will, unless some easement over it has been acquired by grant or prescription." (Footnotes omitted.) 97 The interest of the ACT does not depend upon the common law. It depends upon statute. The effect of statutes which interfere with, or modify the exercise of, riparian rights has been considered by the High Court on a number of occasions. The rights thereby granted have been variously described, including as proprietary rights and exclusive rights (see e.g. H Jones & Co Pty Ltd v Kingborough Corporation (1950) 82 CLR 282 per Dixon J at 320, 328). 98 In Thorpes Ltd v Grant Pastoral Co Pty Ltd (1955) 92 CLR 317 ("Grant Pastoral Co") Fullagar J (with whom Dixon CJ, Webb and Kitto JJ agreed) referred to the object of statutory vesting of water rights as being (at 331): "… to enable the Crown, in a country in which water is a comparatively scarce and important commodity, to exercise full dominion over the water of rivers and lakes and to undertake generally the conservation and distribution of water. For the attainment of that object it was not necessary to destroy anybody's rights, but it was necessary to give to the Crown, or to some statutory authority, overriding rights to which private rights must, if need arise, give way." 99 His Honour also said: "The view which I am disposed to take is that the Act does not directly affect any private rights, but gives to the Crown new rights - not riparian rights - which are superior to, and may be exercised in derogation of, private riparian rights ..." 100 The ACT is not merely the custodian of a significant and finite natural resource. The resource is vested in it. It has the exclusive right to the use and control of the water. It may exercise "full dominion" over it. Nevertheless, it does not sell the water to ACTEW. Rather, it authorises ACTEW to take it upon payment of various fees and charges, including the WAC. Although the various charges made for that right, which include licence fees and water supply costs, as well as the WAC, may not be readily described either as charges for the use or acquisition of property or as fees for services rendered, the interest which the ACT has in water in the Australian Capital Territory, and in the Googong Dam Area, is more direct than the interest and role of the Tasmanian government which was considered in Harper. 101 If the WAC, therefore, is not a mere device for tax collecting (or to the extent that it is not) it will not be appropriately characterised as a tax.

Is the WAC a tax 102 QCC challenges every imposition of the WAC above a level of 10 cents per kilolitre. There were three such increases: the increase by the ICRC from 10 cents to 20 cents per kilolitre, of which approximately 2 cents was related to a recovery from the January 2003 bushfires; the increase from 20 cents to 25 cents; and the imposition of a new "water fee" of 30 cents, taking the WAC to 55 cents per kilolitre. 103 QCC argued that the ACT and ACTEW bore the onus of showing that the WAC was not a tax at its various levels above 10 cents per kilolitre. In my view questions of onus do not arise, but if they did the onus would lie on QCC to provide a persuasive reason to go behind the explanations advanced from time to time for the various increases in the WAC, as well as to make good a case that the increases bore no discernible relationship with the value of water abstracted. 104 In accordance with the observations in Air Caledonie I am prepared to accept that it is open to QCC to argue that each of the increases was a tax rather than a charge of some other character on the basis that, to the extent of the increase at least, the charge had no discernible relationship with the value of what was acquired by ACTEW. 105 At its inception the WAC was a charge recommended by an independent body to reflect actual or imputed costs of various kinds, either direct or more general, including environmental costs. It was intended, amongst other things, to send a signal to consumers about the value of water. There was no contention in the present case that, at its original level of 10 cents per kilolitre, it was a tax. 106 There are a number of immediate difficulties with any attack on the first increase to 20 cents per kilolitre or its attempted characterisation as a tax. First, although it was the result initially of a political decision it received the effective endorsement of the ICRC after an independent examination. Secondly, there remained an obvious link to costs and value, variously identified and calculated. The original 10 cents per kilolitre charge included flow costs of 8.5 cents (scarcity value and environmental costs). When the increase to 20 cents was endorsed, flow costs had only risen to 9.5 cents per kilolitre while catchment management costs, upon which no attack is made in the proceedings, had risen from 1.5 cents to 8.2 cents per kilolitre. The balance of approximately 2 cents per kilolitre, although initially explained as a temporary adjustment to water supply costs arising from the January 2003 bushfires, is readily accommodated by the explanation of the ICRC that there might be ongoing elevated water supply costs. Those matters make it impossible to conclude that, either as an increase or as part of a total charge, the additional 10 cents per kilolitre lacked any discernible relationship with value. I emphasise that I am not referring to, or making any judgment about, the factors identified as elements of the WAC at either of those times or their relative or calculated values. The present task concerns characterisation rather than justification. 107 A challenge to the increase from 20 cents to 25 cents per kilolitre does not succeed either. Although it was originally announced in the 2003-04 Budget Papers as a further increase to take effect in 2005-06 it is clear that both the increase to 20 cents per kilolitre and the foreshadowed 5 cents further increase were related by the ACT government to "the full economic cost of obtaining water". In its October 2003 report the ICRC referred to the fact that the 20 cents per kilolitre charge which it endorsed might be increased because of additional appropriations "for catchment management in the government's 2004-05 budget". In its April 2008 Review the ICRC identified the first 25 cents of the WAC as a charge "to offset costs incurred by the ACT Government related to catchment management, the scarcity value of water and environmental costs such as environmental flows." In the circumstances, in my view, it is not open to conclude that the further increase of 5 cents per kilolitre, or any part of the WAC up to a level of 25 cents per kilolitre had no discernible relationship with value, however value is measured. 108 Different considerations apply to the increase in the WAC by 30 cents per kilolitre from 1 July 2006. The increase was not recommended, or later endorsed, by the ICRC. It was the result of a political decision to charge an additional "water fee". It was plainly designed to raise revenue. 109 A purpose of raising revenue does not necessarily stamp a charge as a tax (see Airservices Australia at [91]). Many charges are designed to raise revenue, even if they also serve the purpose of recovering costs or realising value. However an objective to raise revenue is one of the indicia suggesting that a particular exaction may be a tax, rather than a charge of some other kind. 110 The ACT and ACTEW argued that the charge was not compulsory in the sense necessary to identify it as a tax because ACTEW was not under any obligation to supply its customers from water under the control of the ACT and thereby incur the WAC. In my view such an approach is unrealistic. At the time the 30 cents water fee was imposed there simply was no practical alternative supply of water available to ACTEW. Nor is there now. Any speculation about alternative sources of supply was about remote, costly, future possibilities, not present realities. As a matter of practice and commercial reality, to the extent necessary to meet the demands of its customers, including QCC, ACTEW must take water under the control of the ACT in quantities determined by the consumption of those to whom it, directly or indirectly, supplies water and pay the WAC upon such abstractions. Although consumers are under no compulsion to maintain any particular level of water use, their day to day needs are in fact met from water under the control of the ACT. Any other possibility is merely theoretical for reasons which include the fact that ACTEW is subject to control by the ACT. 111 On its face, therefore, the 30 cents per kilolitre water fee possesses the positive characteristics of a tax. The principal argument put by ACTEW and the ACT was that, as a charge for the acquisition and use of property, or something akin to property, no occasion arose to consider whether the charge had any discernible relationship with value. It was argued that any such enquiry was misplaced and unnecessary. However, I have already indicated that there seems no reason in principle why a charge described or justified in that fashion should be shielded from the requirement that it not be imposed in the absence of a discernible relationship with the value of what is acquired because the absence of such a relationship might indicate that any explanation given for it was colourable or misconceived. 112 Accordingly, some further examination of that question is appropriate, although it is not without its complexities. 113 In Airservices Australia McHugh J (at [292]-[298]) referred to a shift in emphasis, when determining whether a fee for services is a tax, from cost or expenses to value. His Honour said (at [297]): "297 … Unless this shift had been made, it would have been difficult, if not impossible, to describe the charge in Harper v Minister for Sea Fisheries as a fee for services. In that case, the formula for determining the licensing fee was explicitly related to the market value of abalone taken in the previous licence period and there was no attempt to relate the amount of the licence fee to the cost of administering the licensing scheme." 114 His Honour went on to say, however (at [298]), that the shift was not conceptual but rather: "298 … a recognition of the fact that the cost of a service is merely evidence of whether the payment is for that service. Thus, the expenses incurred in providing, or the costs of providing, a service are simply one criterion of the relationship. In Harper v Minister for Sea Fisheries, on the other hand, market value, as promulgated by declaration in the Gazette by the Director of the relevant government department, was the relevant criterion for determining whether the payment was for the benefit acquired." (Original emphasis.) 115 In the present case any concept of value is, so far as the 30 cents water fee is concerned, clearly not related to the costs to the ACT of supplying water. Nor, unlike Harper, may it be assessed by reference to its value to an immediate chargee. 116 The WAC is not a charge intended to be borne by ACTEW. ACTEW operates, figuratively and literally, as a conduit. ACTEW's abstraction costs are passed on to its customers. The 30 cents water fee was, in addition, only imposed on water taken for urban water supply. It was intended to be, and was, passed on to domestic consumers specifically. The intended, and actual, effect was that it was, ultimately, an impost on households. It is hard to see the water fee as a charge having, in this context, any relationship to the value of water to ACTEW. Any concept of value, applied in this fashion at least, must be considered in its application to end users. One available view is, therefore, that the 30 cents water fee was just a device to impose a charge upon ultimate consumers. 117 Moreover, unlike Harper, the 30 cents water fee was not imposed only on those who sought a privilege to exploit a natural resource which had been withdrawn from the public generally. The 30 cents water fee was a universal and unavoidable one in three senses. First it was imposed on the only licensee, ACTEW, and ultimately on all households in the ACT and Queanbeyan. Secondly, water should be regarded as so basic in Australian society that consumers have no real choice but to use it in some form or other, even if they have some control over their consumption. Thirdly, ACTEW has no real control over the volume of water which it abstracts, which is determined by the demands of its customers. 118 On the other hand, water is a commodity. Apart from other uses it may be consumed in its potable form. ACTEW is in the business of supplying water. It pays to abstract it and charges for its supply. Clearly, therefore, water has some value in its own right. One justification advanced for the 30 cents water fee was, in effect, that it tapped into unrealised value. In other words, ACTEW had been taking and supplying water, and consumers were paying for it, at either less than market value or, possibly, less than the market would bear. 119 As earlier indicated, by April 2008 water prices in the ACT were, the ICRC found, the highest in Australia and substantially higher than in some capital cities. That is the case also for the residents of Queanbeyan. Use of monopoly power to raise the cost of supply of a basic and essential commodity in order to raise revenue is unappealing, particularly in circumstances of strict water restrictions which, in any event, are intended to curtail or discourage unnecessary consumption. However, use of a monopoly position to impose high water charges on residents of the Australian Capital Territory and Queanbeyan raises political and policy questions rather than legal ones. The ACT is not confined to acting only on the advice of the ICRC as that body itself recognises. Questions of fairness do not enter the debate and neither do differences of opinion or competing economic models. 120 The value of water is not necessarily to be measured only in terms of the cost to the ACT government, or to the environment, of making it available. There seems no reason why the ACT may not realise the underlying value of a commodity vested in it. For that reason alone, I do not think that it is open to conclude that the additional charge had no discernible relationship with the value of water which ACTEW is permitted to abstract, even though the charge is ultimately passed on directly to its customers. 121 The second element justifying the 30 cents water fee was the stated broader policy objective of assisting in the management of demand for water. Such an objective appears to fall within the views expressed by Mason CJ, Deane and Gummow JJ in Harper. It is not inconsistent with the views expressed by Brennan J. It does not attract the reservation expressed by Dawson, Toohey and McHugh JJ unless, first, it is a charge exhibiting the characteristics of a tax. Then it would not be: "converted into something else merely because it serves the purpose of conserving a natural public resource." (Emphasis added.) 122 I think it right to regard the conservation of water as a great public objective of longstanding importance in Australia where "water is a comparatively scarce and important commodity" which is vested in the Crown with the purpose that it may "exercise full dominion over the water of rivers and lakes and … undertake generally the conservation and distribution of water" (Grant Pastoral Co). Again, I do not think that the justification for a charge directed to this end is examinable on policy grounds. It would be necessary to be satisfied that the charge was, in truth, a device to collect a tax, whether or not some collateral justification for it was, at the same time, advanced. 123 There is nothing on the face of the explanation given to suggest that it ought not be accepted as genuine. There is nothing improbable about the proposition that price increases might serve the purpose of encouraging a moderation in demand. Even if they did not, a higher price might be seen as a justified response to immoderate demand. 124 Given the extent of the control vested in the ACT over the use and abstraction of water, and the undeniable public purpose in water conservation, whatever may have been the revenue raising objective of imposing the water fee of 30 cents per kilolitre, it may not be said, in my view, that the 30 cents per kilolitre water fee has no discernible relationship with the value of what is acquired, even though those who ultimately pay the charge are end-users. 125 Accordingly, whether the ACT may charge for water as a commodity over which it may exercise "full dominion" or whether it is the custodian of a limited natural public resource I see no legal basis for denying to it the legal and practical authority to realise an economic value of the water if it chooses to do so or to attempt to impose a fiscal discipline on its ultimate use. 126 If the WAC, or any part of it, was a tax then there is no doubt it would be a duty of excise because, necessarily, it would be a tax on a step in the production and distribution of potable water intended to be, and actually, passed on to customers and consumers. However, in my view it is not a tax. It is therefore not a duty of excise.

Is the UNFT a tax? 127 The UNFT Act describes itself in various ways as a tax law and the UNFT as a tax. 128 The UNFT Act has the following long title: "An Act to Impose a Tax on Owners of Utility Network Facilities, and for Other Purposes". Section 1 of the UNFT Act provides: "1 This Act is the Utilities (Network Facilities Tax) Act 2006. Note This Act is a tax law under the Taxation Administration Act 1999. As a tax law, this Act is subject to provisions of the Taxation Administration Act 1999 about the administration and enforcement of tax laws generally." 129 Section 4 of the UNFT Act provides: "4 A note included in this Act is explanatory and is not part of this Act. Note See the Legislation Act, s 127(1), (4) and (5) for the legal status of notes." 130 The Legislation Act 2001 (ACT) also provides in s 127 that a note in an Act is not part of the Act. However, although the note to s 1 of the UNFT Act may not be regarded as part of the Act itself it is clear from s 4 that it may be regarded as explanatory and, accordingly, used to assist in the resolution of any ambiguity. 131 When the Bill for the UNFT Act was introduced into the ACT Legislative Assembly Mr Stanhope, the Chief Minister, Treasurer, Minister for Business and Economic Development, Minister for Indigenous Affairs and Minister for the Arts, in a speech made on 12 December 2006, said the following: "The Utilities (Network Facilities Tax) Bill 2006 establishes a tax on owners of utility network facilities on land within the ACT and amends the Taxation Administration Act 1999. The purpose of the amendment is to include the Utilities (Network Facilities) Tax Act 2006 as a tax law. This bill facilitates the implementation of an important component of the territory's budget strategy for 2006-07 and the future. This is one of the revenue measures that will enable us to continue to deliver the important services the community expects and demands. Key public services can only be maintained if we have the financial resources to do so. As the Assembly is aware, the government has embarked on a comprehensive program to cut costs across the public sector, but we also need to raise sufficient revenues. This important revenue measure was announced in the 2006-07 budget as the utility land use permit. After consulting with utility companies, the government has decided to use its existing taxation infrastructure to collect the new charge on network facilities. The charge will be applied as a tax on ownership. This is because the charge can be applied far more simply this way, with less administrative burden for the utilities, rather than through a more complex permit system. In particular, it will remove the burden on utilities of separately identifying and measuring their networks on unleased land." and: "Finally, the bill amends the Taxation Administration Act 1999 to include the utilities network facilities tax as a tax law and thus subject to the provisions and support of ACT taxation legislation. In raising the revenue necessary to support important public services for the community, the bill recognises that utility companies derive considerable benefits from being able to run their networks within the ACT. This charge will be applied equally to all utilities and will not discriminate between government and privately owned utilities. I commend the Utilities (Network Facilities Tax) Bill 2006 to the Assembly." 132 This explanation also may conventionally be used to resolve any doubt about the true character of the UNFT. 133 There seems no doubt that the UNFT has the positive attributes identified in Air Caledonie which give a charge the character of a tax. It is compulsory, for public purposes, and enforceable by law. The ACT and ACTEW contended, however, that the UNFT is not a tax because it is properly to be seen as a charge for the use or occupation of land. There are a number of difficulties with that contention. 134 First, there is the fact that the UNFT was described as a tax and is administered as a tax. Furthermore, the charge applies to all land in the ACT excluding only land identified by s 6 of the UNFT Act which is already the subject, "in relation to the use of the land for the utility network", of a lease, a licence granted by the ACT or a right prescribed by regulation. National land, under the control of the Commonwealth, is not excluded from the calculation of the charge even though the ACT may have no control over its use or occupation. 135 Moreover, ACTEW's right to operate the water network to which the charge applies does not depend on the UNFT Act. The UNFT Act simply requires registration of a person who is the owner of a network facility on land in the ACT. The owner of a network facility must lodge a return each year stating the length of each network facility. Tax is then assessed by the Commissioner of Taxation under the Taxation Administration Act 1999 (ACT). ACTEW's right to operate its network facility is not granted by the UNFT Act but by the Utilities Act. The Utilities Act separately, and independently of any registration under the UNFT Act, requires ACTEW to hold a licence to operate a water network (s 21). ACTEW must pay to the ICRC an annual licence fee which is determined by the ICRC (ss 44, 45). The ICRC may revoke a licence if the annual licence fee is not paid (s 42(2)). It is clear, therefore, that continuation of a valid licence and, accordingly, the right to operate the water utility, depends on the Utilities Act rather than on the UNFT Act. 136 Nevertheless ACTEW and the ACT drew attention to a requirement stated by s 25(2) of the Utilities Act, that a licensee comply with "a requirement under any other law in force in the Territory that applies to the utility in relation to the provision of a utility service". It was argued that was sufficient to activate the power in the ICRC to revoke a licence if ACTEW was convicted of two or more offences against the Utilities Act and the offences involved a contravention of one or more licence conditions. It was suggested that a failure to comply with the UNFT Act might, accordingly, jeopardise ACTEW's right to operate the water network, thus providing the necessary linkage between the UNFT and a right to operate. In my view the argument should not be accepted. 137 Section 47 of the Utilities Act provides that a utility must not without reasonable excuse contravene a condition of its licence and that it commits a separate offence for each day during which the contravention continues without reasonable excuse. Assuming, for the purpose of considering the contention of ACTEW and the ACT, that the combination of: a requirement to comply with laws, other than the Utilities Act, as a condition of a licence; the designation of contravention of a condition of the licence as an offence; and the power in the ICRC to revoke a licence for conviction of two or more offences, may be taken into account, nevertheless the connection is insufficiently made between the obligations imposed by the UNFT Act and the possibility of licence revocation. That is so for a number of reasons. 138 First, contravention of a licence condition is a daily offence. Revocation of a licence is only available at the instance of the ICRC for conviction of two or more offences, other than daily offences. Secondly, it cannot be assumed that a prosecution would be brought under the Utilities Act in circumstances where recovery of the UNFT is available directly under the Taxation Administration Act. Thirdly, it cannot be assumed that the ICRC would revoke a licence acting as agent for the taxation authorities. For these various reasons it seems to me clear that the UNFT ought not be regarded as a charge for use or occupation of land because there is no necessary consequence relating to use or occupation of land which would flow from a failure to pay it. 139 Two further arguments should also be referred to. The ACT referred to the judgment of Wilcox J in Telstra Corporation Ltd v Hurstville City Council (2000) 105 FCR 322 in support of the proposition that the UNFT was not a tax. In that judgment Wilcox J considered the character of rates or charges imposed upon Telstra and Optus by local councils under s 611 of the Local Government Act 1993 (NSW) and Pt 8 of the Local Government Act 1989 (Vic). It was accepted by the Victorian respondents in that case that the charges under the Victorian Act were taxes. A similar concession was not made by the New South Wales respondents. The charges under s 611 of the New South Wales Act were to be annual charges "to be based on the nature and extent of the benefit enjoyed by the person concerned." Wilcox J preferred the view that the charges were not taxes. Such charges are not of the same character as UNFT in the present case. Moreover, the conclusion was not necessary for the resolution of the issue with which Wilcox J was dealing. His Honour concluded that electrical impulses were not goods within the meaning of s 90 of the Constitution. It was upon that conclusion that his decision, that neither the charges under the Victorian Act or the New South Wales Act were duties of excise, really depended. 140 The ACT also argued that the UNFT was akin to land tax and for that reason not a duty of excise. It relied on Mutual Pools & Staff Pty Ltd v Federal Commissioner of Taxation (1992) 173 CLR 450 at 454, 468. That case dealt with an attempt to deem swimming pools constructed in situ to be goods so that they might be taxed under the same legislation as imposed a tax on manufactured goods. Section 55 of the Constitution required a law imposing a duty of excise not to deal with other forms of taxation. The tax on swimming pools constructed in situ was found to be a tax on land and not a tax on goods. Accordingly it was not validly included in the legislation. The decision does not conclude the position in the present case. In my view, in substance the UNFT is not a tax upon land but a tax on a step in the distribution of water. 141 In my view the UNFT is what the UNFT Act declares it to be, what the note to s 1 of the UNFT Act explains it to be and what Mr Stanhope described it as. It is a tax. 142 The next question, therefore, is whether it is a duty of excise.

When is a tax a duty of excise 143 In Anderson's Pty Ltd v Victoria (1964) 111 CLR 353 Barwick CJ distilled the characteristics of a duty of excise as follows (at 364): "From the earliest times of this Commonwealth it has been plain that the expression 'duty of excise' in s. 90 of the Constitution is used in a more precise sense than that of an inland duty and that it refers to the essential nature of the tax, not to the manner of its collection. But the judicial formulation of the nature of a duty of excise within the meaning of the Constitution has progressed over the intervening years. It has now, however, in my opinion, received definitive exposition by this Court, and, however much other views might have been possible at an earlier stage, it ought now to be taken as settled that the essence of a duty of excise is that it is a tax upon the taking of a step in a process of bringing goods into existence or to a consumable state, or of passing them down the line which reaches from the earliest stage in production to the point of receipt by the consumer." (Emphasis added.) 144 His Honour went on (at 365-366): "But, of course, in arriving at the conclusion that the tax is a tax upon the relevant step, consideration of many factors is necessary, factors which may not be present in every case and which may have different weight or emphasis in different cases. The 'indirectness' of the tax, its immediate entry into the cost of the goods, the proximity of the transaction it taxes to the manufacture or production or movement of the goods into consumption, the form and content of the legislation imposing the tax - all these are included in the relevant considerations. But in the end what must be decided is that the tax is in substance a tax upon the relevant step. That being the central question in a controversy as to the nature of the tax, it will not, in my opinion, necessarily be resolved by the form of the tax or by identifying what according to that form the legislature has made the criterion of its imposition, however important in any particular case those matters may be." (Emphasis added.) 145 In Browns Transport the High Court observed (at 128-129): "The definition of a duty of excise propounded by Griffith C.J. in Peterswald v. Bartley has been found in several later cases to be somewhat too narrow. But the decision in that case has never been doubted, and it has never been doubted that the term 'duties of excise' in s. 90 of the Constitution does not include many classes of impost which in England have been commonly described by that name. If an exaction is to be classed as a duty of excise, it must, of course, be a tax. Its essential distinguishing feature is that it is a tax imposed "upon" or "in respect of" or "in relation to" goods. It would perhaps be going too far to say that it is an essential element of a duty of excise that it should be an "indirect" tax. But a duty of excise will generally be an indirect tax, and, if a tax appears on its face to possess that character it will generally be because it is a tax upon goods rather than a tax upon persons. ' ... a direct tax is one that is demanded from the very person who it is desired and intended should pay it. An indirect tax is one which is demanded from one person in the expectation andwith the intention that he shall indemnify himself at the expense of another'." (Emphasis added - references and footnotes omitted.) 146 In Ha the majority was constituted by Brennan CJ, McHugh, Gummow and Kirby JJ. They said (at 490): "The principle that an inland tax on a step in production, manufacture, sale or distribution of goods is a duty of excise has been long established." 147 Their Honours also said (at 498): "When a constitutional limitation or restriction on power is relied on to invalidate a law, the effect of the law in and upon the facts and circumstances to which it relates - its practical operation - must be examined as well as its terms in order to ensure that the limitation or restriction is not circumvented by mere drafting devices." 148 Their Honours explicitly reaffirmed a line of authority from Parton to Capital Duplicators Pty Ltd v Australian Capital Territory [No 2] (1993) 178 CLR 561 (at 590) saying (at 499): "[W]e reaffirm that duties of excise are taxes on the production, manufacture, sale or distribution of goods, whether of foreign or domestic origin. Duties of excise are inland taxes in contradistinction from duties of customs which are taxes on the importation of goods. Both are taxes on goods, that is to say, they are taxes on some step taken in dealing with goods." 149 Their Honours went on to say (at 503): "Section 90 of the Constitution, by prescribing the exclusivity of the Commonwealth's power to impose duties of excise, resolves the question. So long as a State tax, albeit calculated on the value or quantity of goods sold, was properly to be characterised as a mere licence fee this Court upheld the legislative power of the States to impose it. But once a State tax imposed on the seller of goods and calculated on the value or quantity of goods sold cannot be characterised as a mere licence fee, the application of s 90 must result in a declaration of its invalidity." (Footnotes omitted.) 150 With respect, the reference to "a mere licence fee" is an important one. It emphasises the necessity, as their Honours said elsewhere, to have regard to the substance and practical operation of a law as well as its terms. This important principle has particular significance for the UNFT. 151 The principal foundation for the argument that the UNFT, if a tax, is nevertheless not a duty of excise was that it was not a charge levied on goods but upon persons, namely the owner of a network facility. However, in accordance with the authorities, and as emphasised in Ha, attention is required to the substantive effect of the charge. 152 In Chicory Marketing Board Dixon J said (at 302-303): "The chief purpose of the foregoing discussion of the considerations governing the connotation of the word 'excise' is to show that, although, as it is used in the Commonwealth Constitution, it describes a tax on or connected with commodities, there is no ground for restricting the application of the word to duties calculated directly on the quantity or value of the goods. A definition which makes quantity and value the only basis of taxation which would satisfy the notion of 'excise' has no foundation either in history, economic or fiscal principle, nor in any accepted specialization. The basal conception of an excise in the primary sense which the framers of the Constitution are regarded as having adopted is a tax directly affecting commodities." (Emphasis added.) 153 Applying the analysis to the case then before the Court (a levy on the number of half acres which a chicory producer had planted, rather than upon the quantity or value of any resulting crop), Dixon J thought it sufficient that (at 303): "…the levy has a natural, although not a necessary, relation to the quantity of the commodity produced…"

and (also at 303): "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." 154 His Honour then said (at 304): "If the word 'excise' received a meaning which confined its application to taxes the relation of which to the commodity concerned was of some narrow and strictly defined nature, as, for instance, by an arithmetical relation to quantity, it would not only miss the principle contained in the use of the word 'excise,' but it would expose the constitutional provision made by sec. 90 to evasion by easy subterfuges and the adoption of unreal distinctions. To be an excise the tax must be levied 'upon goods,' but those apparently simple words permit of much flexibility in application. The tax must bear a close relation to the production or manufacture, the sale or the consumption of goods and must be of such a nature as to affect them as the subjects of manufacture or production or as articles of commerce. But if the substantial effect is to impose a levy in respect of the commodity the fact that the basis of assessment is not strictly that of quantity or value will not prevent the tax falling within the description, duties of excise." (Emphasis added.) 155 Hematite Petroleum Pty Ltd v Victoria (1983) 151 CLR 599 ("Hematite") concerned the imposition by the Victorian Government of a charge on pipeline operation. It was common ground that the fee was not a fee for services rendered but was a tax. The issue was whether it was a duty of excise. By an amendment to the relevant legislation the legislature identified particular pipelines as "trunk pipelines". It did so by reference to pipeline licence numbers and without identifying the pipelines or their owners. Trunk pipelines were to be charged an operation fee of $10 million in the relevant financial year. Other pipelines were charged a maximum of $40 for each kilometre of pipeline. The $10 million charge applied only to three pipelines. It applied only to pipelines carrying hydrocarbons from the Bass Strait oil and gas field and it applied to every such pipeline, there being only three in existence. In holding that the fee was a duty of excise Mason J said (at 634-635): "Here the significant features of the pipeline operation fee are: (1) that it is levied only upon a trunk pipeline, i.e., the gas and fuel Corporation pipeline, the Gas Liquids pipeline and the crude oil pipeline, through which flow the entirety of the hydrocarbons recovered from the Bass Strait fields; (2) that it is a fee payable for permission to operate a pipeline for which the plaintiffs otherwise hold a permit to own and use; (3) that the fee is a special fee which is extraordinarily large in amount, having no relationship at all to the amount of the fees payable for other pipeline operation licences - the fee payable for a trunk pipeline is $10,000,000 whereas the fee payable for any other pipeline is $40 per kilometre; and (4) that the fee is payable before an essential step in the production of refined spirit can take place - the transportation of the hydrocarbons from Longford to Long Island Point where the refinery is situated. The coexistence of these features indicates that the pipeline operation fee payable by the plaintiffs is not a mere fee for the privilege of carrying on an activity; it is a tax imposed on a step in the production of refined petroleum products which is so large that it will inevitably increase the price of the products in the course of distribution to the consumer. The fee is not an exaction imposed in respect of the plaintiffs' business generally; it is an exaction of such magnitude imposed in respect of a step in production in such circumstances that it is explicable only on the footing that it is imposed in virtue of the quantity and value of the hydrocarbons produced from the Bass Strait fields. To levy a tax on the operation of the pipelines is a convenient means of taxing what they convey for they are the only practicable method of conveying the hydrocarbons to the next processing point." (Emphasis added.) 156 His Honour also rejected a suggestion that the tax could not be said to be imposed upon the hydrocarbons themselves because the flow of hydrocarbons through the pipeline might cease. Like Dixon J in Chicory Marketing Board his Honour thought such a possibility insufficient to deny the tax its character as a duty of excise. 157 Brennan J in Hematite said (at 657): "In principle, it is sufficient to establish that a tax is a duty of excise if it is a tax, however calculated, upon a step in the process of production, manufacture or distribution." and (at 658): "Where a tax which takes the form of a licence fee is exacted not in respect of a business generally but in respect of a particular act done in the business, it is a tax upon the doing of that act; where that act is a step in the production, manufacture or distribution of goods, a tax upon that step is a burden upon production, manufacture or distribution. And that is so whether or not the tax is calculated upon the quantity or value of the goods produced, manufactured or distributed." 158 Deane J said (at 665): "In substance, a duty of excise, as that expression is used in the Constitution, is a tax upon the manufacture or production of goods. In its most obvious form, it is a tax which is imposed upon either the general process of manufacture or production of goods or upon the taking of a particular step in such manufacture or production and which is calculated by reference to the quantity or value of goods manufactured or produced. It is, however, established by the cases that a tax on goods which is imposed at a point which is either preliminary or subsequent to actual manufacture or production, including a step in the acquisition of raw materials and a step in the distribution of the finished product, may be a duty of excise. It is also established that a tax may be a duty of excise notwithstanding that it is not calculated by reference to the quantity or value of the goods manufactured or produced." (References and footnotes omitted.) 159 His Honour went on to say, of the tax under consideration in Hematite (at 668): "The magnitude of the tax and its recurrent nature as a revenue outgoing make inevitable the conclusion that the tax is an indirect one in the sense that it will be, and is intended to be, regarded as a component of the costs and expenses of manufacture or production which will, subject to the vagaries of market conditions, be passed down the line to the consumer." and (at 669): "In the circumstances of the present case, the absence of a disclosed relationship between the tax and the quantity or value of the goods manufactured or produced is outweighed by the combination of a number of other factors, namely, the magnitude of the tax, its nature as an indirect tax, the fact that it is imposed at the stage of manufacture and production of goods and the fact that it must be paid before an essential step in the actual process of manufacture or production of those goods can be lawfully taken."

Is the UNFT a duty of excise 160 In the present case I am concerned only with the substantive effect of the charge imposed on water networks. The only water network to which the charge applies is that operated by ACTEW pursuant to licences held by it under the Utilities Act. 161 The UNFT applies to network facilities other than those concerned with water, as operated by ACTEW. There is no evidence before me concerning those other network facilities. My task in the present proceedings is only to decide whether the UNFT imposed on ACTEW is a duty of excise. That task only requires attention to the character of the charge imposed upon ACTEW. A conclusion about that matter is neither dictated by, nor dictates, the character of the charge on any other network facility (see Western Australia v Chamberlain Industries Pty Limited (1970) 121 CLR 1 per Barwick CJ at 15). 162 Although, in form, the UNFT is charged to the owner of a network facility the charge is in fact converted into a charge to customers and consumers. In the case of QCC it was identified separately in accounts provided by ACTEW. As the network facility is the means by which water is carried, first for treatment and then, as potable water, distributed to customers, I think it right to regard the UNFT as a tax on a step in the production, sale and distribution of goods. 163 That conclusion, it seems to me, accords with the requirement to pay regard to the practical operation of the UNFT Act, as well as its terms, and with the approach taken by the High Court in Chicory Marketing Board and Hematite of acknowledging the inevitable operation of the charge as an indirect tax on consumers. 164 Accordingly the UNFT is a duty of excise. To the extent that the UNFT Act authorises it, that Act is invalid.

The claim for a refund 165 It is not necessary, in view of my earlier findings, to decide whether any amount of the WAC should be refunded to QCC. However, I should indicate that if I had found that the WAC was, to any extent, invalidly imposed upon ACTEW, I would have ordered that any amounts passed through under the pricing agreements be refunded. 166 QCC contended, and I agree, that the imposition of the WAC pursuant to earlier pricing agreements was expressly conditioned upon the legal premise that ACTEW was required to pay the WAC to the ACT. Failure of that premise would in my view have left the pricing agreements, to that extent, devoid of the consideration which sustained them. In Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516, Gleeson CJ, Gaudron and Hayne JJ said (at [16]): "16 Failure of consideration is not limited to non-performance of a contractual obligation, although it may include that. The authorities referred to by Deane J, in his discussion of the common law count for money had and received in Muschinski v Dodds, show that the concept embraces payment for a purpose which has failed as, for example, where a condition has not been fulfilled, or a contemplated state of affairs has disappeared." (Footnotes omitted.) and (at [24]): "24 There having been a failure of a distinct and severable part of the consideration for the net total payments made by the appellants to the respondent, then, as between the parties to the payments, the respondent has no right to retain the amounts in question." (Emphasis added.) 167 Gummow J referred (at [104]) to the failure of consideration as identifying: "… the failure to sustain itself of the state of affairs contemplated as a basis for the payments …" 168 These observations would have applied in the present case had any particular increase in, or element of, the WAC been a duty of excise and therefore invalidly imposed on ACTEW. It would have been the position that ACTEW had not been under a legal obligation to pay the charge. Any fetter upon its ability to recover any amounts paid to the ACT would not be to the point, as between ACTEW and QCC. 169 I do not accept a submission by ACTEW that QCC would have been statute barred from seeking recovery. Under the Limitation Act 1985 (ACT) there is a general limitation period of six years in which to commence legal proceedings. In the case of a "revenue amount", proceedings must be commenced within six months. Revenue amount is defined by s 21A(4) as follows: "(4) In subsection (1): "revenue amount" means an amount of money paid voluntarily or under compulsion as - (a) a tax, licence fee or duty imposed, or purportedly imposed, under an Act; or (b) penalty tax in relation to such a tax, licence fee or duty; if the amount would have been legally owing if the provision under which it was paid had been valid." 170 As between ACTEW and QCC the WAC was not paid as a tax. It was a contractual payment. In my view there would have been no limitation upon QCC's right of recovery.

The cross-claim 171 ACTEW cross-claimed against QCC for payment of the unpaid amounts of the WAC and the UNFT. As I have rejected the argument that the WAC was invalidly imposed it is not necessary to consider a claim for the WAC made on some other basis although it follows from my earlier conclusions concerning the claim for a refund that I would not have upheld the claim for unpaid amounts of the WAC if it was invalidly imposed on ACTEW. ACTEW anticipated that it would not be disputed that, if the WAC was valid, it would be payable under the pricing agreements. I will allow the matter to rest at present on that assumption without a further order. This issue may be revisited if necessary. 172 As to the UNFT, ACTEW accepted that if the UNFT was found to be a duty of excise there would be no basis for a claim that it be paid nevertheless. 173 I will make no formal order dealing with the cross-claim at present but will allow the parties an opportunity to consider what order is necessary in light of the findings above.

Relief 174 A declaration will be made to give effect to my conclusion that the UNFT Act is invalid so far as it purports to authorise the imposition of the UNFT on the water network facility operated by ACTEW. I will hear the parties, if necessary, on whether any further or consequential relief is necessary or desirable to give effect to these reasons for judgment. I will hear the parties if any application is made for costs. I certify that the preceding one hundred and seventy-four (174) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan.

Counsel for the Applicant: Mr P Hanks QC with Dr P Keyzer and Mr J K Kirk

Solicitor for the Applicant: Williams Love & Nicol

Counsel for the First Respondent: Mr A Robertson SC with Mr C Lenehan

Solicitor for the First Respondent: DLA Phillips Fox

Counsel for the Second Respondent: Dr J Griffiths SC with Ms K Richardson and Ms C Spruce

Solicitor for the Second Respondent: ACT Government Solicitor