Opinion Number. 1798

Subject

SHIPPING AND SHIP-BUILDING INDUSTRYCOMMONWEALTH POWER TO REGULATE SHIP-BUILDING INDUSTRY IN AUSTRALIA: COMMONWEALTH POWER TO REGULATE COASTAL SHIPPING: COMMONWEALTH POWER TO REGULATE PRIVATE SHIPPING OPERATIONS: COMMONWEALTH SHIPPING AND SHIP-BUILDING AUTHORITY: COMMONWEALTH-OWNED SHIPS: SCOPE OF DEFENCE POWER: TRADE AND COMMERCE POWER: INTERSTATE AND INTRASTATE COASTAL SHIPPING TRADE: COMMONWEALTH SHIPPING BOARD: PROPOSED SUBSIDIES FOR SHIPOWNERS: APPROPRIATION POWER: MEANING OF ‘BOUNTIES ON THE PRODUCTION OF GOODS’: FREEDOM OF INTERSTATE TRADE: MEANING OF ‘UNIFORM THROUGHOUT THE COMMONWEALTH’: MEANING OF ‘ABSOLUTELY FREE’

Key Legislation

CONSTITUTION ss 51 (i), (iii), (vi), 81, 92, 98: COMMONWEALTH SHIPPING ACT 1923

Date
Client
The Secretary, Department of Supply and Shipping

From time to time I have given to the Cabinet Sub-Committee on Commonwealth Shipping Policy oral advice as to constitutional matters affecting the sub-committee’s recommendations, and have intimated that I intend to furnish a written opinion; this I now do.

(2)  Cabinet has decided that the future needs of Australian defence will require the establishment and maintenance of the merchant ship-building industry in Australia after the war, on a substantial scale. The proposal is that action should be taken to ensure the construction in Australian yards of approximately 32,000 tons of shipping annually. At present, the Commonwealth owns a ship-building yard at Williamstown, and marine engine works at Port Melbourne and at Brisbane. The Cockatoo Island yard is under lease to a private company till 1954. The remaining ship-building establishments are owned either privately or by States. It is not proposed that the Commonwealth should acquire these establishments. It is proposed that a Commonwealth shipping and ship-building authority or authorities should be established to regulate (inter alia) the entire ship-building programme. A Subsidy is proposed, to ensure that the Australian industry will be able to provide ships at reasonably competitive prices.

(3)  It will be necessary to ensure control, by a Commonwealth authority, of the entire construction programme of the Australian ship-yards, and also to ensure a market in the Australian coastal trade for the ships built in Australian yards. The necessary regulation of the coastal trade, though intrinsically important, is, as I understand it, only incidental to the establishment and maintenance of the ship-building industry. It is also proposed that licenses for the coastal trade shall be restricted to vessels built in Australia, with appropriate provision for exemption in special circumstances and that no licensed vessel shall engage in the ocean-going coastal trade if it is over twenty-five years of age.

(4)  I shall state at once in summary form my conclusions as to the constitutional power of the Commonwealth in this matter, leaving to subsequent paragraphs the elaboration of my reasons:

(a)  Unless the Commonwealth can rely on the defence power, the plan cannot be carried out in its entirety.

(b)  Whether the defence power will support the necessary legal action is to some extent doubtful, in view of certain High Court decisions. On the whole, however, I think the defence power can be relied upon to cover the full plan.

(5)  Apart from the defence power, the only power which would be available for the proposed regulation of the coastal trade and of the ship-building industry is the trade and commerce power, contained in paragraph (i) of section 51, of the Constitution and expressly declared by section 98 to extend to ‘navigation and shipping’. The trade and commerce power contained in section 51(i) is, however, limited to ‘trade and commerce with other countries and among the States’, and it is this power, and this power only, which is declared by section 98 to extend to ‘navigation and shipping’. The High Court has explicitly held that ‘the Constitution does not endow Parliament with a substantive power to deal with navigation and shipping at large. It only empowers it to deal with that subject in so far as it is relevant to interstate and foreign trade and commerce’. (See Newcastle and Hunter River Steamship Co. Ltd. v. A.G. (Commonwealth) (1921) 29 C.L.R. 357, 368; The King v. Turner (1927) 39 C.L.R. 411, 424–5.)

(6)  I think it is plain that the trade and commerce power will not support either the proposed regulation of the coastal trade or the proposed regulation of ship-building. As regards the coastal trade, the reason is that, though a market of the required size for Australian-built ships clearly could not be obtained without applying the plan to intra-state as well as inter-state vessels, the Commonwealth’s power has several times been held not to include ships that ply intra-state. As regards the ship-building industry, the reason is that the commerce power has been declared not to reach back into the production stage.

(7)  The Supreme Court of the United States has given to the commerce power of Congress in recent years an exceedingly wide scope. The Court now holds that Congress may regulate any acts or transactions that have a substantial bearing on inter-state commerce, even though the acts and transactions occur in the course of purely intra-state trade, or even of production, for commerce or for consumption. (See, for example Wickard v. Filburn (1942) 317 G.S. 311.) The High Court however has shown no disposition to adopt a similar interpretation of the commerce power in the Australian Constitution. (See, for example, The King v. Burgess, ex parte Henry (1936) 55 C.L.R. 608, 628–9, per Latham C.J.)

(8)  Even in the United States, however, I do not think the proposed legislation would be upheld under the commerce power. It is one thing to uphold the regulation of production, as incidental to the regulation of interstate commerce in the goods produced. Here exactly the opposite is to be done—commerce is to be regulated in order to support the control of production. Similarly it is one thing to control intra-state operations where they are so commingled with inter-state operations that separate regulation of the latter cannot be made effective. But nothing of the sort is, I think, suggested here. Accordingly, the commerce power must be left out of account altogether, for present purposes.

(9)  I turn, therefore, to the defence power. The test as to what this power authorizes is the same in time of peace as in time of war—viz., whether the law in question can really or substantially assist in the defence of Australia. On this matter the judgement of Parliament and the Executive is to be given great weight, but is not, in itself, conclusive. The Court must itself be satisfied that the real object of the measure is to provide for the requirements of defence, and not (for example) to carry out some other social or economic policy, such as a policy of full employment. However, if the necessary connexion with defence can be shown, it is no objection to the proposed legislation that it may also, and incidentally, achieve other purposes as well.

(10)  The legality of the proposed legislation is likely to be contested. I understand, for instance, that some vessels may be expected to have a useful life of forty years or even fifty. The proposed exclusion from the Australian coastal trade of all vessels over twenty-five years of age would therefore be likely to provoke challenge.

(11)  One difficulty in establishing the validity of the proposed legislation as a defence measure arises from the decision of the High Court in 1926 in the Cockatoo Island case (Commonwealth v. Commonwealth Shipping Board, 39 C.L.R. 1). On the assumption that the Commonwealth Shipping Act 1923 authorised the Shipping Board to carry on the business of a manufacturer, engineer, ship-builder or repairer, and to supply any person anywhere with commodities and services ordinarily supplied in the course of those businesses, the Court held that the defence power did not permit Parliament to authorize such activities as these in the ordinary conditions of peace. For the Shipping Board, it was argued that the dock-yard and workshops on Cockatoo Island were required for the purposes of the naval defence of the Commonwealth, and that it was impracticable to maintain them efficiently for that purpose unless the Board was authorized to enter upon general manufacturing and engineering activities because the cost of maintenance of the works would be excessive, and the working staff would be unable to obtain proper experience. The argument failed. If this decision were the last word on the subject, it is hard indeed to see how the defence power could be interpreted as supporting any ship-building by the Commonwealth for the merchant marine in time of peace. Regulation by the Commonwealth of the private ship-building industry could scarcely be in a stronger position.

(12)  The Cockatoo Island case was considered in 1935 in Attorney-General (Victoria) v. Commonwealth (52 C.L.R. 533). The High Court there held that the defence power did enable the Commonwealth Clothing Factory to produce clothing, of a ‘uniform’ type, not only for the Defence Force and Commonwealth Departments, but for other civilian purposes as well. The Commonwealth’s argument, as in the Cockatoo Island case, was that the maintenance of a specially trained and specially efficient staff was necessary in time of peace, in order that the Commonwealth might be in a position to fulfil speedily the needs of its Armed Forces if war broke out; and that such a staff could not be kept in being unless its activities extended beyond the mere provision of uniforms for the Defence Force. This time, the High Court upheld the argument. But the Court merely distinguished and did not actually overrule the Cockatoo Island decision.

(13)  In the light of the Clothing Factory case, I think it is plain that, where the main purpose of an organization is to produce defence equipment (such as war ships, munitions or clothing) and it can be shown that the organization could not be kept in an efficient state if restricted to the production of defence equipment alone, it can validly be permitted to engage in other related activities, so long as they are fairly incidental and subordinate to the main purpose. Therefore the latter case does, in my opinion, substantially qualify what was laid down in the Cockatoo Island case.

(14)  The activities in question in the Clothing Factory case were those of a Commonwealth instrumentality, producing defence equipment. The decision, therefore, cannot be regarded as directly covering the shipping and ship-building legislation that is now proposed. As I understand the proposal, the yards in which merchant ships are built, whether owned by the Commonwealth or not, would normally be restricted to merchant ship-building and thus would not be producing defence equipment, strictly so called, at all. The legislation now proposed must, therefore, be supported one broader lines even than the arguments which were upheld in the Clothing Factory case. The argument must be that the defence of Australia requires the maintenance in substantial numbers not merely of naval ship-builders but merchant ship-builders as well. This is a much more far-reaching proposition. Having regard, however, to the role of the merchant ship-building industry in the present war, I think there is a fair prospect that the necessary control and support of the industry would be upheld by the Court.

(15)  I turn now to the question of subsidies. It has, I understand, been decided that the subsidy shall be in the nature of a capital subsidy, but I am not aware that any particular form of capital subsidy has been definitely decided upon. One suggestion is that in the normal case a shipowner wishing to buy a ship will make an application to the Commonwealth ship-building authority, which will itself place an order for the building of the ship. The authority will buy the ship from the builder at a price which will cover the approved costs of production, together with reasonable profit. The authority will then sell the ship to the shipowner, at a price calculated to be the equivalent of the cost of a ship of the same type built in Britain at the same time. The Commonwealth will bear any loss incurred on the transaction by the ship-building authority.

(16)  In law, I do not think this amounts to a bounty on the production of goods, within the meaning of section 51(iii) of the Constitution. The only constitutional question which could arise is the validity of any appropriations necessary to recoup the ship-building authority for losses on the sale of ships. Assuming that the remaining elements of the legislation are a valid exercise of the defence power, I think the appropriation would be plainly valid, on any interpretation of section 81 of the Constitution.

(17)  I understand that in exceptional cases a shipowner may be permitted to place an order direct with a ship-builder. In that case the difference between the ship-builder’s approved cost and the equivalent English price would be paid direct to the ship-builder as a subsidy. As at present advised I do not think such a payment would be valid. It would amount in law [to]1 the grant of a bounty on the production of goods, and as such it would have to comply with the requirement of paragraph (iii) of section 51—viz., that it must be ‘uniform throughout the Commonwealth’. I do not think Parliament can validly provide that an Australian ship-builder shall be paid in each case such a sum as is necessary to reduce his approved costs to the equivalent of the comparable English price. Not only the amount but the rate of the subsidy would be vary as between one ship-builder and another. I do not think such a bounty could be said to be ‘uniform throughout the Commonwealth’. The fact that the payments were intended in each case to equalise Australian and English conditions would, I think, be immaterial. (See, for example, The King v. Barger (1908) 6 C.L.R. 41, 70). It would probably be possible, however, to devise a system of bounties, granted at prescribed rates for different types of vessels, which would comply with section 51(iii) of the Constitution.

(18)  I refer next to the decision that ‘no ships be licensed for the inter-state coastal trade after they have reached the age of 25 years’. There is no doubt that a law to give effect to this decision would be within the competences of the Commonwealth as being a law with respect to ‘trade and commerce … among the States’ (Constitution s. 51(i)). It is, however, provided by section 92 of the Constitution that inter-state trade and commerce shall be ‘absolutely free’. A law which directly prohibited the use of over-age ships in interstate trade might be upset on the ground that it offended against section 92. In my opinion however, a law, passed in reliance on the defence power, prohibiting the use of over age ships in both interstate and intra-state trade would, by reason of its application to both classes of trade alike, be less likely to be held to infringe section 92.

(19)  The establishment of a Commonwealth Government-owned and operated coastal line of ships has been decided upon. There is no doubt that the Commonwealth has power to own and operate a line of ships for interstate trade, though not for intra-state trade. If, however, the Commonwealth were to impose the restrictions on ships already mentioned, and at the same time took ships built in Australia for use in competition with private owners, the validity of the restrictions might well be challenged on the ground that they were not genuinely required for defence purposes and could not be supported on that ground. Their support under the trade and commerce power would then be endangered by section 92.

(20)  The matter is probably one of degree. If the Commonwealth imposed the restrictions and simultaneously acquired all the vessels built in Australia to set up its own line, thus denying those vessels to its competitors, the legislation would probably be declared invalid. If, however, the Commonwealth took only vessels not required by private owners or allowed those owners to obtain vessels elsewhere, the legislation would probably survive challenge.

(21)  Some consideration has been given to the power of the Commonwealth to control private shipping operations, particularly freights and fares. If the period after the dislocation of shipping operations brought about by the war had ceased to exist, the Commonwealth would have no power to regulate intra-state fares and freights. It would, however, have power to regulate interstate fares and freights but this power would have to be exercised in good faith and not so as to drive private owners out of business, thereby giving the Commonwealth a monopoly. Control which had that effect would infringe the freedom of interstate trade guaranteed by section 92.

[Vol. 39, p. 43]

1 Text of original opinion is illegible.