Opinion Number. 1580

Subject

WHEAT MARKETING: COMPULSORY WHEAT POOL WHEAT MARKETING: COMPULSORY WHEAT POOL: intrastate trade: interstate trade: POWERS OF STATES AND COMMONWEALTH: FREEDOM OF Interstate TRADE: PROHIBITION OF Interstate TRADE: REFERRAL OF POWERS: ACQUISITION OF PROPERTY: SINGLE POOL OPERATING UNDER STATE AND FEDERAL LAW: PARALLEL STATE AND FEDERAL LEGISLATION

Key Legislation

constitution ss 51(i), (xxxi), (xxxvii), 92 : Dried Fruits Act 1928

Date
Client
Acting Prime Minister

I have been asked to advise as to the power of the Commonwealth, either alone or in conjunction with the several States, to establish a compulsory wheat pool or wheat pools.

Source of power

The power of the Commonwealth to establish a compulsory wheat pool must be derived from the Constitution, and the limitations on the powers of the States to establish such pools flow from the same source.

The establishment of a compulsory wheat pool involves interference with intrastate trade, interstate trade, and overseas trade. Assuming that the Commonwealth is not bound by section 92 of the Constitution, the Commonwealth would, in pursuance of placitum (i) of section 51 of the Constitution, have power to establish a pool in respect of wheat in the field of interstate or overseas trade. A Commonwealth pool could not attract wheat in the intrastate sphere. A State pool, on the other hand, might embrace wheat in the intrastate or overseas field of trade, but wheat in the interstate sphere could not be forced into such a pool.

The limitations on the respective powers of the Commonwealth and the States would make the matter difficult enough even if there were a consistent line of judicial decision to guide us. But there probably never was a section about which judicial opinion differed so widely as it has about section 92 of the Constitution–the section which lays it down that trade, commerce and intercourse between the States shall be absolutely free–and section 92 lies at the root of the whole question of the constitutionality of compulsory pools–Commonwealth or State.

For the purpose, however, of discussing the various methods by which it might be practicable to establish a wheat pool or wheat pools I will, for the present, assume that section 92 is directed only to interference by the States with interstate trade, leaving the Commonwealth free within its enumerated powers to impose restraints upon such trade. I will return later to the question of the operation of section 92.

EXERCISE OF POWER.

Prohibition of interstate trade–State pools

It has been suggested that the problem might be satisfactorily dealt with if the Commonwealth were to prohibit all interstate trade in wheat, and each State were then to provide for a compulsory pool in respect of all the wheat in the State. Assuming that the Commonwealth’s power as to trade and commerce extends to authorize the absolute prohibition of interstate trade, the Commonwealth’s share in this proposal would be valid, whilst, as wheat could not be the subject of interstate trade, it would fall within the scope of the State’s powers. It is, however, by no means certain that the Commonwealth can absolutely prohibit all such interstate trade. Such action would be so far-reaching that the High Court, on the matter coming before it (as it no doubt would), would, I think, hesitate to hold that such a prohibition was within the powers of the Commonwealth. If interstate trade in wheat could be prohibited, then it would follow that all interstate trade could be prohibited. But it is very doubtful whether the power of the Commonwealth to make laws with respect to trade and commerce includes power to destroy trade and commerce. (See the words of, and the quotation by, Isaacs J. in Melbourne Corporation v. Barry 31 C.L.R. at p. 190). Such a construction of the power would be repugnant to the spirit, if not the letter, of the Constitution, and subversive of the federation which it establishes. But even if the suggested scheme were practicable from the Commonwealth standpoint, it is doubtful whether all the States would agree to establish pools on a uniform basis.

Reference of powers by States to Commonwealth and consequential creation of one Commonwealth pool

An alternative scheme contemplates co-operation by the States with a view to giving the Commonwealth full control. Under placitum (xxxvii) of section 51, the States might refer to the Commonwealth such matter or matters as would be necessary to enable the Commonwealth to legislate with regard to a compulsory wheat pool, covering the domestic, interstate and overseas trade.

The States have power to form compulsory wheat pools in respect of wheat susceptible of their control. The Commonwealth, in pursuance of its trade and commerce power, may form a compulsory pool to deal with wheat falling within its jurisdiction. If the States’ powers were referred to the Commonwealth, the power of the Commonwealth would cover the whole field and the Commonwealth could then create a pool to which all wheat in Australia could be compelled to flow.

Having regard, however, to the unsatisfactory result of attempts made to have matters (for instance, aerial navigation) referred to the Commonwealth by the States, the prospect of dealing with the question of wheat pools by means of references by the States appears to be very remote.

Further, the meaning of placitum (xxxvii) is not quite clear. In terms it gives the Commonwealth power to legislate on ‘matters referred to the Parliament of the Commonwealth by the Parliament or Parliaments of any State or States, but so that the law shall extend only to States by whose Parliaments the matter is referred or which afterwards adopt the law’. It has never been decided whether it would be competent for a State Parliament to refer a matter for a fixed period, or whether, if it referred a matter at all, it would have to be a permanent parting with powers, pro tanto. It is fairly certain that the States, if they parted with any powers, would only consent to part with them for a term. If it were held to be beyond the competence of a State to make this limited transfer, then everything done under the limited transfer would be bad. The confusion that such a declaration would lead to will be indicated later.

A further difficulty would arise in connexion with any pool so established by reason of the fact that it is not clear that it would be possible to provide for divesting the owners of the wheat of their property therein. Placitum (xxxi) of section 51 of the Constitution authorizes legislation with respect to the acquisition of property on just terms for any purpose in respect of which the Parliament has power to make laws. Thus a provision that the average price for pooled wheat should be paid for wheat acquired might be unduly favourable to a farmer whose wheat was below the average. In the case of the latter, could it be said that the wheat had been acquired on just terms? If not, the provision for payment of an average price would probably be repugnant to placitum (xxxi) and invalid.

Commonwealth pools and State pools under existing powers.

A third plan which might be considered is whether the Commonwealth and the States by combining their forces might provide for the creation of a compulsory wheat pool or compulsory wheat pools which would be effective to deal with all wheat produced in Australia. Thus, the Commonwealth might establish a pool in respect of all wheat within the field of interstate or foreign trade. The States at the same time might establish pools in respect of all wheat within the field of intrastate trade. The framing of Commonwealth legislation to give effect to this suggestion would, however, present difficulties.

Even if the class of wheat falling within the Commonwealth power could be defined with certainty, it would be far from simple to determine whether any particular wheat came within the definition. The High Court itself has found it difficult to find a clear line of demarcation between interstate and intrastate trade. The owner of wheat faced with the problem of putting his wheat into a Commonwealth pool or a State pool or partly into the one and partly into the other, would meet with nothing but perplexity. It seems to me quite impossible to say, with certainty – here is wheat over which the Commonwealth has control, and here is wheat over which the States have control.

In connexion with this plan, too, the Commonwealth might meet with difficulty by reason of its limited power in respect of the acquisition of property, including wheat.

Single pool authorized by Commonwealth and State under existing powers.

A fourth scheme suggested is that the Commonwealth and State pass legislation in similar general terms providing for a compulsory wheat pool. The Commonwealth legislation would be valid to the extent to which it applied in relation to interstate and overseas trade, and the legislation of the States would be valid to the extent to which it applied in relation to domestic trade. This scheme would involve the creation of one pool controlled, I think, necessarily by a Commonwealth body. This body, under the authority of the laws of the Commonwealth and the States, would deal with all the wheat. It would, however, act in one capacity in relation to wheat covered by the Commonwealth legislation, and in another and distinct capacity in relation to wheat covered by the legislation of the States.

This scheme is also subject to the difficulty as to acquisition of wheat ‘on just terms’, and, in addition, would necessitate uniform action by all the States which, as in the case of the plan for a reference of powers by the States to the Commonwealth, would not be easily obtained.

Effect of section 92

As mentioned above, the soundness of the plans depends on the assumption that the law as to section 92 is to be taken as settled. By that I mean that it is assumed that the reading of the law, when a pool comes to be set up, will continue as it is today. The first interpretation placed by the High Court on section 92 was that the Commonwealth was bound. The reading today is that section 92 ‘is not addressed to the Commonwealth’, which means that it does not bind the Commonwealth. It may be taken that sooner or later that question will have to be settled by the Privy Council – for in James v. Cowan (47 C.L.R. 386) the Privy Council decided that a question in relation to the application of section 92 did not involve a matter inter se, and that therefore it could go to the Privy Council without a certificate from the High Court. If it does come before the Privy Council, it is quite possible that the later interpretation of the section by the High Court will not stand.

The arguments which may appeal to the Privy Council are the following:

In the first place the section says that trade, commerce and intercourse shall be ‘absolutely free’. In view of these words, would it not necessitate the adoption of some principle of interpretation never before or since invoked in English law, to say that ‘absolutely free’ means ‘absolutely free except in so far as the Commonwealth chooses to impose fetters’? In the very case in which this view was expressed, it was held that it would be quite improper to say that ‘absolutely free’ meant free only from fiscal restraints.

In the second place the meaning of the section is not a new subject of discussion. It has been, since 1915, frequently before the High Court. In the Wheat Case (20 C.L.R. 54) in 1915, in Foggitt Jones (21 C.L.R. 357) in 1916, in Duncan v. the State of Queensland (22 C.L.R. 556) later in the same year, to mention only important cases, the matter was raised and discussed; and again and again, in the strongest possible language, the fact that the section bound both the Commonwealth and the States was asserted by almost every Judge. No one ventured to express a contrary view until Mr. Starke, as he then was, put it forward in Duncan’s case, but, it not being necessary for the purposes of the case to decide the point, the members of the Bench did not express any opinions with regard to the question. It was not until McArthur’s case (28 C.L.R. 530) in 1920, where again the matter was not in issue, that the Court decided that the section was not ‘addressed to the Commonwealth’. That interpretation has been acted upon since and particularly in James v. South Australia (40 C.L.R. 1) and James v. the Commonwealth (41 C.L.R. 441).

In James v. Cowan (47 C.L.R. 386), an attempt was made to obtain the opinion of the Judicial Committee of the Privy Council on the question of the application of section 92 to the Commonwealth. The Committee, however, did not consider it necessary to decide this point which, therefore, so far as they are concerned, remains open.

The appellant in that case recently issued out of the High Court a writ against the Commonwealth in which he seeks a declaration that the Dried Fruits Act 1928–1935 is invalid.(1) That Act was passed in pursuance of the Commonwealth’s trade and commerce power and in reliance on the principle that the Commonwealth is not bound by section 92 of the Constitution. The ground on which the declaration is sought is that the Act contravenes section 92. It is reasonably certain that the High Court will hold that section 92 does not bind the Commonwealth. It is, however, very probable that James (the plaintiff) issued the writ with the object of obtaining the opinion of the Judicial Committee on the question.(2) It is likely, therefore, that the decision of that body will now be obtained with respect to the application of the section to the Commonwealth.

In considering the attitude which the Privy Council would adopt towards the later High Court interpretation, it has to be remembered that the High Court itself has never been unanimous on the matter. In McArthur’s case the present Chief Justice (Sir Frank Gavan Duffy) strongly dissented. He could imagine, he said, no language more appropriate for the purpose of limiting the legislative powers of both classes of legislature, or less appropriate for the purpose of limiting those of one class only, and in Vizzard’s case (50 C.L.R. 30) only last year the Court was asked by the Commonwealth to hold that section 92 did and does bind the Commonwealth. The Court decided to adhere to McArthur’s case, but it is understood that the Bench at that time was equally divided, and is so still, and it requires a majority to upset a previous constitutional decision. This attitude of the High Court towards the section would absolve the Privy Council from any diffidence about interfering with a long standing decision, and in that state of facts it is reasonably possible that they would say ‘absolutely free’, whatever it means or whatever limitations have to be put upon it, is addressed to everybody in Australia–Parliaments and Executives, Federal and State.

Assuming that is so, then any scheme referred to above, if put into operation, would be in grave peril of collapsing.

CONCLUSION

The inference to be drawn from the views expressed above is that any legislation designed to allow Commonwealth and States to set up compulsory wheat pools would be of doubtful validity. In James v. Cowan (47 C.L.R. 386) the Privy Council held that the direct object of the South Australian Act, the validity of which was in issue, was to interfere with interstate trade, and that it was, therefore, bad. The direct object of any Commonwealth legislation to give effect to any of the plans discussed above would be to interfere with interstate trade in wheat. Assuming that the Privy Council came to the conclusion that section 92 bound the Commonwealth so as to prevent its placing any restraints on interstate trade, that legislation also would be bad.

That is a contingency which the Commonwealth cannot afford to face with equanimity. Assume someone, being forbidden to export wheat defies the law and sends to another State some wheat the produce of the 1935/36 harvest. He is prosecuted and determines to test the matter, as someone is almost bound to test it. Let us see what that involves, taking James v. Cowan (47 C.L.R. 386) as a guide. The writ in that case was issued some time early in 1929; the case came on for hearing before Starke J. in June 1929; an appeal to the full High Court was argued and decided in February and March 1930, and in June 1932 the Privy Council gave its decision upsetting both Starke J. and the full High Court. Mr. James was awarded £12,145 damages 312 years after he commenced his action. The wheat industry is very much larger than the dried fruits industry and the result of an adverse verdict against the Commonwealth or a State for a course of action pursued over two or three years would be much more serious than is Mr James’ case.

For the foregoing reasons I am of opinion that any proposal to establish a compulsory pool or compulsory pools for wheat in Australia would be of very doubtful validity so long as section 92 remains in its present form. In view of the wide extent which the operations of any such pool or pools would have, it would, I think, be impossible, except on a very secure basis, to proceed to establish the pool or pools. If it were decided, notwithstanding this opinion, to create a compulsory wheat pool or compulsory wheat pools, the first step would be to obtain, by alteration of the Constitution, a limitation of the operation of section 92 on the lines suggested at the Constitutional Conference held in 1934.

[Vol. 28, p. 239]

(1) James v Commonwealth (1935) 52 CLR 570.

(2) James v Commonwealth (1936) 55 CLR 1; [1936] AC 578.

(3) Thomas Cornelius Brennan. Born 1867, Sedgwick, Victoria; died 3 January 1944, Caulfield, Victoria. Admitted Victorian Bar 1907. Appointed KC 1928. Senator for Victoria (United Australia Party) 1931–1938. Minister without portfolio assisting Ministers for Industry and for Commerce 1934–1937. Acting Attorney-General periods of 1935–1936. Awarded LLD 1932. Author, Interpreting the Constitution 1935.