Protections from statutory encroachment

Australian Constitution

18.70  The Constitution protects property from one type of interference: acquisitions by the Commonwealth other than ‘on just terms’. Section 51(xxxi) of the Constitution provides that the Commonwealth Parliament may make laws with respect to

the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws.

18.71  There is no broader constitutional prohibition on the making of laws that interfere with property rights.

18.72  The language of s 51(xxxi) was adapted from the Fifth Amendment to the United States Constitution. However, the American provision is ‘formulated as a limitation on power’, while the Australian provision is ‘expressed as a grant of power’^[131]—to acquire property.^[132] Nevertheless, this constitutional protection is significant and is regarded as a constitutional guarantee of property rights,^[133] to the extent it assures just terms for property acquired by the Commonwealth. Barwick CJ described s 51(xxxi) as ‘a very great constitutional safeguard’.^[134]

18.73  Because of the potential for invalidity of legislation that may offend s 51(xxxi), express provisions for compensation have been included in Commonwealth laws. In addition to a general statute—the Lands Acquisition Act 1989 (Cth)—specific compensatory provisions have been included in many statutes.^[135] There are also ‘fail safe’ provisions,^[136] collectively described as ‘historic shipwrecks clauses’, that provide that, if the legislation does acquire property other than on just terms, within the meaning of s 51(xxxi), the person from whom the property is acquired is entitled to compensation.^[137]

18.74  In ascertaining whether the ‘just terms’ provision of s 51(xxxi) is engaged, four questions arise: Is there ‘property’? Has it been ‘acquired’ by the Commonwealth? Have ‘just terms’ been provided? Is the particular law outside s 51(xxxi) because the notion of fair compensation is ‘irrelevant or incongruous’ and incompatible with the very nature of the exaction—an issue of characterisation of the relevant law.^[138]

‘Property’

18.75  The High Court has taken a wide view of the concept of ‘property’ in interpreting s 51(xxxi), reading it as ‘a general term’: ‘[i]t means any tangible or intangible thing which the law protects under the name of property’.^[139]

18.76  Claimants seeking to argue the invalidity of laws under s 51(xxxi) may fail because it is held that there was no property right. In Health Insurance Commission v Peverill (Peverill),^[140] the High Court considered a statutory change in a Medicare benefit that reduced the amount per item payable. A challenge was brought by a doctor to whom the benefits had been assigned through the practice of ‘bulk billing’. The Court held that the benefit entitlement of the doctor did not amount to ‘property’. Brennan J, for example, stated:

The right so conferred on assignee practitioners is not property: not only because the right is not assignable … but, more fundamentally, because a right to receive a benefit to be paid by a statutory authority in discharge of a statutory duty is not susceptible of any form of repetitive or continuing enjoyment and cannot be exchanged or converted into any kind of property. On analysis, such a right is susceptible of enjoyment only at the moment the duty to pay is discharged. It does not have any degree of permanence or stability. That is not a right of a proprietary nature …^[141]

18.77  The characterisation of rights in water was considered in the ICM Case.^[142] Three landowners conducted farming enterprises near the Lachlan River in New South Wales on land that was within the area known as the Lower Lachlan Groundwater System.^[143] The landowners held bore licences under New South Wales legislation to access groundwater.^[144] These licences were replaced with aquifer access licences,^[145] which reduced the amount of groundwater to which the plaintiffs were entitled—for two plaintiffs by about 70%.^[146] The State of New South Wales offered the plaintiffs ‘structural adjustment payments’ that the landowners considered inadequate.^[147] The Commonwealth, as represented by the National Water Commission, and the state of New South Wales had earlier entered into a funding agreement which provided that each was to provide equal funds to be used for such payments.^[148]

18.78  The plaintiffs argued that the replacement of the bore licences with the aquifer licences involved an acquisition of property otherwise than on just terms in contravention of s 51(xxxi) of the Constitution and that the power of the Commonwealth under ss 96 and 51(xxxvi) of the Constitution to grant and to make laws with respect to granting financial assistance to a state, was subject to the just terms requirement of s 51(xxxi).

18.79  There were several aspects to the constitutional argument: that the licenses were ‘property’; that they were ‘acquired’ for the purposes of s 51(xxxi) other than on ‘just terms’; and the legislation involved was state law.^[149] They failed: a majority of the Court found that the replacement of the bore licences did not constitute an acquisition of property within the meaning of s 51(xxxi).^[150]

18.80  With respect to the argument about ‘property’, the members of the Court revealed different approaches in the analysis of the groundwater licences. An initial point was to conclude that the combined effect of the state legislation was to extinguish any common law rights (to ‘percolating’ water, as discussed above).^[151]

18.81  French CJ, Gummow and Crennan JJ considered that the licences were not proprietary, in language that was similar to Peverill:

where a licensing system is subject to Ministerial or similar control with powers of forfeiture, the licence, although transferable with Ministerial consent, nevertheless may have an insufficient degree of permanence or stability to merit classification as proprietary in nature.^[152]

18.82  Hayne, Kiefel and Bell JJ, in contrast, considered that it ‘may readily be accepted that the bore licences that were cancelled were a species of property’.^[153]

That the entitlements attaching to the licences could be traded or used as security amply demonstrates that to be so. It must also be accepted, as the fundamental premise for consideration of whether there has been an acquisition of property, that, until the cancellation of their bore licences, the plantiffs had ‘entitlements’ to a certain volume of water and that after cancellation their ‘entitlements’ were less.^[154]

18.83  The constitutional question, however, was not simply whether the subject matter was ‘property’, but whether there had been an ‘acquisition’ of that property by the Commonwealth.^[155] This is the principal question in most cases considering s 51(xxxi).^[156]

‘Acquisition’

18.84  Arguments concerning s 51(xxxi) often focus on whether a particular action is an ‘acquisition’ (‘taking’) or a ‘regulation’: the former being amenable to compensation, the latter within the ‘allowance of laws’ acknowledged as the province of government and not compensable. In the Australian context, the key question is ‘acquisition’ and this is a narrower one than, for example, the arguments concerning the scope of ‘taking’ in North American case law.^[157] The American jurisprudence may nonetheless be helpful. In Trade Practices Commission v Tooth & Co Ltd, Toohey J commented:

On the one hand, many measures which in one way or another impair an owner’s exercise of his proprietary rights will involve no ‘acquisition’ such as pl (xxxi) speaks of. On the other hand, far reaching restrictions upon the use of property may in appropriate circumstances be seen to involve such an acquisition. That the American experience should provide guidance in this area is testimony to the universality of the problem sooner or later encountered wherever constitutional regulation of compulsory acquisition is sought to be applied to restraints, short of actual acquisition, imposed upon the free enjoyment of proprietary rights. In each case the particular circumstances must be ascertained and weighted and, as in all questions of degree, it will be idle to seek to draw precise lines in advance.^[158]

18.85  Emeritus Professor Suri Ratnapala observed that

the High Court has employed the term ‘acquisition’ to exclude the regulation of property in ways that diminish the exchange value of property without actual transfer of title to the state or some other person. Thus export restrictions, land zoning, price controls and the like do not attract compensation.^[159]

18.86  In JT International SA v Commonwealth, French CJ expanded on the meaning of ‘acquisition’:

Taking involves deprivation of property seen from the perspective of its owner. Acquisition involves receipt of something seen from the perspective of the acquirer. Acquisition is therefore not made out by mere extinguishment of rights.^[160]

18.87  As Deane and Gaudron JJ said in Mutual Pools & Staff Pty Ltd v Commonwealth:

s 51(xxxi) is directed to ‘acquisition’ as distinct from ‘deprivation’. For there to be an ‘acquisition of property’, there must be an obtaining of at least some identifiable benefit or advantage relating to the ownership or use of property.^[161]

18.88  Particular difficulty with the phrase ‘acquisition of property’ has arisen where Commonwealth law affects rights and interests that exist not at common law but under other Commonwealth laws. By s 31 of the Northern Territory National Emergency Response Act 2007 (Cth) (NTNER Act), ‘leases’ to the Commonwealth of land held by Aboriginal peoples under the Aboriginal Land Rights Act 1976 (Cth) were ‘granted’ for five years.^[162] In Wurridjal v Commonwealth (Wurridjal), the High Court, by majority, held that the creation of a lease under this section was an ‘acquisition’ of property by the Commonwealth.^[163]

18.89  In considering the significance of the source of the right in statute, Crennan J commented:

It can be significant that rights which are diminished by subsequent legislation are statutory entitlements. Where a right which has no existence apart from statute is one that, of its nature, is susceptible to modification, legislation which effects a modification of that right is not necessarily legislation with respect to an acquisition of property within the meaning of s 51(xxxi). It does not follow, however, that all rights which owe their existence to statute are ones which, of their nature, are susceptible to modification, as the contingency of subsequent legislative modification or extinguishment does not automatically remove a statutory right from the scope of s 51(xxxi).^[164]

18.90  Where there is a modification of a statutory right by subsequent legislation, the question of whether this amounts to an ‘acquisition’ within s 51(xxxi) ‘must depend upon the nature of the right created by statute’:

It may be evident in the express terms of the statute that the right is subject to subsequent statutory variation. It may be clear from the scope of the rights conferred by the statute that what appears to be a new impingement on the rights was in fact always a limitation inherent in those rights. The statutory right may also be a part of a scheme of statutory entitlements which will inevitably require modification over time.^[165]

18.91  The question of ‘acquisition’ was central to the High Court’s analysis in the ICM Case, noted above, in which a majority of the High Court decided that the replacement of the bore licences with aquifer licences did not constitute an ‘acquisition’ of property within the meaning of s 51(xxxi).

18.92  French CJ, Gummow and Crennan JJ concluded that

in the present case, and contrary to the plaintiff’s submissions, the groundwater in the [Lower Lachlan Groundwater System] was not the subject of private rights enjoyed by them. Rather … it was a natural resource, and the State always had the power to limit the volume of water to be taken from that resource. … The changes of which the plaintiffs complain implemented the policy of the State respecting the use of a limited natural resource, but that did not constitute an ‘acquisition’ by the State in the sense of s 51(xxxi).^[166]

18.93  Hayne, Kiefel and Bell JJ concluded that

[n]either the existence, nor the replacement or cancellation, of particular licences altered what was under the control of the State or could be made the subject of a licence to extract. If, as was hoped or expected, the amount of water in the aquifer would thereafter increase (or be reduced more slowly) the State would continue to control that resource. But any increase in the water in the ground would give the State no new, larger, or enhanced ‘interest in property, however slight or insubstantial’, whether as a result of the cancellation of the plaintiff’s bore licences or otherwise.^[167]

18.94  By contrast, in his dissent, Heydon J determined that the increase in water in the ground ‘will be a benefit or advantage which New South Wales has acquired within the meaning of s 51(xxxi)’.^[168]

 ‘Just terms’

18.95  The third question is about ‘just terms’. In Blackshield and Williams, s 51(xxxi) is contrasted with the US constitutional provision:

The Fifth Amendment to the United States Constitution requires ‘just compensation’, whereas s 51(xxxi) requires ‘just terms’. While ‘just compensation’ may import equivalence of market value, it is not clear that the phrase ‘just terms’ imports the same requirement. In cases decided in the immediate aftermath of World War II, the Court said that the arrangements offered must be ‘fair’ or such that a legislature could reasonably regard them as ‘fair’ (Nelungaloo Pty Ltd v Commonwealth (1947) 75 CLR 495). Moreover, this judgment of fairness must take account of all the interests affected, not just those of the dispossessed owner.^[169]

18.96  In Wurridjal, the NTNER Actexcluded the payment of ‘rent’, but did include an ‘historic shipwrecks clause’. Section 60(2) provided that, in the event of there being ‘an acquisition of property to which paragraph 51(xxxi) of the Constitution applies from a person otherwise than on just terms’, the Commonwealth was liable to pay ‘a reasonable amount of compensation’. The provision prevented the potential invalidity of the legislation.^[170]

18.97  With respect to what amounts to ‘just terms’, Ratnapala explains:

A property that is under threat of acquisition loses market value. Therefore, in determining just terms the tribunal must so far as possible disregard the impact of the intended acquisition. The acquiring authority must be treated as a potential purchaser rather than a potentate. As Williams J explained in Nelungaloo, ‘in the absence of a market, the value of the property taken must be ascertained by estimating the sum which a reasonably willing vendor would have been prepared to accept and a reasonably willing purchaser would have been prepared to pay for the property at the date of the acquisition’. The Court has consistently held that just terms also entail the observance of the two cardinal demands of natural justice: an unbiased arbiter and a fair chance to present the owner’s case.^[171]

Characterisation

18.98  The fourth question concerns the characterisation of the law. Under this approach, ‘although a law may appear to be one with respect to the acquisition of property, it is properly or relevantly characterised as something else’.^[172] As explained in Blackshield and Williams:

From time to time the Court has said that it would be ‘inconsistent’, ‘incongruous’ or ‘irrelevant’ to characterise a government exaction as one that attracts compensation. An obvious example is taxation, which involves the compulsory taking for Commonwealth purposes of a form of property. Because this taking is the very essence of taxation, the express power with respect to taxation in s 51(ii) must obviously extend to this kind of taking; and it follows that such a taking will not be characterised as an ‘acquisition of property’ within the meaning of s 51(xxxi).^[173]

18.99  Apart from taxation, an example of a law that does not attract the just terms provision is that of forfeiture of prohibited goods under Customs Act 1901 (Cth). In Burton v Honan, Dixon CJ said that

[i]t is nothing but forfeiture imposed on all persons in derogation of any rights such persons might otherwise have in relation to the goods, a forfeiture imposed as part of the incidental power for the purpose of vindicating the Customs laws. It has no more to do with the acquisition of property for a purpose in respect of which the Parliament has power to make laws within s 51(xxxi) than has the imposition of taxation itself, or the forfeiture of goods in the hands of the actual offender.^[174]

Racial Discrimination Act

18.100       The Racial Discrimination Act 1975 (Cth) provides some protection for property rights. This became central to issues of extinguishment of native title. Section 10(1) provides:

Rights to equality before the law

If, by reason of, or of a provision of, a law of the Commonwealth or of a State or Territory, persons of a particular race, colour or national or ethnic origin do not enjoy a right that is enjoyed by persons of another race, colour or national or ethnic origin, or enjoy a right to a more limited extent than persons of another race, colour or national or ethnic origin, then, notwithstanding anything in that law, persons of the first-mentioned race, colour or national or ethnic origin shall, by force of this section, enjoy that right to the same extent as persons of that other race, colour or national or ethnic origin.

18.101       This provision was crucial in the determination of the High Court in Mabo v Queensland [No 1] in which the Court held that the purported extinguishment of native title, without compensation, by the Queensland Coast Islands Declaratory Act 1985 (Qld) was inconsistent with s 10 and invalid under s 109 of the Australian Constitution. The object of the Queensland legislation was the extinguishment of any native title on annexation by the State of Queensland.^[175]

18.102       Similarly, in Western Australia v Commonwealth,the High Court held that the Land (Titles and Traditional Usage) Act 1993 (WA), which extinguished native title in that state and replaced it with lesser statutory rights, was inconsistent with s 10 of the Racial Discrimination Act.^[176] As explained by the Court:

If a law of a State provides that property held by members of the community generally may not be expropriated except for prescribed purposes or on prescribed conditions (including the payment of compensation), a State law which purports to authorize expropriation of property characteristically held by the ‘persons of a particular race’ for purposes additional to those generally justifying expropriation or on less stringent conditions including lesser compensation) is inconsistent with s 10(1) of the Racial Discrimination Act.^[177]

18.103       The Native Title Act 1993 (Cth) expressly states that it is to be read and construed subject to the provisions of the Racial Discrimination Act.^[178] The Native Title Act also provides a scheme for managing the past and future extinguishment of native title, which may involve the payment of compensation for extinguishing acts.^[179]

Principle of legality

18.104       The principle of legality provides some protection for vested property rights.^[180] When interpreting a statute, courts will presume that Parliament did not intend to interfere with vested property rights, unless this intention was made unambiguously clear. As early as 1904,Griffith CJ in Clissold v Perry referred to the rule of construction that statutes ‘are not to be construed as interfering with vested interests unless that intention is manifest’.^[181]

18.105       More narrowly, legislation is presumed not to take vested property rights away without compensation. The narrower presumption is useful despite the existence of the constitutional protection because it is ‘usually appropriate (and often necessary) to consider any arguments of construction of legislation before embarking on challenges to constitutional validity’.^[182]

18.106       The general presumption in this context is longstanding and case law suggests that the principle of legality is particularly strong in relation to property rights.^[183] The presumption is also described as even stronger as it applies to delegated legislation.^[184] The wording of a statute may of course be clear enough to rebut the presumption.^[185]

18.107       Professor Kevin Gray describes the ‘interpretive canons’ that reflect the principle of legality in the property context as summarised by two propositions, which he says ‘comprise the core of an historic and freestanding common law doctrine relating to takings’:^[186]

First, expropriatory legislation is presumed (in the absence of an unequivocally expressed common intent) to require the payment of compensation. This presumption gives expression to what McTiernan J once called an important ‘rule of political ethics’. Any compulsory deprivation of title for the benefit of the wider community represents a sacrifice which should be shared by that community collectively. No individual citizen should be ‘singled out to bear a burden which ought to be paid for by society as a whole’. The prejudice against arbitrary or uncompensated taking is, in the words of Kirby J, ‘basic and virtually uniform in civilised legal systems’.

Second, merely regulatory legislation is presumed (in the absence of a clear contrary intent) to require no payment of compensation. The prime demonstration of this rule of interpretation appears in the widespread refusal to accept that the restrictions imposed by zoning laws give rise to any compensation claim by the affected landowner. Such ‘adjustment of competing claims between citizens’ imposes (or reinforces) burdens which must simply be ‘endured in the public interest’.^[187]

18.108       In relation to the assertion of control over water, the legislation by which common law rights of land holders were replaced by access licences gave rise to consideration of the principle of legality in relation to the question of whether the vesting clauses in state legislation extinguished private rights.^[188] In the ICM Case, the High Court concluded that the combined effect of the state legislation was to extinguish common law rights.^[189]

International law

18.109       Article 17 of the UDHR provides:

(1)     Everyone has the right to own property alone as well as in association with others.

(2)     No one shall be arbitrarily deprived of his property.

18.110       Article 17.1 is reflected in art 5(d)(v) of the Convention on the Elimination of All Forms of Racial Discrimination (CERD),^[190] which guarantees ‘the right of everyone, without distinction as to race, colour, or national or ethnic origin, to equality before the law’ in the exercise of a range of rights, including the ‘right to own property alone as well as in association with others’.^[191]

18.111       The recognition and protection of intellectual property is specifically referred to in the UDHR, art 27:

Everyone has the right to the protection of the moral and material interests resulting from any scientific literary or artistic production of which he is the author.

18.112       Such international instruments do not become part of Australian law until incorporated into domestic law by statute,^[192] as for example when the Racial Discrimination Act was enacted to give effect to CERD. International instruments cannot otherwise be used to ‘override clear and valid provisions of Australian national law’.^[193] However, where a statute is ambiguous, courts will generally favour a construction that accords with Australia’s international obligations.^[194]

18.113       In Maloney v The Queen the High Court had occasion to consider the effect of art 5(d)(v) of the CERD. The High Court decided that laws that prohibit an Indigenous person from owning alcohol engage the human right to own property, citing the effect of art 5(d)(v) as implemented by the Racial Discrimination Act.^[195] In that case, the High Court found that s 168B of the Liquor Act 1992 (Qld) was inconsistent with s 10 of the Racial Discrimination Act,which protects equal treatment under the law. However, the High Court upheld the prohibition on alcohol possession as a ‘special measure’ under s 8 of the Racial Discrimination Act and art 1(4) of the CERD, designed to reduce alcohol-related problems on Palm Island.

18.114       The protection of property stated in the UDHR is a limited one.^[196] Environmental Justice Australia submitted that

unlike other protected human rights which have a fundamental foundation in the integrity and dignity inherent in every person, particular rights to certain property as they exist at a particular point in time … enjoy no such status.^[197]

18.115       There is no express guarantee of property rights in either the ICCPR or the International Covenant on Economic, Social and Cultural Rights (ICESCR),^[198]although the ICESCR, in art 15, does recognise the right of an author, in terms replicating art 27 of the UDHR.

18.116       A further obligation under international law arises out of free trade agreements (FTAs) that Australia has entered into.^[199]The FTAs have introduced certain obligations with respect to expropriation of property that are binding on Australia at international law. For example, art 11.7 of the Australia-United States Free Trade Agreement provides:

Article 11.7: Expropriation and Compensation

1. Neither Party may expropriate or nationalise a covered investment either directly or indirectly through measures equivalent to expropriation or nationalisation (‘expropriation’), except:

(a)     for a public purpose;

(b)    in a non-discriminatory manner;

(c)     on payment of prompt, adequate, and effective compensation; and

(d)    in accordance with due process of law.^[200]

18.117       Actions that amount to nationalisation or expropriation may include both ‘direct expropriation’—when property is transferred to the state; and ‘indirect expropriation’—‘where an action or series of actions by a Party has an effect equivalent to direct expropriation without formal transfer of title or outright seizure’.^[201] Among the factors to be considered is ‘the extent to which the government action interferes with distinct, reasonable investment-backed expectations’.^[202] In this respect, the meaning of ‘indirect expropriation’ may be wider than the meaning attributed to the term ‘acquisition’ in s 51(xxxi) of the Constitution by the High Court. A qualification is set out: namely, ‘[e]xcept in rare circumstances, nondiscriminatory regulatory actions by a Party that are designed and applied to achieve legitimate public welfare objectives, such as the protection of public health, safety, and the environment, do not constitute indirect expropriations’.^[203]

18.118       As noted above, Australia’s obligations under international treaty law have no domestic force unless given effect by valid federal law. The Commonwealth Parliament has enacted the US Free Trade Agreement Implementation Act 2004, but it does not cover the subject of expropriation. Where statutory language permits, Australian courts are likely to favour constructions that are more consistent with Australia’s treaty obligations. They will not, however, use treaty provisions to set aside the clearly expressed language of valid legislation. This may include expropriations under state laws. This does not mean that the federal government is relieved of its obligations at international law and may be obliged to compensate investors who lose property through state expropriation.

18.119       The Commonwealth government cannot compel a state government to comply with art 11.7 except by valid federal law. The Commonwealth Parliament has competence to implement treaties concluded in good faith under the external affairs power in s 51(xxix) of the Constitution. Such legislation may override inconsistent state laws. This is a matter that may be addressed by inter-governmental agreement.

Bills of rights

18.120       In some jurisdictions, bills of rights or human rights statutes provide some protection to certain rights and freedoms. Constitutional and ordinary legislation prohibits interference with vested property rights in some jurisdictions, for example the United States,^[204] New Zealand^[205] and Victoria.^[206]

18.121       The European Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) expressly added a recognition of property interests in Protocol 1, art 1.^[207] Headed, ‘Protection of property’, art 1 states that ‘Every natural or legal person is entitled to the peaceful enjoyment of his possessions’. There are qualifications in the expression of the right, considered below.