JUDGMENT No. snuete Doel snortate CATCHWORDS TAXATION - Sales Tax - Exemption from sales tax - whether sales tax payable on goods bought by State banks for their own use — whether State banks "authorities" - whether State banks' expenditure is "exclusively borne by" the State - position of subsidiary of a State bank - Sales Tax (Exemptions and Classifications) Act 1935 (Cth), Sch 1, item 74 ~- Sales Tax (Exemptions and Classifications) Act 1992 (Cth), Sch 1 item 126. PRACTICE AND PROCEDURE - Federal Judicature - Federal Court of Australia - decision of single judge of the Court - duty of other judges to follow - considerations of "comity". WORDS AND PHRASES - "Authority" - "Expenditure exclusively borne by". Sales Tax (Exemptions and Classifications) Act 1935 (Cth) Sales Tax (Exemptions and Classifications) Act 1992 (Cth) Sales Tax Assessment Act (No. 1) 1930 (Cth) Sales Tax Assessment Act 1992 (Cth) Rural and Industries Bank of Western Australia Act 1987 (WA) R & I Bank Act 1990 (WA) State Bank Act 1981 (NSW) State Owned Corporations Act 1989 (NSW) State Bank (Corporatisation) Act 1989 (NSW) (1964) 112 CLR 125 (1978) 139 CLR 288 Postal Commission (1980) 144 CLR 577 {1982] 1 NSWLR 113 Magman International Pty Ltd v Westpac Banking Corporation (1991) 32 FCR 1 GIO v Commissioner of Taxation (1992) 35 FCR 247 Services Federation (1992) 175 CLR 442 Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 Registrar of tt Accident ¢ ti tril l i i (1993) 178 CLR 145 Nos. NG 990 of 1993, NG 991 of 1993 and NG 992 of 1993 Lindgren J Sydney 4 November 1994 IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) GENERAL DIVISION CORAM: PLACE: DATE: LINDGREN J SYDNEY 4 NOVEMBER 1994 ) NG 990 of 1993 BETWEEN: BANK OF WESTERN AUSTRALIA LIMITED Applicant AND: COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA Respondent NG 991 of 1993 BETWEEN: PERPETUAL FINANCE CORPORATION LIMITED Applicant AND: COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA Respondent NG 992 of 1993 BETWEEN: STATE BANK OF NEW SOUTH WALES LIMITED Applicant AND: COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA Respondent THE_COURT IN PROCEEDINGS NO: NG 990 of 1993 Bank of Western Australia Limited v Commissioner of Taxation for the Commonwealth of Australia 3. DECLARES that goods purchased on or before 31 December 1992 by the Rural and Industries Bank of Western Australia and by the applicant for official use by them are exempt from sales tax pursuant to s. 5 of, and Item 74 of the First Schedule to, the Sales Tax (Exemptions and Classifications) Act 1935. DECLARES that goods purchased on or after 1 January 1993 by the applicant for official use by it are exempt from sales tax pursuant to s. 24 and s. 25 of the Sales Tax Assessment Act 1992 and Item 126 of Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992. ORDERS that the respondent pay the applicant's costs. NG 991 OF 1993 Perpetual Finance Corporation Limited v Commissioner of Taxation for the Commonwealth of Australia 1. 2. ORDERS that the application be dismissed. ORDERS that the applicant pay the respondent's costs. NG 992 OF 1993 State Bank of New South Wales Limited v Commissioner of Taxation for the Commonwealth of Australia. DECLARES that goods purchased on or before 31 December 1992 by the State Bank of New South Wales and by the applicant for official use by them are exempt from sales tax pursuant to s. 5 of, and Item 74 of the First Schedule to, the Sales Tax (Exemptions and Classifications) Act 1935. DECLARES that goods purchased after 1 January 1993 by the applicant for official use by it are exempt from sales tax pursuant to s. 24 and s. 25 of the Sales Tax Assessment Act 1992 and Item 126 of Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992. ORDERS that the respondent pay the applicant's costs. Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) GENERAL DIVISION CORAM: PLACE: DATE: LINDGREN J SYDNEY 4 NOVEMBER 1994 ) NG 990 of 1993 BETWEEN: BANK OF WESTERN AUSTRALIA LIMITED Applicant AND: COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA Respondent NG 991 of 1993 BETWEEN: PERPETUAL FINANCE CORPORATION LIMITED Applicant AND: COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA Respondent NG 992 of 1993 BETWEEN: STATE BANK OF NEW SOUTH WALES LIMITED Applicant AND: COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA Respondent NATURE OF PROCEEDINGS These three sets of proceedings were commenced by writ of summons and statement of claim filed in the High Court of Australia on 30 November 1993. On 17 December 1993 that Court ordered that they be remitted to this Court. In each of them the applicant seeks declarations that certain goods purchased were exempt from Commonwealth sales tax. In the case of goods purchased on or before 31 December 1992, the exemption is claimed to arise from Item 74 of the First Schedule to, the Sales Tax (Exemptions and Classifications) Act 1935 (Cth) and the provisions which enliven it. I will refer to that Act as "the old Exemptions and Classifications Act" and to that item as "Item 74". In respect of goods purchased on or after 1 January 1993, the exemption is claimed to arise from Item 126 of the First Schedule to the Sales Tax (Exemptions and Classifications) Act 1992 (Cth) and the provisions which enliven it. I will refer to that Act as "the new Exemptions and Classifications Act" and to that item as "Item 126". Proceedings No NG 990 of 1993 Prior to 1 January 1991 there was incorporated under the Rural and Industries Bank of Western Australia Act 1987 (WA) "the Rural and Industries Bank of Western Australia" ("the former Bank of WA"). The former Bank of WA carried on the business of banking until 31 December 1990. On 1 January 1991 the R & I Bank Act 1990 (WA) came into operation. On and from that date, the applicant in proceedings No NG 990 of 1993 ("the Bank of WA") which had been incorporated in December 1990 under the Companies (WA) Code under the name "R & I Bank of Western Australia Ltd", and was constituted as a bank under the Act of 1990. Pursuant to the provisions of s. 44 of, and Schedule 2 to, the R & I Bank Act 1990, all of the assets and undertaking of the former Bank of WA were vested in the Bank of WA. By virtue of the same Act, however, the former Bank of WA continued as a body corporate under the name "R & I Holdings". The former Bank of WA is the sole holder of shares in, and controller of, the Bank of WA. It is not disputed that down to 31 December 1990 goods were purchased by the former Bank of WA for use in its business of banking and not for sale, and that since 1 January 1991 goods have been purchased by the Bank of WA for use in its business of banking and not for sale. The Bank of WA contends that the goods purchased by its predecessor (now its "parent" corporation), the former Bank of WA, down to 31 December 1990, and those purchased by the Bank of WA itself in the period from 1 January 1991 to 31 December 1992, are exempt from sales tax as having fallen within Item 74. In relation to goods purchased by the Bank of WA in the period from 1 January 1993 to date, it contends that such goods are exempt from sales tax as falling within Item 126. The Bank of WA changed its name from "R & I Bank of Western Australia Ltd" to "Bank of Western Australia Limited" in 1994. In the course of the hearing I granted it leave to amend the title of the proceedings by deleting "R & I" from its name as applicant. Proceedings No NG 991 of 1993 The applicant in proceedings No NG 991 of 1993 ("Perpetual") is a company limited by shares incorporated by registration under the companies legislation of Western Australia, all the shares in which were at all material times down to 31 December 1990 held by the former Bank of WA, and have been held since 1 January 1991 by the Bank of WA. There is no issue that Perpetual purchased certain computer equipment on or about 25 August 1988 which has continued to be used in the course of Perpetual's business of financier and not for any other purpose. Perpetual contends that the equipment is exempt from sales tax as having fallen within Item 74. Proceedings No NG 992 of 1993 There was incorporated under the State Bank Act 1981 (NSW) the State Bank of New South Wales ("the former State Bank"). The former State Bank carried on the business of banking until 14 May 1990, upon which date all of the assets and business undertaking of the former State Bank were vested in the applicant in proceedings No NG 992 of 1993 ("the State Bank") which had been incorporated on 29 March 1990 by registration under the Companies (New South Wales) Code as a company limited by shares. Also on 14 May 1990 the former State Bank was dissolved. It is not disputed that down to 14 May 1990 goods were purchased by the former State Bank for use in its business of banking and not for sale, and that since 15 May 1990 the State Bank has also purchased goods, for use in its business of banking and not for sale. The State Bank contends that the goods purchased by its predecessor, the former State Bank, down to 14 May 1990 and those purchased by the State Bank itself from 15 May 1990 down to 31 December 1992 are exempt from sales tax as having fallen within Item 74. In relation to goods purchased by the State Bank from 1 January 1993 to date, it contends that such goods are exempt from sales tax as falling within Item 126. SALES TAX LEGISLATION AND ISSUES As from 1 January 1993 the former regime of sales tax legislation has been replaced by a "streamlined sales tax". It is not necessary in these proceedings for me to give a detailed account of the old or the new system because it is only issues presented by the old Item 74 and the new Item 126 that arise for decision. It suffices to say that formerly sales tax was imposed, assessed and recovered under a regime of Sales Tax Acts and Sales Tax Assessment Acts, the Sales Tax Procedure Act 1934, the old Exemptions and Classifications Act, and regulations under those various Acts. Under s. 20 of the Sales Tax Assessment Act (No.1) 1930 (which also applied to the other ten Assessment Acts) and s. 5 of the old Exemptions and Classifications Act, goods described in the various items in the First Schedule to the latter Act were exempt from sales tax imposed by the Acts specified in that Schedule in relation to those goods. Item 74 was, at all material times, relevantly as follows: "74. Goods for official use (whether as goods or in some other form), and not for sale, by a department of the Government of the Commonwealth, a State, the Northern Territory or the Australian Capital Territory, or an authority which is completely controlled by, and the expenditure of which is exclusively borne by, the Government of the Commonwealth, a State, the Northern Territory or the Australian Capital Territory, as the case may be, provided that, in the case of goods for the use of a department or an authority of the Government of a State, the Northern Territory or the Australian Capital Territory, an arrangement has been made between the Governor-General and the Governor-in- Council of the State, the Administrator-—in-Council of the Northern Territory or the Chief Minister of the Australian Capital Territory, as the case may be, for the collection and payment by the State, the Northern Territory or the Australian Capital Territory, as the case may be, of sales tax upon the sale value of goods sold by the Government of the State, the Northern Territory or the Australian Capital Territory, as the case may be, and by every such authority established under the law of the State, the Northern Territory or the Australian Capital Territory, as the case may be, in the conduct of an enterprise which, in the opinion of the Commissioner, is a trading enterprise. In this item, 'authority' does not include an authority as defined by subsection 20A (1) of the Sales Tax Assessment Act (No. 1) 1930" (emphasis supplied) From 1 January 1993, the principal Acts establishing the new regime of streamlined sales tax are as follows: Sales Tax Imposition Acts, the Sales Tax Assessment Act 1992, the new Exemptions and Classifications Act, a series of Sales Tax Deficit Reduction Acts and the Taxation Administration Act, 1953. Again, of course, there are regulations under the Acts. Relevantly, ss. 24 and 25 of the Sales Tax Assessment Act 1992 exempt from sales tax, goods covered by Item 126. Item 126 was at all material times relevantly as follow: "126 (1) Goods for use by: (a) an Australian government; or (b) an authority that is completely controlled by an Australian government, and whose expenditure is exclusively borne by that government; or (c) an authority that is completely controlled by 2 or more Australian governments, and whose expenditure is exclusively borne by those governments. (2 ee (3) In this item, 'Australian government' means the Commonwealth, a State, the Australian Capital Territory or the Northern Territory." (emphasis supplied) It was not disputed, at least by the time of the hearing, that the five buyers of goods (the four Banks and Perpetual) were "completely controlled by" a State Government (that of Western Australia in the case of the former Bank of WA, the Bank of WA and Perpetual, and that of New South Wales in the case of the former State Bank and the State Bank). In each set of proceedings there were two issues on the hearing: 1. Was the buyer of the goods, at the relevant time an "authority" within the meaning and for the purposes of Item 74 or Item 126 as the case may be? 2. If "yes" to (1), was the buyer's "expenditure .. exclusively borne by ..... a State"? It was not suggested that for the purpose of answering these questions, there is any material difference between the contexts provided by Item 74 and Item 126. THE HEARING ON 25 AND 26 AUGUST 1994 In each set of proceedings Mr A R Emmett QC with Mr B J Sullivan of counsel appeared for the applicant, and Mr D M Bennett QC with Mr S Gageler of counsel appeared for the respondent. The evidence comprised affidavit evidence and documents admitted as exhibits. There was no cross examination or other oral evidence. INTRODUCTION TO THE APPLICANTS The case made by each applicant was that the relevant State legislation established both that it was an "authority" and that its expenditure was "exclusively borne" by a State for the purposes of Item 74 and Item 126. This makes it necessary to consider in detail and at some length the provisions of that legislation. It will be convenient generally to postpone consideration of the position of Perpetual, and to consider first the positions of the four Banks. There are similarities between the position in Western Australia and the position in New South Wales. Both the former Bank of WA and the former State Bank were pre-existing entities which were, in 1987 and 1981 respectively, continued and reconstituted as bodies corporate by The Rural and industries Bank of Western Australia Act 1987 (WA) and The State Bank Act 1981 (NSW) respectively. In the case of the former Bank of WA, the entity which preceded it was the body corporate constituted under sub-section 9 (1) of MThe Rural and Industries Bank Act 1944 and named "The Commissioners of the Rural and Industries Bank of Western Australia" (see The Rural and Industries Bank of Western Australia Act 1987, s. 4). In the case of the former State Bank, the entity which preceded it was the "Rural Bank of New South Wales" (see j 1981 (Act No 90 of 1981), s. 5, Schedule 2, clause 7). In the case of each State, there was subsequently a process of "corporatisation". The result of this was that the businesses of the former Bank of WA and the former State Bank came to be carried on by companies limited by shares incorporated by companies limited by shares are the Bank of WA and the State Bank. In the case of Western Australia, corporatisation was achieved by the R_& J Bank Act 1990 (WA) and registration of the memorandum and articles of association of the Bank of WA (then called "R & I Bank of Western Australia Ltd") under the Companies (Western Australia) Code. The R_ & I_ Bank Act 1990 repealed The Rural & Industries Bank of Western Australia Act 1987 but continued the former Bank of WA in existence as a body corporate called "R & I Holdings". Its chief function was to hold all the shares in the newly incorporated Bank of WA. The continued existence of the predecessor bank as the holder of the share capital of the new bank was not a feature of corporatisation in New South Wales. In the case of New South Wales, corporatisation was achieved by two Acts of 1989, namely the State Owned Corporations Act 1989 (NSW) (Act No 134 of 1989) ("the SOC Act") and the State Bank (Corporatisation) Act 1989 (NSW) (Act No 195 of 1989) ("the Corporatisation Act"), and by registration of the memorandum and articles of association of the State Bank on 29 March 1990 under the Companies (New South Wales) Code. By being named in Schedule 1 to the SOC Act (this was effected by the Corporatisation Act), the State Bank became a "State owned corporation" ("SOC") within the meaning of the SOC Act. As noted earlier there was a diverting and vesting of assets and dissolution of the former State Bank. INTRODUCTION TO SUBMISSIONS ON "AN AUTHORITY" The identification of those legislative provisions relevant to the question whether an entity is an "authority" depends on the proper meaning of that word in its immediate and larger context. It is useful to note at this stage the general nature of the parties' rival contentions on this issue. The applicants' position was that the search should be for provisions demonstrating that the substance of the matter was that through the respective banks the States were carrying on the banking businesses in question. The applicants submitted that an entity which was owned and "completely controlled by" a State and the expenditure of which was "exclusively borne by" that State, was, ipso facto, an "authority" of that State. They were prepared to accept that this approach accorded to the word ""authority" the meaning of "entity". In the alternative, they submitted that if some further limitation was to be found in the word "authority", it was only that the body in question should be one which was invested with a traditional role of government and that the banks satisfied that criterion. Further, and more generally, the applicants submitted that I could and should, decide the issue of construction of the word "authority" by following, as a matter of judicial comity, the decision of Heerey J in GIO v Commissioner of Taxation (1992) 35 FCR 247 ("GIO"). In that case his Honour held that the Government Insurance Office of New South Wales ("the GIO") was an "authority" for the purposes of Item 74. The Commissioner submitted that in order to be an "authority" for the purpose of Item 74 or Item 126, an entity must be invested with some "coercive", or at least "exceptional" power that is to say, a power which an ordinary citizen does not have. According to this submission, statutory provisions which demonstrated ownership, complete control and an exclusive bearing of expenditure by a State did not go far enough. The respondent did not argue that GIO was distinguishable, and submitted that it was wrongly decided and should not be followed. BANKING AND GOVERNMENT When the old Exemptions and Classifications Act was passed in 1935, banking was recognised as a commercial activity appropriately engaged in by governments; see Australian Constitution, s. 51 (xiii); M'Culloch v Maryland (1819) 17 US 415 at 422; Melbourne Corporation v The Commonwealth (1947) 74 CLR 31 at 52; Deputy Commissioner of Taxation v State Bank of New South Wales (1992) 174 CLR 219 at 230-232; the passing of the Commonwealth Bank Act in 1911; Quick and Garran, The Annotated Constitution of the Australian Commonwealth (1900 - reprinted by Legal Books, Sydney, 1976) at 576-582; H S Nicholas, The Australian Constitution (Law Book Co, 1952) ch XVI, "Banking". The meaning of such expressions as "authority" and "public authority" may vary according to the immediate statutory context and purpose of the provision in which they are located (authority for this trite observation is scarcely necessary, but see 1 Halsbury (4th) para 6; General Stee] Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 (Barwick CJ) at 132-133). Most importantly, relevantly the approach of the courts to the question of status of a body "has involved a weighing of all relevant circumstances before deciding in particular cases upon the status of the body in question" (Western Australian Turi Club v Federal Commissioner of Taxation (1978) 139 CLR 288 at 296 (Stephen J)); "In all cases ... it is necessary to have regard to all the relevant circumstances in order to determine the character of the body in question" (Committee of (1980) 144 CLR 577 at 580 (Gibbs J)), and "the question whether a body is a public authority [one could properly insert or an authority] is one of fact and degree which often requires the balancing of the various features of the body concerned" (Re Anti-Cancer Council of Victoria; ex parte The State Public Services Corporation (1992) 175 CLR 442 at 450, and cases there cited). The propositions stated in the last paragraph assume particular importance in the present cases. The five buyers of goods concerned (the four Banks and Perpetual) are not all of a piece. It will be necessary to consider all the relevant features of each of them and weigh them up in the light of the proper construction of the expression "an authority" ascertained in the manner referred to above. While all five buyers are different from each other, they can usefully be divided into three classes: (1) bodies corporate without members incorporated directly by special Acts and engaged in a business commonly associated with government, namely banking (the former Bank of WA and the former State Bank); (2) companies limited by shares incorporated by registration under State Companies Codes, but also the subject of special Acts and also engaged in a business commonly associated with government, namely banking (the bank of WA and the State Bank - the products of "corporatisation"); (3) a company limited by shares incorporated by registration under a State Companies Code, not the subject of any special Act and not engaged in a business commonly associated with government, but nonetheless a wholly owned subsidiary of, at first, a body corporate in class (1), and then of its successor, a body corporate in class (2) (Perpetual). We St former Bank of WA") Within Part II (ss. 4-11) of the Rural and Industries Bank of Western Australia Act 1987 (WA) dealing with the constitution and administration of the former Bank of WA, s. 4 provided for the continuation and reconstruction as from 1 April 1988 in the form of the former Bank of WA, of the body corporate named "The Commissioners of the Rural and Industries Bank of Western Australia" which had been constituted under sub- section 9 (1) of the Rural and Industries Bank Act 1944 (WA). By sub-section 4 (4) the former Bank of WA was made an agent of the Crown in right of the State, and was entitled to the "status, immunities and privileges of the Crown except as otherwise prescribed". By s. 5, it was provided that there should be a board of directors consisting of an ex officio managing director and between 5 and 8 other directors appointed by the Governor (in this section of these Reasons called "the Board"). Under s. 60 of the Interpretation Act 1984 (WA) such references to "the Governor" were references to the Governor acting with the advice and consent of the Executive Council. By Schedule 1, which was given effect by s. 5, a director might be removed by the Governor in certain circumstances. By s. 6 the Board was made the governing body of the former Bank of WA with power to determine its policy and to control its affairs. Sub-sections 6 (3), (5), (6) and (7) provided as follows: "6 (3) Within the limits of its powers, the Board shall ensure that the policy of the Bank is directed to the greatest advantage of the people of Western Australia and promotes the balanced development of the economy of Western Australia. (5) The Board and the Minister shall, at the request of either, consult together, either personally or through appropriate representatives, in relation to any aspect of the policies or administration of the Bank. (6) The Board shall consider any proposals made by the Minister in relation to the Bank's affairs and shall, if so requested, report to the Minister on any such proposals. (7) The Board shall consult the Minister before entering upon a course of action that in the opinion of the Board amounts to a ~=major initiative." Part III (ss. 12-25) of the Act was headed "OPERATIONS OF THE BANK". Within Division 1 (ss. 12-14) headed "Banking business", sub-section 12 (1) provided that the former Bank of WA should carry on the business of banking and should have power to do all things necessary or convenient for that business. Section 14 provided for moneys which might be appropriated by Parliament to the purpose of the former Bank of WA or advanced to it to be applied by the Board for its purposes in accordance with the Act. Division 2 (ss. 15-25) h wRAQeRCY business" provided for the conducting of "agency business" by the former Bank of WA. "Agency business" was defined as business carried on under Division 2 in respect of a function conferred or imposed on the former Bank of WA by the Treasurer or by an Act, being "functions as agent, trustee or nominee of the Crown in right of the State." Sub-section 17 (1) provided that its agency business should be carried on separately from its banking business. By s. 25 the State indemnified the former Bank of WA in respect of losses, costs or damages incurred by it in performance in good faith of the functions conferred or imposed on it under the Division. Part IV (ss. 26-30) was headed "FINANCIAL PROVISIONS". Section 26 provided that the former Bank of WA, with the approval of the Minister, might create and issue capital stock. This was a reference to debt capital, not to share capital, of which the former Bank of WA had none. Sub-section 26 (2) provided that any capital stock should be issued, transferred and dealt with on such terms as were determined by the former Bank of WA with the approval of the Minister. Sub-section 27 (1) provided that subject to sub-section 27 (2), the provisions of the Financial Administration and Audit Act 1985 (WA) regulating the financial administration, audit and reporting of statutory authorities applied to and in respect of the former Bank of WA and its operations. Sub- section 27 (2) provided for a modified application of those provisions to the former Bank of WA. For example, sub- section 58 (2) of the Financial Administration and Audit Act was to have effect in relation to the former Bank of WA as if it had been enacted in the following form: "58 (2) Without limiting the generality of subsection (1), the Treasurer may issue instructions relating to - (a) the establishment and keeping of the accounts of statutory authorities including accounts of subsidiary and related bodies; (b) the form and content of financial statements and reports on the operations of statutory authorities and their subsidiary and related bodies; and (c) the preparation, issue or amendment of accounting manuals for statutory authorities." Sections 28, 29 and 30 assumed significance in the Bank of WA's submissions. The relevant parts of those sections were as follows: "28 (1) Instead of the income tax for which the Bank would have been liable if it were a public company liable to pay income tax under a law of the Commonwealth, the Bank shall pay to the Treasurer for the credit of the Consolidated Revenue Fund as soon as is practicable after the end of each financial year of the Bank and not later than 30 June, a sum equal to the amount of the income tax for which the Bank would have been liable under the law of the Commonwealth in respect of that financial year assuming that the Bank were a public company liable to income tax under that law. (2 ee ee (3) cence ccncnce Peewee eee eee seer ennnee tener cecee (> ee ee a perce eee neee 29 (1) Subject to this section, the Treasurer may determine an amount that is to be paid by the Bank to the Treasurer for the credit of the Consolidated Revenue Fund by way of dividend from the net profits of the Bank for a financial year. (2) A dividend under this section shall be calculated with respect to the net profits of the Bank for a financial year after first taking into account the amount payable to the Treasurer under section 28. (3) The Board shall, as soon as practicable after the end of each financial year of the Bank, make a recommendation to the Treasurer as to the amount of the dividend (if any) that the Board recommends as appropriate for that financial year. (4) In making a determination under subsection (1) in respect of a financial year, the Treasurer shall have regard to but shall not be bound by the recommendation of the Board. (5) The Bank shall pay the amount of a dividend payable under this section as soon as practicable after the determination of the Treasurer and shall use its best endeavours to ensure that the amount is paid within 6 months after the end of the financial year to which the dividend relates. 30 (1) The payment of the financial obligations of the Bank, other than the payment of moneys due by the Bank to the holders of capital stock or capital instruments issued under section 26, 1s guaranteed by the Treasurer. (2) Any liability of the Treasurer arising from the guarantee in subsection (1) shall be met out of the Consolidated Revenue Fund which is appropriated to the necessary extent." In summary, the former Bank of WA was incorporated directly by Act of Parliament; it had no members; it was governed by a board of directors the composition of which was controlled by the Western Australian Government; it was an agent of the Crown; it was required to act in the interests of the people of Western Australia; it carried on a business which an ordinary citizen could carry on but which was well recognised as a business commonly and appropriately undertaken by governments, namely the business of banking; it carried on "agency business" which an ordinary citizen could not carry on; it was subject to the audit and reporting requirements generally applicable to "statutory authorities"; it was required to pay an "income tax equivalent" to the State; it was required to pay as dividend such amount as the Treasurer might determine to the State; and it had the benefit of a statutory guarantee of its obligations by the Treasurer. i t Ww. hl " ") . Section 3 of the R_& J Bank Act 1990 (WA) obliged the Under Treasurer, as soon as practicable, to ensure that the required steps were taken to complete the arrangements necessary for the commencement of the remaining provisions of the Act. One of these was that there should be in existence a public company limited by shares incorporated under the Companies (Western Australia) Code (in this part of these Reasons called "the Code") by the name "R & I Bank of Western Australia Ltd", the memorandum and articles of association of which complied with the R_ & I Bank Act 1990 and contained such provisions as were, and were in a form that was, approved by the Minister. A copy of the memorandum and articles of association dated 6 December 1990 which was apparently lodged with the National Companies and Securities Commission ("the Commission") on 7 December 1990 was in evidence. The R & J Bank Act 1990 was assented to on 20 December 1990 on which date the Commission issued a certified copy of the memorandum and articles of association which had been lodged with it. Sub-section 3 (4) provided that as soon as the Under Secretary was satisfied that the necessary arrangements had been completed, he or she was to certify to that effect to the Minister, after which a proclamation might be made fixing the date on which the substantive provisions of the Act were to come into operation. That date was 1 January 1991. Section 5 of the R_& I Bank Act 1990 provided that the Act and all things done or omitted under it had effect notwithstanding any provision of the Code. The articles of association can only be adequately understood when read with the R & I_ Bank Act 1990. They made certain of their provisions subject to that Act. The directors of the former Bank of WA became the first directors of the Bank of WA. The articles contained provisions which, as shall be seen, the R & J Bank Act 1990 required them to contain relating to Ministerial control. These provision are adequately discussed in the following account of the provisions of the Act. Section 43 of the R_& I Bank Act 1990 repealed The Rural and Industries Bank of Western Australia Act 1987. But within PART 2 (ss. 6-21) headed "R & I HOLDINGS", s. 6 provided that the body corporate which had been reconstituted by sub-section 4 (1) of the repealed Act (that is the former Bank of WA) was itself continued, unaffected by the repeal, as a _ body corporate under the 1990 Act under the name "R & I Holdings". Section 8 provided that R & I Holdings was an agent of the Crown in right of the State. Section 9 provided that it performed its functions through a director, namely the Under Treasurer for the time being. Sections 10-13 provided for the functions and powers of R & I Holdings. Its major functions were to hold the shares in the Bank of WA, to borrow moneys and to lend moneys borrowed to the Bank of WA, and to hold "debt paper" (defined in sub- section 12 (3)) of the Bank of WA. The power to acquire and hold further shares in, and debt paper of, the Bank of WA and to dispose of such debt paper could be exercised only with the approval of the Minister (sub-section 12 (2)). Sub-section 13 (1) provided as follows: "13 (1) The Minister may give directions in writing to R&I Holdings with respect to the performance of its functions, either generally or in relation to a particular matter, and R&I Holdings shall give effect to any such direction." Division 2 (ss. 14-17) headed "Financial provisions" provided that an account was to be established at the Treasury to be called the "R & I Holdings Account". Sub-section 14 (2) provided that there were to be paid into that account, inter alia, moneys received by R & I Holdings under ss. 31 and 32 (see later) and other moneys lawfully received by, made available to, or payable to, R & I Holdings. Sub-section 14 (3) provided that there were to be paid from that account the sums required to be paid for the purpose of enabling R & I Holdings to perform its functions and to carry out the Act, and for no other purpose. Section 15 provided, in substance, that the provisions of the Financial Administration and Audit Act 1985 (WA) regulating the financial administration, audit and reporting of statutory authorities were to apply to R & I Holdings. Sections 16 and 17 merit quoting in full. They are as follows: "16 Any surplus in the Account at the end of any financial year shall, except to the extent that moneys are reasonably required to be retained for the purposes of R&I Holdings, be paid to the Consolidated Revenue Fund or the General Loan and Capital Works Fund as the Treasurer may determine. 17 (1) The payment of the financial obligations of R&I Holdings 1s guaranteed by the Treasurer. (2) Any liability of the Treasurer arising from the guarantee in subsection (1) shall be met out of the Consolidated Revenue Fund which is appropriated to the necessary extent." In _summary, the former Bank of WA, now named "R & I Holdings", was an agent of the Government of Western Australia; it was without members; it had one director, the Under Treasurer; it was subject to the control of the relevant Minister; it was continued in existence in order to be the "conduit" through which the shares in the Bank of WA would be held; it was subject to the general financial administration, audit and reporting requirements applicable to statutory authorities in Western Australia; it was required to pay any surplus in its account every year to the State; and its obligations were guaranteed by the Treasurer at the cost of the Consolidated Revenue Fund. PART 3 (ss. 22-39) of the 1990 Act was headed "R&I BANK OF WESTERN AUSTRALIA LTD." PART 3 contained, inter alia, the following: "22 (1) The R&I Bank of Western Australia Ltd, referred to in section 3 (2) (a), is constituted by this section as a bank. (2) In carrying on its banking business the Bank - (a) is an agency through which the State engages in State banking as referred to in section 51 (xiii) of the Commonwealth Constitution; (b) shall ensure that the policy of the Bank is directed to the greatest advantage of the people of Western Australia and promotes the balanced economy of the State. 23 Notwithstanding section 22 (2) (a) - (a) the Bank does not have the status, immunities and privileges of the Crown; (b) except as provided in this Act, the State is not liable for the Bank's~ acts, omissions or obligations. 25 (1) The articles of association of the Bank shall at all times contain provisions to the effect of those set out in Schedule 1. (2) Subject to this Act and the Code, the memorandum and articles of the Bank shall contain such other provisions as are, and be in such form as is, approved by the Minister." By reason of s. 25 and Schedule 1 (Schedule 1 could be varied by regulation made after consultation between the Minister and the Bank of WA's board of directors), the Bank of WA's board of directors (in this section of these Reasons called "the Board") was to comprise not less than five nor more than nine directors including a managing director; the powers to appoint and to remove directors and the managing director was vested in the Minister (although exercisable only after the Minister had obtained a recommendation from, and had consulted with, the Board, and subject to any provision in the articles of association); the Board was required to prepare and submit to the Minister a proposed written "statement of corporate intent", to consider any comments by the Minister on it and to consult with him or her following communication to the Board of the Minister's comments and to make changes agreed to between the Minister and the Board, and to deliver the completed statement to the Minister; and each statement of corporate intent was required to specify certain information including objectives, activities to be undertaken = and performance targets. By sub-sections 25 (3) and (4) the memorandum and articles of association were not to be amended in a way inconsistent with the Act, and the Act was to prevail ever any inconsistent provision in the memorandum and articles. Sections 26-33 provided for the ownership of the share capital of the Bank of WA and further aspects of Ministerial control of it, the payment of dividends to R & I Holdings, and the State's guarantee of the Bank of WA's financial obligations. Those sections were relevantly as follows: "26 (1) (4) (1) (2) On the appointed day the Bank is to be taken to have issued and allotted to R&I Holdings fully paid ordinary shares in the capital of the Bank the aggregate nominal value of which is equal to an amount agreed between the Bank and _ the Minister for the purposes of this subsection. Subject to section 27, shares in the Bank shall not be issued to any person except R&I Holdings. This section applies where the Bank exercises its powers to issue or make capital securities by entering into an arrangement that may result in an issue of shares by the Bank. Where this section applies, the Bank shall not issue the shares to a person other than R&I Holdings unless the shares confer either - (a) no rights in relation to the direction, Management or control of the Bank; or (b) a right to vote that 1s exercisable only in one or more of the following circumstances -— (i) during a period during which a dividend (or part of a dividend) in respect of the share is in arrears; (ii) upon a proposal to reduce the share capital of the Bank; (iii) upon a proposal that affects rights attached to the share; (iv) upon a proposal to wind up the Bank; (Vv) upon a proposal for the disposal of the whole of the business undertaking of the Bank; (vi) during the winding up of the Bank. 29 (1) 30 (1) (2) 31 (1) 32 (1) (2) (3) 33 (1) The board of directors of the Bank and the Minister shall, at the request of either, consult together, either personally or through appropriate representatives, in relation to any aspect of the policies or administration of the Bank. The board of directors of the Bank shall consult the Minister before entering upon a course of action that in the opinion of the board amounts to a major initiative. Without limiting the generality of subsection (1), the Bank, or any subsidiary of the Bank, shall not enter into any contract, arrangement or other transaction for which the amount or value of the consideration or the amount to be paid or received by the Bank or the subsidiary exceeds 1%, or such other percentage as is prescribed, of the 'risk weighted assets of the Bank' (as that expression is defined by the regulations), unless the board of directors of the Bank has first informed the Minister of the proposal and held such consultations with the Minister as the Minister may require. The Bank shall pay to R&I Holdings in respect of a financial year a sum equal to the amount of any tax for which the Bank would have been liable under the law of the Commonwealth in respect of that financial year if the Bank were liable to that tax under that law. A dividend under this section shall be - (a) calculated with respect to the net profits of the Bank for a financial year after first taking into account the amount payable to the Treasurer under section 31; and (b) paid to R&I Holdings, in accordance with subsection (4). The board of directors of the Bank shall, as soon as practicable after the end of each financial year of the Bank, make a recommendation to the Treasurer as to the amount of the dividend (if any) that the board recommends as appropriate for that financial year. The Treasurer may accept a recommendation under subsection (2) or, after consultation with the board of directors of the Bank, determine that some other amount is to be paid. The payment of the financial obligations of the (2) (3) (4) (5) Bank is guaranteed by the Treasurer. The payment of money due - (a) by the Bank under clause 8 of Schedule 2; or (b) by a subsidiary of the Bank, is not guaranteed under subsection (1). Any liability of the Treasurer arising from the guarantee in subsection (1) shall be met out of the Consolidated Revenue Fund which is appropriated to the necessary extent. The Treasurer may, after consultation with the board of directors of the Bank, fix charges to be paid by the Bank to the Treasurer for the benefit of the Consolidated Revenue Fund in respect of the guarantee under this section. Payments by the Bank to the Treasurer in respect of any such charges are required to be made at such times, and in such instalments, as the Treasurer determines." Clause 8 in Schedule 2 referred to certain liabilities of the former WA Bank. "34 (1) (2) (3) 35 (1) Notwithstanding sections 280 and 281 of the Code, the Auditor General shall audit the accounts of the Bank and shall do so in accordance with the Code. For the purposes of subsection (1) the Bank is to be taken to be a statutory authority to which Division 2 of Part III of the Financial Administration and Audit Act 1985 applies. A report of the Auditor General under section 95 of the Financial Administration and Audit Act 1985 may include a report relating to matters arising from the performance of his functions under this section and the Code. The Minister shall cause a copy of each of the following documents to be laid before each House of Parliament within the time specified for that document —- (a) a copy of the memorandum and articles of the Bank, within 21 days after the appointed day; (b) a copy of any amendment to the memorandum or articles of the Bank within 21 days after the amendment is made; and (¢c) a copy of the annual report, audited financial statements, and the Auditor General's report on those statements, delivered to R&I Holdings in accordance with Part VI of the Code, within 21 days after the day on which they are respectively so delivered." In summary, the Bank of WA was incorporated as a company limited by shares by registration of its memorandum and articles of association under the Code but it was also the subject of a special Act which required it to be incorporated, controlled its memorandum and articles of association, and prevailed over any inconsistent provision of the Code; it carried on a business which any citizen could carry on but which was well recognised as a business commonly and appropriately undertaken by governments, namely the business of banking; it was declared to be an agent of the State for the purpose of conducting the business of banking; subject to the special Act, the content of its memorandum and articles was controlled by the Minister; the composition of its board of directors was controlled by the Minister; except in respects not presently relevant, its shares could be held only by the former Bank of WA; its board was required to consult with the Minister; it was required to pay to its parent, the former Bank of WA, a "tax equivalent" and also a dividend as determined by the Treasurer; its financial obligations were guaranteed by the Treasurer out of the Consolidated Revenue Fund; and notwithstanding provisions of the Code which would otherwise be relevant, it was subjected to the audit, accounting and reporting requirements applicable to statutory authorities in Western Australia. NEW SOUTH WALES The State Bank of New South Wales ("the former State Bank") The former State Bank was constituted a corporation with the corporate name, "State Bank of New South Wales", by s. 7 of the State Bank Act 1981 (NSW) (Act No. 89 of 1981) (the Act was discussed in the joint judgment of the High Court in State Bank of New South Wales v Commonwealth Savings Bank of Australia (1986) 161 CLR 639). That Act was amended by the State Bank (Contributions) Amendment Act 1981 (Act No 117 of 1981) and by the State Bank (Amendment) Act 1986 (Act No. 169 of 1986). The account given here is of the Act incorporating the amendments. Section 8 provided for a "State Bank Board" (in this part of these Reasons called "the Board") comprising not less than seven and not more than nine directors appointed by the Governor, of whom two should be full-time, one should be elected in a manner prescribed by the Regulations under the Act, and the remainder should be persons nominated for appointment as directors by the Minister and should be part- time. Under s. 14 of the Interpretation Act 1987 (NSW) (and s. 15 of its predecessor the Interpretation Act 1897 (NSW)) references in Acts of the New South Wales Parliament to the "Governor" are references to the Governor with the advice of the Executive Council. By sub-section 8 (4) and Schedule 1 it was provided that a director should be deemed to have vacated office if, inter alia, he was retired from office by the Governor after he attained the age of 60 years and before attaining the age of 65 years, or if he should be removed by the Governor upon the latter's being satisfied that he was incapable or incompetent or had misconducted himself. Section 9 made the Board the governing body of the former State Bank and empowered it to determine the former State Bank's policy and to control its affairs. However, sub- section 9 (3) imposed a duty on the Board, within the limits of its powers: "... to ensure that the policy of the Bank is directed to the greatest advantage of the people of New South Wales and has due regard to the stability and balanced development of the economy of the State." Sub-section 9 (5) was as follows: "9 (5) The Minister and the Board shall, at the request of either, consult together, either personally or through appropriate representatives, in relation to any aspect of the policy or management of the Bank." PART III (ss. 13-35) was headed 'GENERAL BANKING FUNCTIONS OF THE BANK". Sub-section 13 (1) provided that the former State Bank should "carry on general banking business". Section 15 provided that the former State Bank should hold at least 12% "or such other percentage as may be approved by the Treasurer" of its total "Australian assets" in any of six classes of form, the last of which was "such other investments as may be approved by the Treasurer". The expression "Australian assets" was defined in sub-section 15 (2) to mean: ++. assets in Australian currency within Australia, other than such amounts as may be approved by the Treasurer." Accordingly, the section made it possible for the Treasurer, in effect, to require that 100% of the former State Bank's Australian assets be subject to the limitation imposed by s. 15. Section 16 was as follows: "16 (1) The payment of all moneys due by the Bank (whether or not in respect of its general banking business) is guaranteed by the Government of New South Wales. (2) Any liability arising from the guarantee referred to in subsection (1) shall be met out of the Consolidated Revenue' Fund, which is hereby appropriated accordingly. (3) The payment of any money due by a subsidiary corporation of the Bank is not guaranteed under this section. (4) The Treasurer may, after consultation with the Board, fix charges to be paid by the Bank in respect of the guarantee under this section, in so far as it relates to specified securities issued by the Bank." Sub-section 30 (2) provided that from the "net profits" (defined in sub-section 30 (1)) of the former State Bank in a financial year there should be payable to the Treasurer for payment into the Consolidated Revenue Fund an amount equal to the sum of the "dividend" and the ""taxation-equivalent contribution" calculated in respect of those profits. The expressions "dividend" and ""taxation-equivalent contribution" were both defined in sub-section 30 (1), the former as follows: " ... dividend, in relation to the net profits of the Bank in a financial year, means such part, if any, of the amount of those profits (after deduction of the taxation- equivalent contribution calculated in respect of those profits) as the Treasurer determines, after consultation with the Board, having regard to the profitability of the Bank and the adequacy of its capital and reserves." (emphasis supplied) The expression "taxation-equivalent contribution" was defined to mean the amount that would have been payable under a law of the Commonwealth as income tax in respect of the income represented by the former State Bank's net profits in a financial year, if it had been a public company liable to income tax under that law and if that income were taxable income within the meaning of that law, less certain specified amounts not presently relevant. Section 35 empowered the former State Bank to make use of the services of any person employed in a Government Department or in the service of a statutory body, with the approval of the Department or body concerned and of the relevant Minister. PART IV (ss. 36-60) was headed "GOVERNMENT AGENCIES". Sub- section 36 (1) provided that in Part IV "agency business" meant "the business in respect of an agency". Sub-sections 37 (1), 38 (1) and (2) and 39 (1)-(3) were as follows: "37 (1) The Governor may, by order, appoint the Bank to undertake, as an agent or _ otherwise, the exercise, on behalf of the Government of New South Wales or any body constituted by or under any Act, of such functions as are specified in the order. 38 (1) The Bank shall exercise the functions conferred or imposed upon it in respect of its several agencies. (2) Separate accounts shall be kept by the Bank in respect of each agency. 39 (1) The agency business of the Bank shall be carried on separately and distinctly from the general banking business of the Bank. (2) Transactions and accounts relating to the agency business of the Bank shall be kept separate from those relating to the general banking business of the Bank. (3) Except as expressly provided in this Act, no moneys held by the Bank in respect of its agency business shall be used in connection with its general banking business and no _ liability incurred in respect of either such business affects the other business or the funds thereof." The succeeding Divisions of Part IV provided for a "Rural Industries Agency", an "Advances to Settlers Agency", an "Irrigation Agency", a "Rural Assistance Agency" and a "Special Industries Agency". The former State Bank was given groups of powers relating specifically to these respective agencies. It seems fair to say that the provisions reflect a governmental concern to assist certain classes of persons or to encourage or facilitate certain classes of activity. Within Part V (ss. 61-79) headed "GENERAL", sub-section 69 (2) required the former State Bank annually to prepare and submit to the Minister for presentation to Parliament a statement of accounts together with the Auditor-General's certificate in relation to it. Section 70 provided that the accounts and records of the former State Bank's financial transactions should be inspected and audited by the Auditor-General and that the Auditor-General should report to the former State Bank and to the Minister. Section 71 provided for the former State Bank, as soon as practicable but within six months after the end of each financial year, to prepare and forward to the Minister a full report on its operations during that financial year, and on such other matters related to the former State Bank as it thought fit should be included in the report. The same section obliged the Minister to cause a copy of each report forwarded to him under the section to be laid before each House of Parliament as soon as practicable after he received it. Section 77 empowered the former State Bank to make by-laws with respect to, inter alia, its management and the conduct of its business. It required that a by-law be submitted for the consideration of the Governor and provided that a by-law could impose a penalty subject to a stipulated maximum amount for contravention. In summary, the former State Bank was incorporated directly by statute; it had no members; it was managed by the Board the composition of which was a matter for the State Government; the Board was required to act in the interests of the people of New South Wales and to consult with the Minister; it carried on a business which any citizen could carry on but which was commonly recognised as one in which governments appropriately engaged, namely banking; it also carried on an agency business which was not a business which any citizen could carry on; payment of moneys due by it in connection with the general banking business was guaranteed by the State Government; it was required to pay a tax-equivalent amount into the State's Consolidated Revenue Fund each year and to pay to the State such dividend as the Treasurer should determine; it was subject to public audit and reporting requirements; and it had power to make by-laws. As noted earlier, ""corporatisation" in New South Wales, as relevant to this case, was effected by the SOC Act and the Corporatisation Act. As in the case of Western Australia, the process involved a change from a statutory corporation with no share capital, to a company limited by shares which was incorporated by registration under the Companies Code of the State, but which was nonetheless provided for specially and substantially controlled by another Act. Section 4 of the SOC Act provided that a company limited by shares became an SOC by the insertion of its name in Schedule 1 to that Act by an Act of Parliament. Section 4 of the Corporatisation Act amended Schedule 1 to the SOC Act by inserting in it the name "State Bank of New South Wales Limited" which, as noted earlier, was a company limited by shares incorporated by registration under the Companies (New South Wales) Code (in this part of these Reasons called "the The shares in the State Bank were to be held by "eligible Ministers", namely the Treasurer and four or more other Ministers for the time being nominated by the Premier (ss. 6 and 12, definitions of "eligible Ministers" and "voting shareholders" in s. 3, and clause 1 of Part 2 of Schedule 2). Sub-section 7 (1) provided for a transfer to an SOC or to any of its subsidiaries in exchange for the issue of shares or on any other basis, of assets, rights and liabilities of the State or of "an authority of the State". However, this provision was not utilised in relation to the transfer from the former State Bank to the State Bank. Sections 8, 9 and 10 of the SOC Act were as follows: "8 The principal objective of every State owned corporation is to be a successful business and, to this end: (a) to operate at least as efficiently as any comparable businesses; and (b) to maximise the net worth of the State's investment in the corporation; and (c) to exhibit a sense of social responsibility by having regard to the interests of the community in which it operates and by endeavouring to accommodate these when able to do so. 9 A State owned corporation or any of its subsidiaries: (a) is not and does not represent the State except by express agreement with the voting shareholders of the corporation; and (b) is not exempt from any rate, tax, duty or other impost imposed by or under any law of the State merely because it is a State owned corporation; and (c) cannot render the State liable for any debts, liabilities or obligations of the corporation or any of its subsidiaries, unless this or any other Act otherwise expressly provides. 10 (1) The directors of a State owned corporation are to be persons who, in the opinion of those appointing them, will assist the corporation to achieve its principal objective. (2) The board is accountable to the voting shareholders in the manner set out in Part 4 and in the memorandum and articles of association of the corporation." Paragraphs (a) and (b) of s. 8 together with s. 9 reflected a "more commercial" orientation than that which had been exhibited by sub-section 9 (3) of the State Bank Act 1981 referred to earlier. Section 12 provided that the Ministers who were the voting shareholders of an SOC were responsible to ensure that its memorandum and articles of association contained provisions to the effect of those in Schedule 2. These included provisions that only eligible Ministers might hold shares in an SOC; that they held them for and on behalf of the State; and that a person ceased to be eligible to hold shares in an SOC on ceasing to be an eligible Minister, and could not thereafter exercise rights as a shareholder except the right to transfer his or her shares as directed by the Premier. Other provisions in the Schedule were to the effect that directors were appointed by the voting shareholders (that is, by the eligible Ministers), that dividend policy was ultimately under the control of the voting shareholders, and that an SOC might not have subsidiaries except with the voting shareholders' approval and only if the subsidiary's memorandum and articles of association conformed to Schedule 3 to the SOC Act. Section 14 provided that, subject to an exception not presently relevant, dividends payable to eligible Ministers were to be paid to the Treasurer on behalf of the State for payment into the Consolidated Fund. Section 16 was as follows: "16 (1) The obligations of a State owned corporation or any of its subsidiaries are not guaranteed by the State of New South Wales, except to the extent (2) liabili a ; i . (3) The voting shareholders may, after the consultation with the board of the corporation, fix charges to be paid by the corporation or any of its subsidiaries to the Treasurer in respect of an agreed guarantee, either generally or in so far as it relates to specified matters. (4) Payments by the corporation or any of its subsidiaries to the Treasurer in respect of any such charges are required to be made at such times, and in such instalments, as the Treasurer determines." (emphasis supplied) It is convenient to note here that sub-section 12 (1) of the Corporatisation Act provided that until a day to be appointed by the Governor by proclamation (and it was common ground that none had been appointed) "the payment of all money due by the [State Bank] is guaranteed by the Government of New South Wales", and sub-section 12 (4) provided that this guarantee was to be taken to be the subject of an "agreement" between the board of directors and the voting shareholders of the State Bank as referred to in s. 16 of the SOC Act. Section 19 provided, relevantly, that an SOC or any of its subsidiaries might not acquire or dispose of fixed assets or investments without the prior written approval of the voting shareholders. Similarly, sub-section 20 (1) provided that none of the main undertakings of an SOC or of any of its subsidiaries might be sold or disposed of except with the prior written approval of the voting shareholders. PART 4 (ss. 21-30) was headed "ACCOUNTABILITY". Section 21 provided for a "written statement of corporate intent" to be resolved upon by the board of directors of an SOC within a limited period after the commencement of each financial year. The board was required to consider any comments by the voting shareholders on the draft which the board was required to supply to them, and was required to "consult in good faith" with them. The statement was not to be published before being laid before both Houses of Parliament. Sub-section 21 (7) empowered the voting shareholders from time to time by written notice to the Board to direct it to include in, or omit from, a statement of corporate intent any specified matter. Section 22 provided for the contents of statements of corporate intent. Section 23 required the Board to deliver to the voting shareholders a report on the operations of the SOC and of its subsidiaries during each half year, and s. 24 provided for delivery of annual reports by the Board to the voting shareholders. Section 24 also provided for audit by the Auditor-General. Section 25 empowered the Auditor-General to make a special report regarding any matter arising from his or her audit which he or she might opine should be brought to the attention of Parliament and he or she was required to present any such special report to the Legislative Assembly. Section 5 of the Corporatisation Act provided that the State Bank was constituted by that Act as "a bank" and was an agency through which the State engaged in "State banking" and in "State insurance". However, the section provided that these provisions did not affect s. 9 of the SOC Act which, it will be recalled, was to the effect that an SOC was not the State and did not represent the State except by express agreement with its voting shareholders, that 1s to say, the eligible Ministers. Section 9 empowered the Minister, by order in writing, to direct that the business undertaking of the former State Bank be transferred to the State Bank, upon such considerations as were specified in the order. The same section provided that upon the commencement of the order, the assets of the former State Bank comprised in its business undertaking vested in the State Bank without the need for any conveyance, transfer, assignment or assurance, and that the rights and liabilities of the former State Bank comprised in its business undertaking became the rights and liabilities of the State Bank. As noted earlier, the date of divesting and vesting was 14 May 1990. Section 10 repealed the State Bank Act 1981. Section 11 dissolved the former State Bank and its board. Section 12 provided that until a day to be appointed by the Governor by proclamation, the payment of all money due by the State Bank was guaranteed by the Government of New South Wales. Finally, s. 16 provided that any agency under Part 4 of the State Bank Act 1981 held by the former State Bank immediately before the commencement of the Corporatisation Act was to continue as an agency of the State Bank. Clause 5 of the State Bank's memorandum of association provided that to the extent that the provisions of the SOC Act applied to the State Bank, those provisions and the provisions of the Corporatisation Act prevailed over any inconsistent provisions in the memorandum of association. Clause 6 provided that the memorandum and articles of association might not be altered or added to in a way inconsistent with the provisions in Schedule 2 to the SOC Act unless and until resolutions approving the alteration or addition were passed by both Houses of the New South Wales Parliament. Regulation 132 of the State Bank's articles of association expressed a similar provision in relation to alteration of or addition to the articles of association. In summary, the State Bank was incorporated as a company limited by shares under State companies legislation; it carried on a business which any citizen could carry on but which was well recognised as appropriately engaged in by governments, namely banking; in its agency business, it carried on a business which could not be carried on by any citizen; only "eligible Ministers" could be shareholders; the "principal objective" of the State Bank as stated in s. 8 of the SOC Act was more liberal than the obligation imposed on its predecessor, the former State Bank, by sub-section 9 (3) of the State Bank Act 1981, but nonetheless constituted a special statutory constraint not applicable to "ordinary" trading companies incorporated by registration; its voting shareholders, the eligible Ministers, held their shares on behalf of the State; its obligations were, by reason of sub- section 12 (1) of the Corporatisation Act, guaranteed by the Government of New South Wales; its board of directors was required to provide a written statement of corporate intent to its voting shareholders who were entitled to vary, from time to time, the statement of corporate intent initially agreed to by the board and the voting shareholders; it was subject to public audit and accounting requirements; and its memorandum and articles of association were subject to the provisions of the SOC Act. In GIO it was conceded by the Commissioner that the GIO'S expenditure was "exclusively borne by" the State of New South Wales. No similar concession was made in the present cases. It is convenient to deal with this issue prior to dealing with the issue of the meaning of "authority". The competing constructions of the expressions referred to in the heading (the meanings of which are the same) are that they refer to primary legal liability for expenditures (the Commissioner's contention) and that they refer to the ultimate economic burden of expenditures (the applicants' contention). The Commissioner pointed out that the statutory guarantees did not impose a primary legal liability on the States. He pointed out that the expenditures of a trading company are not "borne" by either the providers of its initial capital or its current shareholders, and submitted that this was a persuasive analogy for present purposes. The applicants submitted that the incidence of legal liability for expenditures was not determinative of the construction of the expressions in Item 74 and Item 126, and that it sufficed that all profits and losses were ultimately those of the State concerned. Items 74 and 126 assume that there can be expenditures of an entity which is completely controlled by a State (it is convenient to omit reference to the Commonwealth and the Territories) as distinct from a government department, which are describable, for the purpose at hand, as_ being "exclusively borne by" that State. Items 74 and 126 should be taken to assume that all the authorities contemplated will have costs and expenses associated with their functions, that they may or may not receive money from sources other than the State ("third parties") in connection with the performance of their functions, and that if they do those receipts may or may not exceed their costs and expenses. Against the background of those assumptions, the words "exclusively borne by" in Items 74 and 126 signify something other than primary legal liability and must be capable of applying even though an authority's costs and expenses do not exceed its receipts from third parties. The criterion indicated by the words "exclusively borne by" is, in my opinion, satisfied at least in the case where' every expenditure of the entity must give rise to a commensurate financial burden shouldered by the State. That is so in respect of the four Banks and of Perpetual. In particular, every cent expended in payment of Commonwealth sales tax would be borne, in the financial and economic sense, by the State. It follows, in my opinion, that for the purposes of Items 74 and 126, the four Banks' (and Perpetual's) expenditures are exclusively borne by the States of Western Australia and New South Wales as the case may be. REASONS ON "AUTHORITY" The Commissioner did not submit that GIO was distinguishable, and submitted that it was wrongly decided and should not be followed. I would follow his Honour unless I thought that he was clearly wrong: cf Bradley v Armstrong (1981) 55 FLR 355 (FCA/FC) at 356 (Fox J), 361 (Connor J); Hamilton Island Enterprises Pty Ltd v Commissioner of Taxation [1982] 1 NSWLR 113 (NSW/Rogers J) at 119F; Re Rothercroft Pty Ltd (1986) 4 NSWLR 673 (NSW/Kearney J) at 679E; Deputy Commissioner of Taxation v Access Finance Corporation Pty Ltd (1987) 8 NSWLR 557 (NSW/CA) at 558C-D; Magman International Pty Ltd v Westpac Banking Corporation (1991) 32 FCR 1 (FCA/FC) at 20 (Hill J); Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 at 492; Upperedge v Bailey (1994) 13 ACSR 541 (FCA/Jenkinson J) at 543; and on the position in the United Kingdom, see Jones v Secretary of State for Social Services [1972] AC 944 (HL) and Davis v Johnson [1978] 1 All ER 841 (CA); see too Lyndel V. Prott, "Refusing to Follow Precedents: Rebellious Lower Courts and the Fading Comity Doctrine" (1977) 51 ALJ 288 at 294-297, and Lyndel Vv. Prott, "When Will a Superior Court Overrule Its Own Decision?" (1978) 52 ALJ 304. In GIO his Honour held that: -». whatever the precise ambit of the term 'authority' in this context [the context of Item 74], it extends to GIO as an entity incorporated under statute, not subject to any degree of private ownership, and controlled by the Government of New South Wales." (at 251) Heerey J described the GIO and its business as follows: "The GIO was established in 1926 and given a statutory footing in the following year by the Government Insurance Act 1927 (NSW) (the GIO Act). It was incorporated by an amendment to that Act in 1941. It carries on the business of general and life insurance and reinsurance as well as funds administration and the provision of investment and financial services. Until 1990 its operations were confined to New South Wales and the Australian Capital Territory but subsequently it has expanded into other States. The GIO is a body corporate: GIO Act, s. 3. It is deemed to be a statutory body representing the Crown (s 3(3A)) and holds all real and personal property for and on behalf of the Government of New South Wales: s 3(4). It is governed by a Board (s 3B(1) which in the exercise of its functions is subject to the control and direction of the Minister: s 3B(3). It is to pay from its insurance business such dividends as are determined by the Treasurer after consultation with the Board: s 7C(c). Its insurance policies are guaranteed by the Government of New South Wales: s 8." (at 249) The GIO was carrying on a business which any citizen could carry on, it was completely controlled by a State Government, it was required to pay dividends as determined by the Treasurer, its expenditures were exclusively borne by the State and performance of its obligations were guaranteed by the State. Like the former Bank of WA and the former State Bank, but unlike the Bank of WA, the State Bank and Perpetual, it was incorporated by statute directly. Unlike all the Banks and Perpetual, it held all its real and personal property for and on behalf of the State Government. I do not think it a satisfactory basis for distinguishing GIO that in the case of the Bank of WA and the State Bank, incorporation was effected upon registration of memoranda and articles of association under the respective State Companies Codes. This is because, as noted earlier, the R_& J Bank Act 1990 and the SOC Act and the Corporatisation Act provided specially and extensively in relation to them. The range of provisions in those Acts providing for the special positions of the Bank of WA and the State Bank referred to earlier make it quite inadequate to describe them simply as companies incorporated by registration under the Companies Codes (as noted later, the position is otherwise in the case of Perpetual). Likewise, I do not think that GIO is distinguishable on the ground that the GIO's Act provided that the GIO held its property on behalf of the Crown, a provision not present in any of the Acts with which I am concerned. Those Acts reveal that through ultimate ownership of shares, the States of Western Australia and New South Wales have at all material times been the ultimate beneficiaries of ownership of the underlying property. Heerey J first dealt with a submission by the Commissioner that in order to be "an authority" an entity must be carrying on a "traditional or inalienable function of government" and that insurance could not be so described. His Honour held (a) that the reference to "a trading enterprise" in Item 74 showed that the Item contemplated departments and authorities whose activities were not confined to "the traditional or inalienable functions of government", however that concept might be defined, and (b) that by 1935 Australian governments carried on a wide range of activities which would not be regarded as "traditional or inalienable", including railways and insurance. The Commissioner did not advance the "traditional or inalienable function of government" argument before me. The alternative submission which the Commissioner made to Heerey J was that in order to be an authority of a State, an entity must be "a body which exercises power or command" ((1992) 35 FCR 247 at 252). Before me it was put that in order to be such an authority, an entity must be invested with "coercive power" (which I treat as having the same meaning as the "power or command" of the Commissioner's submission in GIO) or at least "exceptional power", in the sense of power to do things which an ordinary citizen cannot do. In dealing with the "power or command" submission his Honour dealt with four cases in the High Court to which he was no doubt taken. Before me, the Commissioner addressed them and in addition referred to two cases to which apparently he had not referred Heerey J, namely, Renmark Hote} Incorporated v Federal Commissioner of Taxation (1949) 79 CLR 10 and Federa) Commissioner of Taxation v Silverton Tramway Pty Ltd (1953) 88 CLR 559, as well as to two cases decided in the High Court since Heerey J's decision in GIO. It is convenient to deal with all eight cases in chronological order. Renmark Hote] Incorporated v Federal Commissioner of Taxation (1949) 79 CLR 10 ("Renmark Hotel"). An exemption from income tax was relevantly expressed in s. 23 (d) of the Income Tax Assessment Act 1936-1947 as "the revenue of a municipal corporation or other local governing body or of a_public authority constituted under any Act or State Act or under any law in force in a territory being part of the Commonwealth" (emphasis supplied). It was held that the Renmark Hotel Incorporated ("the Association"), which was incorporated or deemed to have been incorporated under the Associations Incorporation Act 1929-1935 (SA), was not a "public authority constituted under any ... State Act". Before me the Commissioner submitted that Renmark Hotel provided High Court authority, subsequently endorsed by that Court and never departed from, that an "authority" of a State refers to an entity which exercises coercive or at least exceptional power. At the relevant time the Licensing Act 1932-1936 (SA) governed the grant of liquor licences in South Australia. Section 118 forbad the grant of a licence in the Renmark area unless the Governor had consented and a petition had been presented to the Licensing Court signed by a majority of the electors resident in the area setting forth certain matters. The licence was to be on condition that arrangements were made for the business being vested in and managed by a committee in trust to carry on the business and to apply the profits for the purposes set out in the petition and that those purposes be approved by the Treasurer. The Treasurer was empowered to change or vary those purposes. By s. 3 of the Community Hotels (Incorporation) Amendment Act 1944 (SA) it was provided that licences under s. 118 might be granted to the Association and other similar institutions. Whether the Association satisfied the description in s. 23 (d) depended chiefly on two sets of restrictions: those in a "memorial" filed in the Supreme Court and those contained in the Regulations. The memorial set out the Association's object or purpose as being the carrying on of the business of a licensed hotel, or public house on the basis that the net profits would be applied in acquiring, improving, adding to and equipping the premises, and subject to that, "for local purposes for the benefit of the whole of the irrigation settlement of Renmark in the promotion or encouragement of literature, science or art or for charitable or benevolent purposes." Five persons were named as trustees. The memorial provided that the management of the Association was vested in them as a "committee of management". The purposes to which profits were to be applicable had to be approved by the Treasurer prior to the issue of the licence. The Regulations provided for a committee of management of the Association elected by ballot by the residents of the district who were on the roll for Renmark. They provided that the licence was vested in the committee in trust for the purposes stated in the Association's rules, and that the management and conduct of the Association's business should be under the control of the committee. The Regulations provided that all moneys, credits and effects arising from the business should be the property of the committee and that after payment of certain amounts the remainder should be applied for such local purposes for the benefit of the whole of the irrigation settlement of Renmark in the promotion or encouragement of literature, science or art or for charitable purposes or otherwise as the committee should decide and the Treasurer should approve. There was a proviso that with the Treasurer's consent, the committee might from time to time apply such surplus or part thereof in any other manner in or towards any other object which the committee might think fit. Another Regulation provided that the Treasurer might withdraw or cancel Regulations and prescribe new ones, and upon breach of a Regulation, revoke and cancel the relevant licence. The Associations Incorporation Act 1929-1935 (SA) was not clear as to the consequences of a failure to observe the conditions set out in the memorial of association, but Rich J said that "presumably contravention ... might lead to the cancellation of the incorporation" (at 15). The hotel business was profitable. The profits were not distributed except with the approval of the Treasurer. The Association appealed against an assessment of income tax on the ground that the Association fell within the exemption provided for in s. 23 (d). In a passage relied on by the Commissioner in the present case Rich J said this: "The characteristics of a public authority seem to be that it should carry on some undertaking of a public Nature for the benefit of the community or of some section or geographical division of the community and that it should have some governmental authority to do so. In s. 23 (dad) it is made clear that it must be constituted under a State Act. Coercive powers over the individual are given to many governmental authorities which could be called public authorities, but it is not an essential part of a conception of a public authority that it should have coercive powers, whether of an administrative or a legislative character. Jt may, however, be an essential } as eth : : hould | exceptional powers or authority, for instance a tramway board or trust has the exceptional authority of taking its trams down a public street. A water authority may lay its water mains, a lighting authority may do the like. Some exceptional powers of doing what an ordinary ° individual lly £ i body which we would describe as a public authority. The words 'public utility' have a wider significance, embracing public utilities carried on for profit by private enterprise. No-one would describe as a public authority an electric lighting company which had obtained statutory powers but possessed a share capital issued to shareholders and which carried on for profit, but we might call it a public utility." (at 18 - emphasis supplied) Rich J held (a) that s. 23 (d) required, relevantly, that a body be "constituted" (as distinct from incorporated) under an Act as a public authority and that the Association did not satisfy that requirement; and (b) that the restrictive provisions as to application of profits did not suffice to characterise it as a public authority. Pertinently, his Honour said this: "It has no statutory powers enabling it to do what a private individual could not do. The elements upon which the appellant relies for the claim to be a _ public authority are restrictive, not enabling. They consist of provisions of the law and of documents adopted under the law directed to confine its activities to public purposes." (at 19) The Association appealed to the Full Court of the High Court. Latham CJ referred to the provisions which restricted the disposition of profits arising from the sale of liquor and said: ",.. but, in my opinion, the appellant company is not given any power or authority by law in the form of a State statute to do any acts in relation to the public which otherwise would be beyond its power or unauthorised." (at 23) After referring to Griffiths v Smith [1941] AC 170 at 205 (Lord Porter), Latham CJ expressed the opinion that the words "public authority" within the meaning of s. 23 (d) signified an entity performing statutory duties and exercising public functions. For his Honour, the Association did neither. McTiernan J thought that in order to be a "public authority" within s. 23 (d), it was necessary that an entity "be constituted under statute and that it should also be given by statute powers or duties to be exercised for public objects" (at 23). His Honour thought that the Association was "not given any powers, duties or authorities which would make it a public authority in the ordinary sense of the expression" (at 24). Webb J agreed with the Chief Justice and with McTiernan J, and added that he was unable to find ""any statutory power authorising this body to act on behalf of the public or the State - to apply the test laid down by Mr Justice Isaacs in the course of the argument in Incorporated Council] of Law Reporting for the State of Queensland v Federal Commissioner of Taxation (1924) 34 CLR 580." (at 24) I do not think that the question before me is concluded by Renmark Hotel. Firstly, Rich J's language "It may, however, be an essential characteristic" and "generally" make it clear that his Honour was not laying down a criterion of universal application. Secondly, on appeal the Full Court did not adopt a test of "coercive power" or "exceptional power". Thirdly, both the immediate textual context and the broader purpose of Items 74 and 126 distinguish the present cases from Renmark Hotel (see later in these Reasons). Fourthly, the business of a licensed hotel or public house was not, whereas the business of banking was, at the time of the passing of the relevant legislation, a recognised activity of government (see earlier in these Reasons). Fifthly, the range of features of the four Banks referred to earlier were not possessed by the Association. Sixthly, and perhaps as a particular of "Fifthly", the Association was not an instrument of the State, owned and controlled by the Government of the State pursuant to a special Act of Parliament of the State, through which, in substance, the State engaged in the activity in question, as the four Banks in the present cases were. Federal Commissioner of Taxation v Silverton Tramway Company Limited (1953) 88 CLR 559 ("Silverton Tramway") Item 77 in the First Schedule to the old Exemptions and Classifications Act, exempted from sales tax "Goods for use ++. by public transport authorities ... " The question in Silverton Tramway was whether the Silverton Tramway Company Limited ("the Company") was a "public transport authority" within Item 77. The Company was a company limited by shares incorporated under the Companies Act 1890 (Vic). It owned and operated the Silverton railway which ran from a point on the boundary between New South Wales and South Australia to Broken Hill via Silverton. The Silverton Tramway Act of 1886 (NSW) and the Silverton Tramway Amending Act of 1888 (NSW) authorised construction of the Silverton railway and provided for, inter alia, compulsory acquisition of privately owned lands for that purpose. It was provided that the Silverton railway should be open to public use upon payment of tolls or charges, the maximum amounts of which were prescribed. The Company was empowered to make by-laws. Dixon CJ and Webb J accepted, as the Company submitted, that the expression "public transport authority" signified an "authority" which provided "public transport" as distinct from, as the Commissioner submitted, a "public authority" which provided "transport". Accordingly, for their Honours, cases on the expression "public authority" were of little if any assistance. But they held that the fact that the Company provided public transport and had authority to acquire compulsorily privately owned lands and to construct the Silverton railway, did not suffice to make it an "authority". Dixon CJ said this: "The word 'authority' has long been used to describe a body or person exercising power or command. No doubt this has come about by a transfer of meaning from the abstract conception of power or command to the body or person possessing it. But in relation to such a public affair as public transport the use of the word 'authority' as a description of a person or body implies he or it is an agency or instrument set up to exercise control or execute a function in the public interest whether as an emanation of the general government or as an adjunct of local government or as aé_e specially constituted officer or body. The word 'authority' would not readily be applied in ordinary speech to a company carrying on an undertaking for private profit, even if the undertaking were a public utility and the company had secured a grant of statutory powers to enable it to do 50. The natural reading of the expression would be against such an application of it." (at 565-6) His Honour noted common features of the items within DIVISION XI of the First Schedule in these terms: "Throughout the whole division there appears a policy of exempting persons or bodies either because of their connection with or service of governments or for their service of the public independently of profit gained or their contribution to the public welfare or for their governmental or quasi-governmental character." (at 566) Dixon CJ found it sufficient to hold that the general character of the Company as a body carrying on a commercial undertaking for the private profit of its members was inconsistent with its being an "authority". Webb J referred to the many limited liability companies throughout Australia, which, like the Company, operated solely for the profit of their shareholders but had statutory authority to place their installations on or under streets or other public places, had authority to make by-laws with penalties for breach for the protection of those installations, and in return were required to meet public demands for their commodities or services and to do so at fixed or maximum prices. Of them, his Honour said this: "As it cannot properly be claimed that government or command is vested in them, or that any public trust is discharged by them, the mere fact that they are authorized by legislation to the extent indicated does not entitle them to be termed authorities, any more than does their creation or constitution by statute. To warrant that designation they must, I think, have authority to act for and on behalf of the public, and not merely have authority to use or encroach upon public property, subject to providing compensation to the public in some form or other, and to take measures, even subordinate legislative measures, in support of such use or encroachment, but always for private profit." (at 568) The third member of the Court, Taylor J, confessed at being unsure what the expression "authority" standing by itself connoted. His Honour thought that the expression "public transport authority" was a composite expression and did not refer to a company such as the Company constituted with share capital and operating for profit under the management and control of directors appointed by the shareholders. His Honour then quoted at length from the judgment of Rich J in Renmark Hotel and said that he thought that Rich J's observations were apposite to the present case. In particular, Taylor J quoted the latter half of the lengthier passage from Rich J's judgment quoted earlier in these Reasons, italicising the final sentence, that is: shareholders and which carried on for profit, but we Might cal] it a public utility". ((1949) 79 CLR 10 at 18 quoted at (1953) 88 CLR 559 at 571) In my view nothing in these judgments, including Taylor J's citation with approval of Rich J's judgment in Renmark Hotel, dictates the proper construction of the word "authority" in Items 74 and 126. The judgments are to be understood in the context of their subject matter. They were addressed to a privately owned company carrying on for the profit of its members an undertaking for which it was invested with special statutory powers, not to a company owned and controlled by the State to the exclusion of all private interests, carrying on, pursuant to specific statutory provisions, a business for which no special powers were requisite. Indeed, passages in the judgments, can be found to support the proposition that a company of the latter kind is an "authority". The case is, of course, authority for the proposition that the possession of exceptional power will not necessarily characterise an entity as "an authority". General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 (Barwick CJ) ("General Stee] Industries") Sub-section 125 (1) and s. 132 within Part XIV of the Patents Act 1952 (Cth) provided as follows: "125 (1) At any time after an application for a patent has been lodged at the Patent Office or a patent has been granted, the Commonwealth or a State, or a person authorised in writing by the Commonwealth or a State, may make, use, exercise or vend the invention for the services of the Commonwealth or State. 132 In this Part references to the Commonwealth include references to an authority of the Commonwealth and references to a State include references to an authority of the State." General Steel Industries Incorporated was the grantee of letters patent in respect of an invention entitled "Railway Vehicle Body and Truck Central Bearing". It sought to restrain the Commissioner for Railways ("the Commissioner"), A E Goodwin Ltd ("Goodwin") and Tulloch Ltd ("Tulloch") from infringing its patent. Its statement of claim alleged that without its leave or licence, the Commissioner had been contracting to have railway vehicle central bearing structures made and manufactured in infringement of the patent, that Goodwin had been making and manufacturing such structures, and that Tulloch had been assembling the structures. An application for summary dismissal succeeded on the basis that ss. 125 and 132 protected the Commissioner against patent infringement, the Commissioner being an "authority of the State". In GIO Heerey J cited the case as authority against a submission that the GIO was not "an authority of .. a State" within Item 74 because such an "authority" must perform a "traditional or inalienable function of government" and insurance lay outside the scope of that notion. But as noted earlier, the "traditional or inalienable function of government" submission was not put to me. After discussing the relevant legislation, Barwick CJ said: "The result of these provisions is that the Commissioner is in charge of a sub-department of government under the direct control and direction of a Minister of the Crown. That sub-department is to manage and control the railway system of the State, a function historically connected with government in New South Wales. He collects its revenues for the State and pays them into a Treasury fund; and he has the control and management of moneys appropriated by Parliament for the running of the railway system." (at 132) Barwick CJ construed ss. 125 (1) and 132 in the light of their purpose namely of ensuring that the State would have inventions available to it for the benefit of the services of government at once, rather than at the end of the patent term. Accordingly, his Honour was able to say this: "One could scarcely imagine that the sections such as ss. 125 and 132, with their evident practical purpose, did not extend to include within the expression the use of the services of the Commonwealth or State, the use of an invention for the purposes of one of the Government railway systems in Australia." (at 134) His Honour concluded that the Commissioner was an authority of the State within the meaning of ss. 125 and 132 of the Patents Act. Although constituted as a body corporate, the Commissioner administered a sub-department of the State, and in this respect was in a different position from that of the four Banks. The applicants submitted that banking was "a function historically connected with government" in the Australian States. I agree - see pp. 10-11 earlier. In some respects the Commissioner is "like" the Banks and in other respects he is "unlike" them. General Stee] Industries does not determine the result of the present case. The Western Australian Turf Club v Commissioner of Taxation (1978) 139 CLR 288 ("WA Turf Club") Like Renmark Hotel, this case was concerned with the expression "a public authority constituted under any ... State Act" in s. 23 (d) of the Income Tax Assessment Act 1936 (Cth). The appellant ("the Club") was an unincorporated club founded in 1852. The Western Australian Turf Club Act, 1892 (WA) vested the Club's lands in its chairman and his successors in office as if a corporation sole. The lands were required to be used for public race meetings. The Act empowered the Club to make by-laws, a breach of which was an offence. The Racing Registration Act, 1917 (WA) made the Club the sole licensing authority for horse racing in Western Australia, and provided that no horse race for prize money should be held without its written licence. Barwick CJ described the case as resolving itself into one in which "an unincorporated body operating for the benefit of its members, though with some obligation to admit the public to its racecourses, has been given by statute the function of granting licences for the holding of race meetings, a function unproductive of revenue or profit to the unincorporated body." (at 290). The Court, by a 4:1 majority (Barwick CJ, Stephen, Jacobs and Aickin JJ; Murphy J dissenting) held that the Club did not fall within s. 23 (d). The Commissioner relied on WA Turf Club in GIO but Heerey J distinguished it. The Commissioner relies on it again before me. Stephen J, with whom Barwick CJ and Jacobs J agreed, reviewed the authorities in the High Court on s. 23 (da) and its predecessor, namely Incorporated Council of Law Reporting for iv 'ssi ; : (1924) 34 CLR 580 ("Incorporated Council of Law Reporting" ) and Renmark Hotel, and the history of and legislation governing the Club. His Honour noted that the two earlier cases had been concerned with entities each of which had always had only one primary function, whereas the Club had, at least since 1917, two roles: that of a members' turf club, and that of an agency of government controlling horse racing. His Honour thought that the case called for a "weighing of all relevant circumstances" (at 296). Stephen J found that some features of the Club were unusual in what are commonly regarded as public authorities and that others were positively inconsistent with that status. The latter included the fact that, subject to the possibility of re-entry by the Crown if the racecourse should be used for any purpose other than horse racing, the Club was free to deal as it saw fit with its real estate, and the fact that upon a dissolution the Club's members would be entitled to share in the division of its assets. Aickin J agreed. He reviewed Incorporated Council of Law Reporting and Renmark Hotel, and said this: "In agreement with the views expressed in the cases referred to above, I regard the basic requirement as being that the relevant Act under which the relevant body is said to be 'constituted' should confer powers of an exceptional nature not possessed by private individuals 7 5 3 , individual i } provisions of the Companies Acts." (at 311 - emphasis supplied) His Honour went on to consider the legislative provisions with a view to seeing whether the powers and authorities conferred on the Club answered this description. He concluded that the Club did have "certain exceptional powers to do what an ordinary private individual, or group of individuals, may not do, some of which at least, if not all, may properly be described as statutory duties and the exercise of public functions" (at 312). However, according to his Honour, it had to be taken into account that the Club was also "an unincorporated association such as is commonly the mode of organisation of members' clubs" (at 312). In the result, he concluded that since "the public functions of the Club are neither the principal nor substantially the principal functions of the Club" and were "incidental to the private functions rather than the reverse", the Club was not a "public authority". The fact that the Club derived no income from the exercise of its public powers and duties assisted in that conclusion. In the present case the Commissioner submitted that Stephen J, and by virtue of their agreement with him Barwick CJ and Jacobs J, relied on the passages from Renmark Hotel and that accordingly the case contained strong obiter dicta by a majority of four judges (including Aickin J) out of five supporting the "exceptional powers or authority" test. However Stephen J merely gave an account of the holdings in Incorporated Council of Law Reporting and Renmark Hotel, and said that those cases, being the only two previous decisions of the High Court on s. 23 (d), provided little guidance in the case before the Court. It is true that Aickin J, in obiter dicta, enunciated an "exceptional powers" test. For the reasons which I gave at pp. 46-47 above in relation to Renmark Hotel, I do not consider that the construction and application of the expression "a public authority constituted under a State Act" in s. 23 (d) in the circumstances in WA Turf Club determine the construction and application of the expression "an authority" in Items 74 and 126 in the circumstances in the present cases. The Committee of Direction of Fruit Marketing v Australian Postal Commission (1980) 144 CLR 577 ("COD") The Commissioner relied on COD in GIO and before me. Regulations under the Postal Services Act 1975 (Cth) provided for the posting at concessional rates of registered publications. By-law 118 provided, inter alia, as follows: "A publication is eligible for registration as a registered publication if - (a) its proprietor is not the Commonwealth, a State or an authority of the Commonwealth or of a State." The Committee of Direction of Fruit Marketing ("the COD"), a body corporate established by The Fruit Marketing Organisation Acts 1923 to 1973 (Qld) (in this part of these Reasons called "the Acts") was the proprietor of a publication known as "Queensland Fruit and Vegetable News". A delegate of the Australian Postal Commission decided that the COD was an authority of the State of Queensland within by-law 118 (a). An application to review that decision was dismissed by the Administrative Appeals Tribunal, and on appeal the Tribunal's decision was affirmed by a Full Court of this Court - see (1979) 37 FLR 457. Sub-section 6 (2) of the Acts constituted the COD a body corporate, but sub-section 6 (4) provided that it should not be deemed to represent the Crown for any purpose whatsoever. Sub-section 6 (5) (vii) gave the COD power to impose levies on fruit marketed. Section 7 empowered the COD to issue directions with respect to certain matters relating to the marketing of fruit including a direction that all or any of the things included in the marketing of fruit should be done only by the COD, its servants or agents or other persons appointed by it, and that all fruit for marketing should be handled and dealt with only under the instructions and with the authority of the COD, or should be consigned or delivered only to such persons as the COD might appoint. But the COD's power to issue directions was subject to a growers' right of veto. Section 7A empowered the COD to acquire compulsorily all the fruit of a particular class, the growers of which had, by a certain mechanism and majority, voted in favour of compulsory acquisition. The members of the COD were appointed by the Minister, generally upon election by growers. The relevant Minister and the Governor in Council were given certain powers in respect of the COD. Before the judgments in the High Court are considered, it is convenient to consider those of the Full Court of this Court. Franki J, with whom Brennan J agreed, thought that the COD was an "authority" of Queensland for the purposes of Postal by-law 118 (a). After considering Renmark Hotel, General Steel Industries and WA Turf Club, his Honour concluded that the AAT (Smithers J) had been correct in its conclusion that: "The essential and arresting feature of the C.0.D. is the nature and extent of its duties, functions and powers in the matter of issuing commands inconsistent with the ordinary rights of citizens and in property and commerce to implement the intention of Parliament that marketing of fruit be organised marketing." (at 465) After referring to Renmark Hotel, Silverton Tramway, General Stee] Industries, and WA Turf Club, Northrop J concluded (at 471) that the following features, taken together, characterised the COD as an "authority": (a) incorporation by the Acts; (b) the public nature of its functions; (c) the conferral of powers to give effect to the object of providing an organisation for the marketing of Queensland fruit; (ad) the conferral of powers not possessed by the ordinary citizen; (e) the possession of no other functions or objects. Both judgments indicate features the presence of which were sufficient to characterise the COD as an "authority" of a State. But this is a different thing from saying that those features or some of them are necessary features of such a body for the purposes of all legislative contexts. In the High Court, Barwick CJ and Stephen J adopted the reasoning of the Full Court of this Court. Gibbs J said this: "The words 'authority of a State' naturally mean a body which is given by the State the power to direct or control the affairs of others on behalf of the State - i.e., for the purposes of and in the interests of the community or some section of it. In some cases it may be decisive that the body concerned is given exceptional powers of a kind not ordinarily possessed by an individual or a company, and that those powers are intended to be exercised for a purpose that would ordinarily be regarded as a purpose of government. On the other hand, in some cases it may be decisive that the body is conducted in the interest and for the profit of its members. In all cases, however, it is necessary to have regard to all the relevant circumstances in order to determine the character of the body in question." (at 580) Mason and Wilson JJ, in a joint judgment, expressed the view that the focus of By-law 118 was upon government, and the function of government. Their Honours said: "If the appellant is to succeed, it must be because the proper conclusion, based on the legislation, is that the c.O.D. is not engaged in the work of government, notwithstanding that it is created a statutory authority with a wide range of powers. It would have to be shown that the authority represented by those powers in reality is derived from the growers, not from the State." (at 593) Their Honours thought that the COD had not shown this. In GIO Heerey J distinguished COD as a case in which the COD had failed to establish that it was not an authority of a State because its statute gave it coercive power, and held that it did not follow that in any context a body cannot be an authority of a State without such power. His Honour cited General Stee] Industries as an example. JI think that Cop is distinguishable from the cases before me for the reasons given by his Honour. Services Federation (1992) 175 CLR 442 ("Anti-Cancer Council") The Rules of The State Public Services Federation ("the SPSF"), an organisation of employees registered under the industrial Relations Act 1988 (Cth), provided that those eligible to be members included, "Persons employed in the Public Service of Victoria or employed in any State instrumentality or other undertaking carried on by public authorities, commissions, or corporations under any State charter, statute, enactment, or proclamation of the State of Victoria." The issue in the case was whether employees of the Anti-Cancer Council of Victoria ("the Council") established by the Cancer Act 1958 (Vic) were eligible to be members of the SPSF. The High Court held that the Council was not a "State instrumentality" for the purposes of the eligibility clause, but that it had a public aspect sufficient to constitute it a "corporation" of a kind referred to in that clause. In reaching the latter conclusion, the Court considered the language of the eligibility clause, "public authorities, commissions, or corporations under any State charter, statute, enactment, or proclamation of the State of Victoria". The Court (Mason CJ, Brennan and Gaudron JJ) in a joint judgment, said this: "The Council is clearly a corporation and, thus, it is not necessary to consider whether it has or exercises power over the affairs of others or has some other exceptional power that would identify it as an authority in the accepted sense of that word when used in a context of the kind in which r. 3 (G) is found." (at 450) Rule 3 (G), the eligibility clause, used the expression "public authorities". I do not think that the obiter dicta quoted from the joint judgment should be accepted as establishing that the words "an authority" in Items 74 and 126 necessarily indicate a body invested with "exceptional power". . . : v Federal Commissioner of Taxation (1993) 178 CLR 145 In this case, the judgment of the majority (Mason CJ, Deane, Toohey and Gaudron JJ) expressed the view that there was considerable difficulty in categorising the Registrar of the Accident Compensation Tribunal constituted by the Workers Compensation Act 1958 (Vic), a statutory office holder whose functions were mainly administrative, as "a public authority" within the meaning and for the purposes of s. 23 (d) of the Income Tax Assessment Act 1936 (Cth). The judgment says nothing more on the point, but cites in footnote (67) on p. 168 as to the meaning of "public authority", Renmark Hotel at 18 (Rich J), WA Turf Club at 295-299 (Stephen J) and Anti- Cancer Council at 450-451. All cases cited were concerned with the expression "a public authority" in s. 23 (d) of the Income Tax Assessment Act 1936 (Cth). For reasons previously given, particularly in the context of the discussion of Renmark Hotel, I do not regard those passages as concluding the question which I am called upon to determine. In any event, it is not clear that the joint judgment was approving everything that was said at the pages cited in relation to the meaning of "a public authority" in s. 23 (da), and it is clear that their Honours were not purporting to lay down a universal rule. THE LANGUAGE OF ITEM 74 Both the immediate textual context and the broader nature and purpose of the provision in which the expression ""an authority" occurs are properly to be taken into account in the ascertainment of the expression's meaning for present purposes. In Item 74, there are four potential clues which merit consideration. The first potential clue is the expression "for official use (whether as goods or in some other form), and not for sale" (emphasis supplied). Does the word "official" indicate a use for a purpose which could not be served by the activity of any citizen, or does it signify nothing more than "for the use of the authority for the purposes for which it was created as distinct from alien or private purposes"? In my opinion the latter is the meaning intended. If it had been intended to refer to a more specific kind of use, probably something other than the ambiguous word of general import, "official", would have been used. In my view "official" use in the present context, signifies a use by a department or authority "as such" as distinct from private use or other use extraneous to the functions of the particular department or authority, and does not itself help to identify what those functions may be. (In GIO the Commissioner accepted that motor vehicles bought by GIO and used by its sales representatives and other employees in the course of their work were required for official use). The second potential clue is the expression in the proviso "and by every such authority established under the law of the State, the Northern Territory or the Australian Capital Territory, as the case may be". Does this signify that in order to satisfy the words of the description in the opening lines of Item 74 also, an entity must be "established under the law" of the jurisdiction in question, and if so, are the Bank of WA and the State Bank, by reason of their having been incorporated by registration under the State Companies Codes, not "established under" the laws of Western Australia and New South Wales respectively? The point is that whereas the former Bank of WA and the former State Bank had no existence apart from the Acts which incorporated them, it is at least arguable that the Bank of WA and the State Bank were, "established" by the contracts to be found in their respective memoranda and articles of association, corporate form being given to them upon the subsequent registration of those documents under s. 35 of the relevant Companies Code. On the assumption that the words "established under the law of" in the proviso characterise all authorities referred to in the earlier and principal description in Item 74, in my opinion the Bank of WA and the State Bank possess the requisite characteristic. This is so because they are "established under" the R_ & I Bank Act 1990 in the case of the Bank of WA and the SOC Act and the Corporatisation Act in the case of the State Bank. The third potential clue is the concluding words in Item 74, "in the conduct of an enterprise which, in the opinion of the Commissioner, is a trading enterprise." These words show that it is not inconsistent with the notion of an "authority established under the law of [a] State, the Northern Territory or the Australian Capital Territory", that such authority is engaged in the conduct of an enterprise which the Commissioner opines is a "trading enterprise". Thus, Item 74 contemplates the possibility that an authority which is completely controlled by, and the expenditure of which is exclusively borne by, a Government of a State, the Northern Territory or the Australian Capital Territory, may be engaged in a trading enterprise and that this does not disqualify it as an "authority". This fact does not, however, conclude the question in favour of the present applicants, since it leaves open the possibility that an entity may conduct a trading enterprise and have other powers one or some of which, being unavailable to ordinary citizens, qualify it as "an authority". The fourth potential clue is the concluding sentence in Item 74 which reads as follows: "In this item, 'authority' does not include an authority as defined by subsection 20A (1) of the Sales Tax Sub-section 20A (1) of the latter Act excluded from the exempting provision of s. 20 of that Act and the old Exemptions and Classifications Act, certain "authorities". These "non-exempt authorities" are defined in sub-section 20A (1) as follows: "(a) an authority established before 14 May 1987, being an authority specified in Schedule 2; or Schedule 2 includes Commonwealth Bank of Australia, Commonwealth Development Bank of Australia and Commonwealth Savings Bank of Australia. This shows that when Parliament introduced s. 20A by Act No. 42, 1987, it considered that those three banks were "authorities". As well, the Schedule includes Housing Loans Insurance Corporation and Qantas Airways Ltd. Thus, the fact that an entity carried on an insurance business or an airline did not signify that 1t could not be an "authority" either. The section and the schedule are strong indications that Parliament intended the expression "an authority" in Item 74 to embrace government banking corporations. The language of Item 126 Although Item 126 does not contain the proviso of Item 74, I do not think that Item 126 evinces an intention to narrow the meaning of "an authority" to something less than the meaning which that expression bore in its predecessor, Item 74. The Commissioner did not make any submission contrary to the applicants' submission that the expression bore the same meaning in both Items. THE BROADER PURPOSE OF THE ITEMS 74 AND 126 Item 74 shows an intention to exempt all goods for official use by a government department and not for sale. If, as could have occurred, the Western Australian and New South Wales Governments had, through departments, carried on the banking businesses of the Bank of WA and of the State Bank, goods bought by those departments for use in those businesses and not for sale would have been exempt from sales tax. No reason suggests itself as to why Parliament should have intended, by the use of the word "authority", to render the exemption unavailable where a government chose to carry on a banking business ""through" a State owned corporation. The better view seems to be that the word "authority" was used in Item 74 as a loose means of emphasising the public as distinct from private nature of the entity, and perhaps of indicating that in order to be an authority, an entity must be "acknowledged" as an instrument of the State by Act of Parliament. It is clear that a State can exercise a function through a corporation (cf Australian Coastal Shipping Commission v O'Reilly (1962) 107 CLR 46 at 54-55 (Dixon CJ)) and that it may be correct to say in such a case that "the State" is exercising the function (State Bank of New South Wales v Commonwealth Savings Bank of Australia (1986) 161 CLR 639; Deputy Commissioner of Taxation v State Bank of New South Wales (1992) 174 CLR 219). In Item 126 as in Item 74, I cannot discern any reason why the legislature would accord the exemption to the States of Western Australia and New South Wales if they had been carrying on their respective Banks' businesses, yet not accord it to corporations completely owned and controlled by them, whose expenditure is exclusively borne by them and through which they are carrying on the banking businesses in question. Detailed and summary accounts of the four Banks have been given earlier in these Reasons. The characteristics of the four were not identical as between them. But all four were totally owned and controlled by the respective States and their expenditures were exclusively borne by these States; they can appropriately be described as constituted by or under special Acts; they carried on a business which, although it could be carried on by any citizen, was at all relevant times well recognised as one peculiarly appropriate for a government to carry on; they also carried on an "agency business" which not every citizen could carry on; their obligations were guaranteed by the State; they were subject to the financial administration, accounting, reporting and audit which applied generally to public instrumentalities; and they were subject to extensive government control. In my opinion their characteristics suffice to make all four Banks "authorities" within the meaning and for the purposes of Items 74 and 126. Alternatively, I do not think that Heerey J in GIO was clearly wrong and so I would follow here his Honour's decision in that case. THE SPECIAL POSITION OF PERPETUAL Apart from the fact that through its own parent company the Bank of WA and that company's parent corporation, R & I Holdings, Perpetual is owned and controlled by the State of Western Australia and its expenditure is exclusively borne by the Western Australian Government, there are no features of Perpetual which mark it as an authority of the State. In contrast to the four Banks, it is not constituted by or pursuant to a special Act or otherwise recognised by the Western Australian Parliament; it does not carry on a commercial activity which governments commonly carry on; its financial obligations are not guaranteed by the State; it is not subject to the public financial administration, reporting and audit requirements applicable to State instrumentalities, but is subject to the ordinary accounting and audit provisions of State companies legislation; the composition of its board of directors was not controlled, at least directly, by the State Government or by any Minister; and its board of directors were not required to consult with any Minister or Ministers or to submit any "statement of corporate intent". It is true that goods purchased by a department of the Western Australian government carrying on Perpetual's business wouid have been within Items 74 and 126. But the matters to which I have referred above lead me to conclude that Perpetual is not "an authority" for the purposes of Items 74 and 126. I certify that this and the preceding 66 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren. Associate: / Null buy Dated: 4 November 1994 Heard: 25, 26 August 1994 Place: Sydney Decision: 4 November 1994 Appearances: Mr A R Emmett QC and Mr B J Sullivan of counsel instructed by P W Kearns (in proceedings NG 990 of 1993 and NG 991 of 1993 as agent for Garth Berg) appeared for the applicant in each proceeding. Mr D M Bennett QC and Mr S J Gageler of counsel instructed by Australian Government Solicitor appeared for the respondent in each proceeding.