Legal Practice Briefing No. 13

Number 13

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.

The 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.

Statutory Rights

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.

'Property'

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):
  1. 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);
  2. 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);
  3. 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.

'Just Terms'

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'.

Conclusion

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.

ISSN 1448-4803 (Print)
ISSN 2204-6283 (Online)

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.

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