#7309 - The High Court And Characterisation

Characterisation refers to the process of determining whether a law falls within one of the heads of power enumerated in a statute – the question is “whether the law relates to the subject matter or purpose of the head of of power in a way that allows it to be described as a law “with respect to” that head of power”
In United States v Butler the simple test proposed by Robert J was to “lay the article of the Constitution which is invoked beside the statute which is challenged and to decide whether the latter squares with the former”
- The intuitive appeal of this approach is restricted to cases in which there is a legislative power defined by reference to a specific subject matter in that it suggests an intellectual inquiry at two different levels:
  - Define the limits of the subject matter area – constitutional interpretation
  - Determine whether the challenged law fits within it– characterisation
- But generally questions to be answered are neither self-evidently objective or have definitional certitude. Furthermore the second task is also often an interpretive one
One previously popular approach to characterisation was to determine the “pith and substance” of a relevant law – this was often addressed to choose between competing considerations (e.g. two lists of heads of power)
- But this a less utility in AU which has only one list – the question is not whether the legislation is characterised as falling within a specified CTH or state power but rather whether it can be characterised in such a way as to fall within a CTH power

Bank of NSW v CTH (Bank Nationalisation Case) (1948) 76 CLR 1

Facts: The question was whether the Banking Act 1947 (aimed to nationalise banks) was invalid (it was held as such – contrary to s 92). One of the questions to be resolved was whether it fell into s 51(xiii), this argument was only supported by the dissenters. Latham CJ rejected the use of the word “pith and substance” but not the underlying idea while Dixon J expressed the broader view of characterisation that applies today,

Latham CJ:

His honour rejected two approaches to characterisation:

The “touches and concerned” approach – since the constitution has to be interpreted as a whole and each provision construed in light of the others. TO give such a broad view and give the CTH Parliament universal power of legislation would render absurd the assignment of powers. [e.g. an income tax law applies to clergymen – it is not a law with respect to clergymen]
The “pith and substance” approach as it was based on an old metaphor (pith and marrow) “apt to mislead” – rather he preferred the concrete but similar approach of determining the “true nature and character” of a statute
His honour ruled that a power to legislate “with respect to” is the broadest possible legislative license – but it is plenary only with respect to the specified subject
He proceeded to outline the approach:

Construe the law and determine its operation and effect
Determine the relation of that which the Act does to a subject matter in respect of which it is contended that the relevant Parliament has power to make laws

Furthermore the motives of parliament are irrelevant – what is relevant is what the law does

“Thus when a question arises as to the validity of legislation it is the duty of the Court to determine what is the actual operation of the law in question in creating, changing, regulating or abolishing rights, duties, powers or privileges, and then to consider whether that which the enactment does falls in substance within the relevant authorized subject matter, or whether it touches it only incidentally or whether it is really an endeavour, by purporting to use one power, to make a law upon a subject which is beyond power”

Dixon J:

His honour cited the Jumbunna principle of interpreting statutes broad and general unless the context or text in the Constitution indicates a narrower interpretation is better to carry out the purpose.

He noted that the enumeration of powers weren’t to delimit the description of the law of Parliament – but since they are broad in their terms they assign to the federal government power over that subject matter.

The designation of the power of banking is one such example of the giving of a broad power
His honour disagreed with the idea that it implied that “it should continue…[and] remain consensual” or that it should be a matter between subject and subject
- He says this is not a matter of relevance but policy –
- The ordinary use of the word banking would obviously include a statute declaring that banking should cease in its scope

The CB writers note the utility of the approach in Butler in cases where the law making power is characterised as being “on” the permitted subject – but not “with respect” to it (which is a broader and looser question)

The rigid approach of assuming that each statute has only one subject matter has been discredited

Fairfax v Federal Commissioner of Taxation (1965) 114 CLR 1

Facts: Whether or not s 11 of the Income Tax and Social Services Contribution Assessment Act (which inserted a division 9B into the Act that could be used to induce trustees of super funds to invest in CTH bonds by exempting the funds from income tax if they did so and subjecting them to a special rate of tax if they did not) was valid under s 51(ii) – the tax power.

In Argument Mason QC mentioned the irrelevance of motive and the need to give regard to “the terms of the law to ascertain its direct legal operation”, an examination “of the rights and liabilities which it directly affects... [and] the character of the law into which it was introduced”. He also mentioned the fact that if it affects subject matters other than that enumerated in s 51 it does not matter.

Kitto J largely reiterated this approach, emphasising the distinction between form and substance (The court “is not to be bound by the name which Parliament has chosen to give the Act”). He mentioned the appellant’s argument that the Act was in substance not a law WRT taxation but one with respect o investment. It exposes trustees to liability which is in truth a penalty for failing to pursue a course of conduct rather than a tax.

His honour declined to draw anything useful from R v Barger as it partly rested on the Reserved Powers Doctrine and also because they disagreed that just because something regulates, discourages or deters activities taxed, that it ceases to be a valid tax
Relying on the principle in Melbourne Corporation that Federal laws having an actual or immediate operation within a field of Commonwealth Power will be enough – just because it discloses another purpose which is not within power, this will not invalidate the law.
The purpose of the law is clear (encouraging investment in public securities) and the raising of revenue may be a secondary concern BUT the enactment doesn’t prescribe or forbid conduct
- The substance of the enactment is the obligation it imposes – the only obligation imposed is one to pay income tax. It is therefore a law with respect to taxation

Menzies J distinguished the situation, where for example, illicit drugs are taxed in order to demonstrate that economic consequences should not be looked at. He argued that this would not be a law WRT taxation because its ‘true character’ is not a law with respect to taxation (it would be a law made for the suppression of trade in the drug).

Menzies J’s approach of ‘true character’ was rejected in the Second Fringe Benefits Tax Case

Nevertheless Kitto J’s judgement was prefaced with an approach of asking “is it in its real substance a law ‘with respect to’, [one of the placita], or is there no more in it in relation to any of the subjects than an interference so incidental as not in truth to affect its character”
- In the Work Choices Case Kirby J in dissent argued that the Work Choices Act was in truth an exercise of power under the industrial relations power of the Constitution. He also completely dissociated himself from the idea of an ‘objective truth’, accepting that there was a degree of personal, opinionative judgment. He held that the content of the power under s 51(xx) doesn’t extend to laws which, in truth, relate to industrial disputes
The Joint Judgement said that this approach was fallacious – describing a law as being “truly” characterised as a law with respect to something “bespeaks fundamental constitutional error” which is especially bad if it proceeds from a premise which assumes a division of governmental power (reserved power doctrine) or a mischaracterisation of the subject matter
- This case falling into the latter category – characterising the subject matter of s 51(xxxv) as “industrial relations”. This ought not to obscure the fact that such a term isn’t used in s 51(xxxv) which speaks only of “industrial disputes”
- O: Something to take from this – look at the legal rights and liabilities affected rather than attaching labels like the “truth” of the matter

Herald & Weekly Times v Commonwealth (1966) 115 CLR 418

Facts: The Broadcasting and Television Act 1942 authorized the granting of television licenses (TLs) on conditions. The Act was Amended to set limits on ownership and control:

S 92E – TL could not be granted if it would result in a contravention of ss 92 or 92C

S 92 - one person could have a “prescribed interest” (5%+) in more than two TLs or in more than one capital city

S 92C – One person cannot be a director of 2+...

#7309 - The High Court And Characterisation - Federal Constitutional Law

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