Opinion Number. 1844

Subject

PETROLEUM PRODUCTSCOMMONWEALTH POWER TO CONTROL DISTRIBUTION OF PETROLEUM PRODUCTS: COMMONWEALTH POWER TO REQUIRE PETROLEUM COMPANIES TO ADOPT A POOL DISTRIBUTION AND MARKETING SYSTEM: SCOPE OF DEFENCE POWER: SCOPE OF TRADE AND COMMERCE POWER: FREEDOM OF INTERSTATE TRADE: WHETHER POOL SYSTEM WOULD BE PRACTICABLE

Key Legislation

CONSTITUTION ss 51(i), (vi), 92

Date
Client
The Secretary, Department of Shipping and Fuel

I refer to your memorandum of 13th October, asking for advice on the following questions:

(a) Has the Commonwealth legal power to require the Companies comprising the oil industry to reconstitute Pool Petroleum Pty. Ltd. or other legal entity so that the group of Companies acts as a unit in marketing petrol and petroleum products.

(b) Has the Commonwealth power to require the Companies to enter into an agreement between themselves to achieve the objective named in (a) above.

(2)  The only source of Commonwealth legislative power which appears to be relevant is the ‘defence power’. (The power over trade and commerce with other countries would not, I think, enable provision to be made for regulating the distribution in Australia of the products in question, especially as some of those products are not imported in the form in which they are marketed, but are produced by refining processes in Australia).

(3)  The defence power gives the Parliament some authority, the scope of which is very difficult to define, to deal with the economic aftermath of the war. It is, in my opinion, reasonably likely that the High Court would regard the control of the distribution of petroleum products, with a view to conserving stocks, ensuring continuity of supply to, and fair sharing by, consumers, and effecting an equitable allocation of the limited market among the supplying companies, as being within the scope of the defence power under present circumstances.

(4)  The question whether the compulsory re-establishment of the ‘pool’ system, or the establishment of some similar system, of distribution would be regarded by the Court as a legitimate means of achieving these objects would depend on the evidence which could be adduced to establish that such a system could reasonably be regarded as necessary, or at least appropriate, for the purpose of achieving those objects. Whilst the choice of means of achieving a purpose which is within the scope of the defence power is, generally speaking, a matter for the Parliament, the Court would not, I think, uphold a particular scheme if it considered that the means adopted took a form which involved a degree or kind of interference with private trading going far beyond the necessities of the constitutional objects. It may be, of course, that the court could be satisfied as to the appropriateness of the proposed legislation under discussion. But the fact that the war-time pool system has been permitted to lapse would, I think, make it difficult to support legislation for its re-introduction so long after the conclusion of hostilities.

(5)  In the preceding paragraphs I have referred only to the post-war aspect of the ‘defence power’. It may be that reliance could be placed on that power to support the proposed scheme as a means to ensure adequate stocks of liquid fuel for any future war and to provide for the equitable distribution among private consumers of the balance of supplies available after essential stocks have been provided. Here again, however, the appropriateness of the means would be a factor which would weigh heavily with the High Court in the event of the scheme being challenged.

(6)  Assuming, however, that the proposed legislation would be within the scope of the defence power, a further constitutional difficulty would exist in section 92 of the Constitution, which provides that trade, commerce and intercourse among the States shall be absolutely free. The pool system would interfere with the capacity of importers of petroleum products to engage freely in interstate trade in those products, and would force them to market only through an organization in which a particular importer would not have a controlling interest. Such a scheme bears a distinct resemblance to schemes for the organized marketing, through a pooling authority, of primary products. Recent pronouncements of the High Court as to the validity of such schemes, and generally as to the application of section 92 of the Constitution, make it probable, in my opinion, that a majority of the Court would hold the suggested legislation to be invalid as being contrary to that section.

(7)  It may be that the views of the High Court will be rejected by the Privy Council in the Banking Case, but, unless and until that happens, advice should be given on the basis of the present views of the High Court.1

(8)  Apart from constitutional difficulties, I have grave doubts as to the practicability of compelling the re-introduction of the pool system. There would be no direct way of compelling the Companies to set up the pooling company or to enter into and observe the pooling agreement. All that could be done would be—

(a) to ask the Courts to punish the companies or their directors for failing to carry out their statutory obligations; or

(b) to prevent the companies from trading in petrol etc. except through a pool established by them as required by the legislation, e.g., by refusing import licences or by seizing petrol which was being dealt with outside the pool.

These means might result only in the temporary refusal of the companies to handle petrol etc. at all, and it appears to me to be doubtful whether the Government would be prepared to maintain its insistence on the pool in the face of such an attitude, and the great inconvenience to the public which would follow.

(9)  Another factor to be considered is that an attempt to compel the re-establishment of the pool would be almost certain to result in protracted litigation, and the pool would not be in operation pending the completion of the litigation.

(10)  To sum up, I am of opinion that it would not be possible to frame the legislation in a way which would give it reasonable certainty of being held valid by the High Court, and that there would also be grave practical difficulties in enforcing the legislation.

[Vol. 38, p. 204]

1 Bank of NSW v Commonwealth [1948] HCA 7, (1948) 76 CLR 1. Privy Council decision: Commonwealth v Bank of NSW [1949] UKPCHCA 1, (1949) 79 CLR 497.