Opinion Number. 1599

Subject

regulation of primary products Dried fruits: validity of proposed scheme to control local prices of primary products: Freedom of interstate trade: use of excise and bounty powers: discrimination between states

Key Legislation

Constitution ss 51(ii), 55, 90, 92, 99: Excise Tariff Act 1906

Date

The effect of the decisions of the Privy Council in James v. Cowan(1) and James v. Commonwealth(2) on the existing system of legislative and administrative co-operation between the Commonwealth and the States, with a view to securing control of local prices of primary products, has been considered in a joint opinion by Mr. Herring, Professor Bailey and myself. We were not able to offer any suggestion for such a modification of existing methods as would offer to effective State legislation a chance of surviving an attack based on section 92. There remain to be explored the possibilities of attaining the same result through the exercise by the Commonwealth of its power to impose duties of excise, with or without a simultaneous exercise of its power to grant bounties on the export of goods.

In my opinion it is possible for the Commonwealth, by an exercise of its excise and bounty powers, to achieve the same result as was thought to be achieved by existing legislative schemes, and to repel successfully any attack on the constitutional validity of its legislation. The position, however, is not obvious. The matter is by no means without difficulty, and it requires careful consideration.

There are three lines of attack on Commonwealth legislation of this character which suggest themselves. In the first place it might be alleged that such legislation was in truth a means of regulating intrastate trade along with interstate trade. Such an attack would be based on a direct application of doctrine of R v. Barger,(3) and an indirect application of McArthur’s case.(4) In the next place it might be alleged that such legislation necessarily involves discrimination between States, so as to offend against the condition contained in section 51(ii) and the provisions of section 99 of the Constitution. In the third place it might be alleged that the new legislation had precisely the same effect in interfering with the freedom of interstate trade as the legislation now declared to be invalid, and that was therefore equally destroyed by section 92. I will consider each of these possible objections in turn.

1. In R v. Barger, 6 C.L.R. 41, the legislation in question was an Act which imposed an excise duty on certain manufactured articles, subject to a provision that if certain industrial conditions were observed by any individual manufacturer, he should be exempt from payment of the duty. It was held by a majority of the Court that the Act was unconstitutional and void. There were really three grounds for this decision, as is shown at p. 78 of the report: The first was that the Act was not in substance an exercise of the power of taxation, but an attempt to relate industrial conditions within States. The second was that, even if it were within the taxation power, the Act would contravene section 55 of the Constitution. The third was that even if the taxation power were capable of including the indirect regulation of industrial matters within the State, the power was limited by the implied prohibition against interference with matters reserved exclusively to the States. The view of the minority (Isaacs J. and Higgins J.) was that, if a legislative power is once granted, neither its abuse nor its consequences nor any purpose motive or object of the Legislature can render its exercise illegal.

Barger’s case does not appear to have been discussed in the Engineer’s case, 28 C.L.R. 129, but new principles of interpretation were laid down in that case, and it may very well be that the view taken by the majority in Barger’s case would not now be accepted by the High Court. Whether this be so or not, however, the doctrine of Barger’s case would not, in my opinion, be held to apply to Commonwealth legislation, imposing such an excise duty as is now under consideration. The ground of attack in Barger’s case was that the legislation constituted an attempt to regulate industrial conditions within a State, and so to exercise a power which the Constitution had reserved to the States. It appears to me that this would not be true of an excise duty, even if it were proved to have been imposed with the object of maintaining prices in Australia. The most natural and immediate effect (if not the inevitable effect) of imposing any duty of excise is to raise or maintain internal prices in respect of both intrastate and interstate sales of the commodity affected. It may be taken, in my opinion, that the Constitution, when it conferred power on the Commonwealth by section 51(ii) to impose duties of excise and by section 90 made that power exclusive, contemplated this more or less inevitable result. It cannot, therefore, as I think, form a good ground of attack on any duty of excise imposed by Commonwealth legislation that prices of commodities within a State will be affected thereby or even that the whole object of the imposition of the duty was to affect such prices.

2. Nor, in my opinion, can a duty of excise imposed without reference to State boundaries be successfully attacked on the ground of discrimination or preference of one State over another. The state of the decisions is not as clear as it might be, but I think that the same principles are applicable whether the question be regarded as arising under the qualifications in section 51(ii) or under section 99. If the objection were made, it would probably be framed in this way. It would be said in the case (for example) of dried fruits, that since some States are consuming rather than producing States, while others are producing rather than consuming States, the effect of the duty is to give a preference to the latter States over the former. In other words, the price in what may be called a ‘consuming State’ will be raised for the benefit of other States or their producers.

An effect somewhat of this character was held by the majority in Barger’s case to be a further ground for holding the Excise Tariff Act 1906 to be invalid. Isaacs J. and Higgins J. dissented on this point also, but for different reasons. The view taken by Higgins J. in Barger’s case appears to have been unequivocally accepted by the whole Court in James v. Commonwealth, 41 C.L.R. 442. At p. 456 Knox C.J. and Powers J. in a joint judgment said:

The provisions of the Act are general and apply equally to the transferring of dried fruits from any one State to any other State without discrimination of any kind. There is no provision in the Act which distinguishes between dried fruits in Queensland and dried fruits in South Australia, or exempts the owner of dried fruits–in whatever State they may be–from the restriction imposed on their transfer to any other State.

And at page 464 Starke J. said:

It is clear that the Dried Fruits Act 1928 itself does not discriminate between States or prefer one over another: as a law it treats all alike.

The nature of that discrimination which is prohibited by the Constitution was further discussed to some extent in Crowe v. Commonwealth 54 C.L.R. 69, and elaborately by all the Judges in Elliott v. Commonwealth 1936, A.L.R. 174.(5) But in both these cases the question arose in somewhat different ways. James v. Commonwealth is nearest in point of circumstances to the legislation of the character now under consideration. The elaborate discussion of the matter in Elliott v. Commonwealth does not, I think, in any way cast any doubt upon what was said in James v. Commonwealth, and the case under consideration would, I think, be covered by the third proposition of Evatt J. at page 187.

Legislation may have the result of benefiting one State at the expense of another. Thus a Customs Act may financially benefit New South Wales and Victoria, and operate to the financial detriment of Western Australia. But if the legislation itself operates as law uniformly throughout the Commonwealth, there is not, in my opinion, any such preference or discrimination as is forbidden by section 99 and section 51(ii).

3. The possibility of an attack based on section 92 is also to be seriously considered. In view of the stormy history of the legislation which the new Act or Acts would be intended to replace, it may well be argued that the New Act or Acts are equally invalid with the old. Section 92 is unqualified in terms, and it binds the Commonwealth. Any interference with freedom of trade between States is forbidden, and the new Act or Acts have exactly the same object and effect as the old. They equally affect the right of an owner of goods to send them interstate at such a price and on such terms as he may be able to arrange without legislative or administrative restriction or hindrance.

There is, in my opinion, a good and valid answer to such a contention. The operation of legislation imposing an excise and granting a bounty is quite different from that of legislation which seeks to control sales of a commodity either by the promulgation of a compulsory quota, or by a pooling system with direct or indirect compulsion, or by actual compulsory acquisition by the Crown or by a Board. In the latter case a person having a certain quantity of a commodity to sell interstate is prevented from so selling it: either he can only sell a certain proportion of it or he must sell it through a particular agency, or he has it simply taken away from him against his will. In the former case he is left perfectly free to sell interstate or intrastate as he pleases. There is no direct or indirect interference with his liberty to trade in competition with other traders.

If it be suggested that the price at which he can sell his goods is affected, and that McArthur’s case decided that the price regulation is unlawful so far as it affects interstate trade, there are again, I think, two good and valid answers. In the first place the Privy Council in James v. Commonwealth appears definitely to have taken the view that McArthur’s case went in this respect too far. In the second place, as I have pointed out above, the most immediate and natural effect of every duty of excise is to affect internal prices. Such a result must, in my opinion, be taken to have been contemplated by the Constitution when it conferred the power to impose duties of excise. If this were not so, the power to impose duties of excise would be wholly nugatory, and the same might well apply to customs duties.

For the above reasons I am of opinion that legislation capable of withstanding attack can be framed along the lines suggested. As to the exact form which it should take, it seems impracticable for me at this stage to discuss details. Broadly speaking, however, the suggestions made appear to fall into two main classes. In the first place it is suggested that the Commonwealth should impose a duty of excise, and provide for an exemption from payment of the duty in respect of all goods exported from Australia. The second suggestion is that the Commonwealth should impose a duty of excise on production and grant a bounty on export, the amounts being fixed from time to time or at short intervals in the light of overseas prices and in such a manner as to achieve maintenance of the desired local price.

There seems to be nothing to suggest any very substantial practical advantage of one of these two methods over the other, nor does it seem to me that the choice is affected by any decisive legal consideration. Nevertheless I should greatly prefer the latter method, since under that method the burden of the duty will fall equally upon all producers, and less room is left for the suggestion that the application of the doctrine of Barger’s case leads to a conclusion that section 92 is infringed. If however there are serious practical disadvantages involved in this course as compared with the other I think that the system of an Excise Duty subject to exemption would be held to be good. I see no reason why the legislation should not provide for actual administration through the bodies at present in existence. Both the convenience and the experience of these bodies seem to suggest that this is a desirable course.

[Vol. 29, p. 378]

(1) (1932) 47 CLR 386.

(2) (1936) 55 CLR 1.

(3) (1908) 6 CLR 41.

(4) W & A McArthur Ltd v Queensland (1920) 28 CLR 530.

(5) (1936) 54 CLR 657.