SOME PROBLEl\'IS OF COMMONWEALTH IMMUNITY AND EXCLUSIVE LEGISLATIVE POWERS By COLIN HOWARD* 1. Introduction There is a \vell-known obscurity in the law relating to Commonwealth inlffiunity from State legislative power. It is that whereas the High Court has laid down in clear terms that the Commonwealth is not subject to State legislative power at all, l it has at the same time said2 that the Commonwealth may be "affected by"3 State laws but has not explained \vhat is meant by "affected by". There is also a less well-known obscurity in the law relating to State taxation of Common\vealth public servants. The High Court has held" that general State tax laws apply to Commonwealth public servants in the same way as to other subjects of the State, unless the Commonwealth enacts legislation exempting the payments which it makes to its public servants by way of salary or pension from State taxation. The obscurity is that a Commonwealth law prescribing salaries for its own public "crvants appears to be an exercise of exclusive legislative power; that a Ll\V exempting such salaries from State taxation appears to be incidental i to that power, and therefore itself an exercise of exclusive power; but; that if this is so, the State tax law also, in its application to Common.. ! \vealth salaries, appears to be an exercise of Commonwealth exclusive po\ver and therefore invalid in the first place. These problems are conveniently treated together because they have a common origin in the concept of implied immunity. This article is an attempt to cast light upon them by suggesting a coherent theory of Commonwealth immunity from State law in light of the High Court's more recent pronouncements. It is intended to be exploratory rather than definitive and, with luck, to provoke further speculation. Commonwealth v. Cigamatic Pty Ltd [1962] HCA 40; (1962) 108 C.L.R. 372; Common.. r"'ealth v. Bogle [1953] HCA 10; (1953) 89 C.L.R. 229. For relevant passages see nne 5-8, 12 ~nfra. Cf. Australian Coastal Shipping Commission v. O'Reilly (1962) 107 C.L.R~ 6. 62 per Menzies J. 2 For relevant passages see nne 10-13 in! rae T ~ ~his expression is taken from dicta of Dixon J. in Federal Commissioner of aJ.atlon v. Official Liquidator 0/ E. O. Farley Ltd [1940] HCA 13; (1940) 63 C.L.R. 278, 308, and of Fullagar J. in Commonwealth v. Bogle [1953] HCA 10; (1953) 89 C.L.R. 229, 260. .. West v. Commissioner 0/ Taxation (N.S.JV.) [1937] HCA 26; (1937) 56 C.L.R. 657. 1 * LL.D. (Melb.), Hea;n p~oi~ssor of Law in the University of Melbo~~e.' m 31 ;. .1; f oJ: ~ ~~ 32 Federal Law Review [VOLU?vlE 51 ~y "~ ~~ l~ 2. Commonwealth Immunity and the UAffected By" Doctrine (a) uafJected by" '~ A standard statement of Commonwealth immunity and the "afIected~ by" doctrine was made by Fullagar J. in Commonwealth v. BogIeS in-t 1953 in a judgment concurred in by Dixon C.J., Webb and Kitto JJ.,6;~ and possibly on this point also by Taylor J. 7 Fullagar J. said: The Commonwealth-or the Crown in right of the Commonwealth,l or \vhatever you choose to call it-is, to all intents and purposes, juristic person, but it is not a juristic person which is subjecte~ e~ther by any State Constitution or by the Commonwealth Con-.~ stitution to the legislative po\ver of any State Parliament. If, fort instance, the Commonwealth Parliament had never enacted s. 56~ of the Judiciary Act7a · · · is is surely unthinkable that the Victorian~ Parliament could have made a law rendering the Conlmonwea1th~ liable for torts committed in Victoria. The Commonwealth may, of~ course, become affected by State laws. If, for example, it makes af contract in Victoria, the terms and effect of that contract may hav~ to be sought in the Goods Act [of Victoria] ... But I should thi~ it impossible to hold that the Parliament of Victoria could lawful1~ prescribe the uses which might be made by the Commonwealth oht its own property, the terms upon \vhich that property might be le~ to tenants, or the terms upon which the Commonwealth might! provide accommodation for immigrants introduced into Australia.~. a" T1 C( \V~ wI hiJ Ci in Ie The emphasis in the last sentence of this passage on use of land and. agreements with migrant tenants related to the facts of the case, whichf will be returned to below. 9 As a preliminary, reference should be mad~ to two earlier dicta of Dixon J. on which Fullagar J. relied. The firstlt is from Federal Commissioner oj Taxation v. Official Liquidator of o. Farley LtcJ.1° in 1940: In many respects the executive government of the Commonwealthf is affected by the condition of the general law. For instance, thet general law of contract may regulate the formation, performanc~ and discharge of the contracts which the Commonwealth finds i~ necessary to make in the course of the ordinary administration o~· government. Where there is no Federal statute affecting the matte~ an exercise of the legislative po\ver of the State over the generallaWf of contract might incidentally apply in the case of the Common4 wealth alike with the citizen. In the practical administration of th~ [1953] HCA 10; (1953) 89 C.L.R. 229. sId., 249, 255, 274 respectively. "1 See his observations, id., 284. 7a Reproduced in text following D. 14 infra. 8 Id., 259-260. 9 Infra n. 26. 10 [1940] HCA 13; (1940) 63 C.L.R. 278, 308. 5 7 ' tq72j Commonwealth Immunity 33 la\v, the decision of questions of that sort depends less upon con.. stitutional analysis than on sec. &0 and perhaps sec. 79 of the Ju.diciary Act . .. There is, ho\vever) a clear distinction between the general law, the content or condition of which, though a matter for the legislatures of the States, may incidentally affect Cornmon\vealth administrative action, and, on the other hand, governmental rights and po\vers belonging to the Federal executive as such. t f The other is from In re Foreman & Sons Pty Ltd; Uther v. Federal Conunissioner of Taxation 1 ! in 1947. In this case Dixon J., as he then \vas. was in a minority of one on the constitutional issue. The views which he expressed were ho\vever accepted without qualification by himself, Kitto, Menzies, \Vindeyer and Owen JJ., in Commonwealtl! v. Cigamatic Pty Ltd,!2 in 1962, and Uther's case overruled. These views included an assertion of total Commonwealth immunity from State legislative power with the following rider: General laws made by a State may affix legal consequences to given descriptions of transaction and the Commonwealth, if it enters into such a transaction, may be bound by the rule laid down. For instance, if the Commonwealth contracts with a company the form of the contract will be governed by s. 348 of the [State] Companies Act. Further, State law is made applicable to matters in which the Commonwealth is a party by s. 79 of the Judiciary Act. But these applications of State la\v, though they may perhaps be a source of confusion, stand altogether apart from the regulation of the legal situation \vhich the Common\vealth, as a Government, shall occupy with reference to private rights. 13 [-Ie \vent on to hold that no State could have made the Commonwealth liable in tort before the Commonwealth itself did so by statute.l4t The only other preliminary matter is the text of sections 56(1 . ), 57, 79 and 80 of the Judiciary Act 1903-1969 (Cth). t \\ 56.-(1.) A person making a claim against the Commonwealth, whether in contract or in tort, may in respect of the claim bring a suit against the Commonwealth(a) in the High Court; (b) in the Supreme Court of the State or Territory in which the claim arose; or (c ) in any other court of competent jurisdiction of the State or Territory in which the claim arose. li(i947) C.L.R.- 508. 1% [1962] HCA 40; (1962) 108 C.L.R. 372. ~: [1947] HCA 45; (1947) 74 C.L.R. 508. 528. Id.,529. ,,' 74 f.... '-" k il i· .f ".' "\ 34 Federal Law Review [VOLUME 5. / 57. Any State making any claim against the Commonwealth,4 whether in contract or in tort, may in respect of the claim bring! a suit against the Commonwealth in the High Court. ~~: " ~ 79. The laws of each State, including the laws relating to pro-~ cedure, evidence, and the competency of witnesses, shall, except asj otherwise provided by the Constitution or the laws of the Com-~ monwealth, be binding on all Courts exercising federal jurisdiction. in that State in all cases to which they are applicable. 80. So far as the laws of the Commonwealth are not applicable or$ so far as their provisions are insufficient to carry them into effect,jl or to provide adequate remedies or punishment, the common law-4 of England as modified by the Constitution and by the statute law. in force in the State in which the Court in which the jurisdiction. is exercised is held shall, so far as it is applicable and not in... ~ consistent with the Constitution and the laws of the Commonwealth,_ govern all Courts exercising federal jurisdiction in the exercise of. their jurisdiction in civil and criminal matters. (b) Meaning of "affected by" a C it ~. (c The question is how a doctrine that the Commonwealth is not sub-t ject to State legislative po\ver at all can be reconciled with a doctrine~ that it may nevertheless become affected by, or have legal consequence~ attached to its transactions by, State law. There is at first sight no greaD4 difficulty. J Let the discussion for the moment be confined to the context which it normally arises, the liability of the Commonwealth in contract.4 and tort. The meaning of the foregoing dicta, with their references t~ sections 56, 79 and 80 of the Judiciary Act, appears to be as follows~ The States cannot make the Commonwealth liable in contract or tort buti by sections 56 and 57 of the Judiciary Act the Commonwealth has mad~ itself liable to private persons and to States respectively. These sectionsf do not, however, define the content of the liability which they create;f They remove Commonwealth immunity from suit but provide no means4 of deciding whether the Commonwealth is liable on any given facts;! Liability in contract and tort means nothing in practical terms until! reference is made to some system of law for the rules defining contrac~ and tort. ,,! ~'-~ of lie It thl ini de St It Ie! .\;1 th~ di~ th~ an Cd co) Un· Sections 79 and 80, particularly section 80, fulfil this function. A court! trying an action by or against the Commonwealth is exercising feder~ jurisdiction.ls Any court exercising federal jurisdiction in a State i~ directed by sections 79 and 80 to apply L1.e law of that State unless i~ 15 Commonl-vealth v. Limerick 'Steamship' Co. "Ltd [1924] HCA 50; (1924) 35 C.L.R. 69, 86;t Commonwealth v. Kreglinger & Fernau Ltd [1926] HCA 8; (1926) 37 C.L.R. 393, 405; K. }I.~ Bailey, "The Federal Jurisdiction of State Courts" (194uJ 2 Res Judicatae l09~ 111. " rig del po: Commonwealth Immunity b 35 inconsistent with the Constitution or the matter in hand is regulated I I i fj Common\vealth la\v. Hence an action against the Commonwealth in or tort may be decided by reference to rules of State law. This !' no doubt the intended meaning of the "affected by" doctrine. It is ~~\ ,nsistent with the total immunity from State law doctrine because State ~ ~'S does not, under sections 56, 57, 79 and 80 of the Judiciary Act ,1pply to the Commonwealth of its own force. It applies only because (\1mn10nwealth legislation, these sections of the Judiciary Act, makes It :tpply. Hence it is not State law which governs the action but the rules IIf State law incorporated by reference as federal la\v. In this \vay it be':t n1cs strictly true to say, as the High Court has said, that whilst the (\)nln10nwealth is not subject to State law it may be affected by it. .:nntract 1 -rhis understanding of the law is a reasonably obvious interpretation t.'f the pronouncements of the High Court quoted above but it represents rh~ heginning of inquiry rather than the end, for it gives rise to a n;'lrnber of consequential problems. (c) Pirrle v. McFarlane 'I In Pirrie v. McFarlane16 in 1925 the question arose whether a member nf the Commonwealth armed forces was subject to general State driving licence legislation whilst driving a car in the performance of his duties. It 'vas held by a majority of three to two11 that he was so subject in the absence of a Commonwealth law to the contrary. Thus stated the decision appears to be inconsistent with Commonwealth immunity from St=tte law, for no question of liability in contract or tort was involved. It \vill be argued below, IS in connection with Commonwealth exclusive legislative powers, that this appearance is misleading and that Pirrie v. \fcFarlane is not in fact inconsistent with Commonwealth immunity. For th~ moment the case may be put on one side as pertaining to the individualliability of a person employed by the Commonwealth and not to th~ liability of the Commonwealth itself. The two issues are not identical, :tnd it is the latter which is presently under discussion. (J) Commonwealth v. Cigamatic Ply Ltd The Cigamatic case19 in 1962 has been referred to already.20 The constitutional question was whether in the liquidation of a company ll.nder State law the Commonwealth, which was asserting a prerogative nght to preferential payment, was bound by the order for payment of debts set out in the State Act, which put it in a less advantageous position. The ans\ver given by the High Court was that by reason of its ----:-;:::-=-~------;-~----:;;:-------.-----~-----'----~~=----.....:....~ :~ (1925) 36 c.L.R. "-170~ . , ~, ~ A""M.~"H»-J 'co'- q ~ ~ Knox C.l., Higgins and Starke JJ; Isaacs and Rich JJ. dissenting. . Infra n. 65. :~J [1962] HCA 40; (1962) 108 C.L.R. 372. ..0 Supra n. 12. I ~t '~~; ,,;'" ~ ~~ 36 Federal Law Review [VOLUME :1 S! ~ i 191 total immunity from State law the Commonwealth was not so bound. It illuminates the present discussion to expand this proposition a little. , '!l' lrt "It} tht Th wh ( e~ nlU If the basic constitutional position is, as it appears to be, that the+ Commonwealth is ne.ver subject to State law as such but may place itse~ in what is for practical purposes an indistinguishable situation by first.! creating a statutory liability against itself and then leaving the inciden~ of that liability to be determined by State law, the first question in the;{ Cigamatic case was whether the Commonwealth had bound itself by a~ statute of its own to abide by the rules of State winding-up law. Since it~ had not, and since sections 56 and 57 of the Judiciary Act did no4 apply because the question ,vas not one of liability in either contract or. i tort, it followed that Common\vealth immunity ,vas undisturbed and that4 therefore the State order for payment of debts did not bind the Com-~ -monwealth. Section 80 of the Judiciary Act did not come into play be'" cause section 80 does no more than specify, by reference inter alia to. State law, the incidents of a liability already created. -1 , 1 rru.;, die: at j, In i of . COt Re. law the: of It is to be observed however that even if section 80 had applied, would have made no difference to the result. Section 80 incorporate~ State law as it stands from time to time but does not add anything t~ it. Its meaning and effect when applied under section 80 are the sam~ as when it applies of its own force as State law. It is not converted int~ the meaning and effect which it would have had had it originally beent enacted as federallaw. 21 ~! ,~ itl if t haY, ren ratt TIll the seci ~l It is a familiar rule of statutory construction that a statute binds th~ Crown only by express statement or necessary implication.22 Let it bet assumed therefore that the State statute in a Cigamatic situationt includes an express statement that it binds the Crown. There is anothexf rule of construction that an unadorned statement in a State statute tba_ the Act binds the Crown is to be read as referring only to the Cro~ in right of that State,23 but this need not be relied on because it follow~ from the total immunity doctrine of the Cigamatic case itself that th~· States have no power to bind the Cro\vn in right of the Commonwealth~ Or as Fullagar J. put it in Commonwealth v. Bogle,24 the "Crown ~ right of the State has assented to the statute, but the Crown in right o~ the jurii 56 thei COIl bet, lQvit: The 26i ,:; ~t 27' 28, ~-~----,--<---"----------~------=--~---.----.......,,....,..~------,.,------;--~---,----:;-----::-;:-;~=---~=-' 29 %1 Pedersen v. Young [1964] HCA 28; (1964) 110 C.L.R. 162; Re Young's Horsham Garag, Pty Ltd [1969] V.R. 977. \ b Province of Bombay v. Municipal Corporation of Bombay [1947] A.C. 58' (P.e.). For a discussion of the scope of this rule with .A.ustralian references seei Hogg, Liability of the Crown (1971) 166-175. 23 Essendon Corporation v. Criterion Theatres Ltd [1947] HCA 15; (1947) 74 C.L.R. 1; Com., monwealtl-t v. Bogle [1953] HCA 10; (1953) 89 C.L.R. 229, 259. t: 24 [1953] HCA 10; (1953) 89 C.LR. 229,259. to c{ (197, men HOOt 44/ ' in t Statt: of thi 1972] Commonwealth Immunity 37 'D1C e. h~ ,~, the Commonwealth has not", and hence is not bound in that capacity.2i State statute as picked up by section 80 is therefore at most a statute \\'hich at no stage either purports to or can bind the Commonwealth. (e) Comtnonwealth v. Bogle rstt It_ ~ hel lO~ at it4 la~ rn~ omt -~ to' e-i f\ more formidable objection to this interpretation of the total im.Dlunity and "affected by" doctrines is, paradoxically enought Comnlonlvealth v. Bogle26 in 1953. The paradox is that in the matter of dicta the case is an authority for both doctrines but the facts do not Jt first sight accord with the dicta. The question was whether an increase in the rent charged by the Commonwealth to migrants for the occupation of hostel accommodation held on lease by the Commonwealth in Victoria' could be recovered notwithstanding that a Victorian statute, the Prices Regulation Act 1948-1951 (Vic.), made such an increase in rent unla\vful. The case \vas decided on the ground that at the relevant time the Commonwealth had ceased to be an interested party, but a majority of the Court agreed in the opinion of Fullagar J. quoted above21 that if the Commonwealth had been involved, the Victorian Act would not have invalidated the rent increase. The basis of the claim for the increased rent was that the tenant remlined in occupation of the premises for three weeks at the higher rate, from which a contract was to be inferred to pay it for the future. 28 The relationship between the parties was therefore contractual.29 Since the litigation involved a claim by, and not against, the Commonwealth, section 56 of the Judiciary Act was not in issue. But since, by reason of the Commonwealth's being a party, the Court was exercising federal jurisdiction, sections 79 and 80 applied in the same way as if section 56 had been in issue. Therefore State law governed the contract unless there was an inconsistent Commonwealth law. There was no inconsistent Commonwealth law because the only statutory basis for the arrangements between the Commonwealth and the migrants was Appropriation Acts way ~f ~tating the ~r~~e~t~~f~r' the sterile response that the Crown is supposed to be one and indivisible. The substance of the matter is legislative power, not formal assents by the Crown.. 26 [1953] HCA 10; (1953) 89 C.L.R. 229, 259. 27 Supra n. 8. ~8 [1953] HCA 10; (1953) 89 C.L.R. 229, 258. · 29 Excellent recent contributions to the question of Commonwealth capacity (0 Contract and liability in contract are E. Campbell: "Commonwealth Contracts" 1970) 44 A.L.J. 14; "Federal Contract Law" (1970) 44 A.LJ. 580; "Agree~ents about the Exercise of Statutory Powers" (1971) 45 A.L.J. 338; dnd P. \V. -.+ ~gg, "The Doctrine of Executive Necessity in the Law of Contract" (1970) .... A.LJ. 154; but these are not concerned with the immunity problems discussed In the text. Cf. P. W. Hogg, "Suits against the Commonwealth and the S,tates in the Federal Jurisdiction'" (1970) 44 A.L.J. 425; P. W. Hogg, Liability o the Crown (1971) Ch.9. tn Vltes 2~ Although neat, this is not a persuasive it 1 sit ~4 ,~ i:1 ~t:i ~T ~~ "~l'Dz ~ 38 Federal Law Review [VOLUME 51 " 1~ bt ~c providing money for the purpose.30 Therefore the Victorian Prices~ Regulation Act appeared to apply and invalidate the Commonwealth's. claim. But the High Court said it did not, on the basis of the total. immunity doctrine. The question therefore becomes why the "affected'~ by" doctrine, \vhich the Court affirmed in the same case, and which~ appeared to cover the facts, was not applied instead. One possibility \vhich ,vill be mentioned only for the purpose Ofi~ leaving no stone unturned is that in the explanation advanced above of... the "affected by" doctrine, too wide a scope is ascribed to sections 79'~ and 80 of the Judiciary Act. It can be suggested that these sections d04 not effect a total incorporation of State law, subject to the Constitution~ and Commonwealth la\v, but have some lesser effect, and that beyond~ their ambit, whatever it may be, there is only an implied acceptance by'~ the Commonwealth of State law every time it enters into an ordinary. transaction, whatever that may be, within the States (the expression .. "within the States" including where relevant the conflict of laws). On 1 this approach it can perhaps be said that the Victorian Prices Regulation., Act was for some reason not caught by sections 79 and 80 and that thei Common\vealth, by putting up the rent, indicated that it did not in tbat~ instance impliedly accept the rule of State law as governing that~ particular incident of the contract. ~~ ot or ar la di J~ di IS by SU lIT 'l Possibly this argument can be strengthened by asserting that the~ effect of the State statute ,vas not so much to define a term of the con-~ tract as to limit the capacity of the Commonwealth to contract by. contradicting an express term, the amount of the rent. This way or~ putting the matter has an intriguing consequence. At first sight it does~ not seem to affect the application of the State Act to the contractua14 capacity of the tenant. But this must be wrong, for if the Commonwealtb4 had capacity and the tenant did not, there can have been no contract,t and the High Court said there was a contract. Hence it follows on thisif line of thought that Commonwealth immunity from the State Act, oni which the Court insisted, applies equally to anyone with whom the Com~ monwealth contracts. Although surprising when put in that form, this. will be seen to be only a necessary consequence of contracting with the, Commonwealth under any circumstances. ~:" Leaving capacity issues aside, the argument is unattractive because it~ is vague. There are no immediately obvious criteria for deciding wbat* State laws fall within sections 79 and 80 if not all of them do, and--« plenty of room is left for uncertainty as to \vhether on any given facts", the Common\vealth is or is not impliedly accepting State law to govern! the transaction. An unattractive argument is not necessarily a wrong one,:\l , _ tr, re, tht IS UP In th: th; of of ~ 0<~." ~ ~ :i 30 (1953) 89 C.L.R. 229, 232. The present writer was in error on this point~ in C. Howard, Australian Federal Constitutional Law (1968) 98. ~~ in i 972] ~"'ut Commonwealth Immunity 39 in this instance there is also the weakness that the wording of the gives no support to the initial postulate (that sections 79 and 80 \)f the Judiciary Act are limited in scope). Section 80 in particular seems j.1n the present point clear enough. State law is, in the words of the ,,~(tion, "the common law of England as modified by the Constitution .HId by the statute law in force in the State". This is precisely the body of Lnv \vhich section 80 says shall "govern" courts exercising federal jurisl!lction so far, inter alia, "as the laws of the Commonwealth are not JrrIicable". It is not easy to detect in this wording any intention to ~~J~tlnguish bet\veen some State laws and other State la\vs. "....(tilH1S 'rhe argument that the scope of sections 79 and 80 of the Judiciary :\ct should be limited as a means of accommodating, ho\vever \\bscurely, the dicta in Commonwealth v. Bogle must therefore be rej~ct~d. It does however suggest a refinement of the "affected by'" t!octrine as it has so far been presented which achieves the same result \vithout casting doubt upon the role of sections 79 and 80. The first step i~ a re-examination of the character of the liability in contract imposed h:; the Commonvvealth on itself in section 56 of the Act. This is pre\unlably liability as defined expressly by the terms of the contract and lnlpliedly by the system or systems of law to which it is subject. ContrJctual liabilities imposed by law are of two kinds: those which apply regardless of the terms of the contract, contradicting and overruling th~m if inconsistent, and those \vhich apply only if their subject-matter j;; not covered by the express terms of the contract. It is possible to understand COfnmonwealth v. Bogle as meaning, consistently \vith the cJrlier dicta on the "affected by" doctrine, that Commonwealth liability in contract is to be sought first and foremost in the express terms of {he contract and only in State law to the extent that the express terms do not cover every relevant issue and that Commonwealth statute law does not apply. This gives sections 56 and 57 of the Judiciary Act, in confunction with sections 79 and 80, especially section 80, the effect of r~ferring Commonwealth liability in contract to the rules of State law only for implied terms. As a consequence of the total immunity doctrine ~cse terms can never affect Commonwealth capacity to contract, a fortiori if they contradict express terms. They can be effective only to the extent that they are not inconsistent with the express terms of the Contract. On this vie\v the rent in the Bogle situation was at all times, \\'hcther before or after increase, an express term not affected by State lJ\v. O~e advantage of this way of approaching the Bogle situation is lnat It avoids obscuring the scope and function of sections 79 and 80 of the JUdiciary Act. The role of these sections remains the delimitation ?f the incidents of the liability imposed by the Commonwealth on itself In sections 56 and 57 as distinct from the characterization of that liability · t .~ ~;; ';i 40 Federal Law Review [VOLUME sf ~ 19 (g in principle. What that liability is, is for the High Court to say by waY; of construction of sections 56 and 57. So far the High Court has said. two main things: that sections 56 and 57 give rise to Commonwealtbt liability in contract, although their actual wording does not necessaril~ lead to that conclusion because it deals only with jurisdictional matters;t and, in Bogle's case apparently, that the contractual liability imposed b~ these sections is not of a character which limits the capacity of the Com'" monwealth to contract in any way it wishes.. In any given case th~ way in which the Commonwealth wishes to contract is revealed by the. express terms of the contract, which therefore cannot be contradictedi by State law. The oddity mentioned above that the other contracting·, party appears to share Commonwealth immunity from State law, even~ though he will probably be in no sense a manifestation of the Common-t wealth, is seen no longer to be odd. He shares no immunity. He merelyt illustrates the inevitable situation that if one comes to an agreement o~ any kind with the Commonwealth the agreement must ultimately be~ governed by the rules which control Commonwealth action and not th~ rules which control private action. ,(f) Capacity to contract cas ac feri the cor we: as cot tcr del rna (h COl It may be asked if this means that the Commonwealth can confer. ad hoc capacity to contract upon someone who would not otherwise:1 have such capacity, merely by making an agreement with him whicht is in all other respects a contract. An example would be the Com-t monwealth purporting to make a contract with a ten-year-old child ani a lunatic. The answer is that Commonwealth immunity from State lawsf does not have this consequence because capacity to agree must always~ as a matter of necessary juristic analysis be a precondition of the makin_ of a contract at all. Capacity to agree cannot be either an express orf an implied term of a contract already made, for it is not possible forf anyone to agree to confer upon himself capacity to agree in the first! place. Capacity to agree must derive from an antecedent law, whethent common law or statute. In the absence of a Commonwealth statute. assuming for the moment that the Commonwealth can validly enactj such a statute to operate within the States, it is State common law or~ statute. In Bogle's case the capacity question was not of this order. Bo , parties had by their respective antecedent laws-fundamental coni stitutional implication in the case of the Commonwealth and Victorianttf law in the case of the tenant3 1-personal capacity to enter into legall , binding agreements. The only question was as to their capacity to agree4 to do a particular thing, receive and pay respectively the higher rent:~ This was an express term of a contract already made. . ,...".,.,. Th to lia m( co to an pri: ph, in de In the conflict of laws it is not yet clear what law or laws determine capacitY,~ to contract but this obscurity does not in principle affect the argument in the text·df 31 ~ , ,- "". ~ , J ~ .,_~ , · " '" · I r ~ " ~ ~ ~~ - · - ~1l: Commonwealth Immunity f 41 g) State criminal law ,\nother question suggested by the total immunity doctrine is whether the Common\vealth can make a contract which entails a breach of Sr.1h~ crinlinal law where such a breach carries a penalty, as distinct frOIn breach of a regulatory statute of the kind in issue in Bogle's ~:lS~. An obvious avenue of escape here is for the High Court to invent 3 constitutional implication preventing the Commonwealth from interf('ring \vith the States by undermining their criminal la\vs. Indeed, if the Conlnl0nwealth enacted a statute purporting to validate such a contract, and the statute fell prima facie \vithin one of the Common\\'~alth's enumerated legislative powers, it might well be characterized :lS Jiscrin1inatory within the meaning of the State Banking case,32 for it cuuld be effective only against the States or one or more of them. In terms of the foregoing discussion this \vould mean that the High Court Jcnicd to the Commonwealth capacity to make such a contract as a matter of antecedent law. (h) I,lability . "'~ }- in tort ichi fe. iscl i ml 011 lY~ o~ wsf :n a4i r~ 0'rs. The discussion so far bas proceeded in the context of liability in contract because that was the issue directly raised by Bogle's case. There is in principle no reason \vhy the same approach cannot be made to the total immunity and "affected by" doctrines in the context of liability in tort. The reasoning is as follows. The total immunity doctrine mc::tns that in the absence of Commonwealth legislative action to the contrary, the Commonwealth cannot be made liable in tort by reference to the rules of State law. As interpreted by the High Court, sections 56 and 57 of the Judiciary Act create Commonwealth liability in tort in principle and sections 79 and 80 bring the "affected by" doctrine into pl::ty by referring the court trying such a case to the rules of State law, in the absence of constitutional provision or Commonwealth statute, to determine the content of that liability. There is of course the difference from the contract situation that tort liability does not depend on breach of an agreement. Hence there is no room for the principle that State rules of law can never override Common\vealth express terms of agreement. The only result of this is that nornlally the whole content of Commonwealth liability in tort is determined by State rules of law. 33 If a contract comes in question it \vill be by \vay either of the tort of inducing breach of contract, which raises no problem in the present context, or of an exclusion of liability. A. question could arise whether the Commonwealth can by agreement -----=-----~~----~--~~~-----~-~~............... erf te~ ctt OVi n~ t¥ ani v~:"' xt.'i i~ Melbourne Corporation v. Commonwealth (1-947) [1947] HCA 26; 74 C.L.R. 31, reaffirmed, a marked divergence of opinion as to \vhat it means, in the Payroll Tar ca~e: Victoria v. Cornmonwealth (1971) 45 A.L.J.R. 25 L 3 As in Parker v. Commonwealth [1965] HCA 12; (1965) 112 C.L.R. 295 and Suehle v. Commonwealth [1967] HCA 13; (1967) 116 C.L.R. 353. .32 WIth 42 Federal Law Review [VOLUME 5-~ law~ 19 , By analogy with the Bogle decision that the Commonwealth can con-~ ~ exclude a tort liability \vhich cannot be contracted out of by State po to \ tract out of State rent restrictions there seems to be no reason why not.-' (i) Other liability z~ The potential effect of the total immunity and "affected by" doctrines4is not confined to liability in contract and tort. There are many Statef laws of a regulatory character less closely connected with contractual~ or tortious situations than the rent restriction in Bogle's case. Examples~, are building regulations and related health regulations. As it happens,~ State laws of this character do not advance the present inquiry because~ it is always open to the Commonwealth to put its immunity from suchi! la\vs entirely beyond question by acquiring the land affected34 and~ thereby converting it into a federal place. Once it becomes a federalt place, State law ceases to operate with respect to it because exclusive~ legislative power with respect to federal places is expressly assigned to~; the Commonwealth. 3s A better test of immunity resting on implication. alone, as the total immunity and "affected by" doctrines do, is normal~ trading operations. (j) Trading within legislative power Be pC' COl Virl tho al~ tn \Vt Ii? cr di it hr in, A b( It is well-established that the Commonwealth can enter into ordinarY4 trading activities on its own account, at all events if these activities are1 referable to a subject-matter over which the Comrnonwealth has expresSif legislative power. 36 Suppose the Common\vealth enters the inter-Statt4 road haulage business and tries to encourage custom by gifts which' infringe the Trading Stamp Act 1924-1935 (S.A.). This Act prohibits'-J the issue of coupons or similar devices, kno\vn as trading stamps, \vhicht can be presented to a trader in return for free, or purportedly free,f goods or goods at actually or apparently reduced prices. It is a common~ method of inducing custom and is regarded in South Australia as an..~ undesirable business practice. The question is whether the Act, which, in its application to inter-State traders has been held not to infringe:j section 92 of the Constitution,37 can restrict the Commonwealth. -& )fi!. ilt h~ di dil inl St} \V th A probable avenue of escape from the total immunity dilemma in~ practice \vhich is suggested by Bogle's case,38 is that the body through, which the Commonwealth is acting, in all likelihood a statutory cor~ Constitution s. 51 (xxxi.). '-i' 3S Constitution s. 52(i.); ~Vort1zing v. Rowell and Muston Pty Ltd [1970] HCA 19; (1970) 44~ A.L.J.R. 230; The Queen v. Phillips [1970] HCA 50; (1970) 44 A.L.J.R. 497; Attorney-General;;; (j\/.S.W.) v. Stocks and Holdings (Constructors) Ply Ltd [1970] HCA 58; (1970) 45 A.L.J.R. 9. ~ 36 Australian National Airways Pty Ltd v. Commonlvealth [1945] HCA 41; (1945) 71 C.L.R.' 29; Bank of lVew South Wales v. Commonwealth [1948] HCA 7; (1948) 76 C.L.R. 1; Australian,. Coastal Shipping Commission v. O'Reilly [1962] HCA 8; (1962) 107 C.L.R. 46. ,; 37 Re Readers Digest Association Ply Ltd [1969] HCA 6; (1969) 43 A.L.J.R. 116. 1 38 (1953) 89 C.L.R. 229. s 34 =------~'----------=-_....-.........-_---------.---------.-~~-----=:-=-:;--;;----;"-------;;-----;:-:--;~----= ~~~ ~ Sl \V, e: C' p~ aI h Commonwealth Immunity 43 pt)ratioll, will be distinguished by the High Court from the Common... ~t;t:alth itself for immunity purposes and thereby made directly subject ~\) State law, but this is not inevitable. The Commonwealth Trading BJnk has been held39 in the context of federal jurisdiction to be a ~rson suing or being sued on behalf of the Commonwealth and in that Lontext generally the High Court has given the concept of a person \\ ho acts on behalf of the Commonwealth a wide meaning. It is therefore not to be assumed that this \vay of avoiding the problem will ahvays be available. The question remains whether the South Australian trading stamp legislation could be applied directly against the Common\\ calth. It is hard to believe that if the States cannot make the Commonwealth liable in contract or tort they can nevertheless directly impose a crirninal or quasi-criminal liability. The proposition scarcely merits Ji~cussion. For progress to be made the example must be changed. Let It be supposed that a customer of the Commonwealth inter-State road haulage service refuses to pay his bill on the ground that it was induced in South Australia by an illegal consideration and that by South :\ustralian contract law this is a sound objection. The question now b-.:comes whether the Trading Stamp Act can be indirectly enforced against the Commonwealth by making the contract of carriage unenforceable against the other party. Assume for the moment that there is nothing relevant in the Commonwealth statute, if any, setting up the haulage service. From a contract point of view there is difficulty in distinguishing this case from the Bogle situation, but it is inadequate to dispose of the constitutional point in such a way because there are in1portant differences in the facts so far as the Commonwealth and the States are concerned. In the Bogle situation the substance of the matter is that a legitimate policy of the State with respect to the housing of Victorians, rent restriction, comes into conflict with a legitimate policy of the Common\Vcalth with respect to the housing of migrants, higher rents. No doubt the effect of increasing the rent in migrant hostels is to throw an additional burden on the housing facilities of the State in which the hostels are situated, if State rents are lower than hostel rents, because the migrants \vill tend to move out. But it is exactly at this point that, so far as housing is concerned, the migrants move from a Common\vealth policy situation to a State policy situation. The effect of exempting the Commonwealth from State rent laws is to leave both the COmmon\vealth and the States free to pursue their respective housing Policies to\vards the people directly affected by those policies. It is true --:;---. -----~-~,,_____;;_:o ~".,....,~~~~-..,.......,_- - - . ~~~_"__"____"_'___"'_--"-v--"-'. -'------="~""_'L"'A-=_'.:......!:...' , . Inglzs v. Commonwealth Trading Bank of Australia [1969] HCA 44; (1969) 119 C.L.R. 334, lind see further the references therein to Bank of N e~~' South Wales v. Common.. k'ealth [1948] HCA 7; (1948) 76 C.L.R. 1. j ..'~ ::~ :~ '''. '~ ~ .-k ~f! 44 Federal Law Review [VOLUME 54 19 that the State can complain that by raising its rents the Commonwealtht indirectly exacerbates the State's housing problems, but the ComInon~~ wealth is entitled to reply that it ought not to be required to amelioratett the State's housing problems as a by-product of its immigration policy~ The constitutionally interesting factor in the Bogle situation is that th~ raising of the rents by the Commonwealth is a legitimate means oft effectuating its immigration policy \vhich of itself does not directly, conflict with any State policy. It should be remembered once again that~ the Commonwealth can always acquire the relevant land as a federal. place to which State laws certainly cannot directly apply. This makes a,~ legal difference but has no effect at all on the economic consequences of~ raising the rents.. ' The situation is quite different in the trading stamp example. Here~ the Commonwealth is placing itself in the same position as other inter~ State road haulage operators to and from South Australia. In doing so~ it is no doubt implementing a policy of some kind, but it is adopting different stance. The analogy is not with the Commonwealth as a, provider of migrant hostels for limited occupation but with the Com~ monwealth as a landlord in the real estate market generally. If the,t Commonwealth is able to ignore the trading stamp legislation it gainst an advantage over other road hauliers at the expense of a State policy~t If the Commonwealth as an ordinary landlord is able to ignore State_ rent restrictions it similarly gains an advantage over other commercial, landlords at the expense of a State policy. What distinguishes botht cases from the migrant hostel situation is that the Common\vealth'~ trading activities take place precisely in the area of legitimate Stat~~ policy, conflicting with it directly and not merely by way of indirect, economic consequence. The difference between the two cases themselves, is that it may be possible for the Commonwealth to manipulate its4 acquisition and federal place po\vers in such a way as to evade State rent_ restrictions without ever relying on implied immunity.. This possibili~ gives the road haulage example, to which it is not applicable, an~ advantage as a medium of discussion. sin the COl unt doc ter tiVl He say, fit to af dis, opCo its£ inc of So wi: At of \ve: ob di~ tiol \Vi sit \V( its, to nOI j It may be safely assumed that it is no part of the purpose of thej implied immunity doctrine to give the Commonwealth a trading advan .~ tage. If such an advantage is an inevitable by-product of a doctrine4 designed to give legal recognition to the inherent character of the, Common\vealth as the national organ of government, so be it, but at~ least it should be shown to be inevitable. The question in terms of th~ discussion so far is whether the Commonwealtit can be "affected by" the~ trading stamp legislation although it is immune from its direct applica1 tion. There seems to be a simple answer. The trading stamp inducement. was not part of the contract between the C01J1monwealth and its~ customer. According to the argument advanced above, in a contractu~ \vI: lin co' th~ tic C( e{1 eXi is 1972] ~al~ 10n... .rat~ Commonwealth Immunity 45 licy* the', , o~ ~ctIyij tha~ era1il ~s a'i of~- situation the rules of State law are, by virtue of sections 79 and 80 of the Judiciary Act, applied in the absence of Common\vealth statute or contractual term to the contrary. The result is that the inducement was unla\vful by federal law when offered. There is no need to press the Joctrine advanced above that the Commonwealth can contract on any terms it wishes so far as to say that it can by mere agreement retrospectively validate an action which was unlawful at the time it Vias done. Hence the subsequent contract in no \vay affects the matter, whatever it says, and is unenforceable. Both State policy and Commonwealth imrnunity are preserved by the "affected by" doctrine. The question next arises whether, if the Commonwealth is determined circumvent the South Australian trading stamp legislation, it can displace it by enacting a statute exempting inter-State trading from the operation of laws of this character in general. It seems clear that the Cornmon\vealth can, for even if the offering of the inducement is not its~lf an act of inter-State trade,40 there is no reason to doubt that it is incidental to inter-State trade and therefore within the legislative power of Constitution section 51 (i). The result, that the operation of the South Australian Act is suspended to the extent of the inconsistency \vith the Commonwealth Act, is unfortunate for the State of South t-\ustralia but is a consequence of the inconsistency rule of section 109 of the Constitution and not of anything to do with implied Common\realth imrnunity from State laws. It seems unlikely that successful objection could be taken to such a law along State Banking caseu lines, discrimination by way of undue interference \vith State domestic functions, because it does no more than overrule a State policy on a matter \\ ithin Common\vealth legislative competence, which is precisely the situation dealt with by section 109. to I '11 s [ere~' ter~' ~ so~ f g at .~ m~ the.t a'f i~ cyt ate* iail t1il ate~ ecut itst aM f..\~ est n~ '. J efi y i~ n~ On this example there remains the question whether the Common\vealth can enact a more limited statute excluding people dealing with itself but no-one else from the protection of the State Act. There seems to be no sound ground of objection. As a general proposition there is nothing to stop the Commonwealth discrimin'l:ting in favour of itself \vhen acting \vithin the scope of its enumerated legislative powers. The limitation of the State Banking case, whatever its precise meaning, is confined to discrimination against the States, which is not necessarily the same thing. The present example illustrates the point. The discrimation, if it is against anyone, is against people who deal with the ~ommonwealth, not against the States in any capacity. Moreover no-one IS forbidden to do anything. There is no compulsion to deal with the Commonwealth. The only way of attacking such a law on presently - - - _ r ,~_u,' _, ' The judgments in the Readers Digest case supra n. 37, proceed to some extent on this basis. 41 [1947] HCA 26; (1947) 74 C.L.R. 31. 40 &,. ! , 46 Federal Law Review [VOLUME 5~ 191 established doctrine seems to be to characterize it as not a law with. respect to, or incidental to, inter-State trade. The High Court can of course always make a new departure in characterization because charac--i terization of laws is an arbitrary conceptual process, but in the present 1t instance it is not clear on what basis such a change would be made. (k) Trading not within legislative power we The road haulage example was deliberately set in an inter-State trade:,~ context to enable the Commonwealth to rely on section 51 (i.) and avoid the complication of doubt about its initial basis of legislative ~ power. The Trading Stamp Act was taken as an appropriate instance of State law because it is only through some such abstract legal relationship~ as contract that t-l:le liability of the Commonwealth itself as a juristic entity can be discussed without becoming entangled in the individual~ liabilities of persons through whom it acts. If a different type of State ,~~ law is taken as the medium of discussion, road traffic laws for example,. action by the State is against individual persons or corporations, not ~ against the Commonwealth as a juristic entity. Immunity problems raised ~ by State laws of this description are taken up under heading "3." of this' article below. The present discussion proceeds now to the situation i; where the Commonwealth acts in a manner not falling within any of its ~~ enumerated legislative powers. :~4 Suppose that the Commonwealth decides to relieve the condition of~ commuters in Melbourne by running its own bus service in subsidized~ competition with State and private transport services. Since this is a ~ purely intra-State enterprise, there is no enumerated head of legislative# power to support it. Suppose further therefore that the statutory basis.~ is as slight as in Bogle's case,42 consisting only of an Act appropriating, money "for the improvement of public transport". An initial question~ raises another familiar unsolved problem in constitutional law: ,vhether~~ the appropriation power of section 81 of the Constitution enables the-~i Commonwealth to spend its money on purposes in respect of which it~~ has no other legislative power. There is nothing conclusive either wayt in the case-Iaw,43 although it is clear that in practice the Commonwealtht does not regard itself as limited in its expenditure to objects in respect, of which it has express or necessarily implied legislative power. 44 Fort the purposes of the present discussion it has to be assumed that the ap~ [1953] HCA 10; (1953) 89 C.L.R. 229. ~:43 A diversity of views was expressed in the Pharmaceutical Benefits case:.'~ Attorney-General for Victoria v. Comrnonlvealth [1945] HCA 30; (1945) 71 C.L.R. 237. Cf.-·;i W. A. \Vynes, Legislative, Executive and Judicial Powers in Australia (4th ed.,.~ 42 '5' UDI Tr th; Cc fu Tl: an ne' th: ne Grants for the promotion of the arts for instance. Expenditure on departments ~ of state D('t mentioned in the Constitution no doubt falls within necessarily'. implied legislative power. 44 1~70) 337-8. .J as' it \Y~ 1972] Commonwealth Immunity 47 rropriation power supports such an enterprise as an intra-State bus sC:fvice. 45 Assume now that anyone who wants to run a bus service in Melbourne has under State law to be licensed to do so and that Victoria refuses a licence to the Commonwealth. The question is whether the Common\t;ealth is subject to this law. It is to be noticed that the Commonwealth cannot exempt itself from the Victorian law by enacting an inconsistent statute because it has no power to legislate with respect to an intraState commercial activity which is not incidental to an inter-State activity. The total immunity doctrine suggests that the Commonwealth ~3.n operate its bus service without a State licence. The "affected by" doctrine suggests that it cannot. It is to be borne in mind also that the actual operators of the service, the individual persons, are doing nothing unla\vful by State law if the Commonwealth is doing nothing unlawful. ~rheir liability is entirely dependent on that of the Commonwealth. ( 1) Limit of total immunity There is a good case for suggesting that in this situation a logically defensible limit has at last been reached to the total immunity doctrine. The emphasis in the total immunity cases has been on State law not having the force to intervene between the Commonwealth and its own subjects or the Commonwealth and its own possessions. It can be argued that the rationale of these cases and accompanying dicta is that the Commonwealth must necessarily be free to perform its constitutional functions as gathered expressly or by implication from the Constitution. -rhe running of an intra-State bus service for no purpose connected with any constitutionally assigned function of the Commonwealth is not necessarily something which the Commonwealth cannot do (the answer to that depends on the scope of the appropriation power, not on immunity doctrine), but it is something beyond the reason for, and therefore the scope of, the total immunity doctrine as hitherto expressed by the High Court and therefore can be carried on only subject to State law. It is to be observed that in this case the Judiciary Act does not affect the matter. State law governs of its own force and the Commonwealth has no po\ver to exclude its operation in either federal or State jurisdiction. 45 It is cle~r that objection cannot be taken on the ground that this is a nongOvernmental function and therefore beyond power. If the Commonwealth can run an airline, a trading bank and a shipping line (supra n. 36) it car run a bus :ervice. The question is not whether it can do so but whether when it does so Intra-State, it is subject to State la\v. The Clothing Factory case: Attorney---=----~~----=~---------.------"-------.-.....,.,.......-----.,-,-------=--------==,...,.......".----",--,......,.....". ................",...,..",,, General tor Victoria v. Comlnonwealth [1935] HCA 31; (1935) 52 C.L.R. 533, may be against the :ls:umption in the text but the case is so concerned \vith the defence po\ver that It IS hard to tell. Moreover the Commonwealth has extended its activities in many Ways since 1935. 'j ':f 48 Federal Law Review [VOLUME ~~ 5' :.i! :~ ~~ IS di~ A~ The Commonwealth cannot of course itself be prosecuted for any, breach of a State law unless it takes statutory action to render this. possible. State enforcement \vould be by way of prosecution of indivi~ duals in the employ of the Commonwealth on the basis that they are~ parties to unlawful Commonwealth action. Since State law applies of~ its o\vn force, the position remains unchanged if the relevant sections of~ the Judiciary Act are repealed or amended. For the same reason the~ result in the present example is not an application of the "affected by"A doctrine.. That doctrine refers only to limitations which the Common-fl wealth has voluntarily, in the Judiciary Act, put upon its genera14 immunity from State law by adopting as federal law for most purposes~ the rules from time to time of State law. If the Judiciary Act goes, the~ "affected by" doctrine goes and total immunity remains unimpaired, ~rt1iln its scope. Its scope, however, is co-extensive with th~~,~~~i~ss or' necessarily implied functions of the Commonwealth in the Consti_~tionf .. In identifying those functions regard is had primarily, exclu-i sively, to the legislative po\vers of the Commonwealth, and muchj confusion is avoided if it is remembered that the constitutional functionss;f of the Commonwealth are fe,ver in nunlber than the things which it canj actually do. In so far as it exercises its undoubted capacity to do things.t beyond its constitutional functions, it operates subject to State law iIt~ the same way as anyone else. 1 it in perhaps (I 'it, 3. Commonwealth Immunity and Exclusive Legislative Powers ( a) Commonwealth salaries and implied immunity ,i it.lJ'; ~ i aI rn fit The present law is that Commonwealth salary and pension paymen~ :. to its own public servants are taxable in the hands of the recipients bYI the States provided that the recipients are taxed as ordinary members.~ . of the State community and not made subject to an adversely discrimina-f \ tory tax because they are Commonwealth public servants.46 This latter~ situation has not arisen but if it were to do so it would be held invalid4 irrespective of the effect of any relevant Common\vealth statute la\v, on~ the ground that it infringed Commonwealth implied immunity from~ State law. 47 The infringement would not be an attempt to bind the Com-'f mon\vealth directly by a State tax la"v, a situation disposed of by thej total immunity doctrine discussed above, but an attempt indirectly hamper the Commonwealth by an adversely discriminatory applicationf of State law to people normally subject to that law. The indirec~ immunity of the Commonwealth, and the direct immunity of its publi servants, from such an application of State la\v rests upon the propositio ,. that the Commonwealth enjoys the same implied immunity from advers C nl oj fl T T tot. 46 fVcst v. Commissioner of Taxation (N.S.W.) [1937] HCA 26; (1937) 56 C.L.R. 657. The following discussion of the problems. suggested by this decision departs to some,-' extent from the views expressed by the writer in Ho\vard, Ope cit. 89-91. Constitution sections 52(ii.) and 51 (xxxix.) The Common\vealth Salaries Act was passed in 1~7~ in order to an1eliorate in favour of the States the old implied immunity of instrumentalities rule that the salaries of Commonwealth public servants could not be taxed by the States. 50 It provided that the taxation by a State of Common\vealth salaries earned in the State should not, if the tax were not adversely discriminatory, be deemed an interference with the exercise of Common\vealth power or inconsistent with the Commonwealth Act fixing the salary. The Act was held valid in Chaplin v. Commissioner of Ta,-res (S.A.) 51 in 1911 on the reasoning that immunity from State taxation was ,iRrivilege \vhich the Commonwealth-was entitled to waive. The reason for the enactment of the Commonwealth Salaries Act having gone, its present status is obscure. Also the waiver theory of Ch.aplin's case has its difficulties. These matters \vill be returned to. First, a source of power to enact such a statute must be found. The difficulty of finding one was forcefully adverted to by Evatt J. in ~ v. Commissioner of Taxation (N.S.W.)52 in 1937. The question in 48 74 C.L.R. 3'1. - ,-. . ~ " A lnalgamated Society of Engineers v. A delaide Steamship Co. Ltd (1920) 28 C.L.R.129. so Baxter v. Commissioners of Taxation (N.S.W.) [1907] HCA 76; (1907) 4 C.L.R. 1087. For an account of the course of events see Howard. op. cit. 34-35. 51 [1911] HCA 13; (1911) 12 C.L.R. 375. 52 [1937] HCA 26; (1937) 56 C.L.R. 657. 50 Federal Law Review [VOLUME 5 ~ that case was as to the liability to State taxation of pensions paid by the Commonwealth to former public servants. Payments of this description were not covered by the Commonwealth Salaries Act but provision had been made in other Commonwealth statutes the effect of which was that liability to State taxation could be excluded by regulation. No such regulation had been made. The whole Court agreed that the pensions.were subject to State taxation but their reasons were not uniform. r~ Evatt J. in particular, although he appears to have been in a minority ~ of one on this point,53 denied that there was any head of power under ~ which the Commonwealth could exempt its salaries or pensions from }~ State taxation. He is the only member of the High Court who has ever addressed himself to this question. Every other recorded judgment on the po\ver of the Commoo\vealth to exempt its payments from State . taxation either is concerned with payments other than salaries or pensions54 or assumes that there is such a head of power without identifying it.55 It matters little whether the Commonwealth Salaries Act is nowadays to be read not as an Act subjecting Commonwealth salaries to taxation i but, as Starke J. suggested in West's case,56 as an Act which exempts .4 such salaries from State taxation except under the non-discriminatory · conditions which it prescribes. Either way it seems to be superfluous.51 ~ The question of principle is what head of po\ver would support an Act exempting Commonwealth salaries, pensions and analogous payments to its public servants from State taxation under any conditions. The obvious first recourse is to section 52 (ii.) of the Constitution, which gives power, expressly made exclusive, to make laws with respect to: Matters relating to any department of the public service the control of which is by this Constitution transferred to the Executive Government of the Commonwealth. c ,_ Latham C.l. and Starke J., id., 673, 677 respectively, held that the Common.. wealth could exempt its payments from State taxation and that therefore the only question was whether there \vas an inconsistency between Commonwealth and State legislation which produced this result. Rich, Dixon and McTiernan Jl. did not expressly hold that the Commonwealth could do this but they quite clearly proceeded on the basis that it could, because they joined with Latham C.l. and Starke J. in looking for an inconsistency. :r 54 Commonlvealth v. Queensland [1920] HCA 79; (1920) 29 C.L.R. 1 (interest on Common.. ·~ wealth securities); Australian Coastal Shipping Commission v. O'Reilly (1962) ~~ [1962] HCA 8; 107 C.L.R. 46 (payment received by a Commonwealth statutory corporation in ~ the ordinary course of trade). v: 55 The reference by Latham C.l. at [1937] HCA 26; (1937) 56 C.L.R. 657, 668 to Constitution s. S2(ii.) was not for this purpose but to support his argument that the States . .f have no legislative power to discriminate against the Commonwealth. ,561d., 678. 57 As Latham C.J. demonstrates, id., 668-9. 53 1972] Commonl-vealth lrnmunity 51 :\ la\v exenlpting Commonwealth public service salaries from State taxation can be characterized as a law with respect to a matter relating to the Common\vealth public service. A question arises as to the meaning in section 52 (ii.) of the expression "by this Constitution transferredH · ~rhe only express transfer of departments of the public service takes place under section 69, \vhich transfers customs and excise, the post oflice, defence, quarantine, lighthouses, lightships, beacons and buoys. l-hese by no means exhaust the departments of the Common\vealth public service. No-one can doubt that the Commonwealth may legislate \vith respect to its own public service but \vhen it does so in respect of a department not Inentioned in section 69 the law does not appear to be supported by section 52(iL). To bring such a law within section 52(ii.) requires at least two steps in reasoning. The first is to read the word ··transferred" as meaning transferred either expressly or by implication" The second is to read the expression "department of the public service" as including departments of the public service which have come into heing only because the Commonwealth has created them and not because they have been transferred from the States. This second step is not persuasive. If the treasury is taken as an example it is hard to argue that anything has been transferred, for the States retain their treasury departn1ents. Some other source of legislative power with respect to the Commonwealth public service in general must be found. Such a po\ver appears to be available in section 51 (x.xxL~.), the so-called incidental power: Matters incidental to the execution of any power vested by this Constitution in the Parliament or in either House thereof, or in the Government of the Commonwealth, or in the Federal Judicature, or in any department or officer of the Commonwealth. Sir Owen Dixon has doubted the utility of section 51 (xxxix.. ) on the ground that it merely expresses what would otherwise be implied..58 The present case affords an example, for if section 51 (xxxix.) were not there the Commonwealth would still have by irresistible implication power to legislate with respect to its own public service. To reach the same result by constnlction requires the combining of the words "Matters incidental to the execution of any power vested ... in the Government of the Commonwealth . . . or in any department or officer of the COmmon\vealth" with Chapter II of the Constitution, consisting of sections 61-70, which deals with the executive power of the Commonwealth and the setting up of departments of state but confers no express .58 The Kin~ v~ Burgess,: Ex parte Henry [1936] HCA 52; (1936) 55 C.L.R. 608, F~d~r~l (Oln1nissioner of Taxation v. ODicial Liquidator of E. O. Farley Ltd (1940) 63 672; C.L.R. 278, 315; Burton v. Honan [1952] HCA 30; (1952) 86 C.L.R. 169, 177-8; Wragg v.. lVelv SOuth Wales [1953] HCA 34; (1953) 88 C.L.R. 353, 386; Australian Coastal Shipping Comrnission V. O'Reilly [1962] HCA 8; (1962) 107 C.L.R. 46, 54. 52 Federal Law Review [VOLUME 5 -l tii legislative power relevant to the present discussion. If section 51 (xxxix.) -~ is read together with Chapter II the requisite power is to be found in "-+ section 51 (xxxix.). (c) Exclusive powers hi e tl The difference between finding legislative power in section 52 (ii.) and finding it in section 51 (xxxix.. ) is that the former is expressly made ~ exclusive to the Commonwealth whereas the latter is not. Nevertheless ~ there can be no doubt that this aspect of section 51 (xxxix.) must be ,~ exclusive to the Commonwealth because the matter to which it is related ~ and upon which it is dependent, the executive power of the Common- :~ \vealth, necessarily is exclusive in character. This enables the main -1: problem to be posed. If a law exempting Commonwealth public service salaries from State taxation is a law with respect to a subject-matter within the exclusive competence of the Commonwealth, it seems to follo\v that a State law taxing those salaries is in its application to them similarly a law with respect to a matter within the exclusive competence of the Commonwealth. If that is so, the conclusion follo\vs that it is beyond the power of the States to tax Commoll\vealth salaries in the first place, which appears to be contrary to the present law. An analysis avoiding this conclusion is suggested by some remarks of Latham e.J. in West's case.59 It is that a State tax law which applied to Commonwealth salaries alone \vould be properly characterized as a law with respect to the Commonwealth public service, as well as discriminatory, but that a general State tax law could not be so characterized and would therefore not infringe Commonwealth exclusive power in its incidental application to Commonwealth salaries. This is, with respect, difficult to follow. The generality of a State law is an answer to a discrimination objection but hardly to an exclusive power objection. It is correct to characterize a general State tax law as a law with respect to taxation, if it be thought necessary to characterize it at all, but resort to the language of characterization does not affect the scope of its valid operation. It is familiar learning that although Commonwealth laws have to be characterized in order to bring them within some specific head of power, and that therefore the scope of the characterization can' determine the scope of the law, the same does not apply to State laws. The States have plenary legislative competence subject to the Constitutio~ which means for the present purpose that a State law is valid, however it be characterized, unless it intrudes into an area forbidden by the Constitution. If a law taxing Commonwealth salaries is a law with ' respect to the Commonwealth public service, then it is forbidden to the States by the Constitution. The fact that it also taxes other salaries is irrelevant. It may be added that this objection gains force from the 59 h c 5i I t' ~' [1937] HCA 26; (1937) 56 C.L.R. 657, 668. Commonwealth Immunity ~ases 53 ;;~ i.)~ de;Ij {if ~S8~~ in 1970 on the exclusive legislative power of the Commonwealth under section 52(i.) with respect to federal places. In that context it has been decisively held that a general State law infringes Commonwealth c~clusive power in its application to a federal place notwithstanding that there is nothing in the State la\v which can be regarded as particu... IJrly directed at that place.60 Latham C.J.'s suggestion, if indeed it was nne \vhich he was intending to make, does not seem to be well-founded. f\ second possibility is that the waiver theory of Chaplin's case6 ! has sonle application. It postulates that Commonwealth immunity from State la\v is a privilege which can be \vaived by suitable legislative action on the part of the Commonwealth.. The difficulty with this idea is that the be~ tn edt immunity from State la\v enjoyed by the Commonwealth is in point of fact an absence of legislative power in the States, and that if the States do not have such power under the Constitution it is hard to ~cc \vhence the Common\vealth in turn derives power to give it to thcm. 62 The force of the objection becomes greater when dealing, as at present, \vith a situation which involves an exclusive legislative power of the Commonwealth. There is no suggestion, and there cannot very \V~n be one, that an exclusive power can be made concurrent by any process appropriately called waiver. It is true that the Commonwealth can usually achieve much the same result, as in the Commonwealth Places (Application of Laws) Act 1970,63 by incorporating the rules of State law into federal law, but this process can by only a very misleading use of language be called a waiver. No satisfactory solution to the present dilemma about Commonwealth salaries is to be found in waiver theory because the dilemma rests on the character of an exclusive la\v of the Commonwealth. Waiver theory does however suggest a solution to another well-known problem case on Common\vealth immunities, Pirrie v. McFarlane 64 in 1925, comment on which was reserved in the earlier discussion. 65 (d) Pirrie v. McFarlane ~o-called In Pirrie v. McFarlane the question was whether a member of the Commonwealth armed forces was subject to general State driving licence legislation whilst driving a car in the performance of his duties. It ,vas n. 35.' [1911] HCA 13; , (1911) 12 C.L.R. 375. 62 (1 Fliflt v. 'fVebb [1907] HCA 77; (1907) 4 C.L.R. 1178, 1194 per Higgins J. Cf. West's case ~7) .56 C.L.R. 657, 695, 700 per Evatt J. f ThIs statute was enacted in consequence of the decisions on federal places re erred to nn. 35, 60 supra.. For comment se~ P. H. Lane, 'The Law in Com~Onwealth Places-a Sequel" (1971) 45 f\.L.J. 138, 142; O'Brien, case note ~71) 8 ?\.1.U.L.R. 320, 327-8. 6~ ([1925] HCA 30; , 1925) 36 C.L.R. 170. th a Supra n. 18. In Howard, op. cit. 97, D. 50, thf'" writer expressed the opinion at the decision in this case on the immunity point must now be regarded as wrong. He has changed his mind. ... 60 Supra 61 54 Federal Law Review [VOLU~IE 5t doctr:~Q~~pplJeA~Qn1Y=Whef.elr]S-=i~-Commo~Yve-afih -ii' jurisfic~ 'eii~I!y wlt~cJ!_ t~ _i~pleaded _'!.n_9:_ ~ot where.. ~~~!~__ la~_ -is ~s91igI1£~~ e~!~~ce~_~g~!~~!.il?:~!vidu~l __ p_~~~on~ ~Il!ployed by the Commonwealth. held by a nlajority of three to tw066 that he was so subject in the absenc~ of a Common\vealth Ia\v to the contrary. The decision appears at first, sightto-be-- inconsfstent with-- the- doctrine of total Commonwealtht immunity from State la\v subsequently developed by the High Court, for,~ since no question of contract or tort was involved, it is not helped bY' the "affected by" doctrine as expressed through the Judiciary Act. It: is not in fact inconsistent with the total immunity doctrine because that·~ itseifas fo._ -< Forbetter or fo? ,vorse the High Court has decided that the Commonwealt~ The t - im~unity issues involved in the two situations are different. ( c: itself as a juristic entity is not subject to State law when acting within1t the scope of its constitutional functions. The merits of this rule are no': doubt capable of debate. The present purpose is not to debate them but~ to take the point that such a rule does not necessarily entail an equally' wide immunity for anyone who acts on behalf of the Commonwealtht within the jurisdiction of the States. It may be desirable in the legitimate; interests of the Commonwealth to grant it total immunity from State law. and to put this immunity in the form that the Commonwealth is not a~ subject of the States. It does not follow that a similar immunity app1ie~ to people who are subjects of the States merely because they are also1 subjects of the Commonwealth.67 What does seem to follow is that wheret State law conflicts with Commonwealth law in its application to such~ ,people, Commonwealth la\v should prevail by virtue of section 109 of Ithe Constitution and for no more esoteric reason. This proposition necessarily implies both that the immunity from StateJ law of Commonwealth employees, or instrumentalities not identical witha the Common\vealth itself, can extend as far as the legislative powers OR \ the Commonwealth but no further, and that no such immunity arise~ unless the Commonwealth has taken appropriate legislative action. To~ this situation there is one exception by way of implied immunity. It i~ that the States cannot enact laws which discriminate against the Com~ monwealth by singling out Commonwealth employees, instrumentalities. or payments for adverse treatment. The rationale of the position thuS! arrived at is that the Commonwealth should be free from State inter1 ference in the performance of its constitutional functions and that iIb so far as it performs them through people subject also to State law the; scope of its functions is to be found in its leg::lative powers. The implied'! immunity from discriminatory laws is simply a reasonable corollary botk Knox C.l., Higgins and Strtrke JJ; Is~~cs~ ~~d Rich JI. dissenting. ~" . ~ . 67 This reasoning is adopted also by Menzies J. in Australign_-Caas.tal-Shi[J"lJing-: Comrnission v. O'Reilly (1962) 107 C.L~. -" 66 -:------ sell no ch; f01 51 sal tho we tax up( an seH as sec bar too SU~ wo: ~--- 6f 6~ I( ;] 1972] Commonwealth Immunity of this proposition and of the corresponding immunity of Stat and instrumentalities. [£1 this way Pirrie v. McFarlane remains, as the majority h in which there was no Commonwealth law inconsistent with me State la\v in question although it was \vithin the scope of the defence power for the Commonwealth to enact such a law if it saw fit. To describe the absence of an exempting law of this character as a waiver by the Comrnonwealth of an immunity which it can extend to its employees is a strained use of language but it may serve a purpose in suggesting the true situation. 68 (c) Cornmonwealth Salaries Act and Constitution section 51 (ii.) The reasoning which accommodates Pirrie v. McFarlane, although suggested by the problem over the Commonwealth Salaries Act, does not '\oJvc that problem, for it cannot apply to a situation where an exclusive kgislative power of the Commonwealth is in issue. If the subject-matter (If a State law falls within the scope of an exclusive legislative power of th~ Commonwealth, it follows that the State law is invalid without reference to any other consideration. Neither section 109 nor implied inlmunity can come in question. Hence the original task remains of characterizing a Commonwealth law exempting payments to its public ~crvants from State taxation in such a way as to bring it within a non-exclusive head of Commonwealth legislative power; for if if is characterized as a law with respect to an exclusive subject-matter, it follows that the States cannot tax the payments in the first place. The only remaining available head of power appears to be section 51 (ii. ) (taxation). It can be said that a law exempting public service salaries from taxation is a law incidental to taxation. The difficulty is that the natural reading of section 51 (ii.) is that it refers to Common\vcalth taxation and a law exempting Commonwealth salaries from State taxation appears to be incidental to State taxation. This was the ground upon which Evatt J. in West's case69 rejected the argument that such an exempting law would come within section 51 (ii.). He founded himself in particular on Commonwealth v . Queensland70 in 1920, in which a statutory exemption from State taxation of interest on Commonwealth \Ccurities was held valid as an exercise of power under section 51 (iv.. ): borrowing money on the public credit of the Common\vealth. Evatt J. took it that since the tax power was not relied on in that case to SUpport the exemption, it had become "axiomatic"71 that section 51 (ii.. ) lvould not support such an exemption. ---6;, 6 Cf. id., / (1937) ..0 (1;20) II (1937) 59 per ~IcTiernan J. [1937] HCA 26; 56 C.L.R. 657,686..7. [1920] HCA 79; 29 C.L.R. 1. 56 C.L.R. 657, 687. Federal Law Review Neither Evatt J. nor the Court in Commonlvealth v. QueenslaruJ4 observed that that case presented exactly the same problem as wast inherent in Wests case and is now under discussion. Although no" expressed to be such in the Constitution, the po\ver to borrow money ont the public credit of the Commonwealth can hardly be other than ani exclusive legislative power of the COlnmon\vealth. It follows that if was correctly held in Commonwealth v. Queensland that the exemptingf law was an exercise of this power, there 'Nas no need for its enactment~ for the State law taxing the interest payments was a law with respect t~ a matter exclusive to the Commonwealth and therefore invalid in anyt event. From this it follows further that since it was assumed throughoutf in Commonwealth v. Queensland that in the absence of the statutoryf exemption the interest payments would have been liable to State taxation{ in the hands of State taxpayers, the case ,vas self-contradictory. Itf cannot be right both that the exemption ,vas a law under section 51 (iv.~ and that the State taxing law was valid in the absence of the exemptioni If the first proposition is correct, Commonwealth v. Queensland andf Wests case contradict each other. If the second proposition is correctjf the statutory exemption in the earlier case was not an exercise of powetj under section 51 (iv.). '~ a itt so tic to ~ ~ A contrast can be made with Australian Coastal Shipping Commissio4 v. JZBejJly72 in 1962. In that case it was held that the setting up of th~ Coastal Shipping Commission was an exercise of legislativef power with respect to inter-State and overseas trade and commerce unde4 sections 51 (i.) and 98 of the Constitution and that a statutory exemptio~ of the activities of the Commission from State taxatlon" waSSIili"ifar~ an exercise of that power. 73 "This result is in no way surprising, for if ~ general State law taxing the Commission is in that application to bat regarded as a law with respect to trade and commerce as well as a laVl# with respect to taxation there is no conflict with Commonwealthff exclusive power. Both inter-State and overseas trade and commerce andt taxation are concurrent powers. Hence a tax exemption pursuant to th~ former operates to override State law ~JigA.J in aj 09 straightforward way anddoes imPly that the State law is invalid ~ the first place. Australian Coastal Shipping Commission v. O'Reilll(. does however add to the difficulties of the general problem, for it ad~ force to the argument that a statutory exemption from State taxation not an exercise of power under section 51 (ii.). ~~ co Australian IC w( he en Inti siSI Sill not Ev, Cc lat Hii th( J.': mL CUi if Were if'not for Commonwealth v. Queensland and Australian Coast4 Shipping Commission v. O'Reilly it would be possible to present a simpl~ [1962] HCA 8; (1962) 107 C.L.R. 46. ;:~ McTiernan J. held that it was only incidental to the power. Menzies J;t found himself obliged to read the statute down. ' ~~1 12 73 r;~ ::.. :.~.,~-"~'':""':';:;'_/'I.''\::;"-~~~~~=-=-~~----"'-'-_ ,. . . . . . . . .~..",....-,......,...,...--;:----;--;:;--::;:-;;;;:::---::-:--::-::-::-:::--=-----:===-- ~ ~l ,~~t: in wh: fUri 7. .. , 'I""~ ~ k~ :~ ME "~ ";:.~ 19721 Commonwealth Immunity 57 lslanll: 1C' 1 ;wai nsection 51 (ii.) which would overcome the difficulty. [he preliminary wording of section 51 is: "The Parliament shall, subject to this Constitution, have power to make laws for the peace t order and good government of the Commonwealth with respect to" in this case "~raxation"" The power is therefore not merely to make laws with respect to Commonwealth taxation but to make laws for the peace, ()rLIer and good government of the Commonwealth with respect to taxation. No distinction is drawn between different kinds of taxation. :\s far as the wording goes therefore, the power may include measures regulatory of State taxation provided that they do not go beyond the implications of the opening words: that they do not conflict with the Constitution and that they are properly characterized as laws for the ~acc, order and good government of the Commonwealth, as opposed to laws with respect to the States" In practice such a reading of section 51 (ii.) \vould make little, if any, difference to the present situation, particularly since the degree of interference with State powers of taxation sanctioned in the First Uniform Tax case74 in 1942. It would ho\vever enable statutory exemptions from State taxation to be put on a sounder basis than at present, for it would mean both that such exemptions could be characterized in their natural setting as laws incidental to taxation and that in this context as in others the State laws concerned could be treated equally simply as valid tax laws displaced under section 109. All problems of intrusion into Commonwealth exclusive powers \vould be avoided. As a matter of authority this solution to the problem of finding a head of power to support the Commonwealth Salaries Act and similar enactments without rendering them superfluous by simultaneously invalidating the State laws with which they are intended to be inconsistent is faced by Commonwealth v. Queensland,75 Australian Coastal Shipping Commission v" O'Reilly,76 and perhaps West's case17 since Evatt J.'s arguments were not adopted by any other member of the Court. The obstacle is not insurmountable" Commonwealth v" Queensland has been shown to be self-contradicto~ys-~to -the High Court to resolve the contradictfon:--West's case is inconclusive on the present point because no other member of the Court answered Evatt 1.'s arguments \vhen he raised it. In Australian Coastal Shipping Comnlission V" O'Reilly the present point did not arise because only conCurrent powers were in issue" There is therefore no great judicial probSouth Australia Y. Commonwealth [1942] HCA 14; (1942) 65 C.L.R. 373. This was the case ~nh .which the High Court upheld a statutory scheme the object and effect of lch Was effectively to exclude the States from the field of income tax., See urt.her Howard, op. cit. 80-83. ~<> (1920) 29 C.L.R. l. [1962] HCA 8; (1962) 107 C.L.R. 46. 7 [1937] HCA 26; (1937) 56 C.L.R. 657. . ~ ' - t ;6 ,. ~ . - '~1' ~~ 58 Federal Law Review [VOLU:\fE:1!t lern in rationalizing the law. No doubt the harm of leaving the !ali: unrationalized is minimal, but avoidable self-contradiction hardly en£' hances its intellectual respectability. i 4. Conclusion For immunity purposes a distinction is to be drawn between th~ Commonwealth as a juristic entity in itself and the individuals, an~ instrumentalities not identical with itself, through whom it acts. TheA: Commonwealth itself is totally immune from State law in the per-oJ formance of its constitutional functions. These functions are partly~ expressed and partly implied in the Constitution and depend for the~ ultimate definition on the interpretation of the Constitution by th~i High Court. They are not co-extensIve with the capacity of the Com monwealth to act. The total immunity of the Commonwealth from '. State law extends only to the performance of the functions assign to it in the Constitution. In so far as the Common\vealth acts beyon :~ the scope of its constitutional functions, its actions may be valid have no special immunity from State law. If the Commonwealth ~ content to be bound otherwise by the rules of State law it may brin~ this about by appropriate legislative action incorporating State law ~ federal law and imposing liability upon itself, but this course of actio~ creates a body of federal law by reference and does not effect a direct! application of State law to the Commonwealth. It is this process whic~ is known as the "affected by" doctrine. "'~ 'eO. > but# -/: With one exception the actions of individuals or instrumentalities O~ behalf of the Commonwealth within the jurisdiction of the States have n~ special immunity from State law. The exception is that by implication~ the States may not enact laws which discriminate against Commonweal~ functionaries. This is an arbitrary rule invented by the High Co~ which appears to rest on the reasonable assumption that the federatiOIlt1 will work better if neither Common\vealth nor States may impede eac~ other's operations by adverse discrimination. lif the Commonwealtlrf wishes to protect its functionaries from State laws of general applicatio~ it may do so by enacting laws of its own inconsistent with the State; laws. This means that it cannot exempt its functionaries from Stat~ la\v beyond the scope of its own legislative powers. This is a reasonabl~ result at which to arrive having regard to the capacity of such func~ tionaries as subjects of the States as well as of the Commonwealth. Changing immunity doctrine and closer attention in recent times to~f the character of exclusive legislative powers of the Commonwealth have~ produced a minor inconsistency in the law relating to State taxation~ of Commonwealth payments, but this no longer has anything to do with~ immunity from State laws.