(b) The alleged informal agreement
188 Mr King submitted that the primary judge erred in finding that Mr Spencer had not discharged his burden of proving that there was an "informal arrangement" of the kind pleaded by him. In order to consider that submission, it is necessary to describe more fully the way Mr Spencer's argument was put below and her Honour's findings upon that argument.
189 The primary judge described the terms of the informal arrangement alleged by Mr Spencer as follows at [328]:
i. The first respondent would propose to the Kyoto conference of parties to the UNFCCC that the target of emission reduction by Australia by 2010 be 108% of the 1990 level;
ii. that the first respondent's proposed reduction in emissions would be contingent on it being able to count as a credit any reduction in levels of emissions attributable to levels of land clearing being lower than in 1990;
iii. The second respondent would ensure that land clearing on private land in its territory was restricted to an extent which would enable the overwhelming component of the reduction in carbon emissions necessary to meet the target of 108% of 1990 emissions be achieved by the prevention of land clearing;
iv. The second respondent would comply with National Monitoring conditions imposed by the UNFCCC Compliance Committee;
v. The first respondent would provide the second respondent with funds through the Natural Heritage Trust fund to enable it to prevent land clearing;
vi. The question of compensation for affected land holders in the territory of the second respondent was the concern of the second respondent and not the first respondent;
vii. In the event that the first respondent achieved the outcomes in (i) and (ii) hereof and the second respondent met the requirement in (iii) hereof, the second respondent would not be otherwise required by the first respondent to achieve reductions in carbon emissions to meet the first respondents commitment under the Kyoto protocol.
(Emphasis added.)
190 The informal arrangement was alleged by Mr Spencer to be evidenced by ministerial committee minutes from the Council of Australian Governments (COAG) from 1993 to 2005, the special minutes of COAG in a series of meetings convened in November 1997 leading up to and during the Kyoto Protocol conference commencing in December 1997 and by other documents.
191 Mr Spencer alleged that the Commonwealth and State had not made a discovery of all documents directly relevant to the alleged informal arrangement. However, her Honour rejected Mr Spencer's complaints about the inadequacy of discovery.
192 Her Honour referred at [332] to a document in evidence headed "Council of Australian Governments' Meeting 7 November 1997, National Greenhouse Strategy and International Negotiations: Talking Points". Her Honour said that the document appeared to have been created for the use of the Prime Minister or a senior minister for the COAG meeting in November 1997, shortly after the signing of the 1997 NHT Agreement. The document referred to the need for State cooperation, to the significant Commonwealth funding to be applied to the initiatives concerning greenhouse gas emissions, and to advice received by the Commonwealth that it had the necessary legislative power to implement greenhouse measures in the event that State cooperation was not forthcoming. The document stated that one of the options if the COAG meeting refused to endorse a uniform mandatory approach across the country was to respond as follows:
...in many of these areas, the voluntary approach is not giving satisfactory results. Clearly, the Commonwealth would prefer a voluntary approach to these issues, however we cannot allow action to slip unnecessarily.
193 The primary judge said at [334] that this was the kind of comment that Mr Spencer sought to seize upon to demonstrate an informal arrangement. Her Honour said that the problem was that these comments had little, if any, probative value. There was no evidence as to the author of the document or the recipient of the document. More importantly, whether the talking points were ever delivered, and whether they were delivered in this form was unknown. Her Honour concluded that it was not possible for the Court to rely on documents such as the Talking Points document to prove, or contribute to proving, the existence of a plan that the Commonwealth would seek to achieve its protocol emissions' targets through State vegetation clearance controls.
194 The primary judge found the evidence of Dr David Kemp, the Federal Minister for Environment and Heritage from 2001 to 2004, to be reliable. Dr Kemp gave evidence that:
[A]ll the arrangements that involved the payment of money between New South Wales and the Commonwealth were arrangements in writing, and they were written agreements or letters exchanged between the Commonwealth and the State, and there were no other agreements or arrangements that one might call informal.
195 Dr Kemp also said:
The Commonwealth's concern was that whatever legislation the New South Wales government introduced, it should be legislation which was supportive of the strategies and programs that the Commonwealth was seeking to implement. But whatever other elements there were in the New South Wales legislation were matters for New South Wales.
196 Her Honour referred to other documents relied on by Mr Spencer to found his argument that there was an informal arrangement and concluded at [348]:
Mr Spencer is correct that one can find in these documents the use by the Commonwealth of its financial assistance and grant powers to encourage reforms that it saw as desirable, especially in terms of a view held at various times within the Commonwealth that reform on halting vegetation clearance in New South Wales was too slow, or too ineffective, or both.
197 For example, in mid-1998, Senator Hill, who was then the responsible Federal Minister, wrote to his NSW counterpart expressing concern about rates of land clearing in NSW and that there were no set State-wide criteria for clearing controls which were required to be incorporated in regional vegetation management plans. Senator Hill said:
You will appreciate that in considering your State's further bids for Natural Heritage Trust Funding, I am required to consider progress on these matters, particularly that there be no clearing of endangered regional ecosystems, no clearing that would change the conservation status of regional legal systems, and that controls are put into place, across all land tenures to avoid unsustainable land clearing.
198 The primary judge also referred to a detailed reply from the then NSW Minister for the environment. Her Honour said at [357]:
357. These kinds of communications are not evidence of any "informal arrangement"; they are evidence of the working out of the financial and policy commitments provided for in the 1997 NHT Agreement and the negotiations preceding the conclusion of the 2003 NHT Agreement, with each side doing its best to advance the policy interests it sees as most important. There are many other examples in the evidence of communications from the Commonwealth where statements are made to the effect that the Commonwealth will consider progress towards identified outcomes in determining New South Wales' bids for monies from the Natural Heritage Trust. That is, it seems to me, exactly what the 1997 NHT Agreement contemplates will occur.
199 Her Honour then referred to correspondence between Dr Kemp and his NSW counterpart in October 2002 in the course of negotiations for the 2003 NHT Agreement. Dr Kemp indicated a lack of satisfaction with the progress made by the NSW government with respect to reform of vegetation clearance laws. Her Honour said at [359]:
359. Again, these communications show the obvious consciousness of the influence the Commonwealth's spending powers might have on priorities within the legislative competence of New South Wales. That is the way the authorities have contemplated grants under s 96 of the Constitution might lawfully operate.
200 Her Honour accepted the evidence of Mr Plummer, a witness called by Mr Spencer, to the effect that he had seen a letter from Senator Hill to the then NSW Premier Bob Carr stating that if the State government did not halt clearing within NSW, then the Commonwealth would withhold the State's share of the Natural Heritage Trust Funding. Her Honour held that her acceptance of Mr Plummer's evidence did not take Mr Spencer's case about an informal arrangement any further, as the same statement was reflected in some of the other Commonwealth documents. Her Honour said at [370] that what the documents revealed was that the Commonwealth was relying on its grants power as a way to influence policy and reform initiatives over which it did not have exclusive legislative competence.
201 Her Honour concluded:
371. Mr Spencer has not discharged his burden of proof that there was an "informal arrangement" of the kind he has pleaded. Rather, the evidence on which he relies reveals an ongoing (and sometimes tense) working out between Federal and State Governments, and their agencies, about how best to achieve the various environmental goals to which they were each committed, and who should bear the costs of those goals. That process occurred within the context of the four intergovernmental agreements. It is nothing more than the process of government at work in a federation. There is no evidence of any improper or inappropriate, let alone unlawful, collusion or conspiracy of the kind Mr Spencer foreshadowed, nor of any plan to "get around" s 51(xxxi).
372. The kind of arrangements and agreements for which Mr Spencer contends - in terms of their effects - are those contained in the 1997 and 2003 NHT Agreements. By his final submissions, his focus on what he alleges is unlawful had shifted almost exclusively to the terms of those agreements. Insofar as he maintained his claim of an informal arrangement by final submissions, he has not established any such arrangement existed at all, let alone what its terms might have been.
(Emphasis added.)
202 Mr Spencer's argument based on an informal arrangement stemmed from ICM, where French CJ, Gummow and Crennan JJ, referring to Gilbert said:
38. The assumption being made was that the terms and conditions attached to a s 96 grant may sufficiently be disclosed in an informal fashion, falling short of an intergovernmental agreement of the kind seen in this case in the Funding Agreement. It is unnecessary to consider whether that reflected a correct understanding of s 96 and of its relation to s 61 of the Constitution.
203 In Spencer v Commonwealth [2010] HCA 28; 241 CLR 118 (Spencer 2010), French CJ and Gummow J said:
31. The question that arises is whether Mr Spencer's pleading left open the possibility, requiring factual exploration and possible amendment, of an informal arrangement between the Commonwealth and the State of New South Wales conditioning the relevant Commonwealth funding upon acquisition by the State of Mr Spencer's property rights on other than just terms. On the face of the pleading before Emmett J and the Full Court that possibility was open, even if not fully formulated or adequately particularised. Given the existence of the Commonwealth Acts and the relevant intergovernmental agreements, it is likely that there are negotiations and communications between the Commonwealth and the State of New South Wales, records of which might flesh out or cast light upon the practical operation of the Commonwealth and State funding arrangements. Documentary and electronic records of such negotiations and communications may be amenable to discovery and ancillary processes in the Federal Court which could be invoked by Mr Spencer.
32. It is not necessary for present purposes to determine whether a law of the Commonwealth, providing for grants to be made to a State under s 96 of the Constitution, or for agreements under which such grants could be made, might be characterised by reference to informal arrangements between the Commonwealth and the State as a law with respect to the acquisition of property. There are complex and difficult questions of both law and fact raised by that possibility, which was at least open on the amended statement of claim before the primary judge.
204 In Spencer 2010, Hayne, Crennan, Kiefel and Bell JJ held at [40]:
40. Having regard to this Court's decision in ICM Agriculture Pty Ltd v The Commonwealth, delivered after the Full Court's decision in this matter, it cannot now be held that the applicant "has no reasonable prospect of successfully prosecuting the proceeding". Whether, or how, ss 51(xxxi), 61 and 96 intersect where there is an informal arrangement or understanding between the Commonwealth and a State, falling short of an intergovernmental agreement, was expressly left as an open question by three members of the majority in ICM.
(Citations omitted.)
205 The primary judge held at [595]:
595. The Commonwealth submits that there was no "new principle" being articulated in ICM, by reference to the factual circumstances of Gilbert. I accept that submission. Indeed, the facts of Gilbert illustrate that what occurred, in the end, was a "formal" agreement or arrangement in any event. It is also correct that the kind of arrangement made in Gilbert did not have the invalidating features of the agreement in Magennis.
206 Her Honour also observed that a principal connection that Mr Spencer sought to draw in relation to the informal arrangement was between the Commonwealth needing to meet its targets under the Kyoto protocol and an arrangement with the State that, in return for funding assistance, the State would preserve additional amounts of native vegetation cover in NSW to help the Commonwealth meet those targets. Her Honour said at [599]:
599. This aspect of Mr Spencer's informal arrangement allegations has at least the following difficulties:
(1) The evidence of Mr Plummer does not support any informal arrangement concerning Kyoto Protocol targets, but tends to confirm the contents of the 1997 NHT Agreement, and cl 7.2(b) in particular.
(2) The documents in evidence surrounding the November 1997 COAG meeting disclose a variety of policy considerations about the nature and extent of Australia's commitment to the Kyoto Protocol, the apprehended role for the States in decisions about that commitment and about meeting targets Australia might commit to, but all in terms one would expect to see on such an important national issue: namely, the need for the Commonwealth and the States to work cooperatively within their respective areas of legislative and executive power.
(3) The allegations about a second period - 2002 to 2003 (prior to the Native Vegetation Act 2003) - as a possible period during which some kind of informal arrangement was concluded are not supported by the documentary evidence (see my findings earlier in these reasons at [358] to [362]).
(4) The oral evidence of Dr Kemp establishes there was no informal arrangement, certainly during the period when he was the responsible Minister, and gives no support to any connection with Kyoto Protocol targets. It was this period that was prominent in the submissions prepared by the applicant's former legal representatives, and set out in the "Profile of Case" document.
207 Her Honour considered that there were also problems of chronology with Mr Spencer's contentions. Australia's ratification of the Kyoto protocol did not occur until a decade after the 1997 NHT Act and 15 years after the NHM Act. Australia did not commit to any targets until 2007. By that time all of the events in which Mr Spencer wished to rely in support of his allegation of an informal arrangement had well and truly passed. Her Honour said that if the Commonwealth was intent on coercing the State into greater rates of native vegetation preservation to meet its targets, then one could expect to see that pressure exerted after Australia's commitment to meet those targets. However, there was nothing in the evidence relied on by Mr Spencer which dated from that time. Her Honour concluded at [604]:
604. Whether as to an informal arrangement to give effect to general Commonwealth environmental concerns about native vegetation clearance (for example, biodiversity and salinity concerns), or to give effect to the Commonwealth's need to meet its Kyoto Protocol targets, I am not satisfied Mr Spencer has established on the evidence that any such arrangement existed.
208 In the appeal, Mr King submitted that her Honour had set too high a bar at [371] in requiring that there be an improper, inappropriate, or unlawful collusion or conspiracy, or a plan to get around s 51(xxxi). Mr King submitted that all that is necessary was that there be "joint action" between the Commonwealth and a State and that it is enough that there be an "understanding" that the State is to use Commonwealth funds to acquire property.
209 In our view, Mr King's first submission mischaracterises the primary judge's findings at [371]. In that passage, her Honour was rejecting the particular allegations her Honour understood Mr Spencer to have made. Her Honour was not suggesting that an improper, inappropriate, or unlawful collusion, or a conspiracy, or a plan to get around s 51(xxxi) was necessary in order to enliven that provision. Her Honour went on to find at [372] that Mr Spencer had not proved the existence of any informal arrangement of the kind he contended for. Her Honour found that, further, Mr Spencer had not proved the existence of any agreement the terms of which required the State to acquire property. Her Honour said at [476] that if Commonwealth laws and intergovernmental agreements leave a choice to the State as to whether to take up the financial assistance and enact its own laws without dictating the terms of the State legislation, then the laws and the agreements will not be invalid.
210 Mr Spencer's submission that it was necessary only for her Honour to find that there was "joint action" between the Commonwealth and the State for the State to acquire property is too broad. As we have said, where it is alleged that the State has effected an acquisition of property, s 51(xxxi) will not apply unless the State is required under an intergovernmental agreement with the Commonwealth to acquire the property on other than just terms. Assuming that an informal agreement is sufficient, there can be no lesser requirement where the agreement is an informal one. Latham CJ used the expression "joint action" in the context of the specific facts of the case in Magennis where the terms and conditions of an agreement required the State to acquire property. There is no Constitutional principle that any action that can be described as "joint action" that has the effect of acquiring property enlivens s 51(xxxi) of the Constitution. The expression cannot be understood as some free-standing criterion for the engagement of the provision.
211 Mr King submitted that the primary judge erred at [595] by accepting the Commonwealth's submission that there was no new principle being articulated in ICM by reference to the factual circumstances of Gilbert. He submitted that in ICM, French CJ, and Gummow and Crennan JJ at [38] accepted that an informal arrangement of the type in Gilbert - a funding arrangement evidenced by an exchange of letters or some other evidence - was enough to engage s 51(xxxvi) of the Constitution.
212 Gilbert dealt with changes made to arrangements for the soldier settlement arrangements between the Commonwealth and Western Australia following the judgment of the High Court in Magennis. In Gilbert, the High Court described the changes at 505:
Conferences were therefore held between representatives of the Commonwealth and the States with a view to enabling the war service settlement schemes to be carried on without the legal impediments that had been created by the decision of this Court. On 16th March 1951 the Prime Minister wrote to the Premier of Western Australia stating that, as the State was continuing to settle ex-servicemen on the land, he felt that an arrangement could and should be made between the two governments "by which the Commonwealth Government co-operates in your scheme of settlement by providing financial assistance". He sent with this letter a memorandum setting out the conditions of an arrangement which would be acceptable to the Commonwealth. The proposal was, in essence, that the Commonwealth should provide financial assistance, not as previously for the purposes of the 1945 Agreement and under the Re-Establishment and Employment Act, but by direct grant to the States pursuant to s. 96 of the Constitution - the grants to be for the purposes of war service land settlement, and to be on such conditions as the Commonwealth Minister for the Interior should determine. An arrangement on the conditions thus envisaged was to take the place of the 1945 Agreement. Further correspondence took place concerning details of the proposal. In one letter (dated 19th December 1951) the Prime Minister, having in mind that the decision in Magennis's Case was regarded as having struck down Commonwealth participation in the 1945 Agreement, said: "The Commonwealth wished to avoid, for constitutional reasons disclosed by the Magennis Case, any arrangement of a formal character." ... And "In all the circumstances we feel strongly that the best legal foundation for future action can be provided by means of a grant of financial assistance pursuant to s. 96 of the Constitution supplemented by an informal arrangement (in the form say of an exchange of letters) between governments setting out the conditions to be observed." This proposal was adopted.
(Citations omitted and emphasis added.)
213 The High Court had said at 504 that the correspondence it described had limited relevance:
When we allude to it, we do so only because, the scheme being in essence an arrangement between governments, these communications are explanatory of the course of events.
214 The High Court at 505-509 referred to further correspondence between the Commonwealth and Western Australia negotiating various aspects of the grants under s 96 of the Constitution. The Court said at 508-510:
The final result of the discussions between the Commonwealth and State authorities, which went on during 1951 and 1952, appears in the final formulation of the conditions on which it was agreed that the Commonwealth would make grants of financial assistance. A statement of these was printed and sent to the State on 31st July 1953. This statement, as it describes itself, was thereafter generally referred to as "the conditions". These conditions were, in terms, framed to operate prospectively. They state the principles on which in the future the scheme should be administered and moneys received by the State applied. They dictate the terms on which the State should grant leases in the future. …
The matters in controversy between the State and Commonwealth authorities had thus been determined. The State was prepared to accept grants on the conditions as promulgated, and, in transactions between itself and settlers, to administer the scheme thereafter on the basis of those conditions. To this end the State Parliament passed the 1954 Act, which came into operation on 28th January 1955. Its purpose, according to the long title, was "to enable the State to carry out and give effect to war service land settlement and to accept appropriations mentioned in the States Grants (War Service Land Settlement) Act 1952 of the Commonwealth Parliament for the purpose of financial assistance in connexion with war service land settlement in such amount and subject to such conditions as the Minister (scil. the Commonwealth Minister) determines under that Act". The conditions so determined were those printed and promulgated in 1953. From then on those conditions were, it seems, regarded by the officials concerned with the administration of the scheme as superseding the 1945 Agreement, the original statutory authority for it having been repealed. The provisions of the conditions thus became really the terms of an agreement which the parties to the 1945 Agreement had substituted for it. So that, so far as the scheme was to be found embodied in any document, it was after 1954 to be found in the 1954 Act and the conditions. The conditions were, as we have said, in strict point of law the conditions on which the Commonwealth made moneys available to the State; and they were to apply prospectively, that is to the scheme as it was to be carried on under the new arrangement.
(Emphasis added.)
215 The primary judge considered at [594] that Gilbert did not provide an example of an informal arrangement. We respectfully agree with that conclusion. In Gilbert, while the Prime Minister had indicated that the Commonwealth desired to proceed by means of a grant of financial assistance supplemented by an informal arrangement setting out the conditions to be observed, the conditions were ultimately promulgated in a formal way. In ICM, French CJ, Gummow and Crennan JJ left open the question of whether terms and conditions attached to a grant under s 96 of the Constitution may sufficiently be disclosed in an informal fashion, rather than being found only in a formal intergovernmental agreement. That question was concerned with the mode of proof, rather than what needed to be proved. The primary judge was correct to say that there was no new principle being articulated in ICM by reference to the factual circumstances of Gilbert.
216 In the appeal, Mr King next submitted that her Honour should have found that there was an informal agreement under which the Commonwealth agreed to provide additional funding to NSW as the quid pro quo for which the 2003 NV Act was enacted. Mr King sought to make good this proposition by reference to a number of documents in evidence, some of which the primary judge had not been taken to by Mr Spencer. The Commonwealth submitted that this argument was not run before the primary judge and should not be permitted to be raised in the appeal.
217 One aspect of Mr Spencer's argument before the primary judge was that some kind of informal arrangement was concluded in the period from 2002 to 2003 before the 2003 NV Act was passed. Her Honour rejected that argument at [599]. Therefore, Mr King's argument in the appeal was not a new one. Instead, the argument was articulated, in part, by reference to evidence before the primary judge to which her Honour was not taken. As will shortly emerge, the case which was run on the appeal by Mr King tied the alleged informal arrangement to the Commonwealth's concern to achieve its Kyoto Protocol targets, which is consistent with the way the case was run below (see [328] of the primary judge's reasons for judgment). Mr King's argument should be considered.
218 Mr King relied on several Commonwealth government documents showing that, as early as 1992, the Commonwealth recognised that combating climate change meant that property rights might have to be adjusted through restrictions on land clearing and, if so, that compensation would have to be paid. Mr King referred to a statement issued by Senator Hill in 1997 saying that a major aim of the National Heritage Trust was to reduce vegetation loss and revegetate degraded land thereby contributing to a better greenhouse outcome. There were other documents which demonstrated that there would be a benefit to the Commonwealth in terms of meeting the Kyoto Protocol targets if land clearing was reduced.
219 Mr King relied on a letter dated 24 July 2001 from the then Prime Minister to the then Premier of Queensland. The letter stated:
However, I recognise that it is in the national interest to reduce the very high rates of land clearing in Queensland to achieve a significant reduction in greenhouse gas emissions beyond the reduction likely to be achieved through the implementation of Queensland's existing legislation. Accordingly, I reiterate that the Commonwealth would be prepared to provide a financial contribution commensurate with the land clearing reduction negotiated and implemented by your government…
The Commonwealth would be prepared to provide assistance if Queensland negotiates and implements further land clearing restrictions that would…compensate landholders if and when property rights are lost as a result of achieving further Queensland land clearing reductions…
I would expect that arrangements would be implemented to link any payments to abatement in outcomes achieved by the actual reduction in clearing.
220 On 18 February 2004, the Premier of Queensland wrote to the Prime Minister noting that the Prime Minister had written on several occasions over the past three years to advise that the Commonwealth government was prepared to share the costs of implementing a curb on land clearing in Queensland. The letter sought a commitment to finalise an agreement between the Queensland and Commonwealth governments. The letter said that achievement of the 2006 deadline, required in order to meet Australia's international greenhouse gas commitments during the first Kyoto reporting period, meant that action must be taken quickly. The letter sought a contribution from the Commonwealth government of $75 million.
221 Mr King explained that, while NSW claimed that it had independently decided to enact the 2003 NV Act, Mr Spencer's case was that "the Commonwealth pulled the State back into line because it was in its interest that the [1997 NVC Act] be strengthened in its operation by including broad scale clearing." This was said to have been done by the payment of $342 million to NSW in October 2003 in exchange for the passing of the 2003 NV Act. Mr King submitted that "The Commonwealth induced the making of [the 2003 NV Act], the quid pro quo, by large payments under s 96 to the State". Mr King submitted that this amounted to an informal agreement and "joint action" to acquire property without payment of just terms compensation.
222 It can be accepted that the documents relied on by Mr King demonstrate that the Commonwealth was concerned to achieve a reversal in the rate of land clearing in order to help it meet its Kyoto Protocol targets when they became applicable and envisaged that property might have to be acquired to achieve this reversal. This is consistent with what her Honour found, for example, at [348].
223 However, the provision of funding by the Commonwealth to NSW in these circumstances falls far short of establishing the existence of an informal agreement, the terms and conditions of which required the State to enact legislation under which property would be acquired. While the State may have been encouraged to do so by Commonwealth funding, there is no evidence that the State made anything other than an independent decision to enact the 2003 NV Act in its terms.
224 Further, while documents showed what the primary judge described at [348] as "the use by the Commonwealth of its financial assistance and grant powers to encourage reforms that it saw as desirable", that is not enough to attract the operation of s 51(xxxi). The exercise of the power to grant financial assistance under s 96 is not vitiated because the Commonwealth's purpose is to induce a State to exercise its powers of acquisition on other than just terms: ICM at [36], Pye at 83; South Australia v Commonwealth [1942] HCA 14; 65 CLR 373 at 417; Huddart Parker Limited v Commonwealth of Australia [1931] HCA 1; 44 CLR 492 at 515-516; Murphyores Incorporated Pty Ltd v Commonwealth [1976] HCA 20; 136 CLR 1 at 20. Mr Spencer has not shown the existence of any relevant informal arrangement.
225 In summary, Mr Spencer has not demonstrated any error in the primary judge's conclusion that there were no intergovernmental arrangements, formal or informal, which attracted the operation of s 51(xxxi) of the Constitution. That is enough to require that the appeal be dismissed.