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Thursday, 25 February 1932


Sir LITTLETON GROOM (Darling Downs) . - This bill contemplates two objects. The first of these is the acceptance by the Commonwealth of statutory liability for the payment to bondholders of interest and principal with respect to certain debts incurred by States prior to a certain date and taken over by the Commonwealth from the States. I do not propose to go into that matter beyond saying that the Government is perfectly justified in enacting such a measure, and that anything it can do to strengthen the confidence of investors in Australia within its legitimate powers should be undertaken. I agree with the Leader of the Country party (Dr. Earle Page) that it would have been better if that portion of the bill had been separated from the rest. Should this legislation be questioned on the ground of illegality, there would be no need for argument before the High Court as to the severability of the clause. There are, as I have said, two distinct objects, and perhaps the intention of the Government would be- better served by two separate pieces of legislation, but as indicated by the Assistant Minister (Mr. Bruce), the division can, if desired, be accomplished before this measure leaves the House.

The second object of the bill is more pressing than the first, from the Australian point of view, so far as our internal affairs are concerned. It involves the enforcement of Commonwealth agreements, and raises the whole issue as to the value of agreements between States and States, and between the Commonwealth and States, and the obligatory nature of such agreements. The particular agreements in question have been binding under the authority of the Constitution as amended; they are made binding upon the Commonwealth and the States by virtue of the Constitution, and as such they become practically part of the law of the Commonwealth. When the colonies federated they were individual entities, possessing autonomous powers. Prior to federation the colonies treated one another practically as foreign countries. Under the federal scheme there was created a higher entity in the Commonwealth of Australia; but the States still retain certain sovereign powers, and their autonomy. They still retain the power of entering into agreements between themselves and the Commonwealth. A question is raised by the circumstances of the particular case under consideration as to the binding nature of such contracts and agreements, and as to the right of -an individual State to refuse to perform .the obligations undertaken under such agreements. Quite apart from the constitutional authority which made this particular legislation binding, the States still have power to enter into contracts between themselves. The States as States are bound by rules of honour and moral conduct, just as private individuals are. The whole trend of modern international law is the acceptance by States of higher standards of conduct in this regard than those observed previously. What is the meaning of the League of Nations ? Take the preamble introducing the covenant itself, and mark the standard set there between the nations of the world as regards their relations with one another, the code of honour they should observe, the rules of law, the conduct of governments, and the principles .of justice that should be maintained. The preamble to the covenant recites certain methods of attaining the objects of the League; the prescription of open, just and honorable relations between nations; the firm establishment of the understandings of international law as to the actual rule of conduct among governments by the maintenance of justice, and by the scrupulous respect of all treaty obligations in the dealings of organized peoples with one another. The trend throughout the whole world is for nations to observe a higher standard of moral conduct and honour in their international relations.

Should the States with their powers of autonomy, accept a lower standard than is set by the British Empire, by all the dominions and by all other countries of the world, in regard to the binding nature of international agreements and matters of honour in their relations with one another? That is the issue which has been raised.' Apart from statutory obligations, is any nation justified in departing from the high code of honour which is now observed by nations? Then we have the legal obligations of one nation to another. The growing tendency in discussions on international law is to refer the question of the establishment of international courts in order to determine the obligations of nations to one another and rules are being suggested for tribunals to follow to secure the observance of treaties and agreements, and the performance of contracts. More and more, nations are entering into contracts with one another, and in view of the troublous times overseas, which Ave have felt by reason of our difficulties in the markets of the world, it appears that, more and more, international agreements will have to be made. That being so, it does not behove us in Australia to recognize anything which would show, on the part of any State or corporate body organized in the Commonwealth, a tendency to disregard obligations of honour and contracts, which, after all, amount to obligations of law.

Under our Constitution, however, the position is definite. When the Commonwealth Avas established, a special tribunal was created in the High Court for the purpose of ensuring that the obligations undertaken both by the Commonwealth and the States would be observed. It was contemplated that judgments might be entered against the Commonwealth or the States, and that the necessity might arise to enforce those obligations. Under the Judiciary Act, provision Avas definitely made for this by sections 65 and 66. Section 65 states -

No execution or attachment, or process in the nature thereof, shall he issued against the property or revenues of the Commonwealth or a State.

No power of execution against the property of the Commonwealth or a State is given, but the following provision is made by section 66: -

On receipt of the certificate of a judgment against the Commonwealth or a State the Treasurer of the Commonwealth or of the State as the case may be shall satisfy the judgment out of moneys legally available.

It is apparent what the feeling was of the parliament of the day when those sections were agreed to in 1903. It was believed that in this British community of ours, when the people of the States agreed to unite in one indissoluble Commonwealth there would be such a binding sense of honour between them that if a tribunal constituted for the purpose of settling disputes between the Commonwealth and the States gave a decision 'and made a judgment that a certain sum of money was due, a State, a party to the action would so loyally comply with it that, if money owing Avas not immediately available, the Government of the State would go to its parliament at once, and ask that it should be made available to satisfy the honour of the State, so that it would not be branded as defaulter. That Avas one of the high ideals entertained at the outset of federation.

It was believed when the Commonwealth Avas established on British lines that the high sense of honour that has characterized every self-governing community in the British Empire would be preserved in Australia. Therefore, it

Avas not necessary even to contemplate that a State would be a wilful defaulter, and no provision was made for seizing the property or revenues of a State, or for taking any action of a forcible character. The executives of the States, like the Executive of the Commonwealth, are bound to observe and enforce the law, and it was never conceived that His Majesty's advisors in any State would be prepared to take any executive action, or advise such action as would mean default in the observance of the laws of the States or of the Commonwealth. I am pleading that New South "Wales should observe that standard of honour. . Had it done so, of course, this bill would not have been necessary. I am not going to deal with the facts of the case; these have been fully stated. We can assume that New South Wales has made default, and that the default was wilful.


Mr Ward - That would be a wrong assumption.


Sir LITTLETON GROOM - We can assume it for the purpose of this legislation. I respect the honorable member's view, for I am sure he has critically examined the position, and arrived at what he considers an accurate judgment; but we have the assurance of the Government, and of the late Prime Minister (Mr. Scullin), that there was a default on the part of New South Wales. The late Prime Minister has referred to the previous default, and the present Prime Minister has spoken of the recent one. We have now reached a state of affairs in Australia when we have a government that refuses to fulfil its obligations. What is the duty of the Commonwealth Government under those conditions? The Executive has its duties to perform under the Constitution. Under section 61, the executive power of the Commonwealth is vested in the Queen, and is exercised by the Governor-General as the Queen's representative. This duty extends to the execution and maintenance of the Constitution and the execution of the laws of the Commonwealth. That is the obligation cast on the Government. The Government has informed the House that, in consequence of the action of the defaulting State, it is necessary to introduce legislation to enable it to satisfy the debts due to it. It is, therefore necessary to support the Executive in that action. In examining this measure we have, however, to determine whether it is in accordance with the Australian Constitution. Our Constitution is a statute. In Great Britain, the functions of the Parliament, the Execu tive, and the judiciary are regarded as independent. They are not as set out in a written constitution ; but there is that tripartite division of power. In the interests of the liberty of the subject the division of power is absolutely essential, and is always observed. When the United States of America framed its constitution, it desired to adopt the best features of the British Constitution, and it made this threefold division, which we have also in our Constitution. . Legislative power is vested by our Constitution in the Parliament, judicial power in the judiciary, and administrative power in the Executive of the land. We must, therefore, examine this measure to see whether it is in harmony with our system of government, and does not transgress the fundamental provisions of the Constitution. That is why the right honorable the Leader of the Opposition (Mr. Scullin) is justified in wishing to be satisfied regarding the constitutionality of the action which the Government is taking. The Leader of the Country party (Dr. Earle Page) is also anxious to ascertain if the Government is satisfied with respect to the validity of what Parliament is asked to do in this matter.

The responsibility of advising the Executive in matters of this kind rests upon the Crown Law officers. They have had ample time to study the measure in all its complexities, whereas it has been brought before honorable members at comparatively short notice, who can merely raise points concerning which they have doubts, in an endeavour to be satisfied before the bill is finally disposed of.

The Attorney-General (Mr. Latham) gave a lucid explanation of the principles of the bill, and one would gather from his remarks that we can expect during the progress of the debate to be informed regarding the constitutional basis of the bill. That information, I presume, will be made available to honorable members before the debate terminates. We have to determine whether the measure does transgress particular features of our system of government. The legislative power need not be dealt withat this juncture. But there is the question of the judiciary and the power of the Executive. The bill is a peculiar blending of executive .and judicial authority. The Judiciary Act itself is complete, and provides for the determination of disputes, the power to give judgment, and the means of enforcing judgments. We have to consider this bill as it affects the administration of justice. It is not a political measure, and we have to bear in mind, as the honorable member for Gippsland (Mr. Paterson) said, that it is not one which is intended to apply to any particular State. If it were a piece of legislation directed towards one State only, objections might have been raised. But it is evidently intended to be a measure providing for the administration of justice in the Commonwealth. In these ' circumstances, we have to consider it quite apart from any political question or party issues of any kind.

A perusal of the bill will show that it is - except the first portion, which I shall not discuss - really a measure to provide for carrying out a financial agreement entered into between the Commonwealth and the States. Its short title is significant. By clause 1 it is entitled, " The Financial Agreements Enforcement Act of 1932", which indicates that the intention of the Government is to bring the judicial and executive powers of the Commonwealth into operation for the purpose of compelling the observance of a contract. There is difficulty, apparently, in enforcing a judgment given in the High Court against a State if money is not available to meet it. There is clearly, a legal obligation cast upon a State to pay any moneys due under a judgment of the court, and the question to be considered is whether some other method can be devised in addition to what is prescribed by the Judiciary Act to ensure that the debt due by the State shall be paid. The bill consists of a combination of the powers of the Executive and of the Judiciary. It would appear from a study of clause 5 and the following clauses that the Government seems to have been scrupulous to preserve to the judiciary the judicial power. The procedure is entirely unique. I have not been able to find anything of a similar nature in authorized text books which can be regarded as a precedent for the action which the Government is taking; but if a proposed law is wise, we should support it. We have to examine the provisions of the bill and determine whether the action of the Government- is legal and also just.


Mr Maxwell - It deals with a situation that is unique.


Sir LITTLETON GROOM - That is so. If we study the bill we find that clause 5 provides that the AuditorGeneral shall, as soon as possible after the close of the financial year, or whenever required by the Treasurer so to do, issue a certificate in writing, signed by him, certifying the amount due and payable and unpaid by any State. That is the first executive act. That is only an officer certifying that a sum of money is due.


Mr Blakeley - That is fairly loose.


Sir LITTLETON GROOM - The certificate signed and issued by the Auditor-General is to be regarded a6 prima facie evidence of the fact that an amount is due, payable and unpaid. No particular time is mentioned for the issue of such certificates, except that it would appear that the Treasurer may call upon the Auditor-General to issue such certificates forthwith. The fact that a certificate has been received must be published in the Gazette. The Attorney-General has then the right to apply to the High Court for a declaration that the amount set forth in such certificate is the amount due and payable by a State to the Commonwealth.

We now pass from the administrative to the judicial authority. Application having been made to the High Court, the matter is not limited in any way. The declaration by the court is a judgment of the High Court. The Commonwealth is given the right, on the mere fact on a debt being due, to initiate litigation.


Mr Scullin - Or on an alleged debt.


Sir LITTLETON GROOM - Yes; on the certificate of the Auditor-General. The issue of a certificate by the AuditorGeneral is a considerable safeguard, as we can safely trust the Auditor-General of the Commonwealth or a State AuditorGeneral to carry out his responsible duties in the manner expected of officers of their high status and character. But the whole procedure proposed is entirely different from that taken in the courts in the ordinary way. There is no issue of a summons, and no entry of appearance. No preliminary steps are taken. There is no preliminary procedure prescribed as is usual in connexion with ordinary actions before the court. Any such application may be made after three days' notice has been given. It is hard to conceive such short notice being given. It is unreasonable to think that an application would be made to the High Court, and only three days' notice being given to the AttorneyGeneral of Queensland or of "Western Australia. Such a proceeding would be futile. But until a notice of trial has been served, there is to be no official notification to a State of the Government's intention to take any action whatsoever. If it is intended to take action in this direction, surely some preliminary notification could be given to a State, to enable it to collect necessary evidence, and to meet the application made to the court. We know that no court would proceed to hear an application of this kind unless the parties had had ample time to study the issue, and to prepare information on whatever points might arise. There is, of course, the usual power in the bill to make regulations, and these points may be covered in that way. But we may assume that, on such applications every possible question affecting a State's liability, legal or constitutional, may be raised. If the question of the constitutionality of the act is raised, presumably it can be heard, and a judgment given. Looking at the matter from that viewpoint, it appears that the duties of the judiciary are fairly and clearly set out. I notice that when judgment is given, it is provided that it shall operate as a charge upon the revenues of a State. The effect of the charge does not seem to be further mentioned in the bill. It is on the issue of the proclamation under clause 7 that specified revenues of a State become payable to the Treasurer of the Commonwealth. That involves a definite action of the executive, and before a declaration of the High Court can be enforced under the bill a resolution has to be submitted to Parliament. If after reviewing the situation Parliament is satisfied, and both

Houses pass the resolutions, clauses 7 to 13 inclusive become operative. We have heard of the precautionary steps taken. The Executive does not enforce the law, but has to submit resolutions to the House. I do not propose to quibble over that, because I believe that when taking so grave a step it is wise that the legislature should be associated with the Executive in what is being done. This applies particularly to the Senate, which is supposed to be the guardian of the rights of the States in a peculiar way. Whether the Senate has really carried out the original intention of the Constitution is another matter. Before action is taken, a resolution has to be passed by this House and by the Senate, which represents the States as such. Once the resolution is passed the rest of the machinery comes into operation. That machinery can be made to operate on the revenues of the State, on moneys due by taxpayers to the State, or on moneys in a bank to the credit of the State. The definition of a State is very wide in. the bill, and is couched in these words - " The State " includes any public authority, incorporated or unincorporated, constituted under the laws of a State, which has power to levy rates, taxes or charges, or collect revenue, for a public purpose, and is declared by the Governor-General by Proclamation to be a public authority for the purposes of this act, but docs not include a municipal council, shire council, or local governing authorities.

There is nothing in the bill which limits in any way the revenues and moneys which can be seized by the Commonwealth. In a book recently published by Sir Fischer Williams on Current International Law and the League of Nations, he discusses the question of State bankruptcy and the enforcement of State debts. He says, at page 32 -

A court that had to formulate the principles of decision in the matter of enforcing State debts might perhaps direct its attention to some such considerations as the following: -

First: The debtor State must continue its activities. The enforcement of payments which cannot be made without destroying the existence of the proper discharge of the duties of the State to its nationals is always immoral and usually impossible.

Third: The main element in estimating the financial capacity of a State is the taxable wealth of its citizens, rather than tlie material assets of which as between" itself and its citizens the State may happen to be the owner.

Let us assume that this hill is passed, and comes into force. The responsibility is ' first thrown on the Executive, which has to invite Parliament to pass the necessary resolutions. I do not think that Parliament would consent to exercise these powers if it thought that their exercise would be really detrimental to the welfare of a State or lead to any serious injury. This measure is a strong and powerful instrument, and we should remember that if we have the strength of a giant, we should be as merciful as an angel. Suppose the power is to be exercised in respect of New South Wales. It is necessary to consider the capacity of that State to pay. We have to ask ourselves whether New South Wales, by reason of its material wealth, its assets and resources, is in a better or worse position than the other States of the Commonwealth. We should remember that it is the oldest State of tho union, and one of the largest States as well. We have just heard the admission of some of her representatives in this House that she has been able to carry a heavy burden on behalf of the other States. Any State which has sufficient wealth must be expected to meet its obligations. In the case of a State that possesses this wealth no injustice would bc done if the power proposed to be taken under this bill were exercised. It is not fair or right that the most powerful State of the union should allow the other States to make untold sacrifices in order to meet its statutory obligations. So it would appear- that tho procedure under clause 6 and the relevant clauses complies with the Constitution.

The Leader of the Country Party (Dr. Earle Page) suggested that the trouble might be overcome by the creation of new States. I do not think that the creation of new States would help materially. It is looking somewhat into the future. Moreover, when a new State is formed it should be large enough to carry tho obligations which modern life requires of a State. When once we make a permanent division it should be made on the basis that it is in the best interests of all the people in the area divided. It is not practicable or just to form a State merely because a majority of its inhabitants hold some political tenet. .Such political beliefs come and go. It has happened in the past in one part of Australia, that there was a very strong agitation for separation while certain poh.tical views obtained, but later, the whole thing was, dropped.

I ask the Government to proceed very carefully in regard to clause 6 of the bill conferring power to act in urgent circumstances. If we examine this clause and those connected with it, it will be found, to state it briefly, that it provides that if the Auditor-General has certified a sum to be due and payable and unpaid by a State to the Commonwealth, and a motion has been passed by both Houses, as prescribed, approving and adopting the certificate and affirming the desirability of applying sections 7 to 13, and in relation to specified revenue, those sections shall apply. Then, under section 9, the Commonwealth may be empowered to sue and recover moneys owing by any person to that State, and payable during the currency of the proclamation, which, if recovered by the State, would have formed part of the specified revenue of that State. This liability of the individual is imposed without any judgment of the judiciary of the Commonwealth on the matter of the debt duo by the State to the Commonwealth. I should like to be informed of any affirmative power in the Constitution -to justify legislation of that character. Without calling in the judiciary, a liability attaches to certain individuals to pay over certain sums of money. It is true that under the Constitution we have power to pass laws to carry on the administration. According to section 51 of the Constitution, the Commonwealth Parliament has power to legislate in regard to matters incidental to the execution of any power vested in the Government of the Commonwealth. Parliament can make laws to carry on its administration, but can a law of this kind come under that power ? Nor can the collection of money under this legislation be regarded as taxation, as has been suggested. It is not a general taxation act. It cannot be called taxation without discrimination. I cannot believe for one moment that the Government rests its power on that plea.


Mr Scullin - Does the honorable member think that the Government might be regarding this as a form of taxation?


Sir LITTLETON GROOM - As I said before, I should like to be informed where, in the Constitution, there is an affirmative section conferring such power on the Commonwealth.


Mr Scullin - Does the honorable member regard a resolution as a piece of legislation ?


Sir LITTLETON GROOM - A resolution of both Houses of Parliament, or of either House, is not a law, nor is it meant to be one.


Mr Maxwell - The resolution does not create a liability; the liability exists already.


Sir LITTLETON GROOM - I do not know, at present, of any affirmative power in the Constitution which enables this Parliament to create such a liability. However, the Assistant Minister (Mr. Bruce) intimated that clause 6 might be reconsidered, and placed upon a more satisfactory basis.


Mr Thompson - Is the honorable member in favour of the bill?


Sir LITTLETON GROOM - I am in favour of it, but I wish to see the bill passed in such a way as will enable it to effectuate its object, to secure the observance of their obligations by all the States. I want to feel that we have, in this legislation, an instrument that will achieve it3 object justly and fairly. I shall vote for the second reading of the bill, and I believe that it can be made a useful measure in order to secure the honorable observance of obligations between the Commonwealth and the States.







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