Legal Practice Briefing
28 July 1994
ACQUISITION OF PROPERTY
Recent cases on section 51(xxxi) of the Constitution
Section 51(xxxi) of the Constitution provides that the Commonwealth Parliament may make laws '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'. It has long been accepted that, because section 51(xxxi) provides an express power to acquire property subject to a requirement of 'just terms', the other heads of power in section 51 should generally be construed as not extending to the acquisition of property. Section 51(xxxi) has thus attained the status of a constitutional guarantee.
Section 51(xxxi) has been considered in five cases decided by the Court in 1994. This briefing examines developments in the interpretation of section 51(xxxi) in those cases.
In Mutual Pools and Staff Pty Ltd v Commonwealth a Commonwealth sales tax law had been held invalid, and a new Act had been enacted to prevent taxpayers receiving refunds of the invalid tax in cases where they had 'passed on' the burden of the invalid tax. The plaintiff challenged this Act on the ground that the extinction of its right to a refund was an 'acquisition of property'. The Court unanimously upheld the Act.
In Health Insurance Commission v Peverill a pathologist had been paid for various tests under items in the relevant schedule that were invalid, and had then established that the tests fell within items with much higher fees than the invalid items. The legislation was amended retrospectively reducing his entitlement to what it would have been if the invalid items had been valid. He argued that this reduction was an 'acquisition of property' which was precluded by section 51(xxxi). The Court unanimously upheld the amendments.
In Georgiadis v Australian and Overseas Telecommunications Corporation the plaintiff had been injured in the course of his employment. The commencement of section 44 of the Safety Rehabilitation and Compensation Act 1988 extinguished his cause of action in tort against AOTC. He challenged section 44 on the ground that this extinction was an 'acquisition of property' which contravened section 51(xxxi). The Court upheld this argument by a majority of 4 to 3. (This case has been explained in more detail in Legal Practice Briefing Number 10.)
In Re DPP; Ex parte Lawler the plaintiffs owned a fishing boat which had been found fishing illegally in the Australian Fishing Zone and impounded. The plaintiffs had not been involved in the commission of the offence and argued that, to the extent that the forfeiture provisions of the Fisheries Act 1953 allowed the property of innocent persons to be forfeited, they contravened section 51(xxxi). The Court unanimously upheld the provisions.
In Nintendo Co Ltd v Centronics Systems Pty Ltd the main question was whether the Circuit Layouts Act 1989 allowed the designer of a circuit to prevent sales of games units based on that circuit which had already been imported when the Act came into effect. One issue was whether such a result was an 'acquisition of property' to which section 51(xxxi) applied. The Court held that it was not.
In Peverill the rights which had been extinguished were rights to benefits under the Medicare scheme, which owed their existence to Commonwealth statute and were essentially gratuitous in nature (notwithstanding that the pathologist had taken assignments of those rights from patients as consideration for the provision of services).
Five Justices (MasonCJ, Deane, Dawson, Gaudron and McHughJJ) held that the partial extinction of these rights was not an 'acquisition of property' because, as gratuitous statutory rights without any antecedent existence in the general law, they were by nature subject to amendment or diminution by later statutes. Such amendment or diminution could not therefore amount to an 'acquisition of property'. A sixth, BrennanJ, considered the same factors in holding that the rights were not 'property' for section 51(xxxi) purposes.
At least some classes of statutory rights are therefore able to be extinguished without raising any issue of the acquisition of property. These include 'welfare' rights and rights which are expressed to be subject to amendment (see Minister for Primary Industries and Energy v Davey (1994) 119 ALR 108).
In all of the cases majorities were prepared to hold or assume that the rights in question were 'property' for the purposes of section 51(xxxi). This was in line with earlier cases which had stressed that the concept of 'property' in section 51(xxxi) was a broad one and not limited to particular legal categories of property. It appears that any valuable right which is capable of being precisely identified will be treated as 'property' for the purposes of section 51(xxxi).
'Acquisition of Property'
The orthodox position prior to these cases was that the mere extinction of a proprietary right did not constitute an 'acquisition of property': an acquisition only occurred when the deprivation of one person resulted in another person acquiring a proprietary right. All Justices in these cases acknowledged that this remained the basic rule. However, a majority in Mutual Pools, Peverill and Georgiadis (all except Dawson and TooheyJJ) held that the extinctions of rights in those cases were capable of constituting 'acquisitions of property' for section 51(xxxi) purposes even though they did not have the result of vesting any property rights in any person.
In reaching this view in Mutual Pools Mason CJ considered that there were cases where the extinction of a right would bring about the same result as its acquisition. Deane and GaudronJJ thought that an 'acquisition' would occur where the extinction of one person's right conferred a 'direct and measurable countervailing benefit or advantage' on another, and BrennanJ in Georgiadis spoke of a 'correlative' benefit.
This development seems to have increased significantly the range of effects on rights which can constitute 'acquisitions of property'. The extinction of any chose in action (for example, a contractual right) confers a correlative 'benefit' on the person against whom that right could have been enforced. Since section 51(xxxi) applies to all Commonwealth laws effecting 'acquisitions' (that is, not only those which result in acquisitions by the Commonwealth), it could potentially affect a very wide range of laws.
The Reach of Section 51(xxxi)
The work of limiting the potential reach of section 51(xxxi), which was formerly performed by a literal reading of the term 'acquisition', is now performed by theories which exclude some 'acquisitions of property' from the scope of section 51(xxxi). Some 'exceptions' to section 51(xxxi) had long been recognised: for example, taxes, penalties and forfeitures, the sequestration of bankrupts' property and the seizure of enemy property in wartime. These were cases where some form of acquisition was clearly within Commonwealth power but the whole point of the acquisition would be defeated by a requirement of 'just terms'. In the recent cases the Court has set out to develop an explanation for these and other exceptions.
The following factors were suggested in the cases as limiting the application of section 51(xxxi):
- Because section 51(xxxi) limits the other powers by means of a rule of construction, it is subject to any 'contrary intention' that is manifested in the terms or the subject matter of another power (for example, Mutual Pools per MasonCJ and Deane and GaudronJJ). An example is the taxation power: the very notion of a tax presupposes the absence of any quid pro quo that could constitute 'just terms'. In Nintendo the copyright power was recognised as another example. The whole point of that power is the creation of enforceable intellectual property rights which by their nature affect other property. A restriction on the use of property that flowed from the creation of intellectual property rights did not therefore fall within section 51(xxxi) even if it could be regarded as an 'acquisition'.
- Section 51(xxxi) is framed as a legislative power which only authorises laws which can properly be described as 'with respect to ... the acquisition of property'. 'Acquisitions' in the following circumstances therefore fall outside section 51(xxxi) (and are valid if supported by another head of power):
- acquisitions which are an incidental or inevitable consequence of the means selected by Parliament to achieve an object within Commonwealth power (provided the means is appropriate and adapted to the object) (MasonCJ, Brennan and McHughJJ in Mutual Pools);
- acquisitions which flow from the adjustment of 'competing claims' between persons in a particular legal relationship or field of activity (Nintendo per MasonCJ, Brennan, Deane, Toohey, Gaudron and McHughJJ);
- acquisitions which constitute penalties (including forfeiture where it has a deterrent effect as well as punishment of actual offenders) for breaches of valid Commonwealth laws (Lawler; Mutual Pools per McHughJ).
- Section 51(xxxi) only extends to acquisitions of a kind which admit of 'just terms' (Deane and GaudronJJ in Mutual Pools; BrennanJ in Lawler). Acquisitions which are rendered pointless by a just terms requirement (for example, taxes, penalties) therefore fall outside section 51(xxxi) and are valid if they are within other heads of power.
- Section 51(xxxi) only extends to acquisitions which are 'for [a] purpose in respect of which the Parliament has power to make laws'. Deane and GaudronJJ in Mutual Pools saw this point as the basis for excluding the 'incidental' acquisitions discussed above. DawsonJ reasoned that the 'purpose' of an acquisition was the purpose to which the property was to be put. On this basis section 51(xxxi) did not apply to penalties and forfeitures (because the property was not acquired to be used for any Commonwealth purpose Lawler) or to laws conferring property rights on persons other than the Commonwealth where they were free to use the property for their own private purposes (Nintendo).
These limitations may overlap, and not all were adopted or put in the same terms by all Justices. Their application will also involve 'borderline cases', as three members of the majority acknowledged in Georgiadis.
The cases produced little discussion on the concept of 'just terms'. The Commonwealth had argued that 'just terms' did not necessarily involve full monetary compensation but involved general notions of fairness, and that a range of factors could be considered. Only BrennanJ considered these arguments. He rejected them: in his view section 51(xxxi) is a guarantee that, when property is acquired in the circumstances to which the provision applies, the burden will be borne by the taxpayers (or, possibly, the person acquiring the property) and not by the individual whose property is confiscated. This appears to be a more restrictive view than had been put in statements in some earlier cases, which suggested that there might be circumstances in which compensation at less than the full value of the property could be 'just'.
Although these cases have not expanded the overall scope of section 51(xxxi) to any great extent, they have made its application somewhat complex. Any legislative proposal which would affect 'property' (which essentially means any valuable legal rights) runs some risk of being held to effect an 'acquisition of property', and a question will arise as to whether that acquisition would fall within section 51(xxxi). Except for the clearest cases (such as taxes and penalties), this is a question on which the advice of the Office of General Counsel will need to be sought.
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The material in this briefing is provided for general information only and should not be relied upon for the purpose of a particular matter. Please contact the Legal Practice before any action or decision is taken on the basis of any of the material in this briefing.