I refer to my letter of 26 July, 1950,¹ with regard to the future of the Tea Control legislation.²

(2)  The application of the relevant principles depends greatly here, as it frequently does, on questions of fact and degree. Consequently in the absence of complete details of the extent and form of the proposed controls over the distribution of tea, I am unable to answer categorically the questions raised in your letter of 19 July, 1950. The views expressed in this letter may, however, be of some assistance to you in formulating further proposals.

(3)  There is no doubt that the Commonwealth could itself engage in overseas trade and commerce and it could therefore import tea from other countries. It could also create a public corporation to import the tea on its behalf. Authority for these propositions can be found in the Airlines Case (71 C.L.R. 29).

(4)  Equally I think that such a corporation could be given the exclusive right to import tea into Australia either by express provision in the legislation by which it was created or by the exercise of administrative power under the Customs (Import Licensing) Regulations, refusing licences to all applicants other than the corporation. Of these two methods, the express statutory provision is to be preferred.

(5)  I think the Commonwealth power with respect to overseas trade would also extend to authorizing such a corporation to make within Australia sales in bulk from imported stocks so that the tea could then be distributed through normal trade channels.

(6)  The essence of the proposed control of tea is the payment of a subsidy in order to keep down the price to the domestic consumer. The power of the Commonwealth to appropriate moneys is limited by section 81 of the Constitution to appropriations for the purposes of the Commonwealth. In the first Pharmaceutical Benefits Case (71 C.L.R. 237) it was held that ‘the purposes of the Commonwealth’ were not synonymous with the general welfare of the Commonwealth. Consequently, the appropriation power is limited to purposes either, (i) connected with the legislative, executive and judicial functions vested in the Commonwealth by the Constitution, or (ii) arising from the existence of the Commonwealth and its status as a Federal Government.

(7)  In war-time the payment of a subsidy to keep down the price of staple foods is a purpose connected with the defence of the Commonwealth which is, of course, a legislative function vested in the Commonwealth by the Constitution. But the payment of such a subsidy in time of peace would, I think, be held by the Court to have no relation to any Commonwealth purpose; it would be concerned only with internal trade which is normally a matter within State legislative and executive functions.

(8)  However, tea is an imported commodity and I think that money could be appropriated for the purpose of paying a subsidy in connexion with its import. The appropriation would then be made for the purpose of overseas trade which is a legislative function of the Commonwealth.

(9)  The subsidy could be effected either by—

(a)  payment to importers or distributors, or

(b)  the corporation’s pursuing a policy of selling at less than landed cost when the resultant loss could be borne from consolidated revenue in the character of a loss on the corporation’s operations.

If the first method were adopted, it would be essential that the persons selected for the receipt of the subsidy should have a close relation to the act of import; in other words they must occupy a position in the chain of distribution which is close to the act of importation rather than to the consumption end of the chain. Looked at in practical terms, this would mean that the subsidy must be paid to the importer or the first purchaser from him.

(10)  he principles governing the extent of the Commonwealth’s power in relation to overseas trade were enunciated by the High Court in Wagner v. Gall ((1949) 79 C.L.R. at 90).³ The following passage from the judgment of the Court is exactly in point—

The Liquid Fuel Regulations deal only with the control of the disposition and distribution of petrol after it has come into Australia. They do not profess to deal with the control of the amount of petrol which is imported. That of course can be done under other powers of the Commonwealth. They do not deal with the control of exchange or the expenditure of dollars upon liquid fuel or for any other purpose. The argument for the validity of the regulations depends upon no closer relation between the operation of the regulations and the dollar shortage than can be seen in the fact that the rationing of any commodity may be employed so as to reduce the amount of that commodity which is used. The method and means of sale and distribution inside Australia of imported commodities cannot itself affect the quantity of imports or the expenditure upon imports, although a restriction of consumption may re-act upon the demand for the importation of a commodity. The rationing of petrol and other liquid fuel may be used both to allocate liquid fuel in short supply and at the same time to reduce the consumption of such fuel and as a consequence to reduce the amount of that fuel imported. But these facts fall far short of showing any sufficient connection with defence purposes. It is too remote to be incidental to defence.

Under the legislative power over trade and commerce the Parliament may authorize and indeed has authorized restrictions upon importation. The restriction may be for any reason: Radio Corporation Pty. Ltd. v. The Commonwealth ((1938) 59 C.L.R. 170). But it would be impossible to hold that as an incident of this power the Parliament could enter what is prima facie the province of the States and control the domestic distribution or consumption of a commodity because a restriction on importation made a regulation of the basis of distribution and the purposes of consumption desirable or just. Still less would it be possible to treat the reduction in the demand for an imported commodity that may be effected by rationing as a ground for regarding the control of consumption as incidental to the restriction on importation.

(11)  I gather it will be necessary to exercise certain auxiliary ‘police’ powers to ensure that the payment of subsidy is not abused. The first Pharmaceutical Benefits Case (71 C.L.R. 237) demonstrates that such powers when taken by legislation must not exceed the limits of what is incidental to the legislative power being exercised by the Commonwealth. Thus only limited ‘police’ powers could be taken in relation to the actual import. Probably, all the ‘police’ powers which could be thus taken already exist under customs legislation.

(12)  But I think that case is also authority for the proposition that where the expenditure of Commonwealth moneys is involved, ‘police’ powers may be taken to the extent necessary to ensure the due expenditure of the moneys on the purpose for which they were appropriated.

(13)  As to the specific powers mentioned in your letter, my comments briefly are—

(a)  A general control of the buying and selling of tea as embodied in regulation 9 of the National Security (Tea Control) Regulations would, on the reasoning in Wagner v. Gall (see paragraph 10 above), exceed the boundaries of Commonwealth power.

(b)  The power of buying and selling must be limited to purchase overseas, importing and first bulk sale within Australia.

(c)  The validity of a licensing system for wholesalers (regulation 9A) would depend on the proximity of the relation between the wholesaler and the act of import or, possibly, on the necessity for such a system in order to ensure adequate safeguards for the expenditure of Commonwealth moneys.

(d)  A discretionary power to take securities (regulation 10C) would probably be unobjectionable.

(e)  A discretionary power to require securities would only be valid if it were limited (e.g. by reference to the class of persons from whom securities could be required) to the extent necessary to ensure adequate safeguards for Commonwealth expenditure of revenue.

(f)  Powers with regard to finance (regulation 14) would appear to be unobjectionable.

(g)  I think that a power of inspection similar to that contained in regulation 10B would probably be valid, but I would prefer to see it limited in some way along the lines indicated in sub-paragraph (e).

(14)  I have dealt with the question of an import monopoly and there only remains the question of export control. This could normally be achieved by a prohibition on export except with consent of an administrative authority. A prohibition in those terms alone would not allow the authority to require reimbursement of the subsidy as a condition precedent to the giving of consent to export. Accordingly, any legislation would need to authorize the authority in express terms to require the payment of an amount equal to the subsidy as a condition precedent to export.

[Vol. 39, p. 296]

¹ Opinion not published.

² National Security (Tea Control) Regulations.

³ Reported as R v Foster [1949] HCA 16, paras 24–25; (1949) 70 CLR 43.