Spencer v Commonwealth of Australia [2009] FCAFC 38 (24 March 2009)

Last Updated: 24 March 2009

FEDERAL COURT OF AUSTRALIA

Spencer v Commonwealth of Australia [2009] FCAFC 38

CONSTITUTIONAL LAW – s 51(xxxi) Constitution – acquisition of property on just terms – validity of Commonwealth laws and agreements made pursuant to those laws providing for grants of financial assistance to States under s 96 Constitution – whether Commonwealth laws and agreements effect or authorise the acquisition of property

PRACTICE AND PROCEDURE – s 31A Federal Court of Australia Act 1976 (Cth) - whether reasonable prospect of successfully prosecuting the proceeding – whether primary judge erred

Held: appeal dismissed

Commonwealth of Australia Constitution Act (Imp), ss 51(xxxi), 96

Federal Court of Australia Act 1976 (Cth), s 31A
Native Vegetation Act 2003 (NSW)
Native Vegetation Conservation Act 1997 (Cth)
Natural Heritage Trust of Australia Act 1997 (Cth)
Natural Resources Management (Financial Assistance) Act 1992 (Cth)

Arnold v Minister Administering the Water Management Act 2000 [2008] NSWCA 338 followed
Arnold v Minister Administering the Water Management Act (2007) 157 LGERA 379; [2007] NSWLEC 531 referred to
Attorney-General of Victoria v Andrews (2007) 230 CLR 369; [2007] HCA 9 cited
Commonwealth v Tasmania [1983] HCA 21; (1983) 158 CLR 1 referred to
Evans v State of New South Wales (2008) 168 FCR 576; [2008] FCAFC 130 referred to
Fairfax v Federal Commissioner of Taxation [1965] HCA 64; (1965) 114 CLR 1 cited
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 applied
Lange v Australian Broadcasting Corporation [1997] HCA 25; (1997) 189 CLR 520 distinguished
New South Wales v The Commonwealth (2006) 229 CLR 1; [2006] HCA 52 cited
PJ Magennis Pty Ltd v The Commonwealth [1949] HCA 66; (1949) 80 CLR 382 distinguished
Pye v Renshaw [1951] HCA 8; (1951) 84 CLR 58 applied
S v Boulton (2006) 151 FCR 364; [2006] FCAFC 99 cited
Smith v ANL Ltd (2000) 204 CLR 493; [2000] HCA 58 approved
White Industries Aust Ltd v Commissioner of Taxation (2007) 160 FCR 298; [2007] FCA 511 referred to


PETER JAMES SPENCER v COMMONWEALTH OF AUSTRALIA
NSD 1493 of 2008

BLACK CJ, JACOBSON & JAGOT JJ
24 MARCH 2009
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1493 of 2008

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

PETER JAMES SPENCER Appellant

AND:	COMMONWEALTH OF AUSTRALIA Respondent

JUDGES:	BLACK CJ, JACOBSON & JAGOT JJ
DATE OF ORDER:	24 MARCH 2009
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellant pay the respondent’s costs of the appeal as agreed or taxed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1493 of 2008

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

PETER JAMES SPENCER Appellant

AND:	COMMONWEALTH OF AUSTRALIA Respondent

JUDGES:	BLACK CJ, JACOBSON & JAGOT JJ
DATE:	24 MARCH 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT

BLACK CJ:

1 I agree with Jagot J, for the reasons she gives, that this appeal should be dismissed and that the appellant should pay the respondent’s costs of the appeal, as agreed or taxed.

I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Black.

Associate:

Dated: 24 March 2009

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1493 of 2008

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

PETER JAMES SPENCER Appellant

AND:	COMMONWEALTH OF AUSTRALIA Respondent

JUDGES:	BLACK CJ, JACOBSON & JAGOT JJ
DATE:	24 MARCH 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT

JACOBSON J:

2 I also agree with Jagot J, for the reasons she gives, that this appeal should be dismissed and that the appellant should pay the respondent’s costs of the appeal, as agreed or taxed.

I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.

Associate:

Dated: 24 March 2009

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1493 of 2008

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

PETER JAMES SPENCER Appellant

AND:	COMMONWEALTH OF AUSTRALIA Respondent

JUDGES:	BLACK CJ, JACOBSON & JAGOT JJ
DATE:	24 MARCH 2009
PLACE:	SYDNEY

REASONS FOR JUDGMENT

JAGOT J:

3 The appellant, Mr Spencer, owns a property known as "Saarahnlee" at Shannons Flat in New South Wales. His property is subject to the provisions of the Native Vegetation Act 2003 (NSW) and was subject to the provisions of its predecessor, the Native Vegetation Conservation Act 1997 (NSW) (collectively, the State statutes and, individually, the 1997 Vegetation Act and the 2003 Vegetation Act). The State statutes, which prohibit the clearing of native vegetation other than in specified circumstances, apparently have made Saarahnlee unsuitable for Mr Spencer’s commercial farming enterprise. Mr Spencer claims that the prohibitions and restrictions in the State statutes effected the acquisition or expropriation of certain of his interests in Saarahnlee and that they did so by effect or authority of two Commonwealth laws, the Natural Resources Management (Financial Assistance) Act 1992 (Cth) and the Natural Heritage Trust of Australia Act 1997 (Cth) (collectively, the Commonwealth statutes and, individually, the Financial Assistance Act and the Natural Heritage Act). Mr Spencer thus claims that the Commonwealth statutes are laws with respect to the acquisition of property which do not provide for just terms as required by s 51(xxxi) of the Commonwealth of Australia Constitution Act (Imp) (the Constitution) and, accordingly, are invalid to that extent. Mr Spencer also claims damages on various grounds each relating to the Commonwealth acquiring interests in Saarahnlee.

4 The proceeding came before the primary judge by way of two notices of motion. The first, filed by Mr Spencer, sought interlocutory relief. The second, filed by the respondent Commonwealth, sought summary dismissal under s 31A of the Federal Court of Australia Act 1976 (Cth) which provides (relevantly) that the Court may give judgment for one party against another in relation to the whole or any part of a proceeding if "the Court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceeding". Such a proceeding need not be hopeless or bound to fail for that state of satisfaction to be reached (s 31A(3)).

5 The primary judge concluded that Mr Spencer had no reasonable prospect of successfully prosecuting the proceeding (essentially because Mr Spencer could not identify any Commonwealth law with respect to the acquisition of property). Accordingly, the Commonwealth’s motion was granted and Mr Spencer’s dismissed (Spencer v Commonwealth of Australia [2008] FCA 1256). Mr Spencer sought and obtained leave to appeal against the decision of the primary judge. As Mr Spencer abandoned his claim for interlocutory relief, the issue on appeal is the primary judge’s summary dismissal of the proceeding under s 31A of the Federal Court of Australia Act.

PRIMARY JUDGMENT

Mr Spencer’s claims

6 The primary judge summarised the assertions in Mr Spencer’s statement of claim (by reference to the paragraph numbering in that document) as follows (at [6]):

(1.1) Mr Spencer holds freehold or leasehold title to the whole of Saarahnlee.

(2.2) Prior to the enactment of the State Statutes, Saarahnlee was valuable, marketable and productive farming and grazing land on which Mr Spencer conducted a farming enterprise and Mr Spencer’s rights and interests in Saarahnlee included the following (the Rights and Interests):

(a) Improvements, including timber treatment, pasture improvement, wood on the terrain, timber in trees and millable timber;

(b) A farming enterprise that included various eco-services projects, including the farming of a special breed of high country fine wool sheep, a trout farm project, a wind farm project, a eucalyptus oil project, a spring water bottling project and an Australian oak furniture project;

(c) Causes of action for compensation in respect of the loss or resumption of rights arising under the Crown leases relating to Saarahnlee;

(d) Carbon sequestration rights, including the legal, commercial or other benefits or advantages of carbon sequestration by existing trees or future trees or forests on Saarahnlee after 1990 (the Carbon Sequestration Rights); and

(e) Carbon abatement rights arising from land use change and forestry conservation, including the legal, commercial or other benefits or advantages retained by carbon sinks by sequestration by any existing or future trees or forests or other herbaceous vegetation on Saarahnlee (the Carbon Abatement Rights).

(2.3) Saarahnlee is well wooded, with excellent herbaceous vegetation cover, ample trees and forests including native vegetation.

(2.4) Saarahnlee is a terrestrial ecosystem or carbon sink with significant amounts of vegetation and soils that are available for immediate carbon sequestration.

(2.5) The rights to the legal, commercial or other benefits of carbon sequestration by such vegetation and soils and of carbon abatement arising from retention of sinks in or arising from such vegetation and soils constitute property within the meaning of s 51(xxxi) of the Constitution.

(2.6) The said vegetation and soils, including carbon rights, are a natural resource within the meaning of s 4 of the Financial Assistance Act and s 17 of the Natural Heritage Act and are native vegetation within the meaning of s 8 of the Natural Heritage Act.

(2.7) By the State Statutes, a prohibition or general restriction was placed on the reasonable use of Saarahnlee, including the vegetation and soils and the carbon offset rights arising from the Carbon Sequestration Rights and Carbon Abatement Rights (together the Carbon Rights).

(2.8) Upon that prohibition or general restriction taking effect, some or all of the Carbon Rights were expropriated or acquired by the Commonwealth and an identifiable and measurable benefit or advantage was obtained by the Commonwealth for its purposes.

(2.9) New South Wales assigned the Carbon Rights to the Commonwealth for the purposes of the Commonwealth.

(2.10) No compensation has been paid or offered to Mr Spencer by the Commonwealth for the said expropriation or acquisition and just terms have not been provided to Mr Spencer in respect of such expropriation or acquisition and Mr Spencer has received no compensation from the Commonwealth for the taking of the Carbon Rights.

(4) The Commonwealth passed the Financial Assistance Act for the purposes of giving effect to a proposed resource agreement contemplated between the Commonwealth and New South Wales called National Greenhouse Response Strategy and other agreements for the establishment of a cooperative statutory and administrative framework, arrangement or partnership between the Commonwealth and New South Wales.

(5) The Commonwealth passed the Natural Heritage Act for the purpose of giving effect to the National Framework for the Management and Monitoring of Australia’s Native Vegetation, the National Vegetation Initiative, and other agreements for the establishment of a cooperative statutory and administrative framework, arrangement or partnership between the Commonwealth and New South Wales so as to meet Australia’s commitments under the Kyoto Protocol to the United Nations Framework Convention on Climate Change of 11 December 1997 (the Kyoto Protocol).

(6.1) As a party to the Kyoto Protocol, Australia:

(a) assumed responsibility for ensuring or attempting to ensure that its emissions of greenhouse gases will not exceed annually, during the period 2008 to 2012 inclusive, 108% of the emissions of greenhouse gases during 1990, and

(b) may transfer emissions to, or acquire emissions from, other parties to the Kyoto Protocol by a process of debiting and crediting in national greenhouse accounts, for the purpose of increasing or reducing emissions for the purposes of determining progress against targets under the Kyoto Protocol.

(7.1) The Commonwealth is in a position to benefit from trading the Carbon Rights only by virtue of the ‘regulatory’ reduction of native vegetation clearing in Australia pursuant to the Commonwealth Statutes.

(9.1) Authorised by the Commonwealth Statutes, the Commonwealth established a national framework of laws, being the State Statutes and the Inter-Governmental Agreements, relating to the management and use of land within Australia, which included provisions effecting the compulsory acquisition of land and rights to the reasonable use of land.

(9.2) If the said acquisition or expropriation of Saarahnlee and the Carbon Rights were carried out by the Commonwealth directly, it would be required to provide just compensation to Mr Spencer.

(9.2) The Commonwealth Statutes formed part of a scheme or device designed to avoid or over-reach the restrictions on the exercise of law making powers of the Commonwealth under s 51(xxxi) of the Constitution.

(9.3) Accordingly, the Commonwealth Statutes and the Inter-Governmental Agreements were made for the purpose of taking property other than on just terms and are not authorised by s 51(xxxi) or any other provision of the Constitution.

(10) New South Wales passed the State Statutes in furtherance of the Inter-Governmental Agreements and the provisions of the Commonwealth Statutes.

(11) Since the passage of the State Statutes, Mr Spencer has been prevented and restricted from clearing native vegetation on Saarahnlee by reason of the State Statutes and the refusal of New South Wales to grant permission for any such clearing.

(12.1-12.3) The provisions of the State Statutes, the Commonwealth Statutes and the Inter-Governmental Agreements have effected an acquisition of the Rights and Interests and have imposed a prohibition or restriction that has prevented the reasonable use of Saarahnlee by Mr Spencer, with the consequence that Saarahnlee is no longer commercially viable.

(12.4-12.5) The Commonwealth has acquired the Carbon Rights and is using or threatening to use the Carbon Rights to its advantage, in that, if the Commonwealth did not have the ability to account for emission reductions from reducing land clearing in the period 2008 to 2012, it would need to take other measures to reduce emissions in order to meet its obligations under the Kyoto Protocol, which measures are likely to involve expense to the Commonwealth.

(13) The acquisition of the Rights and Interests occurred pursuant to or as a result of the operation or effect of the Commonwealth Statutes otherwise than on just terms pursuant to the legislative and associated intergovernmental relationships described above.

(14) The Commonwealth has taken no steps to ensure that the taking of the Rights and Interests and the Carbon Rights without Mr Spencer’s consent or permission has been on just terms.

(15) Accordingly, each of the Commonwealth Statutes is invalid in so far as it fails to provide for just terms for the acquisition of the Rights and Interests.

(16) By virtue of the expropriation, trespass on, detinue in relation to, or conversion of the Rights and Interests by the Commonwealth under invalid legislation, Mr Spencer has suffered loss and damage in that he has been prevented from trading carbon property rights on any market and the Commonwealth has acquired the Carbon Rights.

7 Mr Spencer did not dispute the accuracy of this summary of his claims. I adopt this summary for the purpose of these reasons.

The legislation, instruments and agreements

8 Section 51(xxxi) of the Constitution provides that the Parliament shall, subject to the Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to "the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws". Section 96 is also relevant. It provides that "[d]uring a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides, the Parliament may grant financial assistance to any State on such terms and conditions as the Parliament thinks fit".

9 In [22] to [98] the primary judge summarised the principal provisions and operation of the Kyoto Protocol, the Commonwealth statutes, four inter-governmental agreements between the Commonwealth and New South Wales, and the State statutes. The primary judge identified the inter-governmental agreements as follows (at [53]):

• A bilateral Agreement between the Commonwealth and the State of New South Wales to deliver the Natural Heritage Trust, made on 31 October 1997 (the 1997 Agreement). • The Inter-Governmental Agreement on a National Action Plan for Salinity and Water Quality in Australia (the Salinity Action Plan), made on 3 November 2000 (the 2000 Agreement). • A bilateral Agreement between the Commonwealth of Australia and the State of New South Wales Relating to the Salinity Action Plan, made on 17 May 2002 (the 2002 Agreement). • A bilateral Agreement between the Commonwealth of Australia and the State of New South Wales to deliver the extension of the Natural Heritage Trust, made on 14 August 2003 (the 2003 Agreement).

10 Mr Spencer did not dispute the accuracy of this summary other than in one respect (an alleged failure by the primary judge to refer to Art. 3.7 of the Kyoto Protocol, which is discussed below). Accordingly, I adopt the primary judge’s summary in [22] to [98] for the purpose of these reasons.

Reasoning of the primary judge

11 The primary judge identified that Mr Spencer sought declarations that the Commonwealth statutes and inter-governmental agreements (but not the State statutes) were invalid to the extent that they effected or authorised acquisitions of property from Mr Spencer. Hence, the primary judge formulated the essential issues as follows (at [150]):

The critical questions, however, are whether or not either the Financial Assistance Act or the Natural Heritage Act is properly characterised as a law with respect to the acquisition of Mr Spencer’s property and whether the alleged acquisition or expropriation of Mr Spencer’s property was effected or authorised by either of those laws or by any of the Inter-Governmental Agreements.

See, to the same effect, the primary judge’s observations at [99] and [100].

12 Mr Spencer accepted the primary judge’s formulation of the relevant issues as set out at [150].

13 After an analysis of relevant authorities dealing with ss 51(xxxi) and 96 (particularly PJ Magennis Pty Ltd v The Commonwealth [1949] HCA 66; (1949) 80 CLR 382 and Pye v Renshaw [1951] HCA 8; (1951) 84 CLR 58) the primary judge concluded that a distinction should be drawn between two types of financial assistance under s 96 as follows (at [119]):

- a grant made on the basis or an understanding that a State may use the grant to assist in the financing of acquisitions of property otherwise than on just terms (which is, subject to other provisions of the Constitution, valid because it is not a law with respect to the acquisition of property otherwise than on just terms) and - a grant made on the condition that a State acquire property on terms that are unjust (which is invalid because it is a law with respect to the acquisition of property otherwise than on just terms).

14 The primary judge, following a detailed analysis of Mr Spencer’s claims about the effect of the State statutes on Saarahnlee (at [123] to [148]), accepted that Mr Spencer had established a serious question to be tried as to whether he had suffered sufficient detriment as a consequence of the State statutes "as might constitute a taking or acquisition in respect of Saarahnlee" (at [149]). However, the critical questions remained those identified in [150] (quoted at [11] above). The primary judge answered those questions in the negative for the following reasons:

(1) The Commonwealth statutes were either valid or invalid when enacted. Subsequent entry into inter-governmental agreements could not validate or invalidate the statutes (at [152]).

(2) Nevertheless, because a Commonwealth law might authorise an agreement that could effect an acquisition of property, such a law, to that extent, might be characterised as a law with respect to the acquisition of property (at [153]).

(3) In this case the Commonwealth statutes did not authorise or require any particular agreement or the imposition of any condition upon any agreement between the Commonwealth and a State requiring the State to acquire property or impose any restrictions on the clearing of native vegetation, or the exercise of discretion to refuse development consent to clear native vegetation from property (at [154], [155], [158] and [171] to [174]).

(4) Consequently, the direct legal and practical operation of the Commonwealth statutes did not affect any proprietary right or cause of action of Mr Spencer and thus could not be characterised as a law with respect to the acquisition of property within s 51(xxxi) of the Constitution (at [156] to [158]). Rather, any acquisition of Mr Spencer’s property, if it occurred, was effected or authorised by one of the State statutes (at [164] and [173]).

(5) If the inter-governmental agreements required the imposition of restrictions of the kind imposed by the State statutes, then it was arguable that the agreements might be invalid as they contemplated an acquisition of property on other than just terms. But any such acquisition that had occurred was effected or authorised by the State statutes not the inter-governmental agreements (at [164] to [165]). The high-water mark agreement, the 1997 agreement, also did not require, affect or authorise the exercise of discretion to refuse development consent to clear native vegetation from the property. Further, invalidity of the inter-governmental agreements could not affect the validity of the State statutes as the provisions of those statutes did not depend in any way on the operation or effect of the inter-governmental agreements (at [175]). Nor could any invalidity of the Commonwealth statutes affect the validity of the State statutes. If that were so, Mr Spencer arguably lacked any requisite interest sufficient to give him standing (at [181]).

(6) Mr Spencer’s argument that the Commonwealth and New South Wales were parties to a scheme to avoid the operation of s 51(xxxi) failed to identify any direct link between the Commonwealth statutes and the State statutes (at [174]).

(7) Mr Spencer’s other allegations concerning conversion and tort were dependent on the invalidity of the Commonwealth statutes (at [182] to [185]).

(8) For these reasons there was not a reasonable prospect of Mr Spencer succeeding in obtaining final relief (at [193]). In consequence, and in conclusion:

211 One cannot but feel the utmost sympathy for Mr Spencer if it be the case that Saarahnlee has been effectively sterilised by the State Statutes, with the effect that he can no longer carry on at Saarahnlee the activities which he was able to carry on prior to the enactment of the State Statutes. The question before the Court, however, is whether he has demonstrated that there is a serious question to be tried as to whether he is entitled to the final relief that he claims against the Commonwealth. Putting it the other way, the question is whether he has any reasonable prospect of obtaining that relief against the Commonwealth. Each question depends upon establishing that the Financial Assistance Act, the Natural Heritage Act or one of the Inter-Governmental Agreements is invalid in so far as it effects or authorises an acquisition or expropriation of part of Mr Spencer’s property in relation to Saarahnlee. 212 I have concluded that neither the Financial Assistance Act nor the Natural Heritage Act is a law with respect to the acquisition of property. Further, neither of those laws effects or authorises any acquisition of property of Mr Spencer’s that has been identified by him in the statement of claim. Similarly, none of the Inter-Governmental Agreements effects or authorises any such acquisition. It follows, in my opinion, that there is no reasonable prospect that Mr Spencer can obtain the final relief claimed in the proceeding. It also follows that there is no serious question to be tried as to whether Mr Spencer is entitled to that relief. 213 Accordingly, Mr Spencer’s application for interlocutory relief must be dismissed. Further, the proceeding itself must be dismissed.

THE SECTION 51(XXXI) GROUNDS

15 Mr Spencer’s submissions in the appeal, whilst comprehensive, could not surmount three fundamental problems with his claims, namely: - (i) the authoritative statements of the High Court in Pye v Renshaw about the operation of ss 51(xxxi) and 96 of the Constitution, (ii) the decision of the New South Wales Court of Appeal in Arnold v Minister Administering the Water Management Act 2000 [2008] NSWCA 338, and (iii) the consequences of Mr Spencer accepting the validity of the State statutes, specifically the fact that, even if the Commonwealth statutes and inter-governmental agreements are invalid, the 2003 Vegetation Act will continue in force and impose the same prohibitions and restrictions on Mr Spencer’s property. These circumstances disclose the fundamental requirement of identifying a Commonwealth law with respect to the acquisition of property. Once these circumstances are properly understood, it is apparent that Mr Spencer’s detailed submissions about numerous errors allegedly made by the primary judge can neither be sustained nor lead to any conclusion different from that reached by the primary judge.

Pye v Renshaw

16 Pye v Renshaw must be understood in the context set by Magennis. In Magennis the Commonwealth and State legislation took the form of authorisation of an agreement between the Commonwealth and the State. The agreement, referred to and contained in a schedule to the Commonwealth Act, provided that land acquired by the State for the purposes of the agreement should be acquired at a value not exceeding, in effect, its value as at 1942. Latham CJ (with whom Rich, Williams and Webb JJ agreed) held that while it is true that the Act authorised only the execution of an agreement, "the whole subject matter of the agreement is the acquisition of property", with the consequence that there was no reason to hold that "a law approving an agreement of such a character as this is not a law with respect to the acquisition of property" (at 402). As the State Act approved only an agreement executed by the State and the Commonwealth, and the agreement was not valid, the State Act was inoperative (at 404).

17 By the time Pye v Renshaw came to be decided the statutory scheme had been amended. The amendment deleted reference to the agreement and applied instead to land resumed for the purposes of another Act dealing with soldier settlement. The plaintiff pleaded the existence of an agreement between the Commonwealth and the State by which the State would acquire land for soldier settlement and pay to the owners only the 1942 value, such payments being funded in part by financial assistance from the Commonwealth. The High Court held that: - (i) if a State Act provides for the acquisition of land on terms which are not just, that is of no legal consequence (at 79 to 80), and (ii) the arrangement with the Commonwealth was immaterial as the State was free to co-operate with the Commonwealth or to accept financial assistance from the Commonwealth (at 81 to 82). In conclusion the Court said (at 83):

The argument really comes to this. The Commonwealth cannot itself acquire land except upon just terms. A State can resume land on any terms, just or unjust, authorized by its Parliament. But the Commonwealth is not authorized by s. 96 or any other provision of the Constitution to provide money for a State in order that the State may resume land otherwise than on just terms. This is the very argument which was rejected in Victoria v. The Commonwealth; [1926] HCA 48; (1926) 38 CLR 399: see also South Australia v. The Commonwealth; [1942] HCA 14; (1942) 65 CLR 373 at 417, where Latham C.J. said: - "The Commonwealth may properly induce a State to exercise its powers . . . by offering a money grant".

18 In other words, Magennis turned on its own facts and does not support Mr Spencer’s propositions in the present case. Contrary to Mr Spencer’s submissions, Pye v Renshaw is not distinguishable. Its application requires dismissal of this appeal on the basis of satisfaction that the proceeding has no reasonable prospect of success. Contrary to Mr Spencer’s submissions: - (i) there was an arrangement and agreement between the Commonwealth and State in Pye v Renshaw, (ii) there was both loss and benefit in Pye v Renshaw (as land owners received compensation at 1942 values only, while the Commonwealth was able to implement its policy of soldier settlement), and (iii) Pye v Renshaw was not limited to a single administrative law claim, as the plaintiff challenged the appropriation enactment on the ground that it was unconstitutional (see at 83). Further, the fact that the State statutes in this case post-date the arrangement and most relevant agreement (the 1997 agreement) is immaterial.

19 Pye v Renshaw, properly analysed, also negates Mr Spencer’s submissions based on: - (i) an alleged intent to overreach s 51(xxxi), (ii) the alleged improper use of a "mere device" to circumvent the constitutional guarantee, and (iii) the significance of the terms of the inter-governmental agreements. As the Commonwealth submitted (at [28] of its written submissions), Pye v Renshaw establishes the following relevant propositions:

(a) Even if the appellant were in a position to demonstrate that the National Heritage Act or the Financial Assistance Act were enacted for the purpose or object or "motive" of inducing the state to exercise its powers to apply restrictions to the appellant’s land, that would not demonstrate invalidity.

(b) Nor would it be sufficient to demonstrate that the statutes had the effect of authorising or permitting the Commonwealth to provide financial assistance to New South Wales on terms that such restrictions be applied. Were it otherwise, the appropriation enactment in Pye would have been held invalid.

(c) It is irrelevant for present purposes that the appellant claims to have suffered some form of detrimental effect to his property interests or that he claims the Commonwealth receives some form of benefit. In Pye, the detriment to the property holder was clear (potential loss of freehold title) and the Commonwealth received a ‘benefit’ in that it achieved its aim of settling former members of its defence forces at below market cost.

(d) It also follows that the terms of agreements, grants or arrangements made pursuant to the National Heritage Act or the Financial Assistance Act could not have any bearing on the validity of those laws themselves.

See also, in support of proposition (a) above, the primary judge’s reference at [110] to the decisions in Huddart Parker Ltd v The Commonwealth [1931] HCA 1; (1931) 44 CLR 492 at 515 to 526 and Murphyores Incorporated Pty Ltd v The Commonwealth [1976] HCA 20; (1976) 136 CLR 1 at 20 in support of the observation that "it is not appropriate to characterise a law by reference to the motives that inspire it or the consequences that flow from it".

20 As explained below, and again adopting the written submissions for the Commonwealth (at [29]):

Those propositions are directly at odds with [Mr Spencer’s] argument...In those circumstances, as was held by the New South Wales Court of Appeal in Arnold at [108] and [111] – [112], Pye governs the outcome of this matter and dictates that [Mr Spencer’s] claims were bound to fail.

21 Mr Spencer’s other allegations of error by the primary judge also cannot withstand scrutiny when assessed against the authority of Pye v Renshaw. For example, the claim that the State is the agent of the Commonwealth was considered and rejected in Pye v Renshaw (at 82) and is no more meaningful on the facts of the present case. The submission that the arrangements are a mere device to circumvent s 51(xxxi) on the basis that the Commonwealth cannot do indirectly that which it cannot do directly overlooks the operation of s 96 of the Constitution and the clear statement in Pye v Renshaw (at 83). The submission that the primary judge was in error in his reference at [174] to the lack of a "direct link" between the Commonwealth statutes and State statutes cannot be sustained. In context, as the Commonwealth submitted, the reference means a direct legal link analogous to that in Magennis (which the primary judge correctly found does not exist in the present case). The appellant submitted that the primary judge failed to make a finding in respect of the alleged benefits to the Commonwealth evidenced by Art. 3.7 of the Kyoto Protocol. That submission is of no assistance and, in any event, the effect of Art. 3.7 is implicitly recognised by the primary judge’s explanation of the claims. The submission referring to the Commonwealth gaining a benefit at Mr Spencer’s expense by unlawful executive conduct under either s 61 (dealing with the executive power of the Commonwealth) or s 51(xxxix) of the Constitution (dealing with incidental powers) is not pleaded (despite Mr Spencer’s reference to para. 9.4 in the statement of claim) and cannot be sustained. Contrary to Mr Spencer’s submissions, the primary judge did not find the inter-governmental agreements to be invalid. There is also no basis to do so given the reasoning in Pye v Renshaw. Hence, the claims of unlawful executive action are unfounded. The submission that the Commonwealth’s motion for summary dismissal was spent is not supported by any ground in the notice of appeal and is untenable. The motion had not been determined and the Commonwealth was free to agitate the motion in response to Mr Spencer’s claim for interlocutory relief. Similarly, the reference to the primary judge (in a directions hearing) having made a comment about the amended statement of claim raising an arguable case was not supported by the tender of a transcript and is beside the point. Finally, the claims of conversion or some other "constitutional tort" depend, as the primary judge observed (at [185]), on the claims of constitutional invalidity which must be rejected.

Arnold

22 Arnold involved a challenge to the validity of a water management plan made under the Water Management Act 2000 (NSW), the National Water Commission Act 1992 (Cth) (the NWC Act), and the Financial Assistance Act (the latter being one of the two Commonwealth statutes challenged by Mr Spencer in the present case). The claims that the statutes were invalid (as in this case) depended on the operation of s 51(xxxi) of the Constitution. In Arnold, Lloyd J at first instance summarily dismissed the proceeding on three bases (lack of jurisdiction, lack of standing, and the proceeding disclosed no reasonable cause of action or was frivolous or vexatious) – see Arnold v Minister Administering the Water Management Act 2000 (2007) 157 LGERA 379; [2007] NSWLEC 531.

23 The applicants in Arnold (again as in this case) claimed that the Commonwealth and the State had entered into a joint venture or arrangement culminating in the acquisition of the applicant’s property (water entitlements) other than on just terms in breach of s 51(xxxi) of the Constitution, or as a device to avoid the operation of that provision. A key part of the alleged joint venture was a funding agreement by which the State was required to take steps having the effect of reducing the water entitlements of licence holders in accordance with their history of extraction. Lloyd J held that there was no reasonable cause of action because:

[99]...the applicant’s case involves the attempted resurrection of the very claim which was rejected by the High Court in Pye v Renshaw - it is a claim that Commonwealth cannot by a grant or any other provision of the Constitution provide money to the State for the "purpose" of inducing it to resume land on otherwise than just terms. Section 51(xxxi) does not attach to "purposes". It is a limitation that applies to laws characterised as laws with respect to the acquisition of property. The Commonwealth correctly submits that there is no Commonwealth legislation in issue here which could be characterised as such a law and that is an insurmountable obstacle to any claim founded on s 51(xxxi).

24 Spigelman CJ delivered the principal judgment in the appeal (with which Allsop P and Handley AJA agreed). The Court of Appeal held that Lloyd J was correct in concluding that the decision in Pye v Renshaw determined the outcome of the case (at [96]). In so doing the Court (at [96] to [99]) also approved the distinction drawn by the primary judge in the present proceeding quoted at [13] of these reasons. Spigelman CJ dealt with the Financial Assistance Act surmising that its invalidity was not pressed on appeal because "on the authority of Pye v Renshaw, it could not be contended that the Financial Assistance Act was capable of being characterised as a law with respect to the acquisition of property" (at [108]). Spigelman CJ thus concluded that "[n]either the NWC Act, nor the Financial Assistance Act, relevantly, authorises or requires the State to acquire property, let alone to do so on unjust terms" (at [109]). Although the Court’s reasons note that the difference between Magennis and Pye v Renshaw may not "fully reflect contemporary jurisprudence with respect to the preference of substance over form, particularly in matters involving Constitutional guarantees" (at [111]), such concerns were immaterial in the face of applicable High Court authority (at [112]).

25 In dealing with the applicants’ claims about the funding agreement Spigelman CJ rejected arguments attempting to distinguish Pye v Renshaw saying the decision made clear that "grants under s 96 of the Constitution are valid even if the funds will be used by the State to acquire property on terms which would not be acceptable under s 51(xxxi)" (at [121]). The arrangement between the Commonwealth and the State in Arnold had the basic purpose of reducing water entitlements which the Court (at [126]) described as reasonably analogous to the position in Magennis where "the whole subject matter of the agreement is the acquisition of property upon certain terms and conditions for certain purposes" (at 402) or that "the acquisition of the necessary land is the essence of the scheme" (at 424). Spigelman CJ continued:

[127] Nevertheless, the Commonwealth can, as determined in Pye v Renshaw (at 83) supply funds on condition that the States deploy the funds to acquire property on terms which the Commonwealth could not impose directly. No principled basis for distinguishing Pye v Renshaw in this respect has been advanced. I am unable to identify one.

26 Spigelman CJ also rejected the applicants’ argument about a "device" to avoid the Constitutional guarantee on the basis that the arrangements "cannot be characterised as a "device" just because the Commonwealth could not achieve its policy objectives, or chose not to do so, by force of its own legislative power" (at [139]).

27 Finally, Spigelman CJ observed that the question whether any practical consequence for the applicants would result from a declaration of constitutional invalidity was critical. Leaving aside a claim of irrelevant considerations (peculiar to the claim in Arnold), the alleged invalidity of the Commonwealth laws would not impinge on the State laws or conduct. Hence, the Court of Appeal confirmed Lloyd J’s conclusion that the applicants lacked standing (at [140] to [145]).

28 Application of the decision in Arnold would also lead to this appeal being dismissed. Contrary to the appellant’s submissions, this Court must follow Arnold unless satisfied that the decision of the New South Wales Court of Appeal in that case was plainly wrong.

29 In Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [135] the High Court confirmed that:

Intermediate appellate courts and trial judges in Australia should not depart from decisions in intermediate appellate courts in another jurisdiction on the interpretation of Commonwealth legislation or uniform national legislation unless they are convinced that the interpretation is plainly wrong.

See also S v Boulton (2006) 151 FCR 364; [2006] FCAFC 99 at [27] per Black CJ (citing Australian Securities Commission v Marlborough Gold Mines Ltd [1993] HCA 15; (1993) 177 CLR 485).

30 Mr Spencer also attempted to distinguish Arnold. He sought to do this on seven grounds, none of which can be sustained, for the following reasons.

(1) Arnold is not a case under s 31A and concerned a jurisdictional issue. Arnold, like the present case, concerned an application for summary dismissal on the ground that the proceeding disclosed no reasonable cause of action (see Arnold at [5]). The fact that Lloyd J was held to be in error on the jurisdictional issue could not alter the outcome of summary dismissal of the proceeding against the Commonwealth because the Court of Appeal agreed that the proceeding disclosed no reasonable cause of action. There is no meaningful difference between that circumstance and the application under s 31A of the Federal Court of Australia Act in the present case. Insofar as this submission of Mr Spencer embraced the argument that s 31A did not permit the dismissal of a proceeding because the section refers to giving judgment, it is sufficient to note that s 4 of the Federal Court of Australia Act defines judgment as meaning a judgment, decree or order, whether final or interlocutory. The decision in White Industries Aust Ltd v Commissioner of Taxation (2007) 160 FCR 298; [2007] FCA 511, referred to by Mr Spencer, does not support any conclusion to the contrary (see, in particular, at [50]).

(2) Arnold involved water entitlements not carbon rights. This is not a relevant point of distinction. The pleadings in both cases asserted that the rights were "property" within the meaning of s 51(xxxi) of the Constitution.

(3) Arnold did not involve evidence of loss of the type suffered by Mr Spencer or of the type of benefit gained by the Commonwealth (referring to Commonwealth v Tasmania [1983] HCA 21; (1983) 158 CLR 1 and Smith v ANL Ltd (2000) 204 CLR 493; [2000] HCA 58 on the importance of the issue of benefit). In Arnold the loss to the applicants involved reduction of their water entitlements which were asserted to be property. This is analogous to the loss of property claimed by Mr Spencer in the present case. The applicants also specifically pleaded the Commonwealth’s position that water is a national resource and its arrangements with the State were part of its objective of achieving the Water Smart Australia Program. In this sense it is clear that the Commonwealth did obtain a benefit in Arnold at least sufficient for it to enter into the funding agreement with the State. Moreover, while loss and benefit are relevant to the question whether there has been an acquisition, as the High Court observed in Smith v ANL (at [78]) "because s 51(xxxi) relates to an acquisition ‘from any State or person’, this makes it plain that the trigger for its operation is the fact of an acquisition. It is not the taking, as such, or the fact that the Commonwealth, or one of its instrumentalities, has secured a benefit from the acquisition. Not infrequently, property rights are acquired under federal law for the precise purpose of extinguishing them, that being the very object of the acquisition".

(4) Arnold did not involve the sterilisation of land as in the present case. This cannot be a relevant point of distinction given the pleadings as summarised in Arnold. As the Commonwealth submitted, the requirement of s 51(xxxi) for the existence of a Commonwealth law with respect to "the acquisition of property..." focuses attention on issues of law arising from the pleading, not issues of evidence. Comparison of the magnitude of the practical impact of reducing water entitlements and preventing the clearing of native vegetation is irrelevant.

(5) Arnold applied the reasoning of the primary judge in this case without hearing from either party on this issue. First, it is clear that the Court of Appeal applied Pye v Renshaw as it was bound to do (at [95] and [112]). Second, the Court of Appeal’s references to the primary judge’s decision in Spencer are in the context of the proper approach to the reconciliation of the two High Court decisions, Magennis and Pye v Renshaw. The Court was entitled to have regard to the reasoning in Spencer on this issue irrespective of the making of submissions by either party.

(6) Applying Arnold would mean that Mr Spencer effectively has been denied a real hearing. This submission fails to take account of the binding High Court authority in Farah Constructions v Say-Dee. Contrary to Mr Spencer’s submissions, at the heart of the present case is an issue of the characterisation of the Commonwealth statutes. One of those statutes (the Financial Assistance Act) has already been characterised by the Court of Appeal in Arnold as not being a law with respect to the acquisition of property. Moreover, the claims in Arnold are effectively indistinguishable from those in the present case and were rejected by the Court of Appeal.

(7) The primary judge in the present case incorrectly applied the decision in Evans v State of New South Wales (2008) 168 FCR 576; [2008] FCAFC 130 (at [121]) without hearing from the parties. This submission underpinned a large part of Mr Spencer’s case and appeared to be related to a submission that the primary judge’s approach of characterising the Commonwealth laws by reference to their direct legal and practical operation (see at [110]) was in error. It was said that the primary judge applied Evans, which is a decision about the proper approach to the interpretation of delegated legislation, when the correct test for validity was stated in Lange v Australian Broadcasting Corporation [1997] HCA 25; (1997) 189 CLR 520 at 567 and Smith v ANL at [7] and [147] to [153], which focus on the effect or burden on individuals (but, because the context is acquisition of property, without any need for consideration of the question whether the law is reasonably adapted and appropriate to serve a legitimate end; see Georgiadis v Australian and Overseas Telecommunications Corp [1994] HCA 6; (1994) 179 CLR 297).

The submission cannot be accepted. The primary judge referred to Evans as support for the orthodox approach to statutory interpretation which requires reading legislation so as not to exceed legislative power if possible (see also s 15A of the Acts Interpretation Act 1901 (Cth)). Evans did not have significance for the primary judge’s reasoning beyond a reference to support that uncontroversial principle. Further, there is no inconsistency in the authorities cited by the primary judge in [110] (Fairfax v Federal Commissioner of Taxation [1965] HCA 64; (1965) 114 CLR 1 at 7; New South Wales v The Commonwealth (2006) 229 CLR 1; [2006] HCA 52 at [140] to [145] and Attorney-General of Victoria v Andrews (2007) 230 CLR 369; [2007] HCA 9 at [78] to [90], which support the orthodox approach to the characterisation of Commonwealth laws for the purpose of determining constitutional validity) and the decisions referred to by Mr Spencer. Lange did not concern s 51 of the Constitution. Nothing said there undermines or is inconsistent with the authorities relied on by the primary judge when dealing with an issue of constitutional validity under s 51. In Smith v ANL the Commonwealth law itself modified the plaintiff’s cause of action. The discussion at [7] in Smith v ANL about drafting devices circumventing the constitutional guarantee (referred to by Mr Spencer) concerns the distinction between the modification and the extinguishment of a right. Smith v ANL makes clear that a mere modification may nevertheless amount to an acquisition for the purpose of s 51(xxxi). This context also informs the discussion in [147] to [153] of Smith v ANL. In this case, by contrast, the difficulty confronting Mr Spencer is identifying a Commonwealth law which is a law with respect to the acquisition of property. Precisely the same issue confronted the unsuccessful applicants in Arnold.

31 Arnold is not distinguishable from the present case. Mr Spencer’s additional reliance on the Natural Heritage Act (not dealt with in Arnold) is immaterial. That Act, summarised by the primary judge in [43] to [52], also contains nothing which authorises or requires any particular agreement or the imposition of any condition upon any agreement between the Commonwealth and a State that would require the State to acquire property or impose any restrictions on the clearing of native vegetation, or the exercise of discretion to refuse development consent to clear native vegetation from the property.

32 It also follows from this discussion about Pye v Renshaw that Arnold is not plainly wrong. To the contrary the decision in Arnold, given the binding authority of Pye v Renshaw, appears plainly right.

Standing

33 Consistent with the conclusion of Lloyd J and the Court of Appeal in Arnold the Commonwealth submitted (and raised as one ground in its notice of contention) that the proceeding was doomed because Mr Spencer had no relevant interest in any declaration of constitutional invalidity. In short, such declarations would not affect in any way the operation of the State statutes which impose the relevant prohibitions and restrictions. Mr Spencer’s position would remain precisely the same under the State laws which he does not challenge in this proceeding. As the primary judge observed, there is thus no immediate right, duty or liability of Mr Spencer that falls for determination and no matter within the meaning of Pt III of the Constitution. The Commonwealth’s submissions in this regard should be accepted.

THE SECTION 31A GROUNDS

34 Contrary to Mr Spencer’s submission, the conclusion that the proceeding has no reasonable prospect of success (consistent with that of the primary judge) arises from the substance of the proceeding and not merely its form. It also follows from this conclusion that Mr Spencer’s allegations of error by the primary judge in the application of s 31A of the Federal Court of Australia Act are immaterial. Such errors are not apparent once it is recognised that the primary judge was dealing with a motion for summary dismissal and a motion for interlocutory relief. There is no doubt that the primary judge was aware of the requirements imposed by s 31A. Contrary to Mr Spencer’s submissions, the primary judge did not impose a three or four stage test in [19] of the reasons. That paragraph provides a practical guide to the different considerations which might arise on an application under s 31A. The reference to whether the proceeding "should" be allowed to go to trial in [19] is properly understood as reflecting the required state of satisfaction in s 31A. On any fair reading of the reasons (which deal with two motions) the primary judge did not reverse the onus of proof. In any event, and as the Commonwealth submitted, s 31A involves a state of satisfaction. The primary judge reached the required state of satisfaction having regard to the substance of Mr Spencer’s claims and not the mere form of the relief sought. Mr Spencer’s list of issues of facts and law said to require interrogatories, discovery, evidence and a hearing cannot alter the fundamental fact that the proceeding has no reasonable prospect of success for the reasons given above. Similarly, it is not the case that s 31A has no application merely because one party asserts that there are disputed questions of fact and law. Finally, the capacity to make orders for separate determination of such questions (Order 29 of the Federal Court Rules) does not prevent an application for summary dismissal under s 31A.

THE COMMONWEALTH’S NOTICE OF CONTENTION

35 Given the conclusions reached it is not necessary to deal with the Commonwealth’s notice of contention other than in respect of the issue of standing discussed at [33] above.

CONCLUSION AND ORDERS

36 In common with the primary judge it is easy to sympathise with Mr Spencer if the effect of the State statutes has been to sterilise his land from any productive activity. Nevertheless that does not alter the fact that the proceeding has no reasonable prospect of success and the primary judge was correct to so conclude. The appeal must be dismissed.

I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.

Associate:

Dated: 24 March 2009

Counsel for the Appellant:	Mr P E King with Mr T D Anderson
Counsel for the Respondent:	Mr A Robertson SC with Mr C L Lenehan
Solicitor for the Appellant:	Christie’s Advocacy International
Solicitor for the Respondent:	Australian Government Solicitor
Date of Hearing:	17 and 18 February 2009
Date of Judgment:	24 March 2009