I refer to your memorandum, dated 27 January, 1950, and to subsequent discussions between our respective Departments, regarding the legality of a proposed agreement with New South Wales for financing the long service leave in the coal mining industry under the Award of the Central Reference Board.

(2)  Prior to the decision of the High Court at the end of 1949 in the War Service Land Settlement case (Magennis v. Commonwealth)¹ I should have had no doubt that the proposed agreement was completely valid. I should have regarded it as merely ancillary to Act No. 80 of 1949—States Grants (Coal Mining Industry Long Service Leave) Act 1949—and therefore as resting on the power to make grants to States (Constitution section 96) on conditions to be approved by Parliament. The Long Service Leave Act itself I would have thought plainly valid under section 96.

(3)  The decision in the War Service Land Settlement case however disturbed long-accepted views on Commonwealth State agreements. I now think that the draft agreement should certainly be modified, along the lines indicated below. It if is so modified, I think it very probable that the High Court would uphold its validity. I should myself regard a challenge as very likely. Success in that event is by no means certain. In the following paragraphs I shall endeavour to explain my reasons for these views.

(4)  The legislative scheme for financing long service leave is to be found in three Commonwealth Acts, namely, Acts Nos. 80, 81 and 82 of 1949.² A further Commonwealth Act and a State Act to approve the proposed Agreement will, by reason of Act No. 80, be necessary. The cost of long service leave is to be spread over the whole of the industry by means of an excise on coal (Acts Nos. 81 and 82 of 1949), the employers being reimbursed by the States the amounts paid by them in respect of long service leave, and the States being reimbursed by the Commonwealth for the expenditure incurred by them in reimbursing the employers (Act No. 80 of 1949).

(5)  More particularly, section 4 of Act No. 80 (being the States Grants (Coal Mining Industry Long Service Leave) Act 1949) provides that where an agreement has been made between the Commonwealth and a State for the purpose of reimbursing the State for the expenditure incurred by the State in the reimbursement of amounts paid by employers in the coal mining industry in respect of long service leave granted, under any industrial award, to employees in the industry and that agreement has been approved by the Parliaments of the Commonwealth and the State, there is to be payable to the State, in accordance with the agreement, such amounts as the Treasurer from time to time determines.

(6)  The legislation considered in the War Service Land Settlement case disturbed in two respects accepted views on grants under section 96 upon conditions agreed upon with the States. The High Court’s decision in that case concerned an Act which approved the execution of an agreement with the States, and set forth the terms of the agreement in a schedule.

(i)  The majority of the Court treated the Act as a law with respect to the subject matter of the agreement (the acquisition of land for the purpose of soldier settlement), and not as an Act dependent merely upon the power to make grants to the States on conditions approved by Parliament.

(ii)  Mr. Justice Dixon, who dissented, and held the Act valid, did not treat it as dependent on section 96 but said rather that it was merely ancillary to the Executive’s power at common law to make agreements on the subject of soldier settlement. During the argument, Dixon J. had questioned the proposition that under section 96 the Commonwealth can use a State as a mere conduit-pipe through which to grant Commonwealth moneys to individual citizens. In his judgment however he did not express any concluded opinion on this matter, because he upheld the Act on other grounds (as stated above), and the question of section 96 did not therefore arise.

(7)  It may very well be that the War Service Land Settlement case need not be regarded as laying down any new general propositions. The facts were very special, because the agreement purported to ‘peg’ the price of land acquired at 1942 values, and it was easy to regard the agreement as a mere device to escape the Commonwealth obligation to pay just compensation for property acquired. This is in fact the way in which the majority viewed the legislation in question. Nevertheless the case is recent, and the long service leave in the coal mining industry legislation may I suppose be controversial. I think therefore an effort should be made to make the legislation as different as possible from that which was considered in the War Service Land Settlement case. I think also that steps should certainly be taken to meet as far as possible the difficulties suggested by Dixon J.‘s judgment in the War Service Land Settlement case.

(8)  The anxieties I feel myself may turn out to be groundless. Good authority may certainly be adduced in support of the draft agreement even as it stands. Indeed it could be contended that this draft agreement differs only in degree from the legislation which was upheld both by the High Court and by the Privy Council in Moran’s case (1939–1940)—a case in which the Courts upheld the pre-war Wheat Stabilization legislation.³ This legislation provided for the grant of assistance to the States, to be passed on by the States to individual wheat growers. Nevertheless, for the reasons given, I think it is clearly wise to heed the danger signals that the War Service Land Settlement judgments displayed.

(9)  If the matter were tabula rasa I would myself have urged that the agreement should not be scheduled to an Act of Parliament at all, and that Parliament would merely authorize the Executive to make agreements with the State on the subject. The agreement itself would then have contractual, but not statutory, force; but as between Governments trusting each other there is no substantial drawback on that account. The sort of thing I have in mind is illustrated by section 104 of the Re-establishment and Employment Act 1945. Section 4 of the Long Service Leave Act 1949 however did not follow this form, and (as set out above) expressly requires the agreement to be ‘approved’ by the Parliaments of the Commonwealth and the State. In the circumstances, and short of the amendment of section 4 of the 1949 Act, I do not think there is anything to be gained by trying to keep the agreement out of the statute book—i.e. by not setting it forth as a schedule to the Act which ‘approves’ it.

(10)  I have mentioned this matter, academic though I think it is in this particular matter at the present late stage, because of its bearing on the procedure to be adopted in future Commonwealth–State agreements. I do not think it is probable that in the present matter the High Court would hold an Act approving this agreement to be an Act ‘with respect to’ long service leave in the coal mining industry, rather than an Act ancillary to the making of a grant under section 96, and setting forth the conditions on which the grant is to be made. If by any chance the Court were to do so, the Act would of course be held invalid, because the Commonwealth has no power to make laws with respect to that subject matter. I do not however see how the Court could adopt such a view of this particular matter, without positively over-ruling its own earlier decisions (e.g. The Federal Aid Roads case⁴).

(11)  Though I have come, somewhat reluctantly, to the conclusion that nothing practicable can be done to meet the first of what I have called the ‘danger signals’ displayed by the judgments in the War Service Land Settlement case, the position is quite different with the second ‘danger signal’. This ‘danger signal’ is the possibility that an act cum Agreement which does no more than use the State as a mere conduit-pipe whereby Commonwealth funds reach individual citizens might be held not in substance to be genuine ‘financial assistance’ to the State. (The Privy Council itself, in Moran’s case, though in rather a different context, contemplated the possibility that an Act which purported to make a grant under section 96 might be merely ‘colourable’.)

(12)  Broadly, I think the draft agreement in its present form lends a good deal of support to the contention that the State has no real function in the whole matter, has no real financial needs in respect of which the Commonwealth comes to its assistance, and is in effect brought in, between the Commonwealth and the employers as a mere device to link the plan with section 96.

(13)  For these reasons I should myself advise certain changes in the draft agreement, and in the procedure for bringing it into operation, with the object of vesting in the State legal responsibilities of its own in the field of long service leave, making it clear that the Commonwealth comes to the financial assistance of the State in its discharge of these responsibilities, and assigning to the State some independent functions in implementing the agreement with the Commonwealth.

(14)  The safest thing of all would I think be for the State to pass an Act now, the sooner the better, providing in effect for everything which it is required to do under the present draft agreement. For the protection of the State, the Act might well be expressed not to come into effect until an agreement had been made with the Commonwealth to provide the necessary assistance, by way of reimbursement, from the Coal Excise revenue. The agreement itself, by reason of section 4 of the Long Service Leave Act 1949 (Commonwealth) would of course need to be approved by both Commonwealth and State Parliaments.

(15)  If the State does pass in advance an Act providing for the reimbursement by the State to employers in the coal mining industry amounts paid by them for long service leave, the agreement should of course be amended to incorporate a reference to this Act. In any event however the draft agreement should be modified to enlarge and emphasize the State’s role in the scheme. The modifications I suggest are as follows:

Amend second recital to read—

And whereas the State has decided in the manner hereinafter appearing to assist employers in that industry by reimbursing to those employers the amounts paid by them in connexion with the granting of long service leave.

Omit clause 1(1).

Amend clause 3(2) to read—

(2) The administrator shall be appointed from the Public Service of the State.

Amend clause 4 by omitting the words ‘there shall be payable out of the Fund’ and inserting in their stead the words ‘the State shall authorize the payment from the Fund’.

Amend clause 7(d) by omitting the words ‘the Treasurer of the Commonwealth’ and inserting in their stead ‘Treasurer of the State’.

Amend clause 7(e) to read—

(e) as and when required by the Treasurer of the Commonwealth or of the State, furnish reports to the said Treasurers stating his policy or proposed policy in the administration of the Fund and setting forth his activities in connexion with the administration of the Fund and such other matters as the Treasurer of the Commonwealth or of the State may require;

Re-number the final three clauses as 8, 9 and 10.

Amend clause 8 to read—

The Treasurer of the State may, with the approval of the Treasurer of the Commonwealth, issue directions to the Administrator.

[Vol. 39, p. 78]

¹ PJ Magennis Pty Ltd v Commonwealth[1949] HCA 66; (1949) 80 CLR 382.

² States Grants (Coal Mining Industry Long Service Leave) Act 1949 (No. 80, 1949); Coal Excise Act 1949 (No. 81, 1949); Excise Tariff (No 2) 1949 (No. 82, 1949).

³ Deputy Federal Commissioner of Taxation (NSW) v WR Moran Pty Ltd [1939] HCA 27; (1939) 61 CLR 735; WR Moran Pty Ltd v Deputy Federal Commission of Taxation (NSW) [1940] UKPCHCA 3; (1940) 63 CLR 338.

⁴ Victoria v Commonwealth [1926] HCA 48; (1926) 38 CLR 399.