South Australia v Commonwealth

This suit comes before the Full Court upon a demurrer to a statement of claim. The suit is brought by the State of South Australia and the Attorney-General of the State against the Commonwealth and its general purpose appears to be to establish the immediate obligatory force upon the Commonwealth of that part of the Railways Standardization Agreement of 20th October 1949 between the Commonwealth and the State of South Australia which concerns the standardization of the gauge of railway between Port Pirie and Broken Hill. The agreement is to be found in the schedule to the Railway Standardization (South Australia) Agreement Act 1949 (No. 83) of the Commonwealth and in the schedule to the Railways Standardization Agreement Act, 1949 (No. 49) of South Australia. The Commonwealth Act authorizes the execution of the agreement on behalf of the Commonwealth and the State Act approves the agreement on behalf of the State. The agreement is between governments in Australia, that is to say, between the Sovereign in right of the Commonwealth and the Sovereign in right of the State of South Australia, and it relates to governmental works and finances of major importance. The possibility of treating such an agreement between two governments as giving rise not merely to political obligations but to obligations enforceable at law arises from the federal system and the existence under that system of a court to the judicial power of which the Constitution gives supremacy. Section 75 (iii.) of the Commonwealth Constitution provides that in all matters in which the Commonwealth is a party the High Court shall have original jurisdiction and s. 78 says that the Parliament may make laws conferring rights to proceed against the Commonwealth or a State in respect of matters within the limits of the judicial power. Pursuant to this power s. 57 of the Judiciary Act 1903-1960 Cth enacts that any State making any claim against the Commonwealth whether in contract or in tort may in respect of the claim bring a suit against the Commonwealth in the High Court. Section 64 provides that in any suit to which the Commonwealth or a State is a party the rights of parties shall as nearly as possible be the same, and judgment may be given and costs awarded on either side, as in a suit between subject and subject. There have been differences of opinion as to whether s. 64 is limited to questions of procedure or extends to the substantive law governing the liability put in suit: see Asiatic Steam Navigation Co. Ltd. v. The Commonwealth [1] and the cases there cited. But Kitto J. expressed in that case [2] the opinion that when one reads Farnell v. Bowman [3] the conclusion seems inevitable that the rights referred to in s. 64 include the substantive rights to be given effect in the suit. If this be so it would still be necessary to resort to s. 79 and s. 80 of the Judiciary Act, for in a suit between subject and subject these sections direct where this Court shall go for the substantive law (cf. Deputy Federal Commissioner of Taxation v. Brown [4] ). If s. 64 be limited to procedure, s. 79 and s. 80 will apply directly.

1. (1956) 96 C.L.R. 397, at p. 417. 2. (1956) 96 C.L.R., at p. 427. 3. (1887) 12 App. Cas. 643. 4. (1958) 100 C.L.R. 32, at p. 39.

But it is one thing to find legislative authority for applying the law as between subject and subject to a cause concerning the rights and obligations of governments; it is another thing to say how and with what effect the principles of that law do apply in substance. For the subject matters of private and public law are necessarily different. What is in question here is an agreement assuming to affect matters which are governmental and by nature are subject to considerations to which private law is not directed. That is particularly true of financial provisions, the fulfilment of which in constitutional theory at least must be subject to parliamentary control. All this was plainly seen by the late Sir Harrison Moore whose two papers, one posthumously published, on the questions involved will be found under the titles: " Suits between Commonwealth and State and State and State ", Journal of Comparative Legislation, (1925) 3rd Series, vol. 7 Pt IX), p. 155; " The Federation and Suits between Governments ". Journal of Comparative Legislation (1935) 3rd Series, vol. 17 (Pt IV), p. 163. From the later paper the Solicitor-General quoted the following passage which touches the very point here. "The High Court of Australia has more than once affirmed the rights and obligations subsisting between individuals as the guide to the ascertainment of the legal rights of which the Court has cognizance. That principle includes agreement as a category of right, but it would exclude agreements of which the subject of the mutual undertakings is the exercise of political power: the agreements are not such as are capable of existing between individuals, their subject-matter is the peculiar and exclusive characteristic of governments. Even an agreement of the Crown with an individual respecting the future exercise of discretionary powers - that they will or will not be exercised in a certain way - probably cannot be a valid contract." The learned author then gives examples of subjects inappropriate for agreements that could be judicially enforced and proceeds: - "The task of distinguishing the classes of agreement may not in all cases be easy, particularly in "mixed" agreements some of whose terms present one feature and some another. It is even possible that it may extend to exclude agreements in which every item could be conceived of as an agreement between individuals, but which were so comprehensive and far-reaching that on the whole they must be treated as removed from the category of individual or corporate agreements." In the present case we are concerned with an agreement which on both sides has the sanction of statute. Behind it there is a history of government agreements and attempted agreements affecting the same general subject with which this one deals. Some have been fulfilled. The agreement now in question certainly contains provisions which no court could undertake specifically to enforce, that is by detailed specific relief, yet in general terms what each government undertakes to do is defined or described with sufficient clearness, and, in the case of some provisions, on fulfilment of the work undertaken on one side there can be little doubt that the financial responsibilities on the other side would be considered legal obligations capable of enforcement by any judicial remedy available in the case of a government liability. Enough has been said to show that in the first place, to generalize about the operation of the agreement in question must be unsafe and misleading and that in the second place, it could only be in respect of some definite obligation the breach of which is unmistakably identified that a court can pronounce a judicial decree in a case such as this. It is only in this way that the necessary distinction can be maintained between, on the one hand, the exercise of the jurisdiction reposed in the Court and, on the other hand, an extension of the Court's true function into a domain that does not belong to it, namely, the consideration of undertakings and obligations depending entirely on political sanctions. The proceeding now before the Court, as already has been said, is a demurrer by the defendant to a statement of claim. All that such a demurrer does is to deny the legal sufficiency of the facts alleged in the pleading, that is, the sufficiency to entitle the plaintiff to a legal remedy. At common law, at the time when the system of common law pleading closed in England, a general demurrer to a count in a declaration formed an apt and almost certain way of ascertaining whether a cause of action was disclosed by the facts stated by the count. But it was necessary that they should be ultimate and not evidentiary facts. In equity a demurrer to a bill might have been on any of several grounds but that which would have been material in this case is that the allegations disclosed no equity to any of the relief prayed. In this Court the procedure of demurrer has been retained but a narrative and not a common law system of pleading has been adopted. There are certain difficulties now in the practical working of demurrers chiefly because the allegations in a pleading which are pointed at each specific or particular cause of action or ground of defence are not confined within a single definite count or plea. Further, the rules of pleading do not confine a plaintiff to the relief he had specifically claimed (21, 4) and this sometimes is a source of embarrassment in deciding a demurrer. Perhaps the reluctance of a party to amend pending a demurrer because of the rule as to costs should not be left out of account (26, 15). But the use of a demurrer, which certainly has been found a speedy and not unsatisfactory procedure in this Court, where causes depending on questions of ultra vires and upon other federal questions of statutory instruments are frequent, presupposes a pleading which is drawn so as to allege with distinctness and clearness the constituent facts of the cause of action or defence set up and which puts aside the temptation to adorn the pleading with evidentiary statements and tendentious legal conclusions. It is not going too far to say that what justifies demurrer as a means of determining a legal controversy is the supposition that the pleading will contain and contain only a statement of the material facts on which the party pleading relies for his claim or defence and not the evidence by which they are to be proved. (cf. 20, 4 (1)). When a court deals with a demurrer it should in strictness discard all statements which are no more than evidentiary and all statements involving some legal conclusion. It will be necessary to return to these principles when we reach the final question of what cause of action, if any, is disclosed by the pleading. But before that point is reached the character of the agreement put in suit must be described.

When in the year 1907 the surrender of the Northern Territory by South Australia to the Commonwealth and the acceptance of that Territory by the Commonwealth was put in hand, the terms of the transaction were embodied in an agreement between the Commonwealth and the State of South Australia. The agreement was dated 7th December 1907 and was ratified and approved by the Northern Territory Acceptance Act 1910 (No. 20) of the Commonwealth and the Northern Territory Surrender Act, 1907 (No. 946) of South Australia. It is to be found in the schedule to each of those Acts. Amongst the provisions of the agreement was one for the construction by the Commonwealth of a "Transcontinental Railway" from Darwin southwards to a point on the northern boundary of South Australia and of a second such railway from a point on the Port Augusta railway to connect with the other Transcontinental Railway at a point on the northern boundary of South Australia. These railways were not to be of standard gauge or not necessarily so. The railway to Pine Creek at that time was not of standard gauge. But the differing railway gauges throughout Australia seem to have been a perpetual question. There is no point in recounting the successive legislative and other steps taken. It is enough for the purpose in hand to say that at length in 1946 a draft agreement between the Commonwealth and the States of New South Wales, Victoria and South Australia was settled which, if it had come into operation, would have provided for the conversion to standard gauge of railways which in any of the three States mentioned or the Territory were of some other gauge. It was to be done under the authority of a ministerial Railways Council and of an official Railways Standardization Board which were to be set up. In New South Wales the conspicuous example of a railway not of standard gauge was that of the Silverton Tramway Company Ltd. from Broken Hill to the South Australian border at or near Cockburn. This line continued thence in South Australia to Port Pirie and of course would have been included if the agreement (which is the schedule to the Railway Standardization Agreement Act 1946 (No. 50)) had been adopted by all the States. It was not so adopted. South Australia had adopted it, however, and when it fell through another agreement was settled containing many of the terms of the abortive draft so far as they could be made applicable to an agreement with the Commonwealth confined to South Australia. It is this agreement that was ratified by the statutes of 1949 and is the subject of the case before us. Under it there is of course no Railway Council and no Railway Standardization Board; for there is only one State, not three. The works and undertakings which the State shall carry out are stated. There is the conversion to standard gauge of the entire 5′ 3″ gauge system in South Australia and of the 3′ 6″ lines of the South Eastern Division. There is the conversion to standard gauge of the 3′ 6″ gauge lines of the Peterborough Division. That would cover the line linking Port Pirie with the line through Cockburn to Broken Hill. The conversion or construction of rolling stock and locomotives is involved in this and the provision of terminal facilities rendered necessary by the conversion of a line. The agreement made it incumbent upon the Commonwealth to take all reasonable steps to ensure that the Silverton Tramway and the locomotives and rolling stock thereon should be acquired and vested in the South Australian Railways Commissioner. Now under the heading of Finance the agreement provides that seven-tenths of the cost of the foregoing standardization works shall be borne by the Commonwealth. It also says that the Commonwealth shall provide all funds required to carry out the standardization work as specified in the agreement. The provisions concerning works to be undertaken on the part of the Commonwealth in a sense have their seeds in the terms upon which the Northern Territory was surrendered and accepted. At that time the adoption of a standard gauge does not appear to have been contemplated but the extension southward of the railway from Darwin to the border with South Australia proper and the connexion with a Transcontinental Railway was a subject of stipulation. The 3′ 6″ railway was carried down to Birdum in the Northern Territory. The Railway Standardization Agreement of 1949 provided that the Commonwealth should undertake the conversion to standard gauge of the 3′ 6″ gauge Commonwealth Railway line from Birdum to Darwin with the consequential conversion of locomotives and rolling stock. It provided that the Commonwealth should undertake the conversion of the 3′ 6″ gauge lines of the Commonwealth railways from Port Augusta to Alice Springs with the consequential conversion of locomotives and rolling stock and the construction of a new standard gauge railway from Alice Springs to Birdum.

There is a condition spreading over fifty years the repayment by the State of South Australia of the three-tenths proportion of the expenditure upon the conversions and terminal facilities to be carried out by the State: these have been already described. It is evident that many practical questions would arise in carrying into execution the project described in the agreement in terms necessarily broad. At various points in the agreement this is recognized and express provision is made for collaboration on the part of the two governments or their representatives. For example, it expressly provided that the parties or their nominees shall in collaboration and agreement with each other establish and publish common standards of design in all matters and things essential to the establishment of standard gauge railways and so on. The question of when and in what order the work should be undertaken and performed was of high importance. But this was expressly left to agreement. It was provided that any question as to the order in which the standardization works should be carried out should be determined by agreement between the parties. It is to be noticed that this provision does not include in terms the construction of the new railway from Alice Springs to Birdum but only standardization works, but this phrase is defined in a definition clause in words which may cover it. However, it is maintained by the State that having regard to the degree to which the standardization works have proceeded there is no question now of the order in which the standardization works shall be carried out. According to the State of South Australia it remains only to convert the link between Port Pirie and Broken Hill which would then give a standard gauge railway between Kalgoorlie and Sydney. That however does not dispose of the question of "when", a question which really forms the subject of controversy in this case. That question is dealt with by another express provision referring it to the agreement of the parties. In terms it is provided that any question arising as to the time at which any standardization works shall be commenced by any party shall be determined by agreement between the parties. In the abortive 1946 agreement it had been provided that such matters should be determined by the Railways Standardization Board subject to recourse to the Railways Council, but that after all was constituted of Ministers, so that it meant agreement between the governments. There being neither a council nor a board under the agreement of 1949 a general clause was introduced in the agreement providing that where a matter arises between the parties and the parties fail to reach agreement the matter shall be decided by the Commonwealth Minister for Transport and the Minister of Railways of the State.

It is necessary now to return to the material allegations of the statement of claim of the State of South Australia. There is an allegation of the agreement by the Commonwealth that it should convert the 3′ 6″ gauge line from Port Augusta to Alice Springs and from Birdum to Darwin and should build a new standard gauge railway direct from Alice Springs and take steps to ensure that the section of the railway line between Cockburn and Broken Hill should be vested in the South Australian Railways Commissioner. Then for breach it is alleged that the Commonwealth has refused to carry out or persistently refrained from carrying out any of the terms of the 1907 agreement and the 1949 agreement so far as they relate to work or acts to be done by the Commonwealth as set out in the paragraph of the pleading alleging the Commonwealth's agreement. Then it is alleged, again by way of breach, that the State of South Australia has repeatedly requested the Commonwealth to carry out its obligations express and implied in the 1907 agreement and 1949 agreement and in particular to take the necessary steps to enable the State to do the work necessary for standardization from Port Pirie to Cockburn but that the Commonwealth had refused to take or had persistently refrained from taking any steps to do the works or acts which by the agreements are to be done by the Commonwealth. It is then alleged that the Commonwealth has adopted an attitude that it is under no legal contractual or other enforceable obligation and that it can at its will postpone indefinitely or refuse to do any of the said works and that it may take into account extraneous circumstances in deciding if and when (to put it shortly) it will act under the stipulations. There are then particularized certain communications between the governments between 16th December 1960 and 27th February 1961 which, perhaps irregularly, have been laid before the Court. The pleading, as will be observed in what has been cited, contains vague allegations by way of assigning breaches the indefiniteness of which does not conduce to a clear elucidation of the real complaint and a definite decision as to its validity. But the communications between the parties show that the substance of the matter is that in the absence of any agreement as to the time for commencing the conversion of the line from Broken Hill to Port Pirie, the Commonwealth claimed that it was not presently incumbent upon the Commonwealth to do its part in providing money and otherwise in or towards the doing of that work as desired by the State and that in so deciding it had properly taken into account considerations of economic conditions and policy. The State, however, maintains that such a refusal is inconsistent with the agreement and that such grounds relied upon by the Commonwealth are not relevant to the purposes of the agreement and cannot form any lawful basis for the Commonwealth's failure or refusal to attempt to agree with the State now upon a time for commencing the work.

A close consideration of the whole agreement, however, leads one to the view that there is no foundation in its nature or its terms for the contention that the refusal of the Commonwealth, on the grounds assigned, to agree to the commencement of the work involves a breach of any implied term of the agreement, still less of any express term. In opening the demurrer the Solicitor-General for the Commonwealth said: - "The substantial contention of the Commonwealth is that, though it has agreed to provide for or undertake, or both as the case may be, the work specified, its undertaking is to do so at times to be agreed and that inasmuch as no such agreement as to time has yet been made, the time for performance is not yet and the obligation is as yet inchoate. The case for the plaintiff" (the State of South Australia) "cannot be put higher than that the 1949 agreement is in point of law a binding contract and enforceable at the suit of either party but according to its tenor. The Commonwealth is content to argue the case substantially on this footing." The text of the agreement supports the contention of the Commonwealth thus briefly stated. To answer that the Commonwealth is bound to attempt to agree with the State on a time of commencement of any given work is to endeavour to import into the provision concerning agreement an implication which is not justified. The question of time in particular thus remitted to agreement in the case of two governments must essentially depend upon matters of principle or policy into which obviously financial and economic considerations must enter.

If one turns to the precise form of pleading, as one must in a demurrer, there are certain allegations of breach which must be treated as insufficient in themselves. It is impossible to regard the words already quoted: "persistently refrained from carrying out any of the terms" etc. as amounting to a proper assignment of any breach. They occur in two paragraphs. The allegation that the Commonwealth has "refused to carry out any of the terms" of the two agreements has a familiar ring but it must be remembered that the familiarity arises from agreements between subject and subject where the refusal to perform is followed by an acceptance of the repudiation which the word imports. The result is a discharge of further performance of the contract and a right to general damages. No such case, however, has been made or could be made upon the agreement confirmed as it is by statute on both sides. Often we find a refusal to perform is alleged where the true breach consists in failure to perform. It is not in strictness an assignment of a de facto breach. But here the provision as to agreement upon the time of commencement puts such a construction of the pleading out of consideration. The expression "has adopted the attitude that it is under no legal contractual or other enforceable obligation" cannot be treated for the purposes of a demurrer as importing any specific breach of contract. To sum the matter up, whether this case is considered as a matter of substance or in accordance with the pleading the suit cannot succeed. The declarations which are claimed in par. 9, at the end of the statement of claim, cannot be supported. It is perhaps desirable to mention specifically par. (a). It claims a declaration in very general terms applying to the whole agreement without discriminating among its provisions. The substantial reason upon any view of the case why such a declaration ought not to be made is contained in the passage already quoted from Sir Harrison Moore's paper where he speaks of "mixed" agreements and speaks of the difficulty of distinguishing between the classes of undertaking in a mixed agreement some of whose terms present one feature and some another.

This action relates to the agreement which forms the Schedule to the Railways (South Australia) Agreement Act 1926 Cth and the agreement which forms the Schedule to the Railway Standardisation (South Australia) Agreement Act 1949 Cth. However, the second agreement is the more material one in this case.

The Court has statutory jurisdiction to entertain an action on a contract where the parties are a State and the Commonwealth: Constitution, s. 75 (iii.). It is therefore not a case in which the Court has no jurisdiction over the parties as if they had the immunity belonging to sovereign States. It is clear that the agreements in respect of which the State of South Australia claims the declarations mentioned in the statement of claim are severally binding, secundum quid, both upon itself and upon the Commonwealth. I would think that, if the agreements are obligatory agreements, that is, contracts in law, declarations could be made by this Court in respect of questions arising under them. Mr. Alderman very clearly and ably argued that the State of South Australia is entitled substantially to the relief which is claimed. I think that the real basis of his argument can be summed up in the maxim " Pacta sunt servanda ". A two-sided act such as an agreement between the Commonwealth and a State could be a contract and produce obligations binding on both of them according to its tenor. But the point to be decided in this case is whether or not the intention of either agreement is to create obligations enforceable in a court.

In my opinion, neither of these agreements constitutes an obligatory contract. It does not produce legal rights or obligations. It is apparent from their terms that they embody plans for construction of publicly-owned railways. The carrying out of these intended works is a matter of governmental policy. The promises on either side are of a political nature, and both parties would understand at the time the agreements were made, that this was the true nature of the promises. Their performance necessarily requires executive and further parliamentary action. It is a matter for the discretion of the respective governments to take such action if and when they see fit to do so. It is not contemplated by either agreement that its performance could ever be the subject of a judicial order. The real nature of the agreements is that they are political arrangements between South Australia and the Commonwealth for co-operation between them on projects of national importance. That is made clear by the recitals to the agreement in the Schedule to the Act of 1949 and it is also shown by the terms of both agreements. I cannot think that in entering into these agreements the parties contemplated that they were entering into obligations cognizable in a court of law. To make any declaration would be to give judicial relief. Neither agreement is one in respect of which the Court can make any judicial order. It follows that the submissions of Mr. Alderman on the text of the agreements as to breach are abstract questions. In my view it is unnecessary to determine whether the submissions are right or not. The demurrer must prevail.

I have had the advantage of reading the judgment of the Chief Justice in this case. I agree in it and do not wish to add anything.

I have no doubt that the matters alleged in the plaintiff's statement of claim form no foundation for the relief which is claimed. The substance and character of the agreement upon which the plaintiff relies - Railways Standardization Agreement of 1949 - are discussed at some length by other members of the Court and I find it unnecessary to traverse the same ground. It is enough to say that I agree that there are two substantial grounds upon which the demurrer should be allowed. The first is that the true substance of the agreement is that of a political arrangement defining the "broad outlines of an administrative and financial scheme" of co-operation between governments and not of a "definitive contract enforceable at law" (per Dixon J., as he then was, in P. J. Magennis Pty. Ltd. v. The Commonwealth [1] . The second is that, even if it ought not to be so regarded, consideration of the terms of the agreement and the "broad outlines" which it contains make it quite clear that it evidences no more than an intention to enter into a series of agreements at some unspecified future time or times.

The relief claimed by the plaintiffs (the State of South Australia and its Attorney-General) in the statement of claim to which the defendant (the Commonwealth of Australia) has demurred can, it seems to me, be granted only if the Railways Standardization Agreement made in 1949 between the State and the Commonwealth is an agreement which, upon its approval by the parliaments of the Commonwealth and the State, created obligations enforceable at law upon the Commonwealth and the State to carry out the standardization works therein described and did so without the necessity for any further action by the parties.

Although I do consider that the performance by one party in accordance with the terms of the agreement of something which it has thereby undertaken to do would give rise to obligations on the part of the other party enforceable at law (e.g. if the State were, after agreement with the Commonwealth about its commencement, to undertake the execution of some part of the work described in cl. 5, it would be the legal obligation of the Commonwealth to provide the funds required for the execution of that work) I am satisfied that the execution of the agreement and its approval by the parliaments did not, without more, give all the undertakings it contained the character of enforceable legal obligations. The provision that would have to be made for financing the works, the anticipation of further agreement on various matters (e.g. the order of the standardization works, the commencing date of each work, the establishment of standards and the fixing of values - vide cll. 5, 9, 10 and 12) and clauses such as 23, to which it is difficult to attach legal significance, are considerations which, when taken together, could warrant the conclusion that the true nature of the agreement is a political arrangement contemplating further particular agreements that, when made, will have legal consequences rather than being itself a contract enforceable at law. Nevertheless I prefer to decide the case on a narrower ground and without going so far as to deny any legal effect to the agreement, I certainly think that it did not require the commencement either forthwith upon its making or within a reasonable time thereafter of the standardization works set out either in cl. 5 or in cl. 21. The State did not, for instance, become obliged without more to put in hand the conversion to standard gauge of the entire South Australian 5′ 3″ gauge system nor was the Commonwealth bound to construct a new standard gauge railway from Alice Springs to Birdum. The something more in each of the cases I have taken was agreement between the parties as to the order in which the standardization works would be carried out and the time for commencing the particular work. This follows, I think, from the provisions of ss. 9 and 3 which are in the following terms: - "9. - (1) Any question arising as to the order in which the standardization works shall be carried out shall be determined by agreement between the parties. (2) Any question arising as to the time at which any standardization works shall be commenced by any party shall be determined by agreement between the parties." "3. - Where a matter is required by this Agreement to be determined by agreement between the parties and the parties fail to reach agreement, the matter shall be decided by the Minister in agreement with the Minister of Railways of the State."

This construction of the agreement is in accord with the realities of the situation for it could hardly have been imagined that standardization would be carried out except in an orderly fashion that would avoid as far as possible dislocation of the services which the State and the Commonwealth co-operate to provide in South Australia and between South Australia and other States.

I consider, therefore, that a statement of claim which, while asserting that certain standardization works have been done by the State and by the Commonwealth in accordance with the agreement, does no more than allege that the Commonwealth has in relation to other standardization works refused to carry out or persistently refrained from carrying out obligations to take the necessary steps "to enable South Australia to commence and do the work necessary for the standardization of the gauge of the Peterborough Division from near Port Pirie to Cockburn" etc. and "has always refused to take or persistently refrained from taking any steps to do the works or acts which, by the Agreements are to be done by the Commonwealth", without alleging that the times for the commencement of such works have been fixed by agreement, does not disclose any breach by the Commonwealth of any legal obligation.

A party may demur to a statement of claim "on the ground that the facts alleged do not show a cause of action": O. 26 r. 1. If, therefore, the statement of claim in this action alleged a contract between the State of South Australia and the Commonwealth and a repudiation or breach of that contract by the Commonwealth, a demurrer by the defendant could not succeed. This statement of claim, however, refers to agreements made in 1907 and 1949 and it then proceeds, as I understand it, on the basis that the Railways Standardization Agreement (South Australia) of 1949 is a contract that can be enforced by this Court. It contains a passage that, read without more, avers a repudiation of this contract by the defendant, although as the making of the Agreement was authorized by statutes of the Commonwealth and the States repudiation is a difficult concept to apply to it. The statement of claim goes on to refer to certain letters and telegrams and states, inferentially at all events, that these constitute the repudiation alleged. What might have been the position if the plaintiffs had not referred to any of this evidentiary material in their pleading need not now be considered. It has been introduced. And the defendant Commonwealth has apparently assumed that it is to be treated as if it were embodied in the statement of claim. I say this because it is only on that basis that there can be any justification for the statements in par. (4) of the defendant's "grounds in law of the demurrer". These are statements of considerations that, so it is alleged, have in fact guided the defendant in its dealings. But assertions of fact of this kind can hardly be called grounds in law for the demurrer. In form the demurrer does not, to my mind, comply with O. 26 r. 1 (b). It is, I think, a misconception that under a narrative system of pleading, such as that we are concerned with here, a mere reference in a pleading to certain documents makes them part of the pleading. This matter was discussed by Jordan C.J. in Metropolitan Theatres Ltd. v. Harris [1] . In the result, I think that the statement of claim (which asks for declaratory relief) and the form of the demurrer render these proceedings inappropriate for the determination of the case. However, the parties seemed to think they could be unconfined and unconcerned and should be undeterred by any such considerations. They asked us to decide what they said was the question at issue without scrupulously regarding their pleadings and they invited us to look at the documents referred to in the statement of claim. I suppose, therefore, that we should do so, although I think it a strange way to determine a demurrer.

Their question comes, it seems, to this. Does the Railways Standardization Agreement, without more, create contractual rights and duties between the State and the Commonwealth that are enforceable by a court? In my view it is only necessary to read the Agreement to see that it does not. It relates to a general plan for the development of the railway system of Australia. It allots the responsibility as between the State and the Commonwealth of carrying out various parts or sections of the plan; and it provides how the costs of doing the works are to be borne. But obviously the whole scheme would take years to complete and the Agreement does not state when any particular part is to be begun or in what order the various parts should be done. That was left to be decided by the governments concerned. And provision is made in cl. 3 of the Agreement for the manner in which, if questions arise on these matters, agreement is to be sought. All of this is inconsistent with a construction of the Agreement as if it were an undertaking by the Commonwealth to do particular works at some agreed date. I do not doubt that, as Menzies J. has said, contracts between the Commonwealth and the State might arise in the carrying out of the Agreement; but that does not mean that it is itself a contract that a court could enforce.

Furthermore, the letters and telegrams referred to in the statement of claim fall short of showing anything like a repudiation by the Commonwealth of the Agreement. They do show that the government of South Australia has urged that certain works should be "next in order", and that they should now be begun. "We most strenuously contend", wrote the Premier of South Australia, "that the time is the present, but whether this be correct or not must be decided according to the Agreement, in conference between the parties or the respective Ministers or officers". Those two statements are a recognition that when a particular work should be undertaken, and in what order works should be undertaken, are matters to be decided by agreement - not matters that have been agreed upon - and that cll. 3 and 9 of the Agreement are applicable. So that, even if the Agreement be regarded as enforceable by an action in contract under s. 75 of the Constitution and s. 57 of the Judiciary Act, it does not seem that any breach has been clearly alleged.

But the demurrer should be allowed on a wider ground, which, although it was put as a second and alternative submission by the Solicitor-General, is fundamental in this case. It is that the Standardization Agreement is an agreement of the sort that "are outside the realm of contracts altogether", to use the words of Atkin L.J., as he then was, in Balfour v. Balfour [1] . This Court, speaking of what it called "a principle which is fundamental to any conception of contract", has said: "It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty": Australian Woollen Mills Pty. Ltd. v. The Commonwealth [1] . An agreement deliberately entered into and by which both parties intend themselves to be bound may yet not be an agreement that the courts will enforce. The circumstances may show that they did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts. The status of the parties, their relationship to one another, the topics with which the agreement deals, the extent to which it is expressed to be finally definitive of their concurrence, the way in which it came into existence, these, or any one or more of them taken in the circumstances, may put the matter outside the realm of contract law. Undertakings that are political in character - using the word "political" as referring to promises and undertakings of governments, either to their own citizens or to other states or governments - are therefore often not enforceable by processes of law: see John Cooke & Co. Pty. Ltd. v. The Commonwealth and the Central Wool Committee [2] ; P. J. Magennis Pty. Ltd. v. The Commonwealth [3] . In Gibson v. The East India Company [4] the Court of Common Pleas distinguished between acts done by the East India Company in its trading capacity and its acts in its political capacity as the government of India. Tindal C.J., speaking of the grant of a pension made by it in its political capacity said: "The grant in question, therefore, appears to us to range itself under that class of obligations which is described by jurists as imperfect obligations; obligations which want the " vinculum juris ", although binding in moral equity and conscience; to be a grant which the East India Company, as governors, are bound in foro conscientiae to make good, but of which the performance is to be sought for by petition, memorial, or remonstrance, not by action in a court of law" [5] . That case dealt with a very different subject matter, but those words can, I think, well be applied here. The Commonwealth and the States are juristic persons, capable of being sued in the courts, and that means that the courts have jurisdiction to enforce agreements of a sort that in the past would have been beyond their consideration. But the character of an agreement and the intentions of the parties to it as revealed by its terms must be regarded in order to see whether or not it is justiciable. Moreover, in this case, as Owen J. has shown in his judgment which I have had the advantage of reading, the terms of the Agreement itself are not the language of a concluded contract. To say that the Standardization Agreement is not a legally enforceable contract does not mean, however, that it is merely a scrap of paper, for English law has never taken the view that undertakings to which it cannot give its aid all lack weight or meaning.

1. [1919] 2 K.B. 571, at p. 579. 2. (1954) 92 C.L.R. 424, at p. 457. 3. (1922) 31 C.L.R. 394, at p. 416; (1924) 34 C.L.R. 269, at p. 280. 4. (1949) 80 C.L.R. 382, at p. 409. 5. (1839) 5 Bing. (N.C.) 262 [132 E.R. 1105]. 6. (1839) 5 Bing. (N.C.), at pp. 274, 275 [132 E.R., at p. 1110].

The answers to the questions of law argued on this demurrer depend upon the construction and effect of a document described as the Railways Standardization Agreement (South Australia) executed by the Commonwealth and by the State of South Australia as part of a Commonwealth-wide scheme to bring about a uniform railway track gauge throughout Australia. The document is in the form set out in the Schedule to the Commonwealth Railway Standardization (South Australia) Agreement Act (No. 83 of 1949) which authorized its execution by the Commonwealth and also in the Schedule to the Railway Standardization Act of South Australia of the same year which authorized its execution by the State of South Australia. Clause 1 (1) of the document defined "standardization work" as meaning "any work and undertaking included in clauses 5 and 21 of this Agreement" and defined "Minister" as meaning "the Commonwealth Minister of State for Transport". Clause 3 provided that - "Where a matter is required by this Agreement to be determined by agreement, between the parties and the parties fail to reach agreement, the matter shall be decided by the Minister in agreement with the Minister of Railways of the State." By cl. 5 the State of South Australia undertook to convert to standard gauge its entire 5′ 3″ gauge railway system. It undertook further to convert to standard gauge the 3′ 6″ gauge lines of the South Eastern and Peterborough Divisions of its railway system. The clause contained other provisions relating to the conversion and provision of standard gauge locomotives and rolling stock which are not material for the purposes of this case. Clause 9 was in these terms - "9. - (1). Any question arising as to the order in which the standardization works shall be carried out shall be determined by agreement between the parties. (2.). Any question arising as to the time at which any standardization works shall be commenced by any party shall be determined by agreement between the parties." Part III of the document dealt with the financing of the works. Stated in general terms, the Commonwealth was to provide all the funds necessary to carry out the work of standardization and, of the moneys so provided, three-tenths of the cost of executing the works set out in cl. 5 was ultimately to be borne by the State. Part IV which is headed "Supplementary Provisions" contained a clause, No. 21, providing that the Commonwealth should undertake - (a) the conversion to standard gauge of the 3′ 6″ gauge lines of the Commonwealth Railways from Port Augusta to Alice Springs; (b) the construction of a new standard gauge railway from Alice Springs to Birdum in the Northern Territory; (c) the conversion to standard gauge of the 3′ 6″ gauge Commonwealth Railway line from Birdum to Darwin. It contained other provisions relating to the conversion and construction of locomotives and rolling stock which need not be set out. By cl. 22 the whole of the cost of carrying out the works specified in cl. 21 was to be borne by the Commonwealth.

By their statement of claim the plaintiffs alleged that, pursuant to the Agreement, the State of South Australia carried out work on the alteration of the gauge of the lines of the South Eastern Division of its railway system and that the Commonwealth converted to standard gauge a section of its railway from Port Augusta to Alice Springs. The statement of claim alleged further that the Commonwealth has refused or refrained from carrying out the terms of the Agreement so far as they relate to further work or acts to be done by the Commonwealth and has refused or refrained from taking any steps to enable further work to be done by the State and "has adopted the attitude that it is under no legal contractual or other enforceable obligation and that it can, at its will, postpone indefinitely or refuse to do any of the said works or acts" and that it may take into account extraneous circumstances in deciding if and when it will take any and what steps in order to carry out its obligations. It proceeds then to provide particulars of these allegations by incorporating by reference a series of communications passing between the Prime Minister and, later, the Acting Prime Minister of the Commonwealth on the one hand and the Premier of South Australia on the other from which it appears that questions have arisen between the parties as to the order in which further works shall be carried out and as to the time at which they shall be commenced and that the parties have failed to reach agreement on either of these matters. The statement of claim concludes by asking for a number of declaratory orders the purpose of which is to compel the Commonwealth to take all necessary steps to carry out the terms of the document without delay.

To the statement of claim the defendant has demurred and its submissions have been put in two ways. In the first place it was contended that if the arrangement - to use a neutral term - contained in the document is one justiciable in a court of Law, then having regard to cll. 3 and 9 it is no more than an agreement to make an agreement. The time for the commencement of any particular work and the order in which the works shall be executed is left by it to be settled by agreement between the parties and there has been no such agreement on these matters in respect of works still to be done. How then can it be said that the defendant is under a legal and enforceable obligation to do those things which the plaintiffs allege that it is now bound to do? As Lord Buckmaster said in May & Butcher Ltd. v. The King [1] "It has long been a well recognized principle of contract law that an agreement between two parties to enter into an agreement in which some critical part of the contract matter is left undetermined is no contract at all. It is of course perfectly possible for two people to contract that they will sign a document which contains all the relevant terms, but it is not open to them to agree that they will in the future agree upon a matter which is vital to the arrangement between them and has not yet been determined." [2] . In my opinion this submission is soundly based. In these circumstances it is unnecessary to express any concluded opinion upon the second and, as I think, weighty submission made on behalf of the defendant, namely that when the document is read as a whole, it is, to use the words of Dixon J. (as he then was) in P. J. Magennis Pty. Ltd. v. The Commonwealth [3] "rather an arrangement between two Governments settling the broad outlines of an administrative and financial scheme than a definitive contract enforceable at law" [4] . The same idea is expressed in John Cooke & Co. Pty. Ltd. v. The Commonwealth and the Central Wool Committee [5] .

1. [1934] 2 K.B. 17n. 2. [1934] 2 K.B., at p. 20. 3. (1949) 80 C.L.R. 382. 4. (1949) 80 C.L.R., at p. 409. 5. (1922) 31 C.L.R. 394, at p. 416.