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10. Finance and Trade.

Consolidated Revenue Fund.

81. All revenues or moneys343 raised or received by the Executive Government of the Commonwealth shall form one Consolidated Revenue Fund344, to be appropriated for the purposes of the Commonwealth345 in the manner and subject to the charges and liabilities imposed by this Constitution346.

CANADA.—All duties and revenues over which the respective Legislatures of Canada, Nova Scotia, and New Brunswick before and at the Union had and have the power of Appropriation, except such portions thereof as are by this Act reserved to the respective Legislatures of the Provinces, or are raised by them in accordance with the special powers conferred on them by this Act, shall form one Consolidated Revenue Fund, to be appropriated for the public service of Canada in the manner and subject to the charges in this Act provided.—B.N.A. Act, sec. 102. And see Constitutions of Aust. Colonies.

HISTORICAL NOTE.—As originally drafted and passed in 1891, the clause read:—

“All duties, revenues, and money… to be appropriated for the public service of the Commonwealth… subject to the charges provided by this Constitution.”

At the Adelaide session, 1897, the clause was introduced in the same form. On Sir John Downer's motion, the words “duties” and “moneys” were omitted, to make it clear that loan moneys do not go to the Consolidated Revenue Fund. (Conv. Deb., Adel., pp. 834–5.) At the Melbourne session there was a general debate on the report of the Finance Committee (p. 197, supra). A suggestion of the Legislative Council of Tasmania, to restore “and moneys,” was negatived. (Conv. Deb., Melb., pp. 774–900.) Drafting amendments were made before the first Report: The words “or moneys” were inserted, the word “purposes” was substituted for “public service,” and the words “and liabilities” were inserted, to make it clear that the payments to the States, under secs. 89 and 93, were included.

§ 343. “All Revenues or Moneys.”

In the corresponding clauses of the Constitutions of the Australian colonies—and, it is believed, of all British colonies—the word “money” is not used; the usual words associated with “revenues” being “duties,” “taxes,” &c. In this Constitution the word “moneys” was struck out in Adelaide, to make it clear that loan moneys were not included, and a suggestion to restore it was negatived at Melbourne for the same reason (see Hist. Note, supra); but at a subsequent drafting stage it was reinserted for some reason that is not apparent. It cannot, however, be supposed that the Convention meant that loan moneys should be paid into the Consolidated Revenue Fund. (See Conv. Deb., Melb., p. 1114.) The generic word “moneys” must be controlled by the preceding specific word “revenues,” and limited to moneys in the nature of revenue. This is a well-known and sound principle of construction. (See Maxwell, Interpr of Statutes, chap. XI., sec. v.)

The universal constitutional practice, not only of Great Britain, but of all the British colonies, to keep loan funds distinct from revenue funds, is the strongest possible corroboration of the evidence afforded by the debates, that there was no intention whatever of departing from established usage in this respect.




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“Revenue is the annual yield of taxes, excise, customs duties, rents, &c., which a nation, state, or municipality collects and receives into the treasury for public use.” (Webster, Internat. Dict.) It includes not only revenue from taxation, but all revenue received by the Government as payment for services rendered—such as the revenue of the post and telegraph department. It also includes all payments in the nature of penalties, or fees for licenses, &c., and in fact every kind of public income.

§ 344. “Consolidated Revenue Fund.”

In 1787, by the Imperial Act 27 Geo. III. c. 13, the numerous revenues of the Crown in the United Kingdom were brought together into a “Consolidated Fund,” into which flows every stream of the public revenue, and whence issues the supply for every public service. (See May, Parl. Practice, p. 558.) In the Australian colonies the land revenues were for many years kept distinct from the general revenues; but on the grant of responsible government a Consolidated Revenue Fund was created in each colony. This feature of financial administration, universal in all the self-governing parts of the Empire, is reproduced in this Constitution.

§ 345. “To be Appropriated for the Purposes of the Commonwealth.”

For notes on appropriation, see § 350, infra. “The purposes of the Commonwealth” include the payments to the States made by virtue of the Constitution. The States being “parts of the Commonwealth,” expenditure by the federal government in pursuance of its constitutional liability to the States is as much a “purpose of the Commonwealth” as its expenditure upon the services of the federal government.

§ 346. “Subject to the Charges and Liabilities Imposed by this Constitution.”

This is a stock provision, to be found in all the colonial Constitutions; except that the word “liabilities” is new, and is intended to meet the peculiar conditions of Commonwealth finance. The Consolidated Revenue Fund is, for purposes of collection and receipt, as much a single fund as the Consolidated Fund of the United Kingdom, or of any of the British colonies. But for purposes of appropriation, it is subject, under the distribution clauses of the Constitution, to somewhat rigid financial provisions, which constitute “liabilities” imposed upon the residue of the fund, after the charges upon it for federal expenditure have been satisfied.

The charges and liabilities imposed by the Constitution are:—(1) The costs, charges, and expenses incident to collection, management, and receipt (sec. 82); (2) the other expenditure of the Commonwealth (sec. 82); (3) any financial assistance which, during the currency of sec. 96, the Parliament may think fit to provide out of revenue; (4) the payments of surplus revenue to the States, on the basis prescribed for the time being (secs. 89, 93, 94).

Expenditure Charged Thereon.

82. The costs, charges, and expenses incident to the collection, management, and receipt of the Consolidated Revenue Fund shall form the first charge thereon347; and the revenue of the Commonwealth348 shall in the first instance be applied to the payment of the expenditure of the Commonwealth349.

CANADA.—The Consolidated Revenue Fund of Canada shall be permanently charged with the costs, charges, and expenses incident to the collection, management, and receipt thereof, and the same shall form the first charge thereon.—B N.A. Act, sec. 103; and see Constitutions of the Australian Colonies.


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HISTORICAL NOTE.—The clause as originally adopted in the Commonwealth Bill, 1891, followed the wording of the Canadian clause; and the words “The revenue of the Commonwealth shall be applied in the first instance in the payment of the expenditure of the Commonwealth” were prefixed to clause 9 (apportionment of surplus revenue).

At the Adelaide Session, 1897, the clause was introduced and passed as in 1891, but with the words “and the revenue..… Commonwealth” transferred from clause 9.

At the Melbourne Session, a suggestion of the Legislative Assembly of New South Wales, to omit the concluding words, was considered. Dr Quick pointed out that the clause might be regarded as a permanent special appropriation, dispensing with the need of Appropriation Acts—an argument which had been raised on sec. 45 of the Victorian Constitution Act. Mr. Barton promised consideration by the Drafting Committee. (Conv. Deb., Melb., p. 901; and see pp. 907–8.)

Drafting amendments:—Before the 1st Report, the word “permanently” was omitted to meet the objection. After the 4th Report, the clause was recast.

§ 347. “Shall Form the First Charge Thereon.”

These words are not intended to create, and, it seems, do not create, a special appropriation of the expenses of collection, which must therefore be authorized by Appropriation Act like any other expenditure of the Commonwealth. (See Conv. Deb., Melb., pp. 900–1, 907–8; and Historical Note, supra.)

§ 348. “The Revenue of the Commonwealth.”

“The revenue of the Commonwealth” is apparently synonymous with the expression in sec. 81, “all revenues or moneys raised or received by the Executive Government of the Commonwealth.” (See Notes, § 343, supra.)

§ 349. “The Expenditure of the Commonwealth.”

The phrase “expenditure of the Commonwealth” (which occurs again in sec. 89; and see secs. 87, 93) means all moneys expended for the public service of the Commonwealth. It includes the expenses of collection; so that the provision that “the revenue of the Commonwealth shall in the first instance be applied to the payment of the expenditure of the Commonwealth” is not inconsistent with the provision that the expenses of collection shall be a first charge on the Consolidated Revenue Fund.

Money to be Appropriated by Law.

83. No money shall be drawn from the Treasury of the Commonwealth except under appropriation made by law350.

But until the expiration of one month after the first meeting of the Parliament the Governor-General in Council may draw from the Treasury and expend such moneys as may be necessary for the maintenance of any department transferred to the Commonwealth and for the holding of the first elections for the Parliament.

UNITED STATES.—No money shall be drawn from the Treasury, but in consequence of appropriations made by law.—Art. I., sec. 9, subs. 6. CANADA.—Subject to the several payments by this act charged on the Consolidated Revenue Fund of Canada, the same shall be appropriated by the Parliament of Canada for the public service.—B.N.A. Act, sec. 106; and see Colonial Constitutions: e.g., Const. of N.S.W., sec. 53.

HISTORICAL NOTE.—The clause as passed in 1891 consisted of the first paragraph only. Mr. Thynne proposed to add “and for purposes authorized by this Constitution” in order to limit expenditure to those purposes. The amendment was negatived, as being unnecessary. (Conv. Deb., Syd. [1891], pp. 788–9.)




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At the Adelaide Session, 1897, the draft of 1891 was followed, with the addition of the words “and by warrant countersigned by the Chief Officer of Audit of the Commonwealth.” (Conv. Deb., Adel., p. 835.)

At the Melbourne Session, the Finance Committee recommended the omission of the provision for warrant on the ground that there would be no Officer of Audit at first, and that it was a matter for legislation. On Sir Geo. Turner's motion the omission was agreed to. Dr. Quick proposed to add “but section 82 [Consol. Rev. Fund] shall not be deemed to constitute such an appropriation.” The amendment was withdrawn for consideration by the Drafting Committee. (See Historical Note to sec. 81.) Mr. Glynn suggested that there should be provision for audit; which Mr. Barton promised to consider. (See sec. 97, Conv. Deb., Melb., pp. 774, 901–9.)

§ 350. “Appropriation Made by Law.”

With the temporary exception prescribed in the second paragraph of the section, the provision that no money shall be drawn from the Treasury “except under appropriation made by law” is absolute and general. Where no appropriation is effected by the Constitution itself, every appropriation—whether for expenditure for federal services, or for payments to the States—must be made by a law of the Federal Parliament.

Appropriations are of two kinds—special (or permanent) and annual. Those payments which it is not desirable to make subject to the annual vote of Parliament are specially appropriated, once for all, by a permanent Act. Such payments, for instance, are the salaries and pensions of Judges, the interest on the public debt, and certain endowments. Such, too, are the payments provided for in the “civil lists” set out in the Schedules to the Constitutions of the several colonies. But by far the greater bulk of the public expenditure is usually appropriated by annual votes comprised in the Appropriation Bill.

SPECIAL APPROPRIATIONS.—There are several sections of the Constitution which clearly constitute special appropriations. Among these are sec. 3, which declares that there shall be payable to the Queen out of the Consolidated Revenue Fund, for the salary of the Governor-General, an annual sum which, until the Parliament otherwise provides, shall be £10,000; sec. 48, which declares that, until the Parliament otherwise provides, every member of either House shall receive an allowance of £400 a year; and sec. 66, which declares that there shall be payable to the Queen, out of the Consolidated Revenue Fund, for the salaries of Ministers of State, an annual sum which, until the Parliament otherwise provides, shall not exceed £12,000 a year. The opinion has already been expressed (see Notes, § 347, supra) that sec. 82 does not constitute a special appropriation of the costs of collecting the federal revenue, or the general expenditure of the Commonwealth.

The view also appears to be justified, both as a matter of construction and by considerations of expediency, that the provisions of secs. 89 and 93, requiring the Commonwealth, after crediting revenue and debiting expenditure to the several States, to pay the balances monthly to the several States, amount to a special appropriation. It may indeed be argued that this is merely a direction to the Federal Parliament to appropriate the balances to the several States, and is not in itself an appropriation. This view, however, seems hardly satisfactory. The period of these payments is determined, and the amount is made ascertainable, by the Constitution itself. An appropriation by the Federal Parliament could do no more than confirm the provisions of the Constitution, and such confirmation seems quite unnecessary. Moreover, the payments are to be made monthly from the establishment of the Commonwealth; and the first payments will be due before the Federal Parliament can possibly meet. Sec. 83 makes provision for the payments necessary for maintaining the federal departments during that interval, and for holding the first federal elections, without any Parliamentary


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appropriation; but no such provision is made with regard to payments to the States; and it seems that the necessity for Parliamentary appropriation of these payments was not contemplated.

PROCEDURE.—The procedure in connection with the granting of supply is largely dependent on Standing Orders. The details of procedure differ in many respects in the different Legislatures within the Empire; but the general features are much the same, and it may be assumed that they will be followed in the Parliament of the Commonwealth. The Treasurer will first bring down into the House of Representatives the estimates of expenditure, with a message from the Governor-General (see sec. 56). In Committee of Supply, each vote or resolution in the Estimates, and each item therein, may be discussed, and may be reduced or omitted; but the Committee of Supply cannot increase any grant which has been recommended by the Governor-General. When the grants have been voted by the Committee of Supply, resolutions will be moved in Committee of Ways and Means, to the effect that, towards making good the supply granted, a certain sum be granted out of the Consolidated Revenue Fund. These resolutions having been reported and agreed to by the House, the Appropriation Bill will be introduced and passed, and forwarded to the Senate. (For the Senate's powers in regard to it, see sec. 53.) The Appropriation Act, when duly assented to, will give legal effect to the resolutions of the Committees. Upon a proper warrant from the Governor-General, which will give final validity to a grant of supply, the Treasurer will make the issues to meet those grants out of the Consolidated Revenue Fund. (See May, Parl. Practice, Ch. XXII.; Bourinot, Parl. Procedure, Ch. XVII.)

It is sometimes impracticable, owing to the conditions of Parliamentary business, to deal with the estimates before the financial year begins; and in order to meet the immediate demands of the Public Service, “votes on account” are authorized by Temporary Supply Bills as occasion may require. In the British Parliament, votes on account for the first months of the financial year are now the invariable practice; and they have also been frequently employed in the different Australian Parliaments. In Canada, on the other hand—where the Dominion Parliament meets in January, and the financial year ends on 30th June—they are rarely resorted to. (Bourinot, Parl. Procedure, p. 576.)

PRELIMINARY EXPENSES.—From the day of the establishment of the Commonwealth, revenue will be collected by the Federal Government, and expenditure will be incurred; but no statutory appropriation can be made until the Federal Parliament has met. During this interval, and for a month after the meeting of Parliament, the necessity for such appropriation is suspended to the extent of any payments necessary for the maintenance of the transferred departments and for the conduct of the federal elections. As to the question whether the expenses of elections for the Senate are to be borne by the Commonwealth, see note, § 74, supra.

Transfer of Officers351.

84. When any department352 of the public service of a State becomes transferred to the Commonwealth, all officers of the department353 shall become subject to the control of the Executive Government of the Commonwealth354.

Any such officer who is not retained355 in the service of the Commonwealth shall, unless he is appointed to some other office of equal emolument in the public service of the State, be entitled to receive from the State any pension, gratuity, or other compensation payable under the law of the State on the abolition of his office.




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Any such officer who is retained356 in the service of the Commonwealth shall preserve all his existing and accruing rights, and shall be entitled to retire from office at the time, and on the pension or retiring allowance, which would be permitted by the law of the State if his service with the Commonwealth were a continuation of his service with the State. Such pension or retiring allowance shall be paid to him by the Commonwealth; but the State shall pay to the Commonwealth a part thereof, to be calculated on the proportion which his term of service with the State bears to his whole term of service, and for the purpose of the calculation his salary shall be taken to be that paid to him by the State at the time of the transfer.

Any officer357 who is, at the establishment of the Commonwealth, in the public service of a State, and who is, by consent of the Governor of the State with the advice of the Executive Council thereof, transferred to the public service of the Commonwealth, shall have the same rights as if he had been an officer of a department transferred to the Commonwealth and were retained in the service of the Commonwealth.

CANADA.—Until the Parliament of Canada otherwise provides, all officers of the several provinces having duties to discharge in relation to matters other than those coming within the classes of subjects by this Act assigned exclusively to the Legislatures of the Provinces, shall be officers of Canada, and shall continue to discharge the duties of their respective offices under the same liabilities, responsibilities, and penalties, as if the Union had not been made.—B.N.A. Act, sec. 130.

HISTORICAL NOTE.—The clause as drafted and passed at the Sydney Convention, 1891, merely provided that all officers of the transferred departments should become subject to the control of the Federal Executive, and that their existing rights should be preserved. Mr. Gordon moved to add “But the Commonwealth shall not be responsible for any pensions agreed to be paid by the States.” This was negatived. (Conv. Deb, Syd., 1891, pp. 801–2.)

At the Adelaide Session, 1897, the draft of 1891 was followed, except that in place of the provision as to existing rights the following words were added: “and thereupon every such officer shall be entitled to receive from the State any gratuity, pension, or retiring allowance payable under the law of the State on abolition of his office.” It was pointed out in Committee that different provision was needed for those who were retained and those who were not: also that accruing as well as existing rights ought to be preserved. The clause was postponed, and afterwards an amendment moved by Mr. Barton was agreed to, providing that officers not retained in the service should receive from the State the proper compensation on abolition of office, whilst officers retained should eventually be entitled to a retiring allowance to be paid by the Commonwealth and the State jointly. On Mr. Deakin's motion, words preserving the existing and accruing rights of such officers were added. (Conv. Deb. Adel., pp. 866–70, 1444–51.)

At the Melbourne Session, a suggestion by the Legislative Assembly of Western Australia, to insert the words “unless he is appointed to some other office in the State,” was considered, and formally negatived on the understanding that it would be considered by the Drafting Committee. (Conv. Deb., Melb., pp. 990–8.) A re-draft was subsequently adopted, the last paragraph being added (Conv. Deb., Melb., pp. 1899–1901); and the clause was further verbally amended after the fourth Report.




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§ 351. “Transfer of Officers.”

OBJECT OF SECTION.—The object of this section is to prevent any hardship to the officers of transferred departments by reason of their change of masters. Many of them would, under the public service laws of their respective States, have become entitled to pensions or retiring allowances; many more, though not yet so entitled, would have inchoate or accruing rights on which they had based legitimate expectations. It was necessary to give the Federal Government an entirely free hand in the organization of the Public Service of the Commonwealth and in the appointment and dismissal of officers; but it was thought fair that the existing and accruing rights of the officers of the transferred departments should be expressly recognized in the Constitution, and that the respective responsibilities of the States and the Commonwealth in this respect should be clearly defined.

Two events had to be provided for: the event (which would probably be exceptional) of any such officer not being retained in the service of the Commonwealth, and the event of his being so retained.

(1.) With regard to any officer whose services are not required by the Commonwealth, the refusal of the Commonwealth to employ him is treated as being equivalent to the abolition of his office by the State, so that he will be entitled to claim from the State any compensation payable under the law of the State on such abolition. An exception, however, is made in the event of his being appointed by the State to some other office of equal emolument.

(2.) Any officer retained in the service of the Commonwealth is allowed to carry with him the benefit of the public service laws of his State, so as to preserve “all his existing and accruing rights.” His rights of retirement, and of pension or retiring allowance, continue to be governed by the law of the State, as though he were continuing in the service of the State—except that such rights are now rights against the Commonwealth. When such pension or retiring allowance becomes payable, the officer himself looks only to the Commonwealth; but the Commonwealth has recourse against the State for a part thereof, based on the calculation prescribed.

The last paragraph provides for a different class of cases. If, by arrangement between the Commonwealth and a State, any public officer, not belonging to one of the transferred departments, is transferred to the public service of the Commonwealth, he is to have the same rights as if he had been an officer of a transferred department, and were retained in the service of the Commonwealth.

§ 352. “Any Department.”

The departments of customs and excise become transferred on the establishment of the Commonwealth; the departments of posts, telegraphs, and telephones, naval and military defence, lighthouses, lightships, beacons and buoys, and quarantine, are to become transferred on a date or dates to be proclaimed by the Governor-General. (See sec. 69.)

By virtue of the legislative powers of the Parliament, other departments which come wholly within the scope of those powers can be taken over from time to time— such, for instance, as the departments of copyright, patents, and trade marks. In the exercise of its legislative power over matters referred to it by the States, the Federal Parliament may also be able to assume control over other departments. (See s. 51, subs. xxxvii.)

§ 353. “All Officers of the Department.”

Where the department transferred is the whole of one of the great political departments—as, for instance, the department of posts, telegraphs and telephones—the interpretation of the term “all officers” presents no difficulty; it evidently includes every officer, whatever his tenure or the nature of his employment, from the permanent head of the department downwards; but not, of course, the political head. When the department ceases to exist as a “State Department,” the ministerial portfolio established by the State in connection with it must also cease to exist.




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Where the department transferred is a sub-department—as, for instance, the department of quarantine—it seems that only those officers who are exclusively officers of the sub-department will become subject to the control of the Commonwealth.

§ 354. “Subject to the Control of the Executive Government of the Commonwealth.”

Every department, on being transferred to the Commonwealth, becomes at once a department of the public service of the Commonwealth, and subject to the provisions of Chap. III. of the Constitution. The appointment and removal of its officers is thenceforth vested in the Governor-General in Council, until other provision is made (sec. 67), and its administration is vested in the Executive Government (secs. 61–64).

§ 355. “Any Such Officer Who is not Retained.”

The rights of an officer of a transferred department differ accordingly as he is “retained” or “not retained” in the service of the Commonwealth, and it becomes important to define exactly what is meant by these expressions. Is the executive government of the Commonwealth required to make any express declaration of retainer or non-retainer? And if so, when must its choice be made?

It is clear, in the first place, that the Federal Government has an option to retain, or not to retain, any officer; and it is also clear that such option cannot easily be exercised at the actual moment of transfer—at least with regard to the departments transferred at the establishment of the Commonwealth. It would seem, also, that the fact of transfer does not alter the obligation upon each officer to continue, as a servant of the Crown, to perform the duties of his office; though he is subject thenceforth to the control, not of the State, but of the Federal Government. Every officer of the department becomes “subject to the control” of the Federal Government, but every officer is not necessarily “retained in the service of the Commonwealth.” Apparently, therefore, the option of retaining or not retaining an officer is one which the Federal Government may exercise within a reasonable time after transfer, and the mere fact that the Government assumes the control and accepts the services of an officer at the outset need not necessarily imply a decision to retain him. On the other hand, acquiescence by the Federal Government for any time longer than was reasonably necessary might fairly be held, in the absence of a definite notification to the contrary, to imply a decision to retain an officer in the service.

In respect of a State officer who is “not retained in the service of the Commonwealth,” the Commonwealth has no liability whatever. His only claim for compensation is against the State, which is under a constitutional obligation to treat him as though his office had been abolished by the Government of the State.

§ 356. “Any Such Officer Who is Retained.”

The object of this provision is to give to those State officers who are retained by the Commonwealth the same rights which they would have had if they had continued in the service of the State. These rights are of course determined by the laws of the State at the moment of transfer. The words of the Constitution are necessarily general; and it may be that federal legislation—and perhaps State legislation also—will be necessary in order to give full effect to this intention. Questions, for instance, as to past and future contributions to superannuation funds may need further provision. But the general intention of the section is clear; and the rest may safely be left to the sense of justice of the Federal and State Governments.

§ 357. “Any Officer … in the Public Service of a State.”

By the last paragraph of the above section the Federal Government, with the consent of the Government of any State concerned, is authorized to take over State officers not belonging to transferred departments, but who may be required in the service of the Commonwealth. This provision contemplates the creation of new departments of


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service which will be absolutely necessary on the establishment of the Commonwealth; such as those which will be in immediate attendance on the Federal Parliament and the Federal Executive. The officers so taken over are guaranteed the same rights as if they had been officers of departments transferred, and as if they had been retained in the service of the Commonwealth under the earlier part of the section.

Transfer of Property of State358.

85. When any department of the public service of a State is transferred to the Commonwealth—

  • (i.) All property of the State of any kind359, used exclusively in connexion with the department360, shall become vested in the Commonwealth361; but, in the case of the departments controlling customs and excise and bounties, for such time only as the Governor-General in Council may declare to be necessary.
  • (ii.) The Commonwealth may acquire any property of the State, of any kind used, but not exclusively used362 in connexion with the department; the value thereof shall, if no agreement can be made, be ascertained in, as nearly as may be, the manner in which the value of land, or of an interest in land, taken by the State for public purposes is ascertained under the law of the State in force at the establishment of the Commonwealth.
  • (iii.) The Commonwealth shall compensate the State363 for the value of any property passing to the Commonwealth under this section; if no agreement can be made as to the mode of compensation364, it shall be determined under laws to be made by the Parliament.
  • (iv.) The Commonwealth shall, at the date of the transfer, assume the current obligations of the State in respect of the department transferred365.
CANADA.—The public works and property of each Province, enumerated in the third schedule to this Act, shall be the property of Canada.—B.N.A. Act, sec. 108.

HISTORICAL NOTE.—The clause as originally framed at the Sydney Convention, 1891, did not distinguish between exclusive and partial use; and the value was to be ascertained under the resumption laws of the State. The provision for assuming the obligations of the State was contained in the clause providing for the transfer of the departments.

At the Adelaide Session, 1897, the 1891 draft was adopted with verbal alterations. Mr. Wise moved to add “railways,” in order to put his views on record; but withdrew the amendment for the present. (Conv. Deb., Adel., pp. 870–7, 1203–4.)

At the Melbourne Session, an amendment of the Legislative Assembly of Western Australia, to restrict the clause to property “exclusively used,” was negatived. Mr. Kingston suggested that the vesting should be at the option of the Commonwealth. An amendment of the Legislative Assembly of South Australia, that payment may be made by taking over equivalent part of public debt, was negatived, Mr. Barton promising a redraft. The clause was redrafted, and verbally amended after the 4th Report. (Conv. Deb., Melb., pp. 998–1007, 1901–6)




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§ 358. “Transfer of Property of State.”

OBJECT OF SECTION.—The general principle embodied in this section is that the lands, buildings, and other public property used by the transferred departments shall be taken over by the Commonwealth, and paid for at their fair value; but the necessary provision for this is complicated by two circumstances.

In the first place, property used by a transferred department is not always exclusively so used; the department may occupy part of a building the rest of which is occupied by a department not transferred, or it may make use of property which belongs wholly to another department. For example, telegraph lines in many cases run along the railway lines, and many post and telegraph offices are situated upon railway premises.

In the second place, all the property used in connection with the collection of customs on the inland borders will not be required by the Commonwealth after inter-colonial freetrade is established, and therefore only needs to be transferred for a limited time.

The section is therefore framed so that property used exclusively by a transferred department shall be vested at once in the Commonwealth, either permanently or temporarily as the case may be; whilst property used, but not exclusively, by a transferred department may be acquired by the Commonwealth at its option.

§ 359. “All Property of the State, of any Kind.”

“Property of the State” means the public property of the State, and includes real as well as personal property—lands, buildings, public works, vessels, materials, and so forth. In earlier drafts these particular words were inserted; but they were afterwards discarded in favour of the general word “property.” A similar expression is used in the B.N.A. Act, secs. 108 and 117, where the “property” of a province is referred to. See also sec. 51—xxxi. (the acquisition of property for public purposes), and sec. 54—i., giving the Federal Parliament exclusive power over all places acquired by the Commonwealth for public purposes.

§ 360. “Used Exclusively in Connection with the Department.”

The chief difficulty under this sub-section is likely to arise in ascertaining exactly what property comes within this description. No mode of ascertaining this is prescribed, and it is therefore a question of interpretation upon the facts. In most cases there will probably be little doubt; and, in those cases where doubt does arise, the question (which is one of proprietary rights only—see note below) will be capable of settlement by agreement between the governments of the Commonwealth and the State, under the authority of the respective Parliaments.

§ 361. “Vested in the Commonwealth.”

The effect of this expression is to vest the property in the Commonwealth when the department is transferred—i.e., from the time of transfer—without the need of any legal assurance (see Conv. Deb., Adel., p. 871); and the result of the vesting would seem to be that the Commonwealth acquires the property to exactly the same extent as if it had been acquired under the next sub-section, or under sec. 51, subs. xxxi. The difference is in the mode of vesting, not in the nature of the interest acquired. Compare the phrase used in sec. 125, which provides that the seat of Government shall be within territory “which shall have been granted to or acquired by the Commonwealth and shall be vested in and belong to the Commonwealth.” The substantial difference between the two expressions is that under this section the property is vested, and under sec. 125 the territory only. The effect of this section, considered by itself, seems to be to transfer only the proprietary rights of the State, and not its territorial rights; but sec. 52 supplements this by giving the Federal Parliament “exclusive power to make laws” with respect to places acquired by the Commonwealth for public purposes.




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§ 362. “The Commonwealth may Acquire any Property … not Exclusively Used.”

The Commonwealth has a general power (sec. 51—xxxi.) to make laws for the acquisition of property on just terms from any State for any purpose in respect of which the Parliament has power to make laws. Legislation under that section would—assuming legislation to be necessary—apply to acquisitions for the purpose of this section; except as to the ascertainment of value and the mode of compensation, for which special provision is here made. If the Commonwealth and the State are agreed as to the property to be transferred, it appears that this section of itself is sufficient authority for the transfer, without any federal legislation; but if there is any dispute, legislation will be necessary to prescribe the mode of acquisition.

§ 363. “The Commonwealth shall Compensate the State.”

The following returns of the value of the property of the chief departments proposed to be transferred are taken from Papers on Federation circulated by the Government of Victoria, 1897, p. 296:—

ESTIMATED PRESENT VALUES OF PROPERTY OF CHIEF DEPARTMENTS PROPOSED TO BE TRANSFERRED TO A FEDERAL GOVERNMENT.

                                         


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(a) Distinguishing Departments
Departments.  Victoria.  Other Colonies.  Total. 
Customs—Buildings, fittings, furniture, &c.  120,000  391,000  511,000  
Land  310,000  770,000  1,080,000  
Total  430,000  1,161,000  1,591,000  
Posts and Telegraphs—Buildings, apparatus, &c.  875,000  3,260,000  4,135,000  
Land  574,000  1,530,000  2,104,000  
Total  1,449,000  4,790,000  6,239,000  
Defences—Works, armament, buildings, furniture, &c.  506,000  880,000  1,386,000  
Land  67,000  87,000  154,000  
Total  573,000  967,000  1,540,000  
Coast and harbour light-houses, buoys, and beacons  198,000  656,000  854,000  
Quarantine— Buildings, &c  22,000  51,000  73,000  
Land  3,000  5,000  8,000  
Total  25,000  56,000  81,000  
Mint— Buildings, &c.  62,000  61,000  123,000  
Land  8,000  9,000  17,000  
Total  70,000  70,000  140,000  
Grand Total— Buildings, &c.  1,783,000  5,299,000  7,082,000  
Land  962,000  2,401,000  3,363,000  
Total  2,745,000  7,700,000  10,445,000  
(b) Distinguishing Colonies, and showing also Cost of Maintenance and Interest
Capital Value of—  Estimated Cost of Maintenance of Buildings, Furniture, &c., at 1½ per cent. of Capital Cost.  Interest on Capital Cost at 3 per cent. 
Colony.  Lands.  Buildings, Works, Furniture, and Fittings.  Total 
£  £  £  £  £ 
Victoria ... ... ...  962,000  1,783,000  2,745,000  27,000  82,000 
New South Wales ... ...  1,121,000  2,079,000  3,200,000  31,000  96,000 
South Australia ... ...  582,000  1,083,000  1,665,000  16,000  50,000  
Tasmania ... ... ...  115,000  321,000  436,000  5,000  13,000  
Western Australia ... ...  132,000  677,000  809,000  10,000  24,000  
Queensland ... ... ...  451,000  1,139,000  1,590,000  17,000  48,000  
3,363,000  7,082,000  10,445,000  106,000  313,000  
Less cost of maintenance of defences ... ... ...  ...  ...  ...  21,000  ... 
Total ... ...  ...  ...  ...  85,000  ... 
NOTE.—The above figures must be regarded only as a rough approximation, in the absence of definite information on the subject, which has been applied for but not yet received. 

§ 364. “The Mode of Compensation.”

These words were inserted at the Melbourne Convention (see Debates, pp. 1001–7) To carry out, with a somewhat wider scope, a suggestion of the Legislative Assembly of South Australia that payment might be made by taking over an equivalent part of the public debt of the State. The amount of compensation is arrived at under subs. ii., and subs. iii. then provides that the mode of compensation may be determined by Parliament. It seems that it will be open to the Parliament under this section to provide that compensation may be made in cash, or in instalments, or by an annual rental, or by issuing debentures, or by taking over an equivalent part of the public debt, or in any other way which will give to the State the value agreed upon or ascertained.

§ 365. “The Current Obligations of the State in Respect of the Department.”

The transfer of the property used in connection with the departments having been provided for, it was necessary also to provide for the transfer of claims against the departments. This provision is intended to meet the case of current contracts with the department, by requiring that the obligations under them should be taken over by the Commonwealth. The word “current” was inserted by the Drafting Committee to meet a criticism that the words might be construed to extend to loan moneys spent in connection with the department. (See Conv. Deb., Adel., pp. 920–2; Melb., p. 1902.) It is quite clear that the words refer only to the “current” obligations incurred in the course of departmental business, and have no reference whatever to capital invested by the State in departmental works, or the obligations which the State may have incurred in raising such capital—obligations which cannot be said to be incurred “in connection with” the department on which the money is afterwards spent.

It was also suggested (Conv. Deb., Melb., pp. 1905–6) that contracts of service entered into by the department with its officers might be held to be included; but seeing that these are expressly dealt with in the preceding section, this construction would be superfluous as well as forced.




  ― 823 ―

86. On the establishment of the Commonwealth, the collection and control of duties of customs and of excise366, and the control of the payment of bounties367, shall pass to the Executive Government of the Commonwealth.

HISTORICAL NOTE.—In the Commonwealth Bill of 1891, this provision, in substantially the same words (except that “the payment of bounties,” not “the control of the payment of bounties,” passed to the Commonwealth) stood as a paragraph of Clause 4, Chap. IV. (Exclusive power over customs, &c.) There were also provisions (clauses 7, 9) that until the uniform tariff, bounties payable in the several States should be paid by the officers of the Commonwealth, and charged against the States.

At the Adelaide session, 1897, the provision, following the draft of 1891, still stood part of the “exclusive power” clause. The debate, which turned entirely on bounties, is summarized in Historical Note to sec. 90, Conv. Deb., Adel., pp. 835, 838–66.

At the Melbourne session the paragraph was struck out, and re-inserted as a new clause. An amendment by Sir George Turner, excepting State bounties consented to by the Federal Parliament, is noted under sec. 91, Conv. Deb., Melb., pp. 964–5, 990, 2343–65.

§ 366. “The Collection and Control of Duties of Customs and of Excise.”

COLLECTION.—By sec. 69 the departments of customs and excise become transferred to the Commonwealth on its establishment, and by this section the collection of the duties also passes at once to the Executive Government of the Commonwealth. That is to say, the duties continue to be collected by the same departments as before, but on behalf of the Commonwealth instead of the several States.

Until the imposition of the federal tariff (sec. 89) customs and excise duties will continue to be collected in the several States, according to their respective tariffs— which do not “cease to have effect” until then (sec. 90). During this period, customs duties will of course be collected on intercolonial trade as well as on imports from abroad. As long as the medley of tariffs remains, it would obviously be impracticable to allow the free passage of goods across the borders, and therefore intercolonial freetrade is postponed until the uniform tariff is in force (sec. 92).

Meanwhile, though the duties themselves are collected and controlled by the Commonwealth, the tariff of each State remains alterable by the Parliament of the State. The power to impose duties of customs and excise does not become exclusive with the Commonwealth until the first federal tariff is imposed (sec. 90); and until it becomes exclusive, the concurrent power of the State Parliament continues (sec. 107).

CONTROL.—By “control” of the duties is meant the disposal of them after collection. That “control” is of course subject to the provisions of the Constitution. The duties collected, instead of being paid into the Treasuries of the respective States, are paid into the Consolidated Revenue Fund of the Commonwealth (sec. 81) to be dealt with as the Constitution provides.

§ 367. “The Control of the Payment of Bounties.”

The Bill of 1891 provided (chap. IV., secs. 4, 7, 9) that “the payment of bounties” should pass to the Commonwealth; that until the imposition of uniform duties the bounties payable in each State should be “paid by the officers of the Commonwealth;” and that the amount so paid on behalf of any State should be deducted from its share of the surplus. In the Adelaide draft of 1897 these provisions were all omitted, and nothing but “the control of the payment of bounties” passed to the Commonwealth.




  ― 824 ―

What passes to the Executive Government of the Commonwealth by these words is not a liability, but a right of control. “Control” means regulation, government, direction; it is a matter of authority, not of obligation. To interpret the somewhat vague words of this provision, it is necessary to refer to the other sections of the Constitution dealing with bounties.

Sec. 51—iii. empowers the Federal Parliament to make laws with respect to “bounties on the production or export of goods, but so that such bounties shall be uniform throughout the Commonwealth.”

Sec. 90 provides that on the imposition of uniform duties, the power of the Commonwealth to grant bounties shall become exclusive; that thereupon all laws of the States offering bounties shall cease to have effect; but that “any grant of or agreement for any such bounty” shall be good if made before 30th June, 1898. It follows from that section, read together with sec. 107, that until the imposition of uniform duties the States may make laws offering bounties; but that when the uniform tariff begins the laws so made must cease to have effect and the bounties so offered (unless granted or contracted for before the date named) must cease also.

Sec. 90 declares that nothing in the Constitution prohibits a State from granting any bounty for mining for metals, or from granting, with the consent of both Houses of the Federal Parliament, any bounty whatever.

The Constitution therefore refers to two kinds of bounties—Federal bounties and State bounties. With regard to Federal bounties, the words of this section raise no difficulty; whenever such bounties have been authorized by the Parliament the Federal Executive will control their payment as it controls every other part of the federal administration.

With regard to State bounties, it is hard to see what control the Federal Executive can exercise over payments, beyond seeing that the requirements of the Constitution are complied with. State bounties may come under four heads: (1) Before the uniform tariff each State may, as before, grant what bounties it pleases. (2) After the uniform tariff, there may be (a) State bounties to the extent of grants made, or binding agreements entered into, before 30th June, 1898; (b) State bounties on mining for metals; (c) any State bounties granted with the consent of both Houses of the Federal Parliament. As to grants and agreements made before 30th June, 1898, see Notes, § 383, infra. With respect to State bounties on mining for metals, or given with the consent of the Federal Parliament, the powers reserved to the States leave little room for federal control. Such bounties are arrangements between a State and its producers; they are granted by the State, and payable by the State, and involve no obligation on the part of the Commonwealth.

87. During a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides368, of the net revenue369 of the Commonwealth from duties of customs and of excise not more than one-fourth shall be applied annually by the Commonwealth towards its expenditure370.

The balance shall, in accordance with this Constitution, be paid to the several States371, or applied towards the payment of interest372 on debts of the several States taken over by the Commonwealth.




  ― 825 ―

HISTORICAL NOTE.—The Commonwealth Bill of 1891 contained no guarantee to the States, though the desire for some guarantee was prominent throughout the financial debate. It was specially emphasized by Sir John Bray in his proposal to make the Commonwealth liable for the public debts of the States. (Conv. Deb., Syd., 1891, pp. 836–49.)

In the Finance Committee appointed at the Adelaide Session of the Convention of 1897–8 to frame financial resolutions for submission to the Constitutional Committee the guarantee question was raised at once, and various forms of guarantee were suggested. Almost the first of them was the following, moved by Mr. Holder:— “That, until a uniform tariff has come into force, each State . … shall receive from the federal authority, in monthly instalments, a return of 70 per cent of the customs and excise duties contributed by the State.” (Minutes of Committee, p. 5.) Mr. Holder's proposal, which was almost identical with this section, was negatived, and the guarantees resolved on by the Committee, and agreed to by the Convention, were a limitation of federal expenditure, and a provision for the return of a minimum aggregate surplus (see p. 170, supra). (Conv. Deb., Adel., pp. 889, 1053–67.)

At the Sydney session, 1897, in the general financial debate (p. 176, supra) the question of guarantees was prominent, but no definite proposition was made.

At the Melbourne session (Debates, pp. 2378–9, 2422–31, 2456–7), on the discussion of the Finance Committee's report, which recommended the omission of the Adelaide guarantees, Mr. Holder again (pp. 890–3) suggested a return of a fixed proportion of the revenue, stating that he had put it before both Finance Committees, and now wished to put it before the Convention. He read a clause which he had drafted to carry out his views, and discussed the objections which had been raised. The proposal was referred to by Mr. Solomon (pp. 1056–7), by Mr. Reid (p. 1070), by Sir John Downer (p. 1074), and by Mr. Lyne (p. 1082). The Adelaide guarantees were excised; but various substitutes were unsuccessfully proposed. First came Mr. Henry's “financial assistance” clause (see Historical Note to sec. 96). Then, on the discussion of the West Australian clause (guaranteeing to Western Australia a subsidy which would equalize the “proportionate net loss” of that colony with the “average proportionate net losses” of the other colonies), Sir John Forrest moved an amendment to make the clause apply to all the States—which he afterwards withdrew in favour of a clause of Sir George Turner's, guaranteeing to each State a return equal to its so-called “net loss,” calculated on the customs and excise revenue collected in the State under the federal tariff and the amount which would have been collected on the same trade under the superseded provincial tariff. This also was withdrawn, but Mr. Isaacs afterwards brought it up again in a modified form, and it was finally negatived. (Conv. Deb., Melb., pp. 1122–90, 1244–9.) At last, on the second recommittal, Sir Edward Braddon brought forward and carried the first draft of the “Braddon clause,” which, after being twice recommitted, was ultimately agreed to (p. 198, supra). (Conv. Deb., Melb., pp. 2378–9, 2422–31, 2456–7.) After the fourth Report it was verbally amended.

After the failure of the Convention Bill to secure the statutory majority in New South Wales, both Houses of the New South Wales Parliament asked for the omission of the clause (see p. 216, supra). This would have been agreed to by the Premiers' Conference, 1899, if another form of guarantee could have been suggested which would have been equally satisfactory; but all alternative suggestions were thought by Mr. Reid to be more objectionable than the clause itself. By way of compromise, the words “During a period of ten years, and thereafter until the Parliament otherwise provides” were inserted.




  ― 826 ―

§ 368. “During a Period of Ten Years after the Establishment of the Commonwealth, and thereafter until the Parliament otherwise Provides.”

These words were inserted at the Premiers' Conference (p. 219, supra). Compare the amendment proposed by Mr. Barton. (Conv. Deb., Melb., p. 2424.) For ten years after the establishment of the Commonwealth this section is a constitutional provision, alterable only by the process of constitutional amendment. At the expiration of that time, it will, in effect, descend to the level of an Act of the Federal Parliament; that is to say, it will, by virtue of the words “until the Parliament otherwise provides” (see sec. 51—xxxvi.) become subject to alteration or repeal by simple federal legislation. If the Parliament is satisfied with its operation, it will remain in force, but always on sufferance.

This limitation removes one of the chief objections to the section, namely, its want of elasticity. For the present, and in the near future, the section is not likely to cause much inconvenience, but in the unknown future, when conditions have changed—as they must change—it may seriously hamper federal finance. It fixes an arbitrary and unalterable proportion, on one side, in the apportionment of customs and excise revenue between the central and local governments. Should it be desired to increase the proportion of customs and excise revenue paid to the States, the section would not stand in the way; but should it be desired to increase the proportion which may be spent by the Commonwealth, it would offer an insurmountable barrier. There is no “eternal principle” in the three-to-one proportion, which is based merely on present financial conditions; and its loss of constitutional protection after ten years obviates the danger of undue rigidity.

§ 369. “Of the Net Revenue.”

NET REVENUE.—The “net revenue” from duties of customs and excise is the total receipts from those sources after deducting the cost of collection. No attempt is made in the constitution to define the deductions which may be made in order to arrive at the net revenue; this is a matter of book-keeping, which is left wholly to the Executive Government. The Federal Parliament, under its incidental legislative power (sec. 51 —xxxix; sec. 52—ii.) will presumably have power to regulate the matter; but it is hard to see how the High Court could be invoked by any person or State that might happen to be dissatisfied. It seems to be one of those political matters with which the judiciary have no power to interfere.

EFFECT OF THE SECTION.—The object of this section is to secure a constitutional guarantee that, during the period named, at least three-fourths of the net customs and excise revenue raised by the Commonwealth shall be devoted to State purposes; and its explanation is found in the fact that whilst the transfer of customs and excise duties deprives the federating colonies of a large revenue, the estimated expenditure of which the colonies are relieved, or with which the Commonwealth is saddled, are not more than one-fourth of that amount. (See Historical Introduction and Historical Note.)

The probable effect of the clause on the finances of the Commonwealth and of the States has several aspects, which may be dealt with separately. The chief questions are:—How will it affect (1) the amount of federal revenue, (2) the amount of federal expenditure, (3) the mode of federal taxation, (4) the finances of the States?

(1) The Amount of Federal Revenue.—One of the most effective arguments against the Constitution in New South Wales, in the campaigns of 1898 and 1899, was that the Braddon clause would necessitate an immense burden of taxation—the stock phrases being that it required “four times as much taxation as was necessary,” or that the Federal Treasurer “for every £1 he wanted, would have to raise £4.” The fallacy of this ingenious perversion of the clause was that it utterly ignored the requirements


  ― 827 ―
of the States. The Convention found, from the figures before them, that the Commonwealth, without Queensland, if it raised the very moderate revenue of £6,000,000, would not need, for federal expenditure, more than one-fourth of that sum, whilst the States would need the rest. The representatives of all the colonies except New South Wales asked for some guarantee—first, that the Commonwealth would not raise too little; next, that the Commonwealth would not spend too much. Looked at apart from the circumstances, it seems that this section operates in both these ways, but a few figures will show that it is practically no guarantee at all of the amount to be raised through the customs, because the amount which, owing to other circumstances, will inevitably be raised through the customs, is more than four times the ordinary expenditure of the Commonwealth.

The net customs and excise revenue raised in the six federating colonies for the year 1899 was £7,402,333 (Coghlan's Statistics of the Seven Colonies, 1900, p. 23). It may be taken for granted—without any guarantee—that the federal tariff will be framed to bring in not less than this amount. Of this the Commonwealth would be able under this section to spend, for federal purposes, one-fourth, or £1,850,000; an amount which exceeds the most lavish estimates of what will be required.

The Braddon clause, therefore, will not, under ordinary circumstances, increase the revenue which the Commonwealth will require to raise; even assuming—what will doubtless be the case for many years—that practically the whole of the federal taxation will be raised through customs and excise. Any great emergency, such as an increase of defence expenditure in time of war, might greatly increase the necessities of the Commonwealth; but these necessities, should they arise, would probably be met by temporary direct taxation. It should be noticed that the Constitution does not explicitly require that a single penny should be raised by customs and excise, but only that three-fourths of whatever is so raised should be devoted to State purposes.

(2) The Amount of Federal Expenditure.—The chief influence of the section will undoubtedly be in the direction of ensuring economy of federal expenditure. The Federal Parliament will be subject to two opposite forces: the national impulse, which will tend towards enlarging the scope of federal operations, and therefore of federal expenditure; and the restraining influence of the States, and of their representatives in the Federal Parliament, which will make for limiting federal expenditure so as to ensure an adequate subsidy to the States. The chief merit of the Braddon clause is that it fixes the maximum ratio of federal to provincial expenditure, and thus checks, during the early years of Federation, any attempt at an undue encroachment of the federal power. If the vast revenues of the Commonwealth were entirely at its disposal, subject only to such political pressure as the States could bring to bear, there might be a serious temptation to federal extravagance, and a serious risk of the diminution of the State revenues. But when extra expenditure by the Commonwealth means extra taxation by the Commonwealth, all the checks of representative and responsible government will be strengthened, and the temptations of the Federal Treasurer will be correspondingly reduced.

(3) The Mode of Federal Taxation.—It has been argued (see for instance Mr. Reid's speech, Conv Deb., Melb., p. 2424) that this section would be a strong temptation to the Federal Treasurer to resort to direct instead of indirect taxation, in order that he might spend on federal purposes the whole of what he raised. If it were not for the fact that the Federal Treasurer will have ample revenue under the section, and the further fact that the fiscal circumstances of the States will make it politically necessary for the Treasurer to raise through the customs at least as much as the aggregate raised in all the colonies before Federation, this argument would have much weight. If the section were permanent, a time might come when it would have even greater weight. But during the first ten years of Federation it is most unlikely that any resort will be made to federal direct taxation. The real problem will not be the finances of the Commonwealth, but the finances of the States. Taxation difficulties will arise, not


  ― 828 ―
in respect of federal expenditure, but in respect of State expenditure; and if any increase of direct taxation is required to meet the varying needs of the States, local taxation proportioned to the needs of each State will be a much easier policy than uniform federal taxation which would fall equally on the States which required more revenue and on those which did not. The federal tariff will be framed to meet the wants of the Australian people; and if, when the desirable level of customs and excise taxation has been reached, any States require more revenue for provincial purposes, which it is thought fit to raise by direct taxation, provincial direct taxation and not federal direct taxation is the obvious resource.

(4) The Finances of the States.—To the States, the section will doubtless be some guarantee of a substantial return of revenue, but it is by no means a guarantee that each State will be fully compensated, through its share of customs and excise duties, for the difference between the revenue which it has surrendered and the expenditure of which it has been relieved. In framing the federal tariff, the interests of each State will be considered; but when the tariff is framed, each State will have to cut its coat according to the cloth. Some States may have to resort to a reduction of their local expenditure, or an increase of their local taxation, or both. The different financial requirements of six States cannot be met solely by uniform taxation; and it can hardly be doubted that one result of Federation will, sooner or later, be that provincial taxation will be increasingly resorted to for provincial purposes.

§ 370. “Not More than One-fourth shall be Applied Annually by the Commonwealth towards its Expenditure.”

The “expenditure” here referred to is the expenditure other than the cost of collection, which has already been deducted in order to arrive at the net revenue. It follows that the total amount which the Commonwealth can spend is made up of (1) the cost of collecting the duties; and (2) one-fourth of the net revenue.

This amount can only be expended under appropriation made by law; and the question arises whether, if such appropriation should exceed the specified proportion of the revenue, the courts could pronounce the law to be invalid. It is submitted that the answer must clearly be in the negative. As a matter of practical politics and invariable constitutional usage, appropriations are made in advance of the receipt of revenue, on the basis of the Treasurer's estimates of what the revenue will be. It would be a grave constitutional impropriety for the Governor-General to recommend, for Ministers to submit, or for the Parliament to vote, expenditure in excess of the proper proportion of the estimated revenue. It would also be a grave impropriety for the Treasurer to wilfully over-estimate the prospects of revenue. At the same time, the most capable Treasurer, with the very best intentions, may be over-sanguine; and it would be absurd to hold that the validity of an appropriation might depend on the accuracy of a Ministerial forecast. The validity of a law must be absolutely determinable at the moment it is passed; a law which appropriates the year's revenue before the revenue is received, and whilst its amount is matter for conjecture, cannot depend for its validity upon subsequent events.

§ 371. “The Balance Shall, in Accordance with this Constitution, be Paid to the Several States.”

“The balance” is the balance of the net revenue from customs and excise. This section does not affect any revenue of the Commonwealth which may be derived from other sources; but merely requires that three-fourths of the net revenue from customs and excise shall either be distributed among the States, on the basis of secs. 89 and 93 or expended in payment of the interest on the debts of the States, under sec. 105.




  ― 829 ―

§ 372. “Or Applied towards the Payment of Interest.”

These words were added at the suggestion of Mr. Nicholas Brown, to meet Mr. Barton's objection that the clause as it then stood would make it impossible for the Commonwealth to take over the debts. (Conv. Deb., Melb., pp. 2428–31.) This addition does not in any way touch the principle of the section, that the customs and excise revenue shall be shared between the Commonwealth and the States in certain proportions; it merely provides that when the Commonwealth has taken over any of the debts, payment of interest on account of a State shall, for the purposes of the section, be equivalent to payment to the State.

This provision suggests that the ultimate absorption of the federal surplus will be effected by devoting it to payment of the interest bills of the States. Sir Samuel Griffith, in a paper presented to the Government of Queensland in 1896 (entitled “Notes on Australian Federation: its nature and probable effects”) pointed out that the interest bills of the several colonies, both individually and in the aggregate, showed a striking correspondence in amount with the customs and excise revenues; and he expressed the opinion that, though the correspondence was no doubt accidental, it was likely to have some element of permanence. This fact at once makes it clear that the States require the unexpended balance of the customs and excise revenues not so much for the purpose of current expenditure as to meet the interest on their debts. That explains why they cannot, as did the American States in 1787, surrender the customs and excise revenues wholly to the union; and it points to the probability that when the debts have been taken over by the Commonwealth, and a few years' experience of the working of the Constitution have been gained, the difficulties in the way of a final settlement of the financial problem will be far less than at present.

Uniform duties of customs.

88. Uniform duties of customs373 shall be imposed374 within two years after the establishment of the Commonwealth.

HISTORICAL NOTE.—This provision was first suggested by the Finance Committee at Adelaide, and was first drafted as part of the “exclusive power over customs' clause. Sir George Turner suggested that the uniform tariff, instead of coming into force suddenly, should be led up to by a sliding scale. The Drafting Committee afterwards placed the provision as a separate clause. (Conv. Deb., Adel., pp. 835, 838.)

At the Sydney session, 1897, a general financial debate took place under cover of this clause. (Debates, pp. 35–222.)

At the Melbourne session Mr. McMillan, while sympathizing with the intention of the clause, thought it a mistake to fetter the discretion of the Parliament. Mr. Reid replied that New South Wales wanted a definite assurance of intercolonial free-trade, and without this there would be no guarantee that the tariff would not be deadlocked. (Conv. Deb., Melb., pp. 1011–4.)

§ 373. “Uniform Duties of Customs.”

UNIFORM.—The word “uniform” here is merely descriptive. The absolute constitutional requirement that all federal taxation, whether through the customs or otherwise, shall be uniform, is contained in sec. 51—ii., where the gift of federal powers of taxation is expressly qualified by the words “so as not to discriminate between States or parts of States.”

DUTIES OF CUSTOMS.—Customs are here mentioned alone, and not in connection with excise, for a very simple reason. It was necessary to define the time at which


  ― 830 ―
the provincial duties of customs and excise should cease; and the time so fixed (sec. 90) is the time of “the imposition of uniform duties of customs.” Under sec. 55, which requires that laws imposing taxation shall deal with one kind of taxation only, customs duties cannot be included in the same bill with excise duties; and though the Commonwealth will doubtless resort to both modes of taxation, and the two bills will probably be passed at the same time, it was obviously necessary to make the termination of provincial customs and excise, and the inauguration of intercolonial free-trade, depend on a single, not a double, event.

§ 374. “Shall be Imposed.”

This section is an unequivocal and unqualified direction to the Government and Parliament of the Commonwealth to impose customs duties within the time fixed. Such a direction in a constitutional instrument has almost the weight of a mandate, and obedience to it may be anticipated with perfect confidence. It is necessary, however, to observe that in strict legal effect the words must be interpreted as directory only, not mandatory. The section does not contemplate non-compliance, and does not attempt to prescribe any consequences of non-compliance. It would have been easy to enact that at the expiration of the two years, if no federal tariff had been imposed, the provincial duties of customs and excise should come to an end. That would have had the effect of leaving the Commonwealth wholly without revenue from those sources in the event of non-compliance; but the Convention did not elect to frame any such provision. It cannot be doubted that under the Constitution, if a tariff bill should not become law at the expiration of the two years, the provincial duties would continue in force until it did become law. Nor can it be doubted that such a law, though passed after the two years had elapsed, would be as valid as if passed before; otherwise it would have to be held that the default of the first Parliament should cripple the taxing powers of the Commonwealth for all time. The true interpretation of the section is that a solemn constitutional obligation has been laid upon the Parliament; but that no attempt has been made to threaten pains and penalties in the improbable event of that obligation not being fulfilled.

The framing of the first uniform tariff for a group of communities whose present tariffs are so widely divergent is certainly as difficult and responsible a task as could be entrusted to any legislative body. It is a matter which intimately concerns, not only the people of the Commonwealth as a whole, but the people of each State; seeing that it affects the revenue necessities of each State, and also the industries and vested interests that have grown up in each State in reliance upon the continuance of its present fiscal policy. Unless opposing parties and interests recognize the necessity for compromise, it is likely, not only that there will be a prolonged contest in each House, but that there may also be a disagreement between the two Houses. The constitutional provisions for deciding such a disagreement, together with the political urgency of the question, may be trusted to bring about a settlement; and to that end this provision may be expected to contribute. The command of the people, by whom and for whom the Commonwealth is established, that within two years all differences must be reconciled and a tariff agreed to, ought to be a powerful moral aid to the forces making for compromise and settlement.




  ― 831 ―

Payment to States before uniform duties.

89. Until the imposition of uniform duties of customs375—

  • (i.) The Commonwealth shall credit to each State376 the revenues collected therein by the Commonwealth377.
  • (ii.) The Commonwealth shall debit to each State—
    • (a) The expenditure therein of the Commonwealth incurred solely for the maintenance or continuance, as at the time of transfer378, of any department transferred from the State to the Commonwealth;
    • (b) The proportion of the State, according to the number of its people379, in the other expenditure of the Commonwealth.
  • (iii.) The Commonwealth shall pay to each State month by month380 the balance (if any) in favour of the State.

HISTORICAL NOTE.—For the history of this clause in the Commonwealth Bill of 1891, see pp. 133, 139, supra. (Conv. Deb., Syd., 1891, pp. 802, 833.) The clause as adopted provided for the apportionment of surplus revenue both before and after the imposition of uniform duties, and was as follows:—

“9. The Revenue of the Commonwealth shall be applied in the first instance in the payment of the expenditure of the Commonwealth, which shall be charged to the several States in proportion to the numbers of their people, and the surplus shall, until uniform duties of Customs have been imposed, be returned to the several States or parts of the Commonwealth in proportion to the amount of Revenue raised therein respectively, subject to the following provisions:—

  • (1.) As to duties of Customs or Excise, provision shall be made for ascertaining, as nearly as may be, the amount of duties collected in each State or part of the Commonwealth in respect of dutiable goods which are afterwards exported to another State or part of the Commonwealth, and the amount of the duties so ascertained shall be taken to have been collected in the State or part to which the goods have been so exported, and shall be added to the duties actually collected in that State or part, and deducted from the duties collected in the State or part of the Commonwealth from which the goods were exported:
  • (2.) As to the proceeds of direct taxes, the amount contributed or raised in respect of income earned in any State or part of the Commonwealth, or arising from property situated in any State or part of the Commonwealth, and the amount contributed or raised in respect of property situated in any State or part of the Commonwealth, shall be taken to have been raised in that State or part:
  • (3.) The amount of any bounties paid to any of the people of a State or part of the Commonwealth shall be deducted from the amount of the surplus to be returned to that State or part.

After uniform duties of Customs have been imposed, the surplus shall be returned to the several States or parts of the Commonwealth in the same manner and proportions until the Parliament otherwise prescribes.

Such returns shall be made monthly, or at such shorter intervals as may be convenient.”




  ― 832 ―

Adelaide Session, 1897 (Debates, pp. 877–908; 1051–3).—For the history of the clause in Adelaide, see pp. 169, 176, supra. It was passed in the following form:—

“90. Until uniform duties of Customs have been imposed, there shall be shown, in the books of the Treasury of the Commonwealth, in respect of each State:—

  • (i.) The revenues collected from duties of customs and excise and from the performance of the service and the exercise of the powers transferred from the States to the Commonwealth by this Constitution.
  • (ii.) The expenditure of the Commonwealth in the collection of duties of customs and excise, and in the performance of the services and the exercise of the powers transferred from the State to the Commonwealth by this Constitution:
  • (iii.) The monthly balance (if any) in favour of the State.

From the balance so found in favour of each State there shall be deducted its share of the expenditure of the Commonwealth in the exercise of the original powers given to it by this Constitution, and this share shall be in the numerical proportion of the people of the State to those of the Commonwealth as shown by the latest statistics of the Commonwealth. After such deduction the surplus shown to be due to the State shall be paid to the State month by month.”

Melbourne Session, 1898 (Debates, pp. 775, &c.; 1036–9, 1906–11, 2375–8). In accordance with the recommendations of the Finance Committee, the clause was recast, the only difference in substance being a declaration that any expenditure “originated by the requirements of the Commonwealth, in respect of services and powers transferred, and not incurred solely for the maintenance or continuance in any State of the services as existing at the time of the transfer, shall be taken to be incurred by reason of the original powers given to the Commonwealth by this Constitution.” This somewhat extended the scope of per capita division of the expenditure; and Mr. O'Connor (pp. 1906–11) to meet what he thought was the wish of the Finance Committee, proposed that the per capita basis should be further extended to the expenditure of all the non-revenue producing departments—i.e., defence, light-houses, light-ships, beacons and buoys, and quarantine. The amendment was, however, opposed by Mr. Holder, Sir Geo. Turner, and Mr. Henry, who objected to expenditure being charged per capita unless revenue were credited in the same way. At the suggestion of the Drafting Committee, the clause was simplified by defining the two classes of expenditure as they now stand in the section. It was further verbally amended after the 4th Report.

§ 375. “Until the Imposition of Uniform Duties of Customs.”

THE SURPLUS REVENUE.—This section forms one of a series of three (see secs. 93, 94) which provide for the distribution of the federal surplus among the States during three periods: (1) Before the uniform tariff; (2) During the transition period immediately following the imposition of the uniform tariff; (3) After that period.

These three sections are widely different from any provision to be found in other Federal Constitutions. In the United States, revenue raised by Congress from customs and excise, or from any other source, is entirely at the disposal of the Federal Government, and the States are obliged to rely entirely on direct taxation to meet their own expenditure. In Canada, the Dominion must pay to each Province a certain fixed subsidy for the support of its Government and Legislature, and also an annual grant of 80 cents per head of its population as ascertained by the census of 1861—or, in the case of Nova Scotia and New Brunswick, by each subsequent census till the population of each amounts to 400,000 (B.N.A. Act, 1867, sec. 118). In 1869 Nova Scotia obtained “better terms” from the Dominion Parliament. The new Provinces of Manitoba and New Brunswick were afterwards admitted on a similar basis, and in 1873 the “better terms” were extended to all the Provinces. (See Garran, Coming Commonwealth, pp. 91–2.)




  ― 833 ―

FIRST PERIOD.—This section provides for the distribution of surplus revenue during the first of the three periods marked out by the Constitution. The characteristic of this period is that free-trade and a uniform tariff have not yet been introduced; customs duties are still collected on intercolonial imports, as well as on imports from abroad, according to the tariffs of the several States; and secs. 90 and 92 are not yet in operation.

The one difference between this section and sec. 93, which provides for distribution during the first five years after the uniform tariff, arises out of these circumstances. The ascertainment of the revenue contributed by each State does not involve the book-keeping adjustment which is afterwards necessary: because, so long as each colony is surrounded by a circle of Custom-houses, it may be considered for all practical purposes that the dutiable goods imported into each State, or produced in each State, are intended for consumption in that State, and, therefore, that the revenue actually collected in any State by the Commonwealth is practically the revenue contributed by the people of that State. During this period, therefore, the crediting of revenue on the basis of contributions is a very simple matter.

§ 376. “The Commonwealth shall credit to each State.”

These words impose upon the Federal Treasury the duty of keeping an account of the revenues collected in each State by the Commonwealth. The clause, as framed at Adelaide, provided that the necessary particulars should be “shown, in the books of the Treasury of the Commonwealth, in respect of each State;” and in the simpler language of the section as it stands the same direction is clearly implied.

The actual moneys are of course to be paid into the Consolidated Revenue Fund of the Commonwealth (sec. 81). The process of crediting and debiting prescribed by this section is a mere matter of book-keeping entries, upon which the appropriations and payments to the State are ultimately to be based.

TO EACH STATE.—One thing to be noticed about this section is that it does not appear to contemplate the existence of any federal territory not forming part of a State, but which may form part of the Commonwealth; or, at least, that it does not appear to deal with any revenue or expenditure except such as is collected or incurred in a State. In subs. i. and subs. ii. (a) the word “therein” seems clearly to exclude any revenue collected, or expenditure incurred, elsewhere than in a State. In sub-s. ii. (b), where “the other expenditure of the Commonwealth” is mentioned without limitation, it is not clear whether the proportion which each State has to bear is the proportion of the number of its people to the number of the people of the Commonwealth, or the proportion of the number of its people to the number of the people of all the States, exclusive of any federal territories.

It therefore becomes a question how far the section applies to revenue collected and expenditure incurred—(1) in the federal territory selected for the seat of Government; (2) in any other territory which may be acquired by the Commonwealth. As regards the latter territories, the question is of no immediate interest, and could probably be arranged for in the terms and conditions of admission of such territories. But with regard to the seat of government, the question will arise as soon as the territory is acquired by the Commonwealth.

It is submitted that revenue collected, or expenditure incurred, in the federal territory is not collected or incurred in a State, although as a matter of location it is provided in sec. 125 that the seat of government, or the territory—it is not clear which —shall be “in” the State of New South Wales. The question is not of great practical importance, because the only substantial “revenue” collected in the federal territory at first will be from the post and telegraph department, and the bulk, if not the whole, of the federal expenditure in the territory will be included in the “other expenditure” of the Commonwealth which is to be borne in proportion to population. (See § 379, infra.)




  ― 834 ―

§ 377. “The Revenues Collected Therein by the Commonwealth.”

REVENUES.—These words extend to all revenues which the Commonwealth collects in the States; not only those arising from customs and excise, but also the receipts from any other kind of taxation, from the revenue-producing services, from fees, licences, penalties, and so forth. It seems clear that the gross revenues are meant—the expenses of collection being apportioned under sub-s. ii.

COLLECTED IN.—During this period, the place of actual collection determines the State to which the revenue is to be credited. (See Note, § 375, supra.)

§ 378. “Incurred Solely for the Maintenance or Continuance as at the Time of Transfer.”

To explain the purport of these words, some reference to the history of the section is necessary. The Bill of 1891 provided that all expenditure should be debited in proportion to population. The Adelaide Bill of 1897 distinguished between (1) expenditure incurred “in the performance of the services and the exercise of the powers transferred” from each State to the Commonwealth—which was to be charged against the State from which the department in question had been transferred—and (2) expenditure incurred “in the exercise of the original powers” given to the Commonwealth—which was to be charged, as before, according to population. (See Historical Note.)

The Finance Committee at Melbourne thought that the distinction required some definition; and to make it clear that expenditure in exercise of “original powers” included (1) expenditure in connection with the new central administrative staffs of the transferred departments, and (2) any extension of the transferred services which might be undertaken, the definition (cited in the Historical Note) was added. In bringing up the report of the Finance Committee, Mr. Reid explained this provision in the following words (Conv. Deb., Melb., p. 775):—

“The new clause does not differ in principle from the clause, which we propose should be omitted, but it re-arranges it to a certain extent, and clears up a difficulty which might arise in administration after the Commonwealth was established. Whilst it would be perfectly clear that the actual expenditure in the services transferred, on the basis existing at the time of the transfer, would be charged in a certain way, there would be some doubt left as to how new works—for instance, buildings or new developments made by the Commonwealth—should be charged. We came to the conclusion, and we did not think it a matter of very great consequence so far as administration is concerned, that, as to such new developments under the Commonwealth, they should be taken to follow the principle under which the expenditure in the exercise of the original powers of the Commonwealth is dealt with. For instance, supposing the Commonwealth built some permanent structure—a post office, a telegraph office, or perhaps some important fortification of a permanent character—it manifestly would not be fair to charge such works to the particular locality, especially as the system of distributing expenditure will, at the end of five years, give way to the ordinary per capita distribution. We have removed that difficulty, which would have arisen if the matter had not been dealt with.”

The words used seem fairly to carry out this intention, and whilst it is difficult to give any more exact definition of the items of expenditure, in connection with the transferred departments, which may properly under this provision be charged per capita, it is probable that in practical administration no serious difficulty will be raised. The Executive Government, in the preparation of its accounts, will be charged with the duty of interpreting the true scope of the provision, and it would seem that this—like other matters arising in connection with the book-keeping provisions—is a political matter, in which the political departments of the government must exercise an unhampered discretion.




  ― 835 ―

§ 379. “The Proportion of the State, According to the Number of its People.”

This proportion (see Notes, § 376, supra) is not very clearly defined. It is submitted, however (1) that the people of New South Wales will not include the residents in the federal territory (secs. 52—i. and 125); (2) that the second term of the proportion is the population of the whole Commonwealth, inclusive of the residents in federal territory. This means that the debit against each State will be in the proportion which its people bears to the whole population of the Commonwealth, and that no provision is made by the section for the debiting of the small share of the expenditure corresponding to the population of the federal territory—just as no provision is made for debiting the expenditure under sub-sec. 2 (a) incurred in the federal territory, or for crediting the revenue collected in the federal territory. The Federal Parliament will, however, under its exclusive power of legislation for the government of the territory (sec. 52—i. and sec. 122) have power to credit and debit these amounts to the territory, just as the Constitution does in respect of the States.

In reckoning the number of the people of a State or of the Commonwealth, aboriginal natives are not to be counted. (Sec. 127.)

§ 380. “The Commonwealth shall Pay to Each State Month by Month.”

These words seem to amount to a special appropriation. (See Note, § 350, supra.)

There does not seem to be any special difficulty about the adjustment of these monthly balances, so far as compliance with the provisions of this section is concerned. There may, however, be a difficulty in ascertaining, before the several accounts for the financial year are complete, what expenditure for federal purposes the government is authorized in incurring in view of sec. 87. From the balance payable to any State under this section the Commonwealth may deduct and retain the amount of any interest payable on the debts of the State taken over by the Commonwealth. (See sec. 105.)

Exclusive power over customs, excise, and bounties.

90. On the imposition of uniform duties of customs the power of the Parliament to impose duties of customs and of excise, and to grant bounties on the production or export of goods, shall become exclusive381.

On the imposition of uniform duties of customs all laws of the several States imposing duties of customs or of excise, or offering bounties on the production or export of goods, shall cease to have effect382, but any grant of or agreement for any such bounty383 lawfully made by or under the authority of the Government of any State shall be taken to be good384 if made before the thirtieth day of June, one thousand eight hundred and ninety-eight, and not otherwise.

CANADA.—The customs and excise laws of each Province shall, subject to the provisions of this Act, continue in force until altered by the Parliament of Canada.—B.N.A. Act, 1867, sec. 122. UNITED STATES.—No State shall, without the consent of the Congress, lay any imposts or duties on imports or exports, except what may be absolutely necessary for executing its inspection laws.—Const., Art. I., sec. 10, sub-sec. 2.


  ― 836 ―

HISTORICAL NOTE—At the Sydney Convention, 1891, the clause as framed and passed was substantially to the same effect, except that the exclusive power over excise was limited to excise “upon goods for the time being the subject of customs duties;” and also that the particular provision as to “grants of or agreements for bounties” was not there. An amendment by Colonel Smith, to postpone intercolonial free-trade until “twelve months after” the imposition of uniform duties (with a view to prevent “loading up” (see Note, § 390, infra) was negatived. An amendment by Mr. Dibbs, to provide that the Victorian tariff should be the tariff of the Commonwealth until the Parliament should otherwise provide, was negatived. (Conv. Deb., Syd., 1891, pp. 789–801.)

Adelaide Session, 1897.—The 1891 draft was followed almost verbatim. On Sir George Turner's motion, the words “upon goods the subject of customs duties” were omitted.

Upon the clause dealing with the control of customs, &c., there was much debate on the subject of bounties. Sir George Turner wished to protect existing arrangements and existing contracts—and also future arrangements which might be made before the Bill became law. He also questioned the necessity of prohibiting State bounties on exports. Other members objected to future arrangements being protected, at least unless a definite near date was fixed. Everyone agreed that existing contracts ought to be protected; but Mr. McMillan, Mr. Symon, Mr. Reid, Mr. Barton, and others protested against any further exceptions to intercolonial free-trade. Mr. Deakin and Mr. Cockburn argued that bounties—especially on exports—did not necessarily interfere with internal free-trade, and ought to be allowed to the States subject to the constitutional restriction that trade shall be “absolutely free.” Mr. Trenwith suggested that State bounties should be allowed with the consent of the Federal Parliament. It seemed to be the general opinion that aids to gold-mining ought not to be prevented, though some members suggested that the clause was wide enough to cover them; and Mr. Barton suggested adding the words, “wares and merchandise” after “goods,” to narrow the meaning. Amendments were proposed to protect contracts “for the discovery of gold or minerals,” and also contracts entered into before 31st March, 1897 (the date of this debate being 19th April, 1897). The legal members thought that the clause in its then form would not invalidate contracts made before the commencement of the Act; and Mr. Isaacs proposed an amendment to place this beyond doubt. Mr. Grant and Dr. Cockburn submitted amendments to preserve bounties which did not interfere with freedom of trade. Finally all amendments were withdrawn and the clause passed provisionally. (See Hist. Note to sec. 91. Conv. Deb., Adel., pp. 835–66.)

Melbourne Session, 1898.—An amendment of the Legislative Assembly of Victoria was discussed, to omit mention of bounties. Sir Geo. Turner thought that the States ought to have power to grant bounties which were not unfederal—which he afterwards defined as “bounties for the promotion of agricultural, horticultural, viticultural, or dairying interests”—subject to such bounties being annulled at any time by the Federal Parliament. Mr. O'Connor objected that any State bounty interfered with equality of intercourse. Dr. Cockburn would limit the provision to bounties on exports, which he thought could not affect any other State; but Mr. McMillan replied that a bounty on export was practically an import duty. Mr. Deakin suggested a veto by the Federal Executive. Mr. Reid objected to all State bounties, saving existing obligations. Mr. Isaacs wanted State freedom in primary production, subject to the paramount rights of the Federal Parliament. Mr. Trenwith argued that State money could develop industries in many ways without injuring the federal principle. Mr. Higgins suggested the assent of the Inter-State Commission, as a compromise—Parliamentary assent involving too much delay. The Victorian amendment was negatived. The proposal of the Finance Committee, to except “any grant of or agreement for any such bounty made by or under the authority of the Government of any State before the 30th day of June, 1898,” was then carried. (Conv. Deb., Melb., pp. 909–64.)




  ― 837 ―

§ 381. “Customs and Excise … shall become Exclusive.

The first paragraph of this section provides that on the imposition of uniform duties of customs, the power of the Parliament to impose duties of customs and of excise, and to grant bounties on the production or export of goods, shall become exclusive. Three questions have to be considered in connection with this grant of power—(1) what are duties of customs? (2) what are duties of excise? (3) what is the meaning of exclusive?

DUTIES OF CUSTOMS.—Customs duties are duties or tolls imposed by law on the importation or exportation of commodities. Such duties have been levied by commercial communities from the earliest periods of recorded history. The Athenians imposed a tax of 20 per cent. on corn and other merchandise imported from abroad. In republican Rome, duties paid on exports and imports constituted an important part of the public revenue. Duties of customs were levied in England long before the conquest. They derived their name from having been customarily charged on certain articles, when carried across the principal bridges and ferries within the kingdom, and on other productions when exported or imported. The articles which were first and principally the subjects of these customs or duties were wool, skin, and leather. Duties of tonnage were duties paid on wine by the tun, and duties of poundage were the ad valorem duties of so much per pound on other commodities. These duties, when granted to the Crown, were called subsidies.

DUTIES OF EXCISE.—The definition of the term excise is not so clear and well established as that of customs. Excise duties were first introduced into England in the year 1643, as part of a new scheme of revenue and taxation devised by Pym and approved by the Long Parliament. These duties consisted of charges on beer, ale, cider, cherry wine and tobacco, to which list were afterwards added paper, soap, candles, malt, hops, and sweets. The only excise duties now surviving in England, similar to those of the original list, are duties on beer, spirits, chicory, imitations and substitutes of chicory and coffee, and chicory mixture. The basic principle of excise duties was that they were taxes on the production and manufacture of articles which could not be taxed through the customs house, and revenue derived from that source is called excise revenue proper. In the course of time licenses were required from the makers of and the dealers in excisable commodities, and these license fees acquired the name of “duties of excise.” The next step was to require persons to take out licenses, who neither produced nor manufactured nor disposed of excisable commodities, and these license fees also became known as “duties of excise.” Thus the list of excise licenses, which at first included only brewers, beer-dealers, beer-retailers, distillers, spirit-dealers, spirit-retailers, tobacco and snuff manufacturers and dealers, wine-dealers, and wine-retailers, was expanded by English usage until it embraced auctioneers, owners of armorial bearings, owners of dogs, owners of game, gun-dealers, persons entitled to carry guns, hawkers, house agents, patent medicine sellers, owners of carriages, pawnbrokers, plate-dealers, refiners of gold and silver, refreshment house keepers, and carriers.

Such was the primary meaning of “excise,” and such the secondary and enlarged use of the term. The fundamental conception of the term is that of a tax on articles produced or manufactured in a country. In the taxation of such articles of luxury, as spirits, beer, tobacco, and cigars, it has been the practice to place a certain duty on the importation of these articles and a corresponding or reduced duty on similar articles produced or manufactured in the country; and this is the sense in which excise duties have been understood in the Australian colonies, and in which the expression was intended to be used in the Constitution of the Commonwealth. It was never intended to take from the States those miscellaneous sources of revenue, improperly designated as “excise licenses” in British legislation. It was considered essential that the two correlative powers over customs and excise, properly so called, should run together and be exclusively vested in the Federal Parliament. It was not contemplated that the


  ― 838 ―
Federal Parliament, in acquiring the necessary power to provide uniformity of commercial laws, should absorb the absolute and exclusive control of so wide an area of inland taxation as would be covered by licenses similar to those enumerated in the above list, such as auctioneers and pawnbrokers.

MEANING OF “EXCLUSIVE.”—The term “exclusive” does not mean unlimited It means that the power to impose customs and excise is, subject to the Constitution, wholly vested in the Federal Parliament as against the States. It means that the power, being granted to the Federal Parliament, is—from the moment of the imposition of uniform duties—taken once and for all from the States; and that the States can thenceforth not legislate for that purpose in any way whatever, even in the absence of Federal legislation. If, for instance, the Federal Parliament imposed uniform customs duties without making any provision for excise, the States would still be powerless to impose excise duties.

This gift of exclusive power is supplemented by an express provision that all laws of the States imposing duties of customs or excise, or offering bounties, shall, from the moment when the exclusiveness attaches, “cease to have effect;” so that the existing laws of the States, as well as their power to make future laws, will be absolutely superseded. (For further notes on the meaning of “exclusive power,” see § 234, supra.)

§ 382. “Shall Cease to have Effect.”

These words operate as a repeal of all the customs and excise duty Acts of the States, and all Acts of the States authorizing bounties, from the time that the federal customs duties come into force. The imposition of the federal tariff is thus made contemporaneous with the sweeping away of the provincial tariffs; the border custom houses cease to exist, so far as the collection of duties is concerned; so that the establishment of uniformity for the whole Commonwealth is accompanied by the abolition of fiscal barriers between the States. This is the stage at which the Federation of Australia, as one commercial people, becomes complete. The Commonwealth is indeed established on the date fixed by the Queen's proclamation; but until the federal tariff is passed by the Federal Parliament the Constitution is not in full working order; two of its most fundamental provisions—sections 90 and 92—being inoperative. With the imposition of a uniform tariff, the principle of inter-state trade and full commercial unity comes into play, and the last step is taken in the accomplishment of Federation.

It is clear that this annulment of State laws is only co-extensive with the exclusive power of the Federal Parliament, and therefore that it does not affect laws granting bounties on mining for metals, or granting any bounties with the consent of both Houses of the Federal Parliament.

§ 383. “Any Grant of or Agreement for any such Bounty.”

The object of this provision is to protect existing obligations. Though, on the imposition of uniform duties, State bounties, generally speaking, are to end immediately, yet existing contracts, and grants already made, are to hold good. This question was first discussed at the Adelaide session of the Convention, when Sir Geo. Turner expressed some anxiety as to “contracts already in existence, or which may be in existence before this Act comes into force, or before the uniform duties of customs come into operation.” (Conv. Deb., Adel., p. 838.) The provision as it now stands was framed by the Finance Committee of the Convention at Melbourne. (See Historical Note.)

Although the general aim of the “bounty” clauses of the Constitution is clear enough, their exact construction is a matter of some difficulty. To discuss the meaning of this provision as to “grants of and agreements for” bounties, it will be necessary to recapitulate the provisions of the Constitution which refer to bounties.




  ― 839 ―

(1.) At the establishment of the Commonwealth, the Federal Parliament has power to make laws with respect to “bounties on the production or export of goods, but so that such bounties shall be uniform throughout the Commonwealth.” (Sec. 51—iii.) At the same moment, however, the control of the payment of bounties passes to the Executive Government of the Commonwealth. (Sec. 86.)

(2.) On the imposition of uniform duties, the power of the Parliament to grant bounties on the production or export of goods becomes exclusive. Thereupon all laws of the States offering bounties on the production or export of goods shall cease to have effect; but any grant of or agreement for any such bounty lawfully made by or under the authority of the Government of any State shall be taken to be good if made before 30th June, 1898, and not otherwise. (Sec. 90.)

(3.) Nothing in this Constitution prohibits a State from granting bounties on mining for metals, or from granting any bounty with the consent of both Houses of the Federal Parliament. (Sec. 91.)

Before the imposition of uniform duties of customs, therefore, the power of the Federal Parliament to grant federal bounties is accompanied by a power of the State Parliaments to grant State bounties; but though there is thus, in a sense, a concurrent legislative power, the executive control of the payment of bounties passes to the Federal Government. (See Note, § 367, supra.) On the imposition of uniform duties, the power of the State Parliaments to grant bounties is excluded, and State laws offering bounties are annulled; but certain “grants of or agreements for” bounties are to be taken to be good. And, lastly, an exception is made, by sec. 91, to both the exclusiveness of the federal power and the annulment of State laws. What, then, are “grants of and agreements for bounties,” and how does the Constitution affect them?

AGREEMENT.—The phrase “agreement for any such bounty lawfully made by or under the authority of the Government of any State” clearly means a binding contract actually entered into between the Government and a producer or exporter. No mere political promise, or announcement of policy on the one hand, or public expectation on the other hand, can constitute an agreement; the word can only mean a definite and binding legal agreement. The word “lawfully” seems only inserted to prevent the section being construed to validate any agreements which, apart altogether from this section, might be invalid.

GRANT.—The words “grant of” are not so easy to construe. They must, apparently—according to strict grammar—be read as “any grant of any such bounty lawfully made by or under the authority of the Government of any State.” The grant referred to cannot be the actual payment by the Executive Government of the State to the producer; because that would mean that such payments already made between 30th June, 1898, and the imposition of uniform duties of customs would, upon the latter event, become unlawfully made. It apparently means the appropriation of money to the purpose of the bounty—the actual setting aside of money, under Parliamentary authority, to that purpose.

§ 384. “Shall be Taken to be Good.”

EFFECT OF THE RESERVATION.—What then is the effect of a grant or agreement being “taken to be good?” A survey of all the “bounty” provisions leads to two possible interpretations.

(1.) One view is that these words must be read subject to the provision that all State laws offering bounties shall “cease to have effect.” In that view, the appropriation by the Parliament of a State is no longer an authorization for the expenditure of any balance remaining unexpended at the imposition of uniform duties. The grant or agreement is good, but the State law under which it can be effectuated has ceased to have effect. This difficulty can only be met by sec. 86, which gives the Federal Executive “the control of the payment of bounties,” and it is argued that by virtue of


  ― 840 ―
this control the Federal Government can pay the amount of the State bounties itself, and debit the so amount so paid to the account of the State, under sec. 89, sub-sec. ii. (a).

(2.) The other view is that the words “but any grant or agreement,” &c., are an exception to the words immediately preceding—“shall cease to have effect.” In this view, though State laws offering bounties are declared, generally speaking, to cease to have effect, yet the subsequent saving of certain grants and agreements means that the State laws by which those grants or agreements are made or effectuated are excepted from the rule of annulment. The grants or agreements which are “taken to be good” are good against the State which made them, and must be fulfilled by that State. The “control” of the Federal Executive is in that case merely a right of supervision, to see that the provisions of the Constitution are complied with.

RESTRICTIVE EFFECT.—This section not only saves grants or agreements made before 30th June, 1898, but invalidates (by the words “not otherwise”) every grant or agreement made on or after that date. Technically speaking, therefore, the provision is retrospective, because it invalidates not only contracts made after the commencement of the Act, but contracts made at any time after a date previous to the passing of the Act. Looking, however, at the time at which the clause was actually framed, and the fact that it was publicly framed by the representatives of the parties interested, all objection to it on the ground of its retrospective character vanishes.

This particular provision has been assailed as affording a loop-hole for permitting the evasion of the provision for the termination of bounties. Looked at closely, however, it is restrictive rather than permissive. In the absence of any such provision, it is clear that the repeal of laws offering bounties would not operate retrospectively to invalidate agreements made under such laws. (See Maxwell, Interpr. of Statutes, p. 192; cited Conv. Deb., Adel., p. 848.)

As regards grants made after 30th June, 1898, they are only invalidated to the extent of moneys remaining unexpended at the imposition of the uniform tariff, and similarly agreements are only invalidated to the extent of bounties promised but not paid at that date. “Laws offering bounties” remain in force until the imposition of the uniform tariff; and there is nothing in the Constitution which interferes with payments actually made before that date.

Exceptions as to bounties385.

91. Nothing in this Constitution prohibits a State from granting386 any aid to or bounty on mining for gold, silver, or other metals387, nor from granting, with the consent of both Houses of the Parliament of the Commonwealth expressed by resolution388, any aid to or bounty on the production or export of goods.

HISTORICAL NOTE.—For the earlier discussions of the bounty question, see Historical Note, sec. 90. At the Adelaide Session, 1897, on recommittal, Mr. Higgins added (to what is now sec. 90) a new paragraph:—“This section shall not apply to bounties or aids to mining for gold, silver, or other metals.” (Conv. Deb., Adel., p. 1203.)

At the Melbourne session Sir Geo. Turner moved to omit (from Mr. Higgins' paragraph) all words after “mining”—so as to include coal and other non-metallic minerals. He argued that aids to the development of natural resources could not interfere with free trade, though bounties to manufacturers might; but Mr. O'Connor, Mr. Higgins, and Mr. McMillan differed from him, on the ground that coal is as much


  ― 841 ―
an article of inter-state commerce as any other product. The amendment was negatived. Sir Geo. Turner then proposed an amendment to allow “any bounty or aid granted by any State with the consent of the Governor-General in Council or the Parliament of the Commonwealth.” The words “Governor-General in Council” were strongly objected to on the ground that they excluded the corporate influence of the States—the Ministry being responsible only to the House of Representatives. Sir Geo. Turner and Mr. Isaacs, however, insisted that without these words the provision would be useless, as the assent of Parliament would involve too much delay. Mr. Dobson moved to omit the words “Governor-General in Council” but this was negatived on division by 26 to 21— several members voting to retain the words and afterwards voting against the whole provision, which was then negatived by 27 to 19. (Conv. Deb., Melb., pp 965–90.)

In the second recommittal, Sir Geo. Turner moved his amendment again. Sir John Downer, by way of compromise, proposed to omit both Governor-General and Parliament, and substitute the assent of “both Houses of Parliament expressed by resolution.” Sir Geo. Turner and Mr. Isaacs thought this no better than Act of Parliament, and secured its rejection by 22 votes to 19. Thereupon an amendment was moved to add a condition that the bounty should not derogate from inter-state free-trade. Sir Geo. Turner complained that this made the whole clause useless, as any bounty might be set aside by the High Court, and therefore no one would venture to invest capital; but it was carried by 29 to 12. Sir Geo. Turner then asked the Convention to assist him out of his difficulty by retracing their steps, and allowing him to accept Sir John Downer's amendment; and this was done. (Conv. Deb., Melb., pp. 2343–65.)

After the fourth report the clause (which up to then had formed part of preceding clause) was redrafted as a separate clause.

§ 385. “Exceptions as to Bounties.”

THE BOUNTY QUESTION.—The question of State bounties—as clearly appears from the discussions in the Convention—bears a close analogy to the question of discriminating railway rates. Both bounties and discriminating rates may have a lawful or an unlawful purpose. They may be used purely for the development of the resources of a State, or they may be used te create unfair and unfederal competition with the trade of another State. The Convention was therefore not satisfied with the absolute prohibition of bounties, any more than with the absolute prohibition of preferences; they wished to protect purely developmental bounties, while forbidding unfederal bounties. The difficulty was, however, to frame a definition. Bounties on mining for metals were, without much dispute, accepted as developmental; but as regards other bounties, no definition was possible, and the matter was left to the decision of the Federal Parliament in much the same way as the question of unfederal rates is left to the Inter-State Commission.

§ 386. “Nothing in this Constitution Prohibits a State from Granting.”

These words qualify the provisions of sec. 90, which otherwise would prohibit a State from granting any aid or bounty which came within the description “bounty on the production or export of goods.” If the State is not prohibited from granting certain bounties, it must follow that it is not prohibited from legislating for that purpose, and therefore that to that extent an exception is made to the exclusive nature of the power of the Federal Parliament.

It is submitted that the wide words, “nothing in this Constitution prohibits,” do not exempt such grants of bounties from the provisions of the Constitution generally, but only from those prohibitions which relate specifically to bounties. The declaration that the Constitution does not prohibit a State from granting certain bounties does not mean that such bounties may not be unlawful if they do not comply with the


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requirements of the Constitution, or of federal statutes, in other respects. These particular bounties are excluded, qua bounties, from all the constitutional prohibitions against granting bounties; but they are not exempted from the whole ambit of the Constitution.

Suggestions were made throughout the debate that State bounties might be unconstitutional, without express provision to that effect, on the ground that they derogated from freedom of trade among the States. (See, for instance, Conv. Deb., Adel., pp. 840 seqq.; Conv. Deb., Melb., pp. 910 seqq.) It is extremely doubtful, however, whether a local encouragement to industry could ever be held to be a violation of the constitutional provision for freedom of trade. It might, indeed, and often would be a derogation from equality of trade, and therefore be unfederal; but it is hard to say that encouragement by a State of its own industries, by means of bounties on production or export, can interfere with the freedom of inter-state or foreign trade. (See notes to sec. 92.)

§ 387. “Any Aid to or Bounty on Mining for… Metals.”

It was not contended at the Convention that aids to the development of mineral resources—at least as regards metals—would be likely to interfere with equality of trade. The sums so spent at present are chiefly in the way of rewards for the discovery of gold-fields. It was suggested at the Adelaide Convention that these payments might be held to be bounties on the production of goods. (Conv. Deb., Adel., pp. 843, 850.) The chief reason for inserting this provision seems to have been to remove doubts on this point; though of course the words have, and were intended to have, a wider scope. (See Conv. Deb., Melb., p. 966.)

As regards bonuses for mining discoveries, it is submitted that they could not, in any case, be held to be “bounties on the production of goods.” The bounty contemplated by the section is a sum paid to the producer in respect of the goods produced; and even admitting that mining is the “production of goods” within the meaning of the Constitution, it is clear that a reward paid for discovery is essentially different from a reward paid for production. It is submitted, therefore, that rewards for discovery do not come within the meaning of a bounty, and do not need the protection of this section; but may be given in respect of any industry.

The reasons for limiting the exemption in favour of mining bounties to “gold, silver, and other metals” is stated by Mr. O'Connor (Conv. Deb., Melb., p. 965).

“The clause as it stands was the result of a long discussion in Adelaide. It was held that bounties granted for the production of metals stood in a different position altogether from bounties granted on the production of goods which might be the objects of commerce between different States. It is because a bounty on the production of metals would have no effect on the price that this clause was agreed to..... The reason why you are not allowed to give a bounty on butter, or any other article of that kind produced in a State, is because the bounty would interfere with the price and the sale in commerce between the States, and exactly the same consideration would apply to a mineral like coal, which is the subject of sale.”

The distinction thus made, between bounties which affect and which do not affect the price of a commodity the subject of inter-state commerce, is a sound one; but the line drawn in the section, between metals and non-metals, is hardly so satisfactory. As regards gold and silver on the one hand, and coal on the other, it applies well enough; but it does not seem clear why the price of such a metal as iron—which, if produced in any State, would be distinctly an article of inter-state commerce—might not be affected by bounties almost as much as the price of coal.




  ― 843 ―

§ 388. “With the Consent of Both Houses… Expressed by Resolution.”

This provision amounts to an absolute power given to the two Houses of the Federal Parliament to dispense, to any extent which they may desire, with the prohibition imposed by the preceding section. The intention is that whilst State bounties in general are prohibited, there should be full opportunity given for the allowance of bounties which are purely developmental in aim and not unfederal in effect. It being impossible to frame any definition which would secure this desirable object, the matter was entrusted absolutely to the discretion of the Federal Houses of Parliament.

As to the nature of the consent, it is conceived that it may be absolute or conditional, particular or general, for a fixed or an indefinite period; and that the resolution may be either antecedent or subsequent to the grant by the State. Perhaps the most important questions likely to arise are (1) whether the consent once given is revocable, and (2) if so, what will constitute revocation.

(1.) That any consent given under this section is revocable there can hardly be any doubt. The consent of Parliament in such a case is not the consent of a contracting party, but a license given by a governing body. If instead of the consent of “both Houses of the Parliament expressed by resolution,” the consent of the Parliament itself had been required, the consent would have been by legislative Act, revocable at any moment at the will of the Parliament. A Parliament cannot bind succeeding Parliaments, and cannot even bind itself; and it is impossible to suppose that it was intended to empower the two Houses by joint resolution to do what the Queen and both Houses together would be unable to do. It is submitted, therefore, that the consent of both Houses must be a continuing consent, revocable at any moment. Consideration of the object of the general prohibition against bounties, and of this exception, leads to the same conclusion; because it is obvious that a bounty which does not, when granted, interfere with equality of trade may afterwards, under altered conditions of trade, involve serious inequality.

(2.) Then comes the question—what constitutes revocation? If the consent is revocable, it can clearly be revoked in the way in which it was made—by resolution of both Houses. But would the rescission of the resolution by either House, without the other, constitute revocation? The answer seems to depend on the further question whether the “consent of both Houses” is to be regarded as a joint or a several consent —as one consent or two. If the consent of each House were regarded independently, it would seem that the consent of both Houses could not be said to continue when the consent of one was withdrawn; whereas if the consent of both Houses were regarded as one common consent, the concurrence of both would be needed to withdraw that consent. Looking at the language of the section (which speaks of “both Houses,” not of “each House;” compare sec. 128), and also at the character of the Parliament as a legislative body, and the semi-legislative character of the consent required, it seems clear that a joint revocation would be necessary. If the intention of the Convention be considered, this view is borne out. The proposal to require the consent of “both Houses” was a compromise to meet the views of those who feared that the consent “of the Parliament” would involve undue delay. The joint resolutions seem to have been regarded as a slightly more expeditious substitute for an Act of Parliament, and not to differ in effect. (Conv. Deb., Melb., p. 2352.)

It was indeed suggested (id. pp. 2357–8) that a consent once given would become “part and parcel of the Constitution,” and would be interminable unless so expressed by the resolutions themselves; but it is submitted that this view—which was not based on the distinction between resolutions and Act of Parliament—cannot be supported.




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Trade within the Commonwealth to be free.

92. On the imposition of uniform duties of customs, trade, commerce, and intercourse among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free389.

But notwithstanding anything in this Constitution, goods imported before the imposition of uniform duties of customs390 into any State, or into any Colony which, whilst the goods remain therein, becomes a State, shall, on thence passing into another State391 within two years after the imposition of such duties, be liable to any duty chargeable on the importation of such goods into the Commonwealth, less any duty paid in respect of the goods on their importation.

CANADA.—All articles of the growth, produce, or manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.— B.N.A. Act, 1867, sec. 121.

Where customs duties are, at the Union, leviable on any goods, wares, or merchandises in any two Provinces, those goods, wares, and merchandises may, from and after the Union, be imported from one of those Provinces into the other of them, on proof of payment of the customs duty leviable thereon in the Province of exportation, and on payment of such further amount (if any) of customs duty as is leviable thereon in the Province of importation.—Id. sec. 123.

HISTORICAL NOTE.—At the Sydney Convention, 1891, the first paragraph of the clause was drafted and passed substantially in its present form—except that it referred to trade “throughout the Commonwealth,” not merely “among the States.” There was also a clause enabling the Parliament to annul any law having the effect of derogating from inter-state free trade.

The difficulty as to the possible evasion of the federal tariff by “loading up” just before its imposition, in a colony where goods were duty-free, was raised by Colonel Smith, who proposed to retain the intercolonial duties for twelve months after the imposition of the Federal Tariff. The amendment was, however, withdrawn. (Conv. Deb., 1891, pp. 790–802.)

At the Adelaide session, 1897, the 1891 draft was followed almost verbatim. In place of the power to annul laws made in derogation of free-trade, there was appended to the preference clause a provision that such laws should be wholly void. Sir George Turner feared that “absolutely free” might have a wider interpretation than was meant; and Mr. Isaacs suggested that the clause was unnecessary, and dangerously wide. All that was needed was a prohibition of inter-state duties—which was elsewhere provided for. He also suggested “among the States” as better than the wide phrase “throughout the Commonwealth.” (Conv. Deb., Adel., pp. 875–7.)

For an amendment by Mr. Deakin, to enable a State to prohibit importation of articles the sale of which within the State is prohibited, see Hist. Note to sec. 113.

At the Melbourne session, a suggestion of the Legislative Assembly of Western Australia to omit “throughout the Commonwealth,” and substitute “between the States,” was agreed to.

The second paragraph was added in accordance with the Report of the Finance Committee. Mr. McMillan feared it would be unworkable; but Mr. Holder replied that it would probably not need to be enforced, as the mere fact of its existence would prevent the mischief. The provision was amended by inserting “colony or” before


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“State,” so as to make it applicable to goods imported before the establishment of the Commonwealth. Sir Philip Fysh proposed words to make it clear that these duties are to be credited to the State of destination; but the amendment was deemed unnecessary, and withdrawn. Sir George Turner suggested that where the duty paid in the colony was higher than the Commonwealth duty, the State should give a drawback; but the matter was left over for consideration. An amendment by Mr. Henry, to limit the clause to one year, was negatived by 32 to 9. The provision that laws derogating from free-trade should be void disappeared from the Bill, that result being sufficiently secured by this clause. (Conv. Deb., Melb., pp. 1014–36.) Drafting amendments were made before the first report and after the fourth report.

§ 389. “Trade Commerce and Intercourse…shall be Absolutely Free.”

FREEDOM OF INTER-STATE TRADE.—This section is intended to provide for the perfect freedom of trade and commerce among the States, from the moment of the imposition of uniform duties. In order to secure that object the strongest possible words have been used. Nothing has been left to implication. In this respect the Constitution of the Commonwealth is more explicit than the Constitution of the United States, which merely forbids the States to lay any duties on imports or exports without the consent of Congress. (Art I. sec. x. subs. 2.) But it was held in Brown v. Houston, 114 U.S. 622, and Woodruff v. Parham, 8 Wall. 123, that the prohibition did not apply to goods carried from one State of the Union to another; such goods were not imports or exports; imports were commodities coming from foreign countries into the Union, and exports were those proceeding out of the Union into foreign countries. In America, therefore, inter-state free-trade depends solely on the rule of construction that the regulation of trade and commerce, in matters requiring uniformity of legislation, is exclusively vested in Congress, and that the States are, ipso facto, deprived of the power to impose duties on goods proceeding from one State into another. Under the Constitution of the Commonwealth there are two express guarantees for freedom of trade between the States; sec. 90, which provides that on the imposition of duties of customs the power of the Parliament to deal with that subject becomes exclusive; and sec. 92, which provides that thenceforth trade, commerce, and intercourse among the States shall be absolutely free.

This section, and all the cases cited in illustration of its meaning, must be read subject to the special provisions of sec. 113, which enacts that “All fermented, distilled, or other intoxicating liquids passing into any State or remaining therein for use, consumption, sale, or storage, shall be subject to the laws of the State as if such liquids had been produced in the State.”

THE ELEMENTS OF INTER-STATE FREE-TRADE.—Two questions have to be considered in connection with sec. 92 in order to grasp its significance; first, what is absolute freedom of trade, commerce, and intercourse? and secondly, during what period of time or within what limits of space do inter-state trade and commerce operate, so as to remain protected by the shield of Federal freedom? In reference to the first question, absolute freedom of trade, commerce, and intercourse may be defined as the right to introduce goods, wares, and merchandise from one State into another, the right to sell the same, and the right to travel unburdened by State restrictions, regulations, or obstructions. Freedom of trade necessarily means the right to sell as well as the right to introduce, and the right to travel in order to sell. The right of introduction without the right of disposition would reduce freedom of trade to an empty name. The second question may be conveniently discussed under the headings, (1) When does exportation begin? and (2) When is importation complete?

WHEN EXPORTATION BEGINS.—It has been held that exportation does not begin until the goods are committed to the custody of a carrier for transportation out of a


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State. Until then they remain subject to State laws and are taxable as a part of the general mass of property in the State. (Coe v. Errol, 116 U.S. 517. See other cases cited p. 519, supra.)

WHEN IMPORTATION IS COMPLETE.—Articles of foreign or inter-state commerce become subject to State laws and State taxation from the moment when they are divested of their inter-state or foreign quality. This happens as soon as they pass from the original importer into the hands of the purchasers of the original packages, or as soon as they have been broken up for retail by the original importer. (Brown v. Maryland, 12 Wheat. 419; Turpin v. Burgess, 117 U.S. 504. Burgess, Political Sci. ii. p. 135.)

DOCTRINE OF ORIGINAL PACKAGE.—An original package has been defined as the unbroken package, in the condition in which it was prepared by the exporter, received and transported by the carrier, and brought into the importing State. (McGregor v. Cone, 1898, 73 N.W. Rep. 1041.) Thus boxes and barrels are original packages. In some cases it has been held that where bottles of liquor were packed in barrels and boxes, and transported into a State, the bottles were the original packages and were within the protection of the Federal commercial law, after they had been removed from the barrels and boxes. These cases, however, have been overruled, and it is now held that the barrels or boxes, and not the bottles, are the original packages. (Prentice and Egan, Commerce Clause, p. 82.) It has been further held that the question, what constitutes an original package, is partly one of good faith, and that the importer may determine for himself the form and size of the package which he buys. (Guckenheimer v. Sellers, 81 Fed. Rep. 997.) The importer may sell his goods in the original package, by wholesale or by retail. (Schollenberger v. Pennsylvania, 171 U.S. 1.) An original package becomes subject to State jurisdiction as soon as it is broken. (Brown v. Maryland, 12 Wheat. 419; Leisy v. Hardin, 135 U.S. 100.) The original package is not broken merely by the fact of lifting the lid for the examination of its contents. (Re McAllister, 51 Fed. Rep. 282.) The drawing of a bung from a barrel, in order to obtain a small quantity of its contents for testing purposes, does not constitute a breaking of the package. (Wind v. Iler, 93 Iowa, 316.)

METHODS OF FETTERING INTER-STATE COMMERCE.—The principal methods resorted to by some of the States of America, in order to avoid the rule of freedom of trade, may be thus classified—(1) By the imposition of taxes on imported goods, after their entry into the State, this being done in the pretended exercise by the State of the right to tax all property within its jurisdiction. (2) By requiring persons engaged in selling goods introduced or coming from another State to pay for licenses to sell, this being also done in the pretended exercise of State taxing power. (3) By restricting the actual introduction of goods from another State, on alleged sanitary or moral grounds, this being done in the pretended exercise of the police power of the State.

TAXES ON INTER-STATE COMMERCE.—The following are instances of taxes on inter-state commerce, violating the law of commercial freedom:—A tax on goods coming from other States unaccompanied by equal taxes on similar local goods, held to be unconstitutional and void (Brown v. Houston, 114 U.S. 622); a tax on the earnings of carriers conveying freight and passengers, from one State into another, held unconstitutional (Gloucester Ferry Co. v. Pennsylvania, 114 U.S. 196); a tax on persons selling goods manufactured out of the taxing State, and no similar tax exacted from those engaged in the sale of like goods manufactured in that State, held unconstitutional (Walling v. Michigan, 116 U.S. 446); a tax on cars belonging to a carrying company which run from point to point within the taxing State to points without the State, held unconstitutional (Pickard v. Pullman Car Co., 117 U.S. 34); a tax on every ton of freight, carried by a railway in and through a State, held unconstitutional (The State Freight Tax Case, 15 Wall. 232); a tax on all messages sent by a telegraph company, se far as it applied to messages sent to or received from points in other States, held unconstitutional (Telegraph Co. v. Texas, 105 U.S. 460); a tax on all persons soliciting orders for goods, so far as it applied to those canvassing for


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persons outside the State, held unconstitutional (Asher v. Texas, 128 U S. 129); a tax on all non-residents who sold liquors, held unconstitutional (Walling v. Michigan, 116 U.S. 446); a tax on a carrying company for every alien passenger brought by it to the ports of a State, held unconstitutional (People v. Compagnie Generale, 107 U.S. 59; Henderson v. Mayor of New York, 92 U.S. 259); a tax on the gross receipts of common carriers, so so far as it applied to receipts from inter-state business, held unconstitutional (Fargo v. Michigan, 121 U.S. 230); a tax on all vessels touching the wharves of a State, so far as it applied to vessels engaged in inter-state business, held unconstitutional (Inman S.S. Co. v. Tinker, 94 U.S. 238); a tax on the franchise of a railroad company which had been granted by the Federal legislature, held unconstitutional (California v. Central Pacific R. Co., 127 U.S. 1); a tax on the tonnage of vessels, even though such tax was exacted in aid of quarantine inspection, held unconstitutional; a tax collected from auctioneers on their sales of imported goods in their original packages, held unconstitutional (Cook v. Pennsylvania, 97 U.S. 566); a tax on bills of lading for the transportation of gold or silver from one State to another, held unconstitutional (Almy v. California, 24 How. 169); a tax of 5 dollars on each vessel entering a port of a State, such tax being supplied to support the Port Wardens, and collected, whether the vessel required their services or not, held unconstitutional (Steamship Co. v. Port Wardens, 6 Wall. 31); a tax on a non-resident railway company engaged in inter-state traffic, for the right to maintain an office in the taxing State, in order to promote its business, held unconstitutional (Norfolk and Western R. Co. v. Pennsylvania, 136 U.S. 114).

LICENSES TO ENGAGE IN INTER-STATE COMMERCE.—The following are instances in which State laws taxing persons engaged in inter-state commerce have been held to violate the rule of commercial freedom, viz., laws requiring pedlars selling goods not grown or manufactured in the taxing State to hold licenses, whilst no licenses were required of persons selling similar articles grown or manufactured in the State, held unconstitutional (Welton v. Missouri, 91 U.S. 275); requiring commercial travellers canvassing for the sale, by sample, of goods at the time outside the State to hold licenses, held unconstitutional (Asher v. Texas, 128 U.S. 129; Robbins v. Shelby Taxing District, 120 U.S. 489; Stoutenburgh v. Hennick, 129 U.S. 141); requiring persons selling malt liquor, the product of another State, to hold licenses, held unconstitutional (Tiernan v. Rinker, 102 U.S. 123); requiring persons selling goods, not the product or manufacture of the vendors, to hold licenses, held unconstitutional (Corson v. Maryland, 120 U.S. 502); requiring the officers of foreign corporations engaged in inter-state commerce to hold licenses, held unconstitutional (McCall v. California, 136 U.S. 104); requiring persons engaged in inter-state occupations to hold licenses, held unconstitutional (Moran v. New Orleans, 112 U.S. 69); requiring the owners of inter-state ferry boats touching the wharves of a State to hold licenses, held unconstitutional (St. Louis v. Wiggins Ferry Co., 11 Wall. 423); requiring a telegraph company established by the federal legislature to hold a license, held unconstitutional (Leloup v. Port of Mobile, 127 U.S. 640); requiring a license to be held by an agent of a foreign express company, held unconstitutional (Crutcher v. Kentucky, 141 U S. 47); requiring an agent of a company having a railway in a distant State, and soliciting business for that railway, to hold a license, held unconstitutional (McCall v. California, 136 U.S. 104); requiring a license fee for the use of a stream in prosecuting inter-state commerce, held unconstitutional (Harman v. Chicago, 147 U.S. 396).

POLICE POWERS EXERCISED TO RESTRICT INTER-STATE COMMERCE.—The following are examples of State laws, passed in the exercise of police powers, which obstruct and restrict inter-state commerce, and which consequently violate the rule of commercial freedom, viz., a law prohibiting the introduction into a State of cattle or goods during certain periods of the year, ostensibly for sanitary purposes, but in reality for State protective purposes, held unconstitutional (Railroad Co. v. Husen, 95 U.S. 465); prohibiting the introduction into a State of certain kinds of human food, unless inspected before its preparation, ostensibly for sanitary reasons, but in reality for State protective


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purposes, held unconstitutional (Minnesota v. Barber, 136 U.S. 313); prohibiting the introduction of certain goods, such as intoxicating liquors, ostensibly to preserve the morals of the people, held unconstitutional (Bowman v. Chicago, &c., R. Co., 125 U.S. 465; Leisy v. Hardin, 135 U.S. 100; see, however, the Wilson Act (America), and sec. 113 of this Constitution.)

TAXES BY STATES IN EXERCISE OF THEIR TAXING POWERS.—In the cases cited, in which taxes imposed by States were held to be unconstitutional and void, the taxes were for the most part of a discriminating character, in taxing the means of commerce and the subjects of commerce coming from other States, or they were so thinly veiled as to be reasonably suspected of an intention to tax inter-state commerce and so impair its freedom. Discrimination is one of the principal tests applied in determining the constitutionality of a State tax. (Tiernan v. Rinker, 102 U.S. 123.) A discriminative tax on imported goods would be unconstitutional, even if imposed on the goods after they had left the hands of their original importers, and even after their original packages had been broken. But discrimination is not the only test. A tax on inter-state trade and traffic may be blended in a tax on domestic trade and traffic. In such a case the discrimination intended might not be apparent, and yet the Courts might discern the intention to tax inter-state trade and traffic, so lurking in the plan of taxation as to bring it within the prohibition. The people of a State might find it compatible with their views and interests to impose a tax on a portion of their own trade and business, in order to have the privilege of taxing the larger volume of inter-state trade and business of the same kind. Consequently in the State Freight Tax Case (15 Wall. 232) a tax imposed by a State on all the freight, both domestic and inter-state, conveyed by a railway company in and through a State was held unconstitutional. A similar principle was affirmed in Telegraph Co. v. Texas, 105 U.S. 460.

There are several cases, however, in which it has been distinctly held that a State may adopt a general system of taxation which may indirectly affect every branch of commerce, and yet be within its constitutional right. The first was that of Brown v. Houston, 114 U.S. 622, which is described by Dr. Pomeroy as one of the most interesting and delicate cases involving the power of a State to tax goods of an inter-state origin. In this case coal was mined in the State of Pennsylvania, and then shipped to New Orleans in the State of Louisiana to be sold in the open market for the Pennsylvanian owners. The coal was not landed at New Orleans, but remained on board the vessel in which it arrived in port, and was sold whilst on board that vessel, the purchasers intending to take it out of the country in a foreign bound vessel. The city corporation of New Orleans claimed a tax on the coal under the terms of a general law taxing property within the State. It was held by the Court that the coal had become intermingled with the general property of the State; that it was properly taxable according to the recognized rule, that after goods have arrived at their place of destination in a State, either for use or for trade, they become subject to any general tax laid on all property alike, without discrimination, in the State. The decision in Brown v. Houston is not considered to be in conflict with the rule of the immunity of original packages, because the bulk had been broken and the first sale had taken place.

In the case of Emert v. Missouri, 156 U.S. 296, it was held that a State can levy a tax or demand a license fee for the right to sell goods in the possession of the seller, and by him offered for sale, even if they are the products of another State. In the case of Pittsburg Coal Co. v. Bates, 156 U.S. 577, coal sent by river from Pennsylvania to Louisiana, while kept on the boats by which it had been transported, was offered for sale and part was sold; held that it was liable to State taxation.

In Myers v. Commissioners of Baltimore county, 35 Atl. Rep. 144, a tax was imposed by a State upon an average number of cattle, owned by a dealer within a State, which had been received by him during the year from the Western States, held usually for one day, and afterwards sold for export. It was held that, like other property situated within the State, they were liable to State taxation.




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These cases, however, will require very careful consideration before any opinion can be expressed as to how far they would be applicable in the interpretation of the Constitution of the Commonwealth.

A State has a right to tax all the domestic trades and occupations of its citizens. In Ficklen v. Shelby Taxing District, 145 U.S. 1, where a resident citizen, engaged in a general business, was subject to a particular tax, it was held that the fact that, for the time being, the business happened to consist in whole or in part of negotiating sales between residents and non-residents of goods made in another State, did not make such a tax an imposition on inter-state commerce.

A State may tax personal property employed in inter-state commerce, like other personal property within its jurisdiction. (Marye v. Baltimore and Ohio R. Co., 127 U.S. 117; Western Union Tel. Co. v. Massachusetts, 125 U.S. 530; Western Union Tel. Co. v. Taggart, 163 U.S. 1. Cooley's Const. Law, p. 80.)

In the case of Pullman's Palace Car Co. v. Pennsylvania, 141 U.S. 18, a statute of Pennsylvania imposed a tax on the capital stock of every railroad and car company, in the proportion which the number of miles operated by it within the State bore to the whole number everywhere. It was upheld as to the non-resident Pullman Car Company, because it had within the State constantly engaged in its business, though mainly operated in inter-state journeys, a certain number of cars which thus acquired a situs there for taxation, the tax being in reality upon the cars as property. The majority of the judges distinguished the tax on capital stock in this case from an occupation tax, a license tax, or a tax on transit, and they applied the doctrine of Western Union Tel. Co. v. Massachusetts, 125 U.S. 530, in which a tax on specified property was upheld. (Cooley Const. Law, 80–1.) In the State Tax on Gross Receipts Case (15 Wall. 284), the Courts upheld a State tax on the gross receipts of a carrying company, including receipts from inter-state business. This doctrine has since been questioned in Philadelphia Steamship Co. v. Pennsylvania, 122 U.S. 326. In that case the question was as to the validity of a tax levied by Pennsylvania upon the gross receipts of a company, derived from the carriage of persons and property by sea between different States, and it was held that the tax was unconstitutional.

In Maine v. Grand Trunk R. Co., 142 U.S. 217, a State statute provided that every person working a railroad, within the State, should pay to the State treasurer an annual excise tax, to be determined by reference to the gross receipts of the company, in proportion to its mileage within and without the State. The statute was sustained on the ground that it was a tax on a foreign corporation for the privilege of exercising its franchises within the State. The decision in this case seems to be in conflict with that in the Philadelphia Steamship Co. v. Pennsylvania, 122 U.S. 326.

OTHER STATE FEES AND CHARGES ALLOWABLE.—In the following cases it has been decided that the fees, charges, and licenses required by State laws do not violate the rule of commercial freedom, viz., a stamp fee on snuff intended for domestic use, such stamp being required simply to distinguish it from snuff designed for export, held constitutional (Pace v. Burgess, 92 U.S. 372); a stamp fee on tobacco before its removal from the manufactory, held constitutional (Turpin v. Burgess, 117 U.S. 504); a charge for storage and outage collected on tobacco shipped out of a State and inspected at the State warehouse, held constitutional (Turner v. Maryland, 107 U.S. 38); a tax on peddlers of sewing machines, applied alike to those manufactured in and out of a State, held constitutional (Machine Co. v. Gage, 100 U.S. 675, but this case was afterwards overruled); a license fee collected from a foreign corporation, provided such corporation is not engaged in carrying on foreign or inter-state commerce within the State (Pembina Mining Co. v. Pennsylvania, 125 U.S. 181); a license fee exacted from the agent of a corporation organized under a law of another State for the right to solicit insurance business on buildings within the State, held constitutional (Paul v. Virginia, 8 Wall. 168); tolls for the use of improvements in connection with navigable streams and highways (Mobile v. Kimball, 102 U.S. 691; Harman v. Chicago, 147 U.S. 396, but the Federal


  ― 850 ―
legislature could interpose and declare such tolls illegal); a charge for a license for all engineers to pay the expenses of examination as to their competency to undertake employment on inter-state railroads (Nashville Railroad Co. v. Alabama, 128 U.S. 96); a charge on all vessels touching at quarantine stations, such charge to be applied to pay the expenses of inspection (Morgan's S.S. Co. v. Louisiana Board of Health, 118 U.S. 455); a charge based on the tonnage of a vessel for the use of a wharf owned by a State, provided such charge is not of a discriminating character (Packet Co. v. Keokuk, 95 U.S. 80; Transportation Co. v. Parkersburg, 107 U.S. 691); a charge for the use of the improved internal waterways of a State, provided that such charge is not of a discriminating character. (Huse v. Glover, 119 U.S. 543; Sands v. Manistee R. Improvement Co., 123 U.S. 288.)

STATE POLICE LAWS ALLOWABLE.—In the License Tax Cases, 5 Wall. 462, Chief Justice Taney said that the police powers of a State were nothing more or less than the powers of government inherent in every sovereignty to the extent of its dominions. And whether a State passes a quarantine law, or a law to punish offences, or to establish courts of justice, or requiring certain instruments to be recorded, or to regulate commerce within its own limits, in every case it exercises the same power; that is to say, the power of sovereignty, the power to govern men and things within the limits of its dominions. Chancellor Kent has given, as examples of the legitimate subjects of State legislation, the following: unwholesome trades, slaughter-houses, operations offensive to the senses, the deposit of powder, the application of steam-power to propel cars, the building with combustible materials, and the burial of the dead. (Comm. ii. 340.) In Patterson v. Kentucky, 97 U.S. 501, Mr. Justice Harlan stated that by the settled doctrines of the court the police powers extend, at least, to the protection of the laws, the health, and the property of the community, against the injurious exercise by a citizen of his own rights. It was said by Chief Justice Fuller, in Leisy v. Hardin, 135 U.S. 108, that the power to pass laws in respect to internal commerce, inspection, quarantine laws, health laws, and laws in relation to bridges, ferries, and highways, belongs to the class of powers pertaining to locality, essential to local inter-communication, to the progress and development of local prosperity, and to the protection, safety, and welfare of society—powers originally necessarily belonging to, and upon the adoption of the Constitution reserved by, the States, except so far as they fell within the scope of a power confided to the General Government.

The primary objects of the police power of a State are the protection of health, the prevention of fraud, and the preservation of morals. This rule is clear, but great difficulty is sometimes experienced in its application.

The legislature of Louisiana incorporated the Slaughter-House Company, which was empowered to construct and maintain stock-landings and yards and a grand abattoir or slaughter-house at a specified place near New Orleans, and all live stock brought to that city for food were required to be landed and kept at these yards, and slaughtered at this abattoir, the company being authorized to demand compensation, the maximum rates of which were fixed by the statute. Landing or slaughtering such animals elsewhere was prohibited by heavy penalties. The exclusive privilege thus conferred was to continue for twenty-five years. Certain persons, engaged in the trade of butchering, residents of New Orleans and citizens of the United States, brought appropriate actions in the State courts to test the validity of the statute. These suits were finally carried to the Supreme Court of the United States. (Pomeroy's Const Law, p. 174.) By a bare majority the Supreme Court affirmed the validity of the Statute, as clearly within the competence of the State legislature in the exercise of its police power. (Slaughter-House Cases, 16 Wall. 36.)

In Powell v. Pennsylvania, 127 U.S. 678, a State law prohibited the manufacture and sale of oleomargarine. Powell was indicted for selling the prohibited article. It was strongly suspected that the law was passed in the interests of the dairymen of the State, as it was understood that oleomargarine, properly manufactured, was not injurious


  ― 851 ―
to health. Yet the court sustained the law as a proper exercise of the police power. In Plumley v. Massachusetts, 155 U.S. 461, a State law prohibited the sale of oleomargarine artificially coloured to resemble butter. The law was sustained in its application to an article imported from another State, on the ground that the resemblance of oleomargarine so coloured to butter, led to deception and was in the nature of a fraud. The importation of an article coloured to resemble butter could, in the opinion of the court, be prohibited so long as the introduction of uncoloured oleomargarine was not interfered with. This doctrine was carried a step further in the Armour Packing Co. v. Snyder, 84 Fed. Rep. 136. In that case a law of Minnesota forbade the sale of oleomargarine unless coloured bright pink. An attempt was made to apply this law to goods which had been shipped from Kansas into Minnesota, and which were marked as required by federal law, and sold only in original packages. It was contended that the State law prevented deception in the retail sale, and on this ground the requirement as to colour was sustained. This reasoning was, however, disapproved of in the case of Collins v. New Hampshire, 171 U.S. 30, in which it was held that a State could not prohibit the sale of an article of inter-state commerce, nor attach to it a condition which would render it unsaleable. In Brimmer v. Rebman, 138 U.S. 78, the court clearly expressed the opinion that a State could not pass regulations excluding articles of commerce which are actually fit for and belong to the domain of commerce. In the late case of Schollenberger v. Pennsylvania, 171 U.S. 1, decided by the Federal Supreme Court in 1898, a statute of Pennsylvania was challenged which forbade the introduction, in its pure and unadulterated condition, of oleomargarine from another State, and its sale in original packages. It was held that the statute was invalid so far as it applied to inter-state commerce. The difference in principle between Plumley v. Massachusetts and Schollenberger v. Pennsylvania is obvious; in the former case the article prohibited was coloured in imitation of butter, and consequently was liable to deceive the public; in the latter case it was a pure and harmless article of commerce which could not be either honestly or legally excluded by the State. In The People v. Hawkins, 31 N.Y. Suppl. 115, it was held that a State law requiring goods made by convict labour in other States to be so labelled when exposed for sale was unconstitutional.

POLICE POWERS AFFECTING COMMERCE.—The following laws passed by States have been held to be a proper exercise of their police powers, viz., a law excluding passengers, animals, and goods infected with disease, passengers known to be convicted criminals, paupers, idiots, lunatics, and persons likely to become burdens on the State, held constitutional (Bowman v. Chicago R. Co., 125 U.S. 465); a law forbidding the entrance into a State of cattle likely to communicate fever, unless carried in cars subject to certain precautions, held constitutional (Grimes v. Eddy, 126 Missouri, 168); a law for the protection of persons and property, regulating the introduction and transportation of nitro-glycerine and other dangerous explosives, held constitutional (Patterson v. Kentucky, 97 U.S. 501); a law imposing a license tax for the purpose of excluding an obscene paper, held constitutional (Preston v. Finley, 72 Fed. Rep. 850); a law forbidding the transportation or exportation of diseased sheep, cattle, and meats; a law forbidding the importation of goods tending to spread disease, held constitutional (Leisy v. Hardin, 135 U.S. 100). The reasons and principles of these decisions are, that such persons, animals, and commodities are not legitimate subjects of commerce.

“The several States have power to pass laws regulating the internal police of their own territories, which territories include navigable rivers and harbours, as well as unnavigable streams, and the land itself. These police measures are not, in any true sense of the term, regulations of commerce, although they may sometimes have direct reference to shipping, to the condition of harbours, and other instruments by which commerce is carried on, or to the commodities themselves which are the objects of inter-change and traffic. They are simply a part of the general system by which each State endeavours to protect the good morals, lives, health, persons, and property of its inhabitants. Thus, if a State legislature, deeming it dangerous to permit poisons to be sold without restriction, should pass a statute requiring a license from the druggist, or placing him under any other species of restraint, such law would be unobjectionable,


  ― 852 ―
although certain poisonous substances, as opium, are chiefly or wholly the products of foreign countries, and therefore the objects of commerce. Again, most of the States have enacted statutes prohibiting the sale of spirituous liquors in certain quantities and at certain times and places, except by those persons who have complied with the provisions of the statute, and have received licenses for that purpose. Such laws are within the power of the States to pass. This entire class of statutes establishing police regulations is within the purview of State legislation, whether Congress has legislated for the same or similar purposes or not. Among them may be mentioned laws establishing quarantine, licensing and controlling pilots, declaring the order in which ships shall come to wharves and docks, regulating the use of wharves and docks, managing the internal order of harbours, licensing the sale of spirituous liquors, poisons, and the like.” (Pomeroy's Const. Law, 10th ed. p. 275.)

OTHER EXAMPLES OF POLICE POWER.—Munn v. Illinois, 94 U.S. 113, decided in 1876, is a leading case illustrative of the police supervisory power of the States in matters which may indirectly affect commerce, but which do not amount to an interference or obstruction. The General Assembly of Illinois passed a law fixing the maximum charges for the storage of grain in warehouses at Chicago, and other places in the State, in which grain was stored in bulk and in which the grain of different owners was mixed together, or stored in such a manner that the identity of different lots or parcels could not be accurately preserved. The warehouses of the plaintiff were used as instruments of commerce by those engaged in trade solely within the State, as well as by those engaged in inter-state trade. It was held that this was a regulation of domestic concerns, quite legal until displaced by Federal legislation.

In the case of Escanaba Co. v. Chicago, 107 U.S. 678 (1882), the facts were as follows: The municipal authorities of Chicago had passed regulations declaring it to be unlawful to open any bridge within the city of Chicago during an appointed hour of the morning and evening, Sundays excepted, or to keep any such bridge open during the daytime for more than ten minutes at a time. The plaintiff's steam vessels were enrolled and licensed to carry goods from the port of Escanaba, Michigan, to docks on a branch of the Chicago River in the city of Chicago. In their course up the river to the docks, they had to pass through draws of several bridges constructed over the stream by the city of Chicago. They complained of the regulations as being an obstruction to navigation. The Supreme Court held that the power to control the bridges within the city had been properly and fairly exercised; that if the power had been used unnecessarily to obstruct navigation the Federal legislature could have interfered and removed the obstruction; that if the power of the State and the power of the Federal legislature came into conflict in such a case, the latter must control and the former yield. (Per Field, J., 107 U.S. 679.)

The control of bridges, dams, and ferries within a State and between two States is generally left to the supervision of the local authorities, so long as they do not use those works and agencies to obstruct the free flow of inter-state commerce. Bridges and ferries may be improved and utilized as aids to commerce. The States may establish ferries across navigable rivers, within or adjacent to their jurisdiction, and they may require the owners of boats to take out licenses and pay fees. (Wiggins Ferry Co. v. East St. Louis, 107 U.S. 365.) But this is justifiable only as a compensation for the right of wharfage on the State territory. A ferry between States is a means of commerce and cannot be taxed. (Gloucester Ferry Co. v. Pennsylvania, 114 U.S. 196.) As to dams and bridges, see Willson v. Blackbird Creek Marsh Co., 2 Pet. 245; Wheeling Bridge Case, 18 How. 421, and Gilman v. Philadelphia, 3 Wall. 713.)

The States may improve navigable streams within their limits, and impose tolls on those using them in order to defray expenses. (Mobile v. Kimball, 102 U.S. 691.) But a license fee exacted for the use of the stream and not as a toll or compensation for specified improvements and services is invalid. (Harman v. Chicago, 147 U.S. 396.) The Federal legislature can interpose and supersede the authority of the State in all these cases, whenever it deems it necessary to do so, in order to remove obstructions, abate nuisances, stop exactions, carry out improvements or establish uniform regulations. (Monongahela Nav. Co. v. United States, 148 U.S. 312; Wisconsin v. Duluth, 96 U.S. 379.)




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The municipal authorities of a State can regulate laundries, and prohibit washing and ironing within defined districts during certain hours of the night. (Barbier v. Connolly, 113 U.S. 27; Soon Hing v. Crowley, 113 U.S. 703.) Such authorities can also abolish bone factories in specified districts (Fertilizing Co. v. Hyde Park, 97 U.S. 659); and breweries (Bartemeyer v. Iowa, 14 Wall. 26; Foster v. Kansas, 112 U.S. 201). See, however, Leisy v. Hardin, 135 U.S. 100; Wilson Act (America), and sec. 113 of this Constitution.

A State can pass a law providing that any person introducing cattle which have not wintered north of a certain line shall be liable to an action for damage done by the introduced cattle, in spreading and communicating disease to other cattle. (Kimmish v. Ball, 129 U.S. 217.)

Dr. Von Holst, referring to the commerce clause of the American Constitution, says: “In inter-state or international commerce, neither the goods nor the transportation of property or persons can be taxed by the States. But the business as such and the capital used in it are subject to the State's right of taxation. The correctness of this principle certainly cannot be attacked, but just as little can it be disputed that it gives the States the power of encroaching very seriously upon the congressional domain, if they are only careful about the way in which they do so. The Courts, indeed, are in no wise bound to permit the simple question of the sufficiency of the form, in which a State carries out its right of taxation, to determine their decisions; and they do not do so. As soon as they enter upon the question, whether the tax-laws of a State materially encroach upon the right of regulating international and inter-state commerce, subjective views are given more or less away.” (Const. Law of the U.S., p. 143.) In support of his suggestion as to the power of the States to encroach on the Federal domain the learned author cites the decision in the case of Liverpool Insurance Co. v. Massachusetts, 10 Wall. 566, according to which a State can tax foreign corporations at a higher rate than similar corporations created by its own laws. That was the case of an insurance company, and it has been held that insurance is not commerce, and is consequently not within the protection of the commerce clause. No such discrimination would be permissible in the case of a commercial corporation, either in America or in the Australian Commonwealth.

LIMITS OF THE POLICE POWERS.—The right of exclusion is founded on the vital necessity of self-defence and self-protection. A State could not exclude persons, animals, or merchandise unobjectionable in character, health, and quality, and fit subjects of commerce. (Brimmer v. Rebman, 138 U.S. 78.) In Henderson v. Mayor of New York, 92 U.S. 259, the extent to which a State could exclude paupers and criminals was not clearly decided. A State law which forbids the entrance into the State of persons who are not paupers, vagabonds, and criminals, and who are not unsound in body or mind, is not a right exercise of the police power. (State v. Steamship “Constitution,” 42 Calif. 579.)

PORTS, HARBOURS, AND PILOTAGE.—Until the Federal Parliament assumes the control and management of ports, harbours, wharves, beacons, buoys, lights, and pilotage, the State authorities, boards, and trusts, at present charged with the administration of these works, will continue to exercise their functions and powers within the limits assigned to them by State laws. Harbour and port dues, wharfage rates, light dues, will be collected by the local authorities according to local laws; they are not taxes on commerce or in any way affecting the freedom of commerce, but merely compensations for services rendered. (Re Rahrer, 140 U.S. 545; Steamship Co. v. Jollife, 2 Wall. 450; Cooley v. Port Wardens, 12 How. 299.) States may regulate wharves at which vessels receive passengers and cargo, and disembark and discharge same, and may impose dues and rates sufficient to pay the expenses of executing the wharfage regulations. (Gloucester Ferry Co. v. Pennsylvania. 114 U.S. 196–214; Transportation Co. v. Parkersburg, 107 U.S. 691.) But the wharfage charges must be imposed and collected without discrimination, and according to the value of the services rendered, or they will


  ― 854 ―
come within the constitutional prohibition. (Inman v. Tinker, 95 U.S. 238.) It has been held that a tax on every boat is a tax on boats, not on commerce (St. Louis v. Wiggins Ferry Co., 11 Wall. 423); but a tax on a vessel every time she enters a certain harbour is not a tax on the vessel, but a tax on the business conducted by the vessel on entering the harbour. (Steamship Co. v. Port Wardens, 6 Wall. 31.) The reasonableness of the rates charged for wharfage may be enquired into by the Federal Courts, to ascertain whether in effect they amount to a duty on tonnage. (St. Louis v. Telegraph Co., 139 U.S. 463.)

QUARANTINE.—Until the control over the various departments of quarantine is assumed by the Federal Government, the States will continue to manage the quarantine stations and to enforce the quarantine laws. Such laws may require persons engaged in commerce to submit to medical examinations, and, if necessary, to remain isolated for statutory periods. They may impose a charge on each vessel to defray the expenses of inspection. In Train v. Boston Disinfectant Co., 144 Mass. 523, it was decided that a State may, by its officers, disinfect all rags arriving at a port, and compel the owner to pay the cost of disinfection. An ordinance of St. Louis provides that steamboats coming from below Memphis, having had on board more than a specified number of passengers during the voyage, should remain in quarantine for not less than 48 hours and not more than 20 days. It was held that this was a valid sanitary and quarantine law. (St. Louis v. McCoy, 18 Missouri, 238.)

The question whether wharfage, quarantine, and other such dues, fees and charges, demanded by a State, are bona fide compensations for services rendered, or are mere obstructions to commerce, must be determined according to the facts and circumstances in each case. Such exactions must be fair, reasonable and uniform, and must not exceed the requirements of the occasion. Charges which in the opinion of the Federal Courts are excessive or discriminating could be declared unconstitutional, as involving violations of the rule of inter-state commercial freedom.

FISHERIES AND GAME LAWS.—Control over game and fisheries within the limits of a State is reserved to the State. In the enforcement of its game laws, a State could prohibit all traffic in the meat of game within its limits, without reference to the place where the animal was captured. (Magner v. People, 97 Ill. 33.) As to whether a State could prohibit the exportation of animals protected by its game laws, there is a conflict of authority. (Geer v. Connecticut, 161 U.S. 519.) A State law prohibiting the sale of fish and game, at a time when they could not, under the law, be caught within the limits of the State, has been held to be operative upon the sale of goods shipped from another State, the reason given being that the statute could not be enforced with reference alone to fish or game caught in the State. (Prentice and Egan, Commerce Clause, p. 152.)

EXCISE DUTIES.—It has been already stated that, in the Constitution of the Commonwealth, freedom of inter-state trade and commerce is secured by two constitutional provisions: (1) by the express declaration of sec. 92, that trade and commerce between the States shall be absolutely free; and (2) by the withdrawal from the States of the power to impose duties of customs and excise (sec. 92). In discussing the foregoing cases we have been considering merely the probable effect of the constitutional affirmation of absolute commercial freedom between the States. It remains to consider how far the immunity of inter-state trade and commerce from State taxation is secured through the exclusive control of excise being vested in the Federal Parliament. This depends upon the meaning to be assigned to “excise.” In our notes to sec. 90, the various meanings of “excise” have been referred to; the first and original one being that in which it is restricted to duties on the manufacture and production of commodities in a State; whilst in another sense it has been extended to cover a host of additional imposts—such as licenses to auctioneers, pawnbrokers, peddlers, dealers, and persons permitted to carry guns and run carriages. The bulk of authority is in favour of the limited connotation of the term; and if that view be correct the States of the Commonwealth will retain almost the same powers of taxation as those of the American


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Union, and the doctrine established by the leading cases, such as Brown v. Houston, 114 U.S. 622, will be of some assistance in determining the extent to which State taxation of mixed inter-state and domestic commerce could go. On the other hand, if “excise” were held to be capable of the wider signification alluded to, including all kinds of inland licenses, then the States of the Commonwealth would be deprived of vast powers and sources of local revenue, not contemplated by the framers of the Constitution. If such an extended meaning were annexed to the term “excise” none of the American cases would, in the interpretation of sec. 92, apply, except those supporting the principle of State taxation of incomes derived from domestic and inter-state business combined, and the taxation of incomes derived from properties employed in both domestic and inter-state business.

INSPECTION LAWS.—Charges covering the cost of inspecting goods, on their entrance into a State, may be imposed and collected under the authority of State laws. (See sec. 112.)

STATE BUSINESS, INTERNAL AND LOCAL.—The Federal Legislature has nothing to do with the purely internal commerce of a State, carried on between different parts of the same State, and confined exclusively to the jurisdiction and territory of the State without affecting other nations or States. (Lord v. Steamship Co., 102 U.S. 541; Telegraph Co. v. Texas, 105 U.S. 460. Baker, Annot. Const. p. 33.)

Commerce upon lakes lying within a State is not within federal regulation. The internal commerce and navigation of a State is exclusively subject to State regulation. (Moore v. American Transp. Co., 24 How. 1. Id. p. 38.)

A law of Iowa authorizes the manufacture of alcohol within the State for the purposes of sale for mechanical, medicinal, culinary, and sacramental purposes; and prohibits its manufacture within the State for the purpose of exportation to, and sale within, other States and foreign countries. Held, that the statute is not repugnant to the commerce clause. (Kidd v. Pearson, 128 U.S. 1, 19. Id. p. 40. See Note, “State Tax on a State Business or Profession,” infra.)

LANDING PASSENGERS AND FREIGHT.—Foreign or inter-state commerce cannot be carried on with a State without a wharf or other place within its limits on which passengers and freights can be landed. The use of such a landing place in a State does not confer upon the State a right to tax the capital of corporations engaged in such commerce, unless the same are domiciled within the jurisdiction of the State. The only permissible interference by a State with such commerce is confined to port regulations, and such measures as will ensure safety and prevent confusion in landing and receiving freight and passengers. (Gloucester Ferry Co. v. Pennsylvania, 114 U.S. 196. Id. p. 37.)

STATE TAX ON PASSENGERS.—A State cannot impose a tax on passengers arriving in its ports from a foreign country; such tax is a regulation of commerce and void. (Passenger Cases. 7 How. 283; Baker, Annot. Const. p. 26.)

Where the object of a State law is to force the owners of vessels carrying passengers from foreign countries to the ports of the State to pay a tax on such passengers, its effect is to tax commerce, and so it is void. (Henderson v. Mayor of New York, 92 U.S. 259; Chy Lung v. Freeman, 92 U.S. 275. Id. p. 27.)

The constitutional disability is not removed by calling the law an inspection law to prevent the admission of criminals, paupers, lunatics, &c. (People v. Compagnie Gen. Transatlantique, 107 U.S. 59. Id. p. 28.)

Transportation means the taking up of persons or property at one point and putting them down at another. A tax upon such transportation between two States is a tax upon inter-state commerce. The character of this commerce between two States is not changed by the character of the means of transportation. The power to regulate inter-state and foreign commerce includes the power to determine when it shall be free and when subject to duties or exactions. (Gloucester Ferry Co. v. Pennsylvania, 114 U.S. 196. Id. p. 28.)

STATE TAX ON FREIGHT.—A tax on freight transported from one State to another State is a regulation of inter-state commerce; when levied by a State, it is void so far as it applies to articles carried through the State, or to articles carried into the State, or to articles taken up within the State and carried to points without. (State Freight Tax Cases, 15 Wall. 232; Baker, Annot. Const. p. 26.) But a tax levied on the gross receipts of a railroad company is not a tax on inter-state transportation, and is not in conflict with the commerce clause. (State Tax on Railway Gross Receipts Case, 15 Wall. 282, 284. Id. p. 26.)




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A tax imposed by a State upon a carrying company incorporated under its laws, and levied directly upon the fares and freights received by the company for the carriage of persons and goods between different States, and between the States and foreign countries, is a tax upon inter-state and foreign commerce, and is unconstitutional. (Philadelphia Steamship Co. v. Pennsylvania, 122 U.S. 326; Baker, Annot. Const. p. 29.)

STATE TAX ON A STATE BUSINESS OR PROFESSION.—A State has a right to tax its own citizens for permission to prosecute any particular business or profession within the State. (Nathan v. Louisiana, 8 How. 73. Id. p. 26.)

A license tax imposed by a city for the privilege of selling beer in casks manufactured in the same State is not obnoxious to the Constitution. (Downham v. Alexandria Council, 10 Wall. 173. Id. p. 26.)

A by-law of a city requiring every railroad company or express company transacting business in such city, and having a business extending beyond the limits of the State, to pay an annual license fee, and imposing penalties for violation, is not repugnant to the commerce clause. (Osborne v. Mobile, 16 Wall. 479. Id. p. 26.)

A law of Texas levied a tax on persons selling wine and beer manufactured out of the State, but exacted no such tax from those engaged in the sale of similar liquors manufactured within the State: Held unconstitutional. (Tiernan v. Rinker, 102 U.S. 123. Id. p. 27.)

When a State grants to a city the right to license, tax and regulate ferries, the city may impose a license tax on the keeping of ferries, although their boats ply between landings lying in two different States. This is one of the undelegated powers reserved to the States. (Wiggins Ferry Co. v. East St. Louis, 107 U.S. 365. Id. p. 29.)

The taxation of goods coming into a State from other States is inconsistent with freedom of trade. But if after their arrival in the State, either for use or for trade, they are subject to any general tax laid alike on all property, such taxation is not unconstitutional. (Brown v. Houston, 114 U.S. 622. Id. p. 28.)

A State tax on persons engaged in selling liquors not manufactured in the State, when no such tax is imposed on persons selling such liquors manufactured in the State. is a discriminating tax, contrary to freedom of commerce among the States, and therefore void. (Affirming Welton v. Missouri, 91 U.S. 275; Walling v. Michigan, 116 U.S. 446. Id. p. 29.)

A law of Tennessee imposed a tax of $50 upon each sleeping-car used by any railroad company within the State and not owned by the company; it was made unlawful for railroad companies to use such cars unless such tax was paid. Held, that the Act was a regulation of inter-state commerce, in so far as it applied to sleeping-cars used upon trains which ran between points within the State and points without the State, or which ran through the State. (Pickard v. Pullman Car Co., 117 U.S. 34. Tennessee v. Pullman Southern Car Co., 117 U.S. 51. Id, p. 29.)

The commerce clause is not violated by a law of a State which exacts a license fee from a corporation organized under the laws of another State, to enable such corporation to have an office within the limits of the State enacting such law, provided such corporation is neither engaged in carrying on foreign or inter-state commerce, nor employed by the Government of the United States. (Pembina Mining Company v. Pennsylvania, 125 U.S. 181. Id. p. 30.)

A State cannot, for the purpose of protecting its people against intemperance, enact laws which regulate commerce between its people and those of other States of the Union, unless the consent of Congress, express or implied, is first obtained. (Bowman v. Chicago and N. W. R. Co., 125 U.S. 465. Id. p. 36.)

RAILWAYS, STATE CONTROL OF.—A State law requiring railway companies operating within its territory to fix their rates, annually, and to keep printed copies thereof posted at all stations, is not unconstitutional; it is a valid exercise of the police powers of the State. (Railroad Co. v. Fuller, 17 Wall. 560. Baker, Annot. Const. p. 38.)

The power to regulate commerce among the several States was vested in the Federal legislature in order to secure equality, and freedom in commercial intercourse against discriminating State legislation; it was never intended to interfere with private contracts not designed at the time they were made to impede such intercourse. (Railroad Co. v. Richmond, 19 Wall. 584. Id. p. 38.)

A law which fixes the minimum rates on a railroad extending from one State to another is not repugnant to the commerce clause, although incidentally it may reach beyond the limits of the State. (Peik v. Chicago and N. W. R. Co., 94 U.S. 164. Overruled in part by Wabash Railway Co. v. Illinois, 118 U.S. 557. Id. p. 39.)




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A railroad company whose charter of incorporation does not exempt it from State control may be required by State legislation to convey when called upon, and to charge no more than a reasonable compensation, which may be limited by statute. (Winona, &c., R. Co. v. Blake, 94 U.S. 180. Id. p. 39.)

A statute of Illinois, enacting that any railroad company within that State which charges for transporting passengers or freight of the same class, the same or a greater sum for any distance than for a longer distance, shall be liable to a penalty for unjust discrimination, is, when applied to contracts for shipment beyond the State limits, a regulation of commerce among the States, and is so far void. (Munn v. Illinois, 94 U.S. 113; Chicago Burlington, &c., R. Co. v. Iowa, id. 155; Peik v. Chicago and N. W. R. Co., id. 164, examined and explained and partly over-ruled; Wabash, &c., R. Co. v. Illinois, 118 U.S. 587. Baker Annot. Const. p. 39.)

CANVASSING AGENCIES.—An agency for a line of railroad between Chicago and New York, established in San Francisco for the purpose of inducing passengers going from San Francisco to New York to take that line from Chicago, but not engaged in selling tickets for the route, or receiving or paying out money on account of it, is an agency engaged in inter-state commerce; and a municipal license tax sought to be imposed upon such agency is unconstitutional. (McCall v. California, 136 U.S. 104; Norfolk and W.R. v. Pennsylvania, 136 U.S. 114. Baker, Annot. Const. p. 42.)

LOCOMOTIVE ENGINEERS.—A State statute which requires locomotive engineers, engaged in running locomotive engines on railroads which are operated in and through different States, to be examined as to their power of distinguishing the colours of signals, and which requires the corporation whose trains are so operated to pay a fee for such examination, is not repugnant to the commerce clause until Congress legislates upon the subject. (Nashville, &c., R. Co. v. Alabama, 128 U.S. 96. Baker, Annot. Const. p. 36.)

QUARANTINE REGULATIONS.—A statute of Missouri which prohibited Mexican, Texas, or Indian cattle from being driven or conveyed through the State between March and December of each year is in conflict with the commerce clause. It is more than a quarantine law, which a State in the exercise of its police powers may enact. (Railroad Co. v. Husen, 95 U.S. 465. Baker, Annot. Const, p. 29.)

A law of Iowa, which provides that a person having in his possession within the State “Texas cattle” which have not been wintered north of the northern boundary of Missouri and Kansas shall be liable for any damage which may accrue from spreading the disease known as “Texas cattle fever,” is not in conflict with the commerce clause. (Kimmish v. Ball, 129 U.S. 217. Baker, Annot. Const. p. 40.)

The laws of the States on the subject of quarantine, while they may in some of their rules amount to a regulation of commerce, though not so designed, belong to that class of laws which a State may enact until Congress interposes by legislation over the subject, or forbids State laws in relation thereto. Congress has not done this, but has adopted the State laws upon that subject. (Morgan's Steamship Co. v. Louisiana Board of Health, 118 U.S. 455. Baker, Annot. Const. p. 40.)

The statute of Minnesota providing for inspection within the State of animals designed for meat, by its necessary operation practically excludes from the markets of that State all fresh meat slaughtered in other States, and directly tends to restrict the slaughtering of animals whose meat is to be sold in Minnesota to persons engaged in such business in that State. This discrimination is an incumbrance on commerce among the States, and is unconstitutional. It is not a rightful exercise of the police power of the State. (Minnesota v. Barber, 136 U.S. 313. Baker, Annot. Const. p. 41.)

STATE TAX ON COMMERCIAL AGENTS.—A State law imposing a license-tax upon peddlers selling goods not grown or manufactured in the State is in conflict with the commerce clause. (Following and re-affirming Welton v. Missouri. Morrill v. Wisconsin, Book 23, p. 1009, L.C.P. Co. Ed. U.S. Sup. Ct. Rep. Baker, Annot. Const. p. 28.)

No State may impose upon the products of other States brought therein for sale or use, or upon citizens engaged in the sale therein or the transportation thereto of the products of other States, more onerous public burdens or taxes than are imposed upon like products of its own territory. (Guy v. Baltimore, 100 U.S. 434. Id. p. 28.)

A law of a State requiring a person engaged in peddling goods, wares, and merchandise, not produced in the State, to take out a license and pay a tax thereon, where no such license or tax is required of persons selling similar articles which are the growth, produce or manufacture of the State, is in conflict with the commerce clause. (Welton v. Missouri, 91 U.S. 275. Id. p. 27.)

A tax on the amount of sales made by an auctioneer is a tax on the goods sold. And if the tax is upon sales of imported goods sold in the original packages, and for the importer, it is a regulation of commerce; and such tax, if laid by a State or under its authority, is invalid. (Cook v. Pennsylvania, 97 U.S. 566. Id. p. 27.)




  ― 858 ―

A State law which exacts a license from persons to enable them to take orders for the sale of goods for persons residing in another State is repugnant to the commerce clause. (Asher v. Texas, 128 U.S. 129. Id. p. 30.)

STATE TAX ON VESSELS.—A vessel is subject to taxation only in its port of register. That is its situs. A law of another State, therefore, which assumes to levy a tax on such vessel, is void as a regulation of commerce. (Hays v. Pacific Mail Steamship Co., 17 How. 596. Baker, Annot. Const. p. 26.)

A State tax on a vessel by a State other than that in which it has its home port and situs, when the vessel is lawfully engaged in inter-state transportation over the navigable waters of the nation, is an interference with commerce. (Morgan v. Parham, 16 Wall. 471. Id. p. 26.)

DAMS AND BRIDGES ACROSS NAVIGABLE STREAMS.—In the absence of Federal legislation upon the subject a State may authorize the construction of a dam across a navigable stream within the State. (Pound v. Turck, 95 U.S. 459. Baker, Annot. Const. p. 35.)

A State Legislature may, in the absence of a federal law, authorize the construction of a bridge across a navigable river wholly within the State; such law being local in its nature and a mere aid to commerce. But when the Federal Legislature intervenes, its authority is supreme and its regulations are exclusive. (Cardwell v. Bridge Co., 113 U.S. 205. Id. p. 35.)

A State Legislature may determine the form, character, and height of railroad bridges crossing its navigable waters. Until the Federal Legislature intervenes, the State's powers in such cases is plenary. (Hamilton v. Vicksburg, &c., R. Co., 119 U.S. 280. Id. p. 38.)

The power to authorize the building of bridges is not to be found in the Federal Constitution; it has not been taken from the States. (Gilman v. Philadelphia, 3 Wall. 713. Id. p. 38.)

Pending a suit to have a bridge across the Mississippi River declared a nuisance, it was competent for the Federal Legislature, under the power conferred by the commerce clause, to interfere and legalize the bridge. (The Clinton Bridge, 10 Wall. 454. Id. p. 38.)

OTHER STATE TAXES.—A State cannot, for the purpose of defraying the expenses of quarantine regulations, levy a tax on a vessel entering her harbours in pursuit of commerce, and owned in foreign ports. (Peete v. Morgan, 19 Wall. 581. Id. p. 106.)

State tonnage duties upon all ships plying in the navigable waters of the State are a breach of the commerce clause. The prohibition applies to all ships engaged in the coasting trade, whether trading between ports in different States, or between ports in the same State. Tonnage duties are taxes, and are within the prohibition against State duties on imports and exports. (State Tonnage Tax Cases, 12 Wall. 204. Id.)

State taxes imposed on ships, owned by its citizens, as property, and upon a property valuation, are not in conflict with the commerce clause. The enrolment of a ship does not exempt the owner from taxation of his interest as property. (Transportation Co. v. Wheeling, 99 U.S. 273. Id.)

A duty, or tax, or burden imposed upon vessels under the authority of the State, and measured by the capacity of the vessel, and which is in its essence a contribution claimed for the privilege of arriving and departing from a port of the United States, is within the prohibition against State duties on imports and exports. (Cannon v. New Orleans, 20 Wall. 577. Id.)

A law of Pennsylvania providing that vessels neglecting or refusing to take a pilot shall forfeit a certain sum for the use of the society for relief of distressed and decayed pilots, &c., is not within that prohibition. (Cooley v. Port Wardens, 12 How. 299. Id.)

§ 390. “Goods Imported before the Imposition of Uniform Duties of Customs.”

The object of the second paragraph of this section is to prevent merchants, before the imposition of the uniform tariff, from “loading up” imported goods in a Colony or State where there are no duties, or where the duties are light, in the expectation that as soon as the border customs are abolished such goods will be free of the whole Commonwealth. With the present free-trade tariff of New South Wales, importers in every colony would have been able, but for this provision, to evade customs duties on general merchandise altogether, for the first year or so of the uniform tariff, by


  ― 859 ―
warehousing everything at Sydney in advance of the tariff, and not distributing into the State of destination until the intercolonial customs barriers were down. This section checkmates any such device by retaining the intercolonial barriers for two years after the uniform tariff, so far as imported goods are concerned, to the extent to which those goods have not paid the Commonwealth tariff.

This section only prevents the “loading up,” in one State, of goods for distribution in another; it does not prevent, for instance, the importation into New South Wales, in the expectation of an increased tariff, of goods to supply the New South Wales market. That is an operation which is always possible when there is a prospect of increased customs taxation; and it can only be met by the recognized constitutional practice of collecting the new duties from the date on which the House of Representatives passes the preliminary resolution to impose the duties, and making the subsequent Customs Act take effect retrospectively from that day. As to this practice, see Exp. Wallace and Co., 13 N.S.W. L.R. 1, and the authorities there cited. In that case the applicants, before the passing of the Customs Act, applied for a writ of mandamus to compel the Collector of Customs to sign bills of entry for certain goods without payment of the new duties. The court, in the exercise of its discretion, refused the writ on the ground of established constitutional practice; though it was admitted that, pending the passing of the Customs Act, an action would lie against the Government. (See Stevenson v. The Queen, 2 W. W. and A'B., L. [Vic.] 143.)

IMPORTED.—After the establishment of the Commonwealth the Constitution does not speak of “imports” or “exports” from one State to another, but only of imports into, or exports from, the Commonwealth; and in the case of inter-state trade the phrases used are “goods passing into,” or “goods passing out of” a State. (See p. 845, supra; and secs. 93, 95, 104, 112.) In other words, the Constitution is careful to regard the Commonwealth, so far as imports and exports are concerned, as a single whole, and to regard the movement of trade within the Commonwealth as internal trade merely.

The word “imported” in this section is not confined to imports after the establishment of the Commonwealth, but includes all goods imported before the imposition of the uniform tariff. That it is intended to apply to goods imported before as well as after the establishment of the Commonwealth, is shown by the words “or into any colony which, whilst the goods remain therein, becomes a State.” This application of the section to imports made before the commencement of the Constitution is not really retrospective in character; it merely means that certain intercolonial duties previously chargeable continue to be chargeable on certain goods.

Questions may arise as to the meaning of the word “imported,” and as to the precise time when the importation of goods is to be deemed completed. On this point some assistance may be derived from the decision of the Privy Council in the case of the Canada Sugar Refinery Co. v. The Queen (1898), App. Ca. 735. By the Canadian Tariff Act, 1895, which came into force on 3rd May of that year, a duty of one-half cent per pound was imposed on raw sugar “imported into Canada.” On 29th April the Cynthiana, from Antwerp, carrying a cargo of sugar consigned to Montreal, put into the port of North Sydney, Cape Breton, Canada, in order to coal, and the master made his report inwards of his ship and cargo in compliance with the 25th sec. of the Customs Act. On the same day he made his report outwards and obtained the Customs certificate of clearance for Montreal. On 2nd May the importers of the sugar made an entry at the Montreal Customs House of the sugar, and a warrant was issued for its landing duty free. On 3rd May the new duty came into force. The Cynthiana reached the wharf in the port of Montreal on 4th May. The Collector of Customs then cancelled the free entry, and claimed that the goods were liable to duty. On his behalf it was contended that the goods were not imported into Canada until they were landed, or at any rate until they arrived within the port of Montreal; that the goods were not imported into Canada by the mere fact of the vessel entering a port of call within the


  ― 860 ―
Dominion on her way to her ultimate destination; that “imported” meant at least arrival in the port of discharge. This view was sustained by the Privy Council on appeal.

§ 391. “On Thence Passing into Another State.”

Duty under this section is only payable on the passage of the goods “thence”—i.e., from the State into which they were imported before the uniform tariff, and in which they were at the imposition of the uniform tariff—into another State. On their first passage across a State border after the imposition of the tariff, if they have originally paid no duty at all, they will be liable to pay the whole amount of the duty chargeable on importation; if they have already paid a smaller duty, they will be liable for the difference; whilst if they have paid an equal or larger duty, they will not be liable at all. Having once crossed a border, and paid the balance of duty, they are then free of the Commonwealth.

It will doubtless be difficult in some cases to identify the goods which are chargeable under this section; but all that is required is that rough justice should be done to the revenues of the several States, and a possible leakage on small consignments and broken packages will be a trifling matter. Very little duty is likely to be collected under the section, for the simple reason that its existence will effectually prevent the transactions which it is designed to meet.

On the expiration of two years from the imposition of uniform customs, the provision will lapse altogether. By that time the danger will be past, because no importer is likely to lay in large stocks more than two years before they can be disposed of.

Payment to States for five years after uniform tariffs.

93. During the first five years after the imposition of uniform duties of customs, and thereafter until the Parliament otherwise provides392—

  • (i.) The duties of customs chargeable on goods imported into a State and afterwards passing into another State for consumption393, and the duties of excise paid on goods produced or manufactured in a State and afterwards passing into another State for consumption, shall be taken to have been collected394 not in the former but in the latter State:
  • (ii.) Subject to the last sub-section395, the Commonwealth shall credit revenue, debit expenditure, and pay balances to the several States as prescribed for the period preceding the imposition of uniform duties of customs.

HISTORICAL NOTE.—The provisions of the 1891 Bill with respect to distribution before the uniform tariff (see Hist. Note, sec. 89), were to apply after the uniform tariff “until the Parliament otherwise provides,” except that there was a book-keeping adjustment with regard to customs and excise, and a provision for debiting the States with any bounties taken over. (See pp. 134, 139, supra.)




  ― 861 ―

Briefly, all revenue was to be credited to the State in which it was collected, and all expenditure was to be debited per capita; but only until the Parliament should make different provision. From the date of the imposition of the federal tariff, the Parliament was to have an absolutely free hand. (Conv. Deb., 1891, pp. 802–833.)

Adelaide Session, 1897 (Debates, pp, 877–908, 1067–70).—The system of distribution recommended by the Finance Committee, and embodied in the first draft, provided for three periods:—(1) Before the uniform tariff, the provision was the same as in 1891. (2) For five years after the uniform tariff, the same basis was to be retained, subject to the book-keeping adjustments necessitated by intercolonial free-trade. (3) After five years, revenue was to be credited and expenditure debited on a per capita basis. (See pp. 169–170, supra.)

These provisions were debated (pp. 877–908) on the consideration of the clause dealing with distribution before the uniform tariff. Mr. McMillan pointed out that the difficulty of distribution arose from the fact that the federal tariff and its operation were unknown quantities. The problem was to secure fair distribution without unnecessary taxation in any colony, and yet without leaving an undue shortage of revenue in any colony. There were two aspects of the problem: the question of guarantees (see Historical Note, sec. 87) and the question of distribution. As to the latter, the per capita system would be unfair to New South Wales for some years. Mr. Reid had wished to postpone it for ten years, but the Finance Committee had compromised with five. The “detestable book-keeping system” on the borders was an unwelcome necessity, to be abolished as soon as possible. Mr. Holder, Sir George Turner, and Mr. Reid all agreed that if the book-keeping could be done away with it would be a great blessing; and eventually the clause was postponed to enable the Treasurers to consult on the subject. Subsequently (Debates, pp. 1067–70) the Treasurers brought up the sliding-scale system, which only involved book-keeping for one year, and a subsequent scaling down, by equal gradations, from the contribution basis of the test year to a per capita basis at the end of five years. The sliding scale, on the recommendation of the Treasurers, was adopted with hardly any debate, though Mr. McMillan feared that, owing to probable “loading up” of dutiable goods, the test year would be a bad one for New South Wales. (See pp. 176–8, supra).

Sydney Convention, 1898 (Debates, pp. 35–222).—The sliding scale was unfavourably criticized in New South Wales, as well as in all the other colonies except South Australia, where it was lucidly explained and strongly championed by Mr. Holder. In the general debate at the Sydney Convention it did not receive much support, and a new Finance Committee was appointed, to which the whole question was referred. (See p. 188, supra.)

Melbourne Convention, 1898 (Debates, pp. 775 et seqq., 1041–84).—In accordance with the report of the Finance Committee, the sliding scale and the ultimate per capita distribution were struck out, and the book-keeping system was restored for five years and “thereafter until the Parliament otherwise provides” (see p. 197, supra.)

The basis of charging expenditure was also altered (see Historical Note, sec. 89). There was little debate upon the mode of distribution—the discussion turning chiefly on the question of guarantees. Drafting amendments were made before the first Report and after the fourth Report.

§ 392. “During the First Five Years.…and Thereafter until the Parliament Otherwise Provides.”

This section provides for the distribution of the surplus revenue during the second of the three periods marked out by the Constitution (see secs. 89, 94). The characteristic of this period is that there is now a uniform tariff for the whole Commonwealth, and absolute freedom of trade between the States (with the temporary revenue-protecting exception in the second paragraph of sec. 92). Secs. 90 and 92, whose


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operation has been suspended “until the imposition of uniform duties of customs,” are now in operation, and the commercial unity of Australia is an accomplished fact.

This is the period during which the financial provisions of the Constitution will be put to their first and severest test. So long as each State retained its own tariff, the disturbance of pre-existing conditions was slight; the basis of revenue and expenditure in each State was very much as it had been during the old provincial regime, except for the inconsiderable item of new federal expenditure, borne in proportion to population. But now the provincial tariffs have disappeared; customs taxation throughout the Commonwealth is on a uniform basis; and each State must accordingly regulate its budget, both as regards local expenditure and local taxation, to the new circumstances. The difficulty of establishing a common tariff has been the “lion in the path” for many years, and its final establishment must inevitably be followed by extensive financial rearrangements.

This period has a minimum duration of five years; and at the expiration of those five years it will still continue until the Parliament, under sec. 94, has substituted some other basis of distribution. The expiration of the five years does not annul this section, but merely annuls its sanctity as a constitutional provision, and makes it alterable by the Parliament, subject of course to the provisions of sec. 94.

Any disagreement between the Houses on the question of the new basis will not leave the Commonwealth without a financial system, but will merely prolong the operation of this section.

§ 393. “For Consumption.”

“Consumption” is a term of Economics, applied to denote the absorption, by use, of all kinds of wealth. It is the converse of production; production having reference to the creation of wealth, and consumption to its utilization. “As production is the first stage in economics, consumption is the last. Consumption is the chief end of industry, for everything that is produced and exchanged is intended in some way to be consumed.” (Chambers' Encycl. sub tit. “Consumption.”

The process of consumption, in the case of many articles, may be a very prolonged one. The consumption of food or fuel is immediate; but the consumption of a waggon, or a steam-engine, or a work of art, or a jewel, many extend over many years, or indefinitely. The expression “passing into another State for consumption” is not intended to imply that complete consumption within the State should be contemplated, but merely that distribution to consumers within the State is contemplated. Goods are “for consumption” in a State if it is intended that they shall be retailed in that State.

§ 394. “Shall be Taken to have been Collected.”

Notwithstanding the great difference between this and the preceding period as regards the mode of raising revenue, the alteration in the mode of distributing the surplus is very slight. The object is still the same—to give to each State credit for the revenue which it has contributed, and to charge each State with its fair share of the federal expenditure. Accordingly the provisions for debiting expenditure remain as before (see sec. 89, supra); but with regard to crediting revenue one further adjustment is needed. With free trade between the States, the State in which imports pay customs duty, or products pay excise duty, is not necessarily the State in which the goods are retailed or consumed; and, on the assumption that these duties are paid by the consumer—or at least by the people of the State in which the goods are retailed—it is necessary to make an adjustment in respect of goods which have paid duty in one State, but which afterwards pass into another State for consumption.

To obtain the necessary facts upon which to base this adjustment, it will be necessary, during the whole of this period, to keep an account of the passing from one State


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to another of all goods on which customs or excise duty has been paid. That this can be done with absolute completeness and accuracy is not to be expected; but small omissions will not seriously interfere with the efficiency of the provision—especially as they are likely to occur on both sides of the ledger, and so cancel one another. There will be no motive on the part of traders to evade observation, because no duty is chargeable to them; it is merely a matter of book-keeping entries for and against the several States.

§ 395. “Subject to the last Sub-section,” &c.

The adjustment mentioned in sub-s. i. is the only difference, as regards the mode of distribution, between this and the preceding period. It is obvious, however, that owing to the great difference in the incidence of customs taxation—and, in a less degree, of excise taxation—the amounts and proportions actually distributed to the several States will probably differ very considerably from those of the years immediately preceding. It is for the purpose of meeting any temporary dislocation of State finances which may thus be caused that sec. 96 has been added. (See Notes to that section.)

Distribution of surplus.

94. After five years from the imposition of uniform duties of customs396, the Parliament may provide397, on such basis as it deems fair398, for the monthly payment to the several States of all surplus revenue of the Commonwealth399.

HISTORICAL NOTE.—Under the Bill of 1891 a similar provision took effect immediately after the imposition of uniform duties (see Historical Note, sec. 93).

Adelaide Session, 1897 (Debates, p. 1070).—The clause as drafted in Adelaide provided that after the five years “all surplus revenue over the expenditure of the Commonwealth shall be distributed month by month among the several States in proportion to the numbers of their people as shown by the latest statistics of the Commonwealth.” In Committee, Mr. Reid secured the insertion of the explanatory words “Each State shall be deemed to contribute to the revenue an equal sum per head of the population.”

Melbourne Session, 1898 (Debates, pp. 775, &c., 1085–99, 2380–1).—The provision for ultimate distribution, as embodied in the Finance Committee's Report, was “on such basis as shall be fair to the several States, and in a proportion and after a method to be determined by the Parliament.” To make it clear that the Parliament alone was to be the judge of what was fair, these words were altered to “on the basis which the Parliament deems fair.” Sir George Turner still wished to keep to the per capita basis; and Mr. Glynn wished the discretion of the Parliament to be limited to postponing the per capita basis for, at most, another five years. However, the Finance Committee's proposal was carried by 25 to 17—the New South Wales representatives who were present voting solid for it, and the Victorians solid against it. Mr. Glynn then moved to add a further provision that after ten years the distribution should be per capita. The debate showed a general desire for ultimate per capita distribution—with the single exception of Sir John Forrest, who saw no prospect of its being fair to Western Australia. But Mr. Holder, Mr. Reid, and others wished it left open, being confident that the per capita system would be adopted as early as possible, but unwilling to tie the hands of the Parliament. The amendment was lost by 31 to 16—New South Wales and Victoria again voting solid with the majority and the minority respectively.

On the second recommittal Mr. Glynn again moved an amendment with the same object; but it was defeated by 23 to 14. Drafting amendments were made before the first Report, and after the fouth Report.




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§ 396. “After Five Years from the Imposition of Uniform Duties of Customs.”

This section provides for the termination of the second period marked out by the Constitution for the distribution of revenue according to principles fixed by the Constitution, and inaugurates the third and last period, from the commencement of which the monthly distribution will be left to the Parliament to determine on such basis as it deems fair. From the moment when this section comes into operation—that is to say, as the expiration of the five years mentioned—the Parliament will have a new power of legislation—the power to supersede sec. 93 by legislation of its own under this section.

§ 397. “The Parliament may Provide.”

The Parliament, being a body with purely legislative powers, can only “provide” by means of a law. (See sec. 51—xxxvi.) The power to make this law does not attach until the expiration of the five years mentioned. The section clearly requires, not only that the provision by the Parliament shall not take effect until after that time, but that it shall not be made until after that time. It seems therefore that the Parliament cannot, before the expiration of the five years, pass a law under this section to take effect on or after such expiration.

This disability is intentional. The object of postponing the legislative power of the Parliament until the expiration of five years is that the Parliament should not be empowered to take any action until it has sufficient data and material before it to enable it to fix the basis of distribution. (See Conv. Deb., Melb., pp. 1085–9.) The object of the Convention was that the basis prescribed in sec. 93 should remain in force until the Federal Parliament, with five years' experience behind it, should agree upon a better basis. The Convention recognized themselves unable, owing to the absence of data, to determine the ultimate basis, and were careful to ensure that the basis which was to supersede their provisional basis should not be determined upon until the date of five years' experience were available.

Any provision which Parliament may make under this section will not be unalterable, and therefore will not necessarily be final. The legislative power under which any such law is made will continue in existence after the law is made, and will justify different provision being made from time to time as circumstances may demand. It would undoubtedly be undesirable for the financial basis of the Constitution to be frequently altered; but it might be still more undesirable for a financial basis which had been ill-conceived, or had outlived its usefulness, to be made unalterable, except by an amendment of the Constitution.

§ 398. “On such Basis as it Deems Fair.”

The words as originally proposed by the Finance Committee were “on such basis as shall be fair;” but these words were altered to prevent any possibility of its being contended that any assumed unfairness might be made the subject of an appeal to the High Court, thereby making that tribunal the arbiter of a purely political matter. (See Conv. Deb., Melb., pp. 1085–9.) The Parliament is therefore laid under a solemn constitutional obligation to provide a “fair” basis, but it is made the sole judge of what is fair. The command is addressed to the conscience of the Parliament and of the people; and such a command, embodied in the Constitution, is not likely to be disregarded.

But leaving intentional unfairness out of the question, the question what is fair may lead to considerable differences of opinion. It is submitted that the constitutional command that the basis shall be “fair” will strengthen the claims of a basis founded on a broad principle. The only basis which the Convention—from the standpoint of existing provincial conditions—could agree upon as “fair” was the basis of the contributions


  ― 865 ―
made and the benefits received by the people of each State. But the basis which nearly every member of the Convention regarded—from the federal standpoint—as being ultimately fair, was the basis of distribution in proportion to population. The contribution basis was regarded as fair for the present—but somewhat unfederal. The population basis was regarded as being unfair for the present, owing to the conditions which had been created by the provincial system, and which would take some time to remove; but as being the ideal which, under federal conditions, it would be possible to approach, and finally to reach. The first Adelaide draft, and afterwards the Adelaide sliding scale, proposed to reach the per capita basis, by different roads, at the end of five years; and the final decision of the Convention represents, not so much a doubt that the per capita basis will be ultimately fair, but a doubt whether the circumstances which made it unfair for the present will not take more than five years to eliminate. The Convention certainly expected that the basis chosen by the Parliament would be, if not the per capita basis, at least an approximation to it—a compromise, in fact, between the per capita basis and the contribution basis. Somewhere between these two principles it is likely that the ultimate solution will be found.

§ 399. “For the Monthly Payment to the Several States of all Surplus Revenue of the Commonwealth.”

Although the basis of fair apportionment is left to the Commonwealth, two things are laid down by the Constitution: (1) that all surplus revenue must be paid to the States; (2) that such payments must be made monthly. The proportions in which payments are to be made to each State are to be controlled by the Parliament; the provisions for crediting revenue and debiting expenditure may be superseded by any other means of arriving at the respective shares of the surplus; but on one basis or another, the whole surplus must be distributed monthly among the several States.

Customs duties of Western Australia.

95. Notwithstanding anything in this Constitution400, the Parliament of the State of Western Australia, if that State be an Original State, may, during the first five years401 after the imposition of uniform duties of customs, impose duties of customs402 on goods passing into that State and not originally imported from beyond the limits of the Commonwealth; and such duties shall be collected by the Commonwealth.

But any duty so imposed on any goods shall not exceed403 during the first of such years the duty chargeable on the goods under the law of Western Australia in force at the imposition of uniform duties, and shall not exceed during the second, third, fourth, and fifth of such years respectively, four-fifths, three-fifths, two-fifths, and one-fifth of such latter duty, and all duties imposed under this section shall cease at the expiration of the fifth year after the imposition of uniform duties.




  ― 866 ―

If at any time during the five years the duty on any goods under this section is higher than the duty imposed by the Commonwealth on the importation of the like goods, then such higher duty shall be collected on the goods when imported into Western Australia from beyond the limits of the Commonwealth.

HISTORICAL NOTE.—Throughout the sittings of the Convention of 1897–8, it was recognized that the abnormal position of Western Australia would for some years necessitate special treatment. With her large unsettled mining population, and her resources in other directions comparatively undeveloped, she was compelled to rely more largely than any other colony on her customs revenue, and direct taxation to any great extent was out of the question. Moreover, a large part of her customs revenue was levied on produce from the other colonies; and it was estimated that her receipts from the federal tariff, on imports from abroad only, would be inadequate for her needs. The expected shortage, though large per head of the population, and therefore a serious matter for Western Australia, was not a very large matter from the point of view of the Commonwealth.

At the Melbourne session, the Finance Committee, in their report, brought up a somewhat complicated clause to provide compensation to Western Australia for five years after the imposition of the uniform tariff. It provided that an account should be kept of Western Australia's “net loss” of revenue due to the substitution of the federal for the provincial tariff. This “net loss” was to be calculated on the difference between the amount of customs and excise revenue actually collected in Western Australia during each year under the federal tariff, and the amount which would have been collected if the old provincial tariff of Western Australia had been applied to the actual imports, produce, and manufactures of that year. The “proportionate net loss” of Western Australia was to be the ratio between the amount of the “net loss” and the amount of revenue collected in Western Australia. The “proportionate net loss” (if any) of each of the other States was to be similarly calculated, and if the “proportionate net loss” of Western Australia was greater than the average, the Commonwealth was to pay to that State a sum which would equalize her proportionate net loss with such average. That is to say, an arbitrary method was fixed for determining the ratio in which the customs and excise revenue of Western Australia was reduced; and if that ratio exceeded the average of similar ratios in the other States, Western Australia was to receive such a subsidy as would equalize her with the average.

Sir John Forrest objected to this because it made a special case of his colony, and he would have preferred a clause of general application. A general “financial assistance” clause moved by Mr. Henry had already been defeated (see Historical Note, sec. 96), and Sir John Forrest now proposed to extend the benefit of the Finance Committee's provision to every State whose “proportionate net loss” was above the average. Moreover, he proposed, in striking the average, to take account of “net gains” as well as “net losses”—which would greatly decrease the average “proportionate net loss,” and so increase the amount to be made good. After some discussion, Sir John Forrest withdrew his amendment in favour of one by Sir George Turner, providing that the Commonwealth should pay to each State the whole amount of its absolute net loss. The discussion thus drifted from the question of a provision for Western Australia to the general question of guarantees to the States—and guarantees on the highly artificial basis of applying a non-existing tariff to actual imports and manufactures. Accordingly Sir John Forrest, to diminish the artificiality, proposed to add to Sir Geo. Turner's clause a proviso that no payment should be made, under the clause, to any State in which the customs and excise revenue collected was greater after the uniform tariff than before. The whole proposition, however, was strongly opposed by the New South Wales


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representatives on the ground that the whole series of payments must come out of the pockets of that colony—a contention in which they were borne out by Mr. Holder and others. Sir John Forrest's mitigating amendment was rejected by 25 to 19, and Sir George Turner then withdrew his clause.

Meanwhile the Finance Committee's West Australian clause had been criticized as being based on a false principle. The loss of revenue to Western Australia would be purely a Treasury loss, resulting from the remission of customs taxation in that colony; and it was contended that it ought in fairness to be borne, not by the Commonwealth, but by the tax-payers of Western Australia. Direct taxation being for the present impracticable, it had been suggested in the Finance Committee, and was again suggested in debate, that Western Australia should be allowed for a time to levy customs duties on a provincial tariff, in addition to those levied by the Commonwealth. There was a difficulty about this, however. Taxation on imports from abroad would not, Sir John Forrest averred, produce the revenue required; whilst the proposal to allow Western Australia to levy duties on intercolonial imports might give rise to a similar demand on the part of other colonies, and so endanger the vital principle of intercolonial freetrade. Besides, the free markets of Western Australia were one of the substantial benefits of Federation to which her next-door neighbour, South Australia, looked forward.

Sir Geo. Turner's clause being disposed of, Mr. Deakin proposed a clause allowing the Commonwealth, by agreement with Western Australia, to levy additional duties on imports from abroad into that colony; and also allowing the intercolonial duties of that colony to remain in force, subject to the reduction of one-fifth every year, till they disappeared at the end of five years. Western Australia did not like the first part of this proposal, and South Australia did not like the second. It was pointed out that if the intercolonial duty were higher than the Commonwealth duty, there would be a preference to foreign over Australian goods; and also that there ought to be some more elastic provision which would enable Western Australia to deal independently with every item of the tariff, in the way of making further reductions. After a long debate, and the defeat of several amendments, Mr. Deakin's clause was carried by 30 to 10, it being understood that the Drafting Committee would modify it to meet some of the objections raised. (Conv. Deb., Melb., pp. 779, 1122–1243.)

On the first recommittal the redraft was submitted and carried, practically in the form of the first two paragraphs of the section. The third paragraph, preventing a preference to foreign imports, was added on the second recommittal, at Mr. Holder's suggestion; and after the fourth Report some final drafting amendments were made.

In the Bill as introduced in the Imperial Parliament, the words “if that State be an Original State” were inserted.

§ 400. “Notwithstanding Anything in this Constitution.”

This section is an exception to sections 90 and 92, which provide that the Federal Parliament shall have exclusive power to impose customs duties, and that trade, commerce and intercourse among the States shall be absolutely free.

For an account of the reasons which led the Convention to make this exception in favour of Western Australia see Historical Note. The concession was the more easily agreed to because the isolation of the settled districts of Western Australia, the comparatively small population of the colony, and the absence of land communication with the rest of Australia, combined to make it a matter of minor importance to the Commonwealth that that colony should be temporarily exempt from the provision for inter-state freetrade.

§ 401. “During the First Five Years.”

The section as framed by the Convention was not limited to the event of Western Australia joining the Commonwealth as an Original State. If she had joined at any time within five years after the imposition of the uniform tariff, it would have operated


  ― 868 ―
for the balance of that period. When the Commonwealth Bill was before the Imperial Parliament, it was apparently taken for granted that this provision was framed on the assumption that Western Australia would be an Original State, and as that event was then doubtful, the words “if that State be an Original State” were inserted. Now that Western Australia is an Original State, the amendment is immaterial.

§ 402. “Impose Duties of Customs.”

The power so given to the Parliament of Western Australia is a power to supplement the customs revenue collected in that State upon imports from abroad by a second tariff on goods “passing into that State” from the other States. Such duties, like other customs duties, are to be collected by the Commonwealth, and will, under the provisions of sec. 93, be credited to the State of Western Australia, and so go to increase, by the whole amount of such duties, the share of the surplus payable to Western Australia.

§ 403. “But Any Duty so Imposed on Any Goods Shall Not Exceed.”

Subject to the conditions here laid down, the Parliament of Western Australia will have full control, during the five year period, over every item of this inter-colonial tariff, and may at any time amend it or repeal it if desired. The one condition is that no duty on any article shall exceed in any year the specified proportion of the duty chargeable on the same article under the West Australian tariff in force at the date of the imposition of uniform duties.

§ 404. “If.....the Duty on Any Goods Under this Section is Higher than the Duty Imposed by the Commonwealth.”

Without this provision, it might have happened in some cases that a preference would be given to goods imported from abroad over similar goods produced within the Commonwealth. To prevent this, it is provided that in such a case the duty collected under the federal tariff shall be on the higher scale. The result is that, notwithstanding sec. 51—ii., a federal law with respect to taxation may, in effect, discriminate between the State of Western Australia and the rest of the Commonwealth.

Financial assistance to States.

96. During a period of ten years after the establishment of the Commonwealth and thereafter until the Parliament otherwise provides405, the Parliament may grant financial assistance to any State406 on such terms and conditions407 as the Parliament thinks fit.

HISTORICAL NOTE.—An objection raised both to the contribution basis and to the population basis of distributing revenue was that they altogether ignored the needs of the States, and would result in some States getting back more than they wanted, whilst others would get back less. In fact, all the alarming forecasts of the need of an excessive tariff had arisen from the assumed obligation of increasing the contributions of the “necessitous” States—an unfortunate epithet which, when first used, meant the States to whom a high tariff was a necessity, but which was twisted by critics into a supposed confession of bankruptcy. These considerations had led Mr. R. M. Johnston,


  ― 869 ―
the Government Statistician of Tasmania, to propound an “Inopimeter Method,” or basis of distribution according to needs. “If there be any surplus to return let it be distributed on the basis of the Inopimeter Method—that is, to distribute such surplus on the ascertained proportion of the percentage which each State's loss of income caused by abolition of the local tariff and excise bears to the corresponding aggregate loss of the six colonies.” (Federal Finance: Observations on the Difficulties of the Problem, R. M. Johnston, 1897.) As a general system of distribution, this scheme had no chance of adoption—the fear in New South Wales being that it would be worked for the benefit not of the neediest, but of the greediest States. However, there was a strong feeling that there ought to be some scope for mitigating the strict severity of the mathematical basis of distribution laid down in the Bill. Accordingly, at the Melbourne session, Mr. Henry proposed the following clause:—“The Parliament may, upon such terms and conditions and in such manner as it thinks fit, render financial aid to any State.” This was supported by a few members, but was generally objected to as being too indefinite, as making the Commonwealth a “rich uncle” for the States and casting a slur on their solvency, as opening the door to continual applications for “better terms,” and as being a disastrous commentary on the efficiency of the financial clauses. It was contended on the one hand, and stoutly denied on the other, that by necessary implication from the nature of the union the Commonwealth would have power to come to the assistance of the States whenever necessary. A limitation to five years was suggested, but eventually the clause was negatived. The proposals which then followed, by way of amendments to the West Australian clause (see Notes to sec. 95), were all based on the Tasmanian idea of distribution according to needs, or “net losses,” but they were all rejected. (Conv. Deb., Melb., pp. 1100–22.)

Premiers' Conference, 1899.—In New South Wales there were forebodings of the necessity, under the draft Bill of the Convention, for a high tariff—deduced sometimes from the basis of distribution, sometimes from the Braddon clause. At the Premiers' Conference the clause as it stands was inserted as a part of the financial adjustment; partly as a compensation to the smaller States for the amendment in the Braddon clause, but chiefly to meet the difficulties that might be caused, in the first few years of the uniform tariff, by the unyielding requirements of the distribution clauses, and to remove any possible necessity for an excessive tariff.

§ 405. “During a Period of Ten Years…and thereafter until the Parliament otherwise Provides.”

These words are identical with the introductory words of sec. 87 (the “Braddon clause”), where they were inserted—as this section was inserted—by the Premiers' Conference of 1899. In this section, however, it is very hard to give them any meaning. The phrase “until the Parliament otherwise provides” is used, everywhere except in this section, in connection with some specific provision made by the Constitution—not in connection with a power given to the Parliament. Its effect is to lower such provision to the level of a mere law of the Federal Parliament, and to give the Federal Parliament full power to deal with the whole question. In order to place the legislative power of the Parliament in such cases beyond question, sec. 51—xxxvi. provides that the legislative power shall extend to “matters in respect of which this Constitution makes provision until the Parliament otherwise provides.” But here, the Constitution of itself makes no specific provision. It merely empowers the Parliament to make a provision—and adds that the power may be exercised for ten years, and thereafter “until the Parliament otherwise provides.” According to the grammatical implication, it would appear that if the Parliament at any time after ten years “otherwise provides,” it cuts away its legislative power under the section altogether; so that the Parliament, by passing a law, can destroy its own power for the future. On the other hand, the close connection which this clause has, historically, with the Braddon clause, makes it seem probable


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that the Premiers intended that it should survive while the Braddon clause survived, but no longer. The one thing clear is that until the Parliament does otherwise provide, the power will remain in force; and therefore, as the Parliament is not likely to pass a self-denying ordinance to diminish its own powers, this section may be considered, for all practical purposes, as a permanent part of the Constitution.

§ 406. “Grant Financial Assistance to any State.”

The interpretation of these very wide and general words is a matter of great importance, and also of considerable difficulty; and before discussing the words themselves, and their relation to the rest of the Constitution, it will be well to examine the intentions of the framers. Although added to the Constitution at the Premiers' Conference in 1899, the section is based on the clause proposed by Mr. Henry at Melbourne (see Historical Note) empowering the Parliament to “render financial aid to any State.” Probably Mr. Henry's proposal in its turn may be traced back to a suggestion by both Houses of the Tasmanian Parliament, providing that “The Commonwealth may from time to time lend to any State, on such terms and conditions as the Parliament may prescribe, any sum or sums of money borrowed on the public credit of the Commonwealth.”

From the debate on Mr. Henry's proposal (Conv. Deb., Melb., pp. 1100–22) it is clear that the mover and most of the speakers understood that assistance might be given by an absolute vote out of revenue; though Mr. Holder argued (p. 1113) that no such gift would be possible because the revenue was all appropriated under the clauses dealing with the distribution of revenue. Mr. Lewis claimed (p. 1112) that the clause would go much further, and would “include the power of the Parliament to guarantee a loan to a State, or to lend the money to a State, having raised it on its own security.” The only official explanation of the views of the Premiers on the clause as it stands is contained in the report of their Conference, where they state that it is intended to give effect to the opinion that “power should be granted to the Parliament to deal with any exceptional circumstances which may from time to time arise in the financial position of any of the States.” It seems clear, however, from Mr. Reid's subsequent speeches on the clause, that he contemplated that there would be power, in an emergency, to apply revenue to this purpose. See, for instance, his speech on the Address in Reply in the Legislative Assembly of New South Wales on 21st February, 1899.

“There is a new clause inserted next to the Braddon clause which gives the Commonwealth Constitution a very valuable feature of elasticity in connection with the finances. As the Constitution stood, this might happen: Take Tasmania. A small amount of money might be required by Tasmania from the Commonwealth for a limited time to place her in the same position financially as she was in before Federation; but, under the Bill as it stood, there was no power to come to the assistance of that or any other colony in a necessity of that sort; and coming to the assistance of such colonies during this transitional period of finance would in itself be a valuable power on the part of the Federal Treasurer, and all in the direction of making the taxes more reasonable—more elastic That provision has been inserted and I think it is a distinct improvement in the Bill.” (N.S.W. Parl. Debates, vol. 97, p. 48.)

That the section empowers the Commonwealth to guarantee loans of the States, and to borrow money on the credit of the Commonwealth and lend it to the States, can hardly be doubted. Any such operation would, or at least might, involve charges on the revenue, in order to pay interest and redeem principal, or make good the guarantee; and any such charges would, it seems, be included in the general expenditure of the Commonwealth, and debited per capita against the credits to the several States.

But does the section enable the Commonwealth to ease the inelasticity of the distribution clauses by making absolute grants directly out of revenue? It is hard to see on what grounds this power can be denied; though undoubtedly it is a power which is not intended to be used, and ought not to be used, except in cases of emergency. Such a grant would certainly be “financial assistance” of the most direct and substantial kind; and financial assistance of precisely the kind required to guard against the burden


  ― 871 ―
of unnecessary taxation which has been prophesied as the inevitable result of the inelastic provisions of the distribution clauses. It would in fact be, to a certain extent, a recognition that, in cases of emergency, the principle of distribution according to contributions might be tempered in the direction of distribution according to needs. The argument that there is no fund out of which to make such payments is fallacious. If the Constitution authorizes expenditure for this purpose, it is “expenditure of the Commonwealth” which can be made out of the Consolidated Revenue Fund, and debited to the States in proportion to population under sec. 89.

A more serious difficulty is to construe the bearing of sec. 87 (the Braddon clause) upon this provision. If a payment out of revenue, in aid of a State, is “expenditure of the Commonwealth” within the meaning of sec. 89, is it, for the purposes of sec. 87, to be taken out of revenues which may be applied to the expenditure of the Commonwealth, or may it be taken out of the three-fourths of the net customs and excise revenue which must be “paid to the several States?” At first sight, it seems to come equally well within either category; to be paid to a State, in accordance with the Constitution, and to be expenditure of the Commonwealth. But a closer consideration of the general scope of sec. 87, as well as of its language, seems to lead to the conclusion that payment to a State under this section does not fall within the balance which, under section 87, “shall in accordance with this Constitution” be paid to the States. That expression seems to refer to the “balances” payable under section 89, and not to include deductions which have already been made in calculating those balances.

If this construction be correct, the result is shortly as follows:—(1) Financial assistance may be granted to a State out of revenue. (2) The amount so granted is “expenditure of the Commonwealth” which is to be debited per capita against all the States — including the State to which the grant is made. (3) The Commonwealth cannot make such grant out of the three-fourths of the net customs and excise revenue which, under sec. 87, is to be paid to or on behalf of the several States.

To this it may be added that the section is intended as “the medicine, not the daily food,” of the Constitution; and that it is not to supersede or render nugatory the distribution clauses by allowing distribution according to the will of the Parliament. The Braddon clause, so long as it remains in force, is an efficient check against abuse of the financial assistance clause; but the financial assistance clause will not necessarily perish with the Braddon clause—though it may be that the Premiers' Conference meant that it should.

§ 407. “On such Terms and Conditions.”

Even without the express mention of terms and conditions, the Parliament, as the party in whose discretion it is to either grant or refuse assistance, would have been able to make its own terms. But though apparently superfluous, the words are not really so. They help to place beyond doubt the intention of the section, and to make it clear that the discretion of the Parliament is absolute, and that no duty is imposed upon it of giving assistance without demur and without enquiry, whenever assistance may be asked. The section is not intended to diminish the responsibility of State Treasurers, or to introduce a regular system of grants in aid. Its object is to strengthen the financial position of the Commonwealth in view of possible contingencies, by affording an escape from any excessive rigidity of the financial clauses. It is for use as a safety-valve, not as an open vent; and it does not contemplate financial difficulties, any more than a safety-valve contemplates explosions.




  ― 872 ―

Audit.

97. Until the Parliament otherwise provides408, the laws in force in any Colony which has become or becomes a State with respect to the receipt of revenue and the expenditure of money on account of the Government of the Colony, and the review and audit of such receipt and expenditure, shall apply to the receipt of revenue and the expenditure of money on account of the Commonwealth in the State in the same manner as if the Commonwealth, or the Government or an officer of the Commonwealth, were mentioned whenever the Colony, or the Government or an officer of the Colony, is mentioned.

CANADA.— … subject to be reviewed and audited in such manner as shall be ordered by the Governor-General in Council until the Parliament otherwise provides.—B.N.A. Act, 1867, sec. 103.

HISTORICAL NOTE.—This clause, in substantially the same form, was in the Bill of 1891. At the Adelaide Session, 1897, the draft of 1891 was adopted verbatim. At Melbourne, after the fourth Report, verbal amendments were made.

§ 408. “Until the Parliament Otherwise Provides.”

This section merely makes temporary provision as to the review and audit of the federal accounts until such time as the Federal Parliament passes an Act for that purpose. It provides that, until the Parliament deals with the matter, the audit laws of each State shall apply, mutatis mutandis, to the receipt of revenue and the expenditure of money in that State. These Acts are:—in New South Wales, the Audit Act, 1898; in Victoria, the Audit Act, 1890; in Queensland, the Audit Act, 1874; and Amendment Acts, 1890 and 1895; in South Australia, the Audit Act, 1882, and Amendment Act, 1895; in Western Australia, the Audit Act, 1891; in Tasmania, the Audit Act, 1888, and Amendment Acts, 1890 and 1894.

Trade and commerce includes navigation and State railways.

98. The power of the Parliament to make laws with respect to trade and commerce extends409 to navigation and shipping410, and to railways the property of any State411.

CANADA.—The exclusive legislative authority of the Parliament of Canada extends to … (10) Navigation and shipping.—B.N.A. Act, 1867. sec. 91.

In each Province the Legislature may exclusively make laws in relation to … (10) local works and undertakings, other than such as are of the following classes:—

(a) Lines of steam or other ships, railways, canals, telegraphs, and other works and undertakings connecting the Province with any other or others of the Provinces, or extending beyond the limits of the Province.

(b) Lines of steamships between the Province and any British or foreign country.—Id. sec. 92.

HISTORICAL NOTE.—In the Bill of 1891 “Navigation and Shipping” was included among the subjects to which the legislative power of the Federal Parliament extended.

At the Adelaide Session, 1897, the Draft of 1891 was followed. None of the Legislatures made any suggestion, and at the Sydney Session the sub-clause was passed without discussion.




  ― 873 ―

At the Melbourne Session, upon the discussion of the “railway rate” clauses, Sir George Turner proposed a new clause, of which the first part ran:—“The Parliament may make laws to provide for the execution and maintenance upon railways within the Commonwealth of the provisions of this Constitution relating to trade and commerce;” and the second part empowered the Parliament to prohibit unjust preferences (see Hist. Note to sec. 101). The long debate which followed was chiefly on the question of preferences; but Mr. Barton pointed out that the Parliament already had power to execute federal laws. The clause was carried by 25 to 16. (Conv. Deb., Melb., pp. 1372–1408.)

On the second recommittal Mr. Barton secured the recasting of Sir Geo. Turner's clause in a declaratory form, to provide that “The power of the Parliament to make laws with respect to the regulation of trade and commerce shall be taken to extend to railways the property of any State.” The object of substituting the declaratory for the enabling form was to prevent any limitation of the trade and commerce power being implied; and the object of the provision itself was to remove doubts as to whether State-owned railways were subject to the trade and commerce power. (Conv. Deb., Melb., pp. 2386–90.)

After the fourth Report the Federal control of “navigation and shipping” was for similar reasons expressed in a declaratory form by being omitted from the “legislative power” clause and inserted in its present position. Other drafting amendments were also made, and the effect of the clause was finally discussed. (Conv. Deb., Melb., pp. 2449–50.)

§ 409. “The Power of the Parliament … Extends.”

This section is purely declaratory; it does not purport to give any new power to the Parliament, but merely to authoritatively explain and interpret the extent of the power already given by sec. 51—i. It is in effect a definition clause, declaring that trade and commerce includes traffic by water as well as by land, and also includes traffic on railways owned by the Government of a State.

The power of the Parliament to make laws with respect to trade and commerce is expressly limited, by sec. 51, to “trade and commerce with other countries, and among the States.” It follows that the application of that power to navigation and shipping, and to State railways, is limited in the same way, and does not extend to shipping or railways which are employed in the purely domestic traffic of a State. In this respect the powers defined in this section resemble the powers which in the United States are held to flow, without any such definition, from the trade and commerce power itself. (Cooley v. Port Wardens, 12 How. 299.) Less closely they resemble the powers given in Canada; for although s. 91 of the British North America Act gives the Dominion exclusive power to legislate in respect of “navigation and shipping,” with no limitation to foreign and inter-provincial trade, yet some such limitation is subsequently imposed by sec 92 of that Act.

§ 410. “Navigation and Shipping.”

In the United States, it has been held that the power to regulate trade and commerce necessarily implies and includes the power to regulate navigation and shipping, as a part of the means by which trade and commerce are carried on; and that such regulation comprehends the power to prescribe rules in conformity with which navigation must be carried on. (Cooley v. Port Wardens, 12 How. 299.) The commerce power not only extends to the goods transported, but “also embraces within its control all instrumentalities by which that commerce may be carried on, and the means by which it may be aided and encouraged.” (Gloucester Ferry Co. v. Pennsylvania, 114 U.S. 196.) Accordingly vessels, as well as the articles which they bring, are subject to regulation. (The Brig Wilson v. United States, 1 Brock, 423; cited Baker, Annot. Const. p. 20. See


  ― 874 ―
p. 540, supra.) The express declaration in this Constitution that the power to regulate trade and commerce extends to navigation and shipping incorporates the effect of the American decisions, and puts their applicability beyond doubt.

A law providing for the recording of any mortgage, hypothecation, or conveyance of a ship has been held in the United States to be a regulation of commerce, and therefore within the power of Congress. (White's Bank v. Smith, 7 Wall. 646.) But “the right of ferriage which a State grants upon a boundary stream, it is said, is in respect of the landing and not of the water. The right of navigation does not authorize appropriation of the banks of the river, or the receipt of tolls for transporting passengers across it.” (Prentice and Egan, Commerce Clause, p. 159.)

The power to regulate navigation covers not only goods, vessels, and carriers, but also the highway upon which navigation is carried on. “The power to regulate commerce is the basis of the power to regulate navigation and navigable waters and streams.” (The Lottawanna, 21 Wall. 558, where it was decided that Congress has power to establish a lien on vessels in favour of material men.) For the federal power of control over navigable rivers, see notes to sec. 100.

It does not follow from this section that the Commonwealth can have no authority over navigation and shipping except what flows from the power to regulate commerce; shipping may be affected and controlled, in some cases, by laws within the other powers of the Parliament. For instance, in the United States it has been held that the extension of the admiralty jurisdiction over all the navigable waters of the United States necessarily involved and implied an extension of the legislative power of Congress. “It was not possible that the body of (maritime) law should remain for ever unalterable, nor that such changes as were necessary should be introduced only by judicial decisions. … It was clear, however, that no legislative power would be adequate unless it was as extensive as the admiralty jurisdiction given to the courts. The necessities of the case, therefore, required legislation by Congress, and this legislation the courts finally supported. The federal legislative power, the court said, ‘is not confined to the boundaries or class of subjects which limit and characterize the power to regulate commerce; but, in maritime matters, it extends to all matters and places to which the maritime law extends.’ ” (Prentice and Egan, Commerce Clause, p. 97. Re Garnett, 141 U.S. 1.)

“The jurisdiction of the United States over transportation by water and over the waters themselves is derived, therefore, not only from the commerce clause, but also from the admiralty powers of the general Government, which includes the control of national waterways and of national vessels. Federal jurisdiction over these subjects is, therefore, far more extensive than its jurisdiction over carriers and transportation by land.” (Prentice and Egan, Commerce Clause, p. 98.)

The corresponding provision in the British North America Act (s. 91) is a gift of exclusive legislative authority to the Dominion Parliament in respect of navigation and shipping, without any limitation to foreign and inter-provincial commerce. The gift is, however, qualified in sec. 92, which gives the Provinces exclusive power with respect to local works and undertakings.

“This conferred on the Parliament of Canada legislative authority over all matters occurring in Canadian waters within the subjects Navigation and Shipping, and its co-operation was required to give effect to the same rules of navigation as has (sic) been used in England. (See Eliza Keith, 6 April, 1877; 3 Quebec L. R. 143.) There, the Canadian Act of 1868, 31 Vic. c. 58, which provided that where two ships were each to blame for a collision in Canadian waters, both were precluded from recovering its damages, was held to be operative, although the Admiralty rule which divides the loss prevails in England, and has been applied in a case of collision on Canadian waters in an appeal to the Privy Council.” (Wheeler, Confed. Law of Canada, pp. 70–71.)

§ 411. “Railways the Property of any State.”

In the United States it has been consistently held that railways are public highways, and subject as such to control by Congress under the trade and commerce power. (Cherokee Nation v. Southern Kansas R. Co., 135 U.S. 641; Smyth v. Ames, 169


  ― 875 ―
U.S. 466.) In the United States, however, as in England, the railways are constructed and owned by companies or individuals. In Australia they are, with few exceptions, constructed and owned by the States; and a doubt arose in the Convention, whether the commerce clause by itself would be construed to extend the authority of the Commonwealth to the Government railways of the States. This express provision removes all doubts on that head.

That “railways the property of any State” are the only railways here mentioned is due to the fact that those are the only railways as to which there could be any doubt, and as to which it was therefore necessary to make an express declaration. That the authority of the Commonwealth extends to private railways—so far as they are engaged in inter-state or foreign commerce—is taken for granted.

Under the federal power to acquire and construct railways, it is probable that railways owned by the Commonwealth will come into existence. That such railways will be subject to control by the Federal Parliament is obvious; but the Commonwealth in working such railways will itself be subject to the stringent provisions of sec. 99, forbidding the Commonwealth to give preference to any State over any other State. (See Notes to that section.)

The extent of the federal power over State railways is limited by other provisions of the Constitution. Thus the power given to the Commonwealth by sec. 51—xxxiii., xxxiv., to acquire the railways of any State with the consent of the State, and to construct railways in a State with the consent of the State, would seem by implication to exclude the exercise of any such power without the consent of the State. Apart from these provisions, it is by no means clear that such a power would not have existed. Thus in the United States it is contended by writers of repute—and the contention rests upon principles settled by judicial authority—that Congress under the wide scope of the commerce clause has power both to acquire and to construct railways, and to create a great national corporation with a monopoly of the railroad business. (See Lewis, National Consolidation of the Railways of the U.S., pp. 282–304.) That writer maintains that the cases of McCulloch v. Maryland, 4 Wheat. 316, and Osborn v. U.S. Bank, 9 Wheat. 738, establish the principle that “Congress has authority to create a great national corporation to carry out any powers given by the Constitution to the Federal Government.”

A further limitation of the federal power over State railways is contained in secs. 101 and 103, by which the powers of the Parliament as to preferences and discriminations are defined. (See Notes to those sections.)

Commonwealth not to give preference.

99. The Commonwealth shall not412, by any law or regulation of trade, commerce, or revenue413, give preference414 to one State or any part thereof415 over another State or any part thereof.

UNITED STATES.—No preference shall be given, by any regulation of commerce, or revenue, to the ports of one State over those of another.—Const. Art. 1, sec. 9, sub-sec. 5.

HISTORICAL NOTE.—The Clause in the Bill of 1891 provided that “Preference shall not be given by any law or regulation of commerce, or revenue, to the ports of one part of the Commonwealth over those of another part of the Commonwealth.” A second paragraph (also from the United States Constitution) that vessels bound to or from one port of the Commonwealth need not enter, clear, or pay duty in another port, was struck out in Committee. (Conv. Deb., Syd., 1891, pp. 833–5.)

Adelaide Session, 1897.— At Adelaide, the preference clause was adopted almost in the words of 1891, but having appended to it a provision (which had previously formed


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a separate clause; see Hist. Note to sec. 92) that federal or State laws derogating from freedom of inter-state trade should be void. There was little objection raised to the prohibition of preferences by the Commonwealth, the debate being almost wholly on preferences by States. (Conv. Deb., Adel., pp. 1070–85.)

Melbourne Session, 1898.—At Melbourne, Mr. Barton proposed the clause in a sweeping form, providing that all Federal or State laws giving a preference to one State over another should be void. The debate again turned almost wholly on preferences by States. (See Hist. Note to sec. 102.) Finally Mr. Barton (Debates, pp. 1319, 1337) proposed the clause in its present form, forbidding the Commonwealth to give preferences. After various amendments dealing with State preferences had been dealt with, the clause was carried. (Conv. Deb., Melb., pp. 1250–1370, 1409–1506; supra, p. 199.)

§ 412. “The Commonwealth Shall Not.”

This prohibition is directed not only against the Parliament of the Commonwealth, but against the Commonwealth itself—in which word is included every department of the public service of the Commonwealth.

A law which infringes this prohibition will be beyond the scope of the Constitution, and therefore unconstitutional and void. It may be assumed, however, that the courts, following the established rules of construction, will not hold any law to be void upon mere suspicion that it gives a preference, or where there is any doubt upon the matter.

§ 413. “By any Law or Regulation of Trade, Commerce, or Revenue.”

The corresponding words of the United States Constitution, are “by any regulation of commerce or revenue.”

LAW OR REGULATION.—“Regulation” is a word which may be used in a general or a restricted sense. In its widest meaning it denotes any prescribed rule or order, and therefore includes every law; as, for instance, it does in the words of the United States Constitution quoted above. More particularly, it is often used to denote rules or regulations prescribed by the Executive under the authority of an Act of Parliament. Such rules, when within the scope of the authority given, have the force of law, and are in fact laws in every sense of the term. But the word “regulation” also includes purely administrative regulations, not made under the direct authority of an Act of Parliament, and not being laws in the proper sense of the term. The words ‘law or regulation,’ taken together, are wide enough to include every rule or order prescribed by the Parliament or by any department of the Government of the Commonwealth.

“Regulation” does not necessarily involve restriction; a regulation may be permissive.

“Regulation is not necessarily the imposition of a burden. The Federal statutes, for instance, authorize every railroad company in the United States, whose road is operated by steam, to carry passengers and property from State to State; to receive payment therefor, and to connect with roads of other States. This statute is a regulation of commerce made by Congress under the authority of the commerce clause, and yet is permissive only and imposes no burden.” (Prentice and Egan, Commerce Clause, pp. 188–9.)

“To regulate commerce has often been defined as ‘to prescribe the conditions under which commerce shall be conducted.’ Such a definition as this clearly brings within its scope all regulation of instrumentalities as well as acts of commerce. It is not surprising, therefore, that this definition has been often qualified by the general statement that ‘it is not everything that affects commerce that amounts to a regulation of it within the meaning of the Constitution.’ ” (Prentice and Egan, p. 189; Henderson v. Mayor of New York, 92 U.S. at p. 270; Munn v. Illinois, 94 U.S. 135.)




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Taxation of commerce is regulation of commerce—and indeed such taxation is often imposed with a view to regulation rather than with a view to revenue. (See Prentice and Egan, p. 198.)

TRADE, COMMERCE, OR REVENUE.—This section is a limitation upon two powers of the Commonwealth: the trade and commerce power, conferred by sec. 51—i., and the revenue power, contained chiefly in sec. 51—ii., but also incident to many other legislative powers of the Commonwealth. “Law or regulation of revenue” includes laws which deal with the raising of revenue from any source whatever—whether by taxation, by fines or pecuniary penalties, or by fees for licenses, fee for services, &c. The fact that, under sec. 54, bills appropriating such penalties or fees are not to be taken, for the purposes of that section, to “appropriate revenue or moneys,” does not mean that penalties and fees are not revenue—and indeed rather implies the contrary.

As regards taxation, the prohibition against preferences adds little, if anything, to the provision in sec. 51—i., that taxation laws must not “discriminate between States or parts of States.” But the use of the wider word “revenue” extends the prohibition to all revenues other than those arising out of taxation, and prevents any preference being given by the Commonwealth in respect of any revenue charges whatsoever; such as fees for postal, telegraphic, and telephonic services, or rates on railways of the Commonwealth.

This section, therefore, extends to all laws and regulations of trade, commerce, and revenue, the condition which is elsewhere imposed with regard to laws dealing with taxation—viz., that they shall not discriminate between States or parts of States. It is a limitation upon the power of Parliament to regulate trade, commerce, and revenue, and is intended to prevent discriminations in favour of one State against others. (Passenger Cases, 7 How. 283.)

§ 414. “Give Preference.”

The object of this prohibition is to prevent federal favoritism and partiality. In commercial and other kindred regulations. As any law which gives a preference in contravention of this section will be unconstitutional, and therefore void, it becomes highly important to examine the meaning of the word.

A preference is a discrimination considered in relation to the person or State in whose favour such discrimination is. (See Note on “Preference or discrimination,” § 430, infra.) The prohibition here is absolute and without qualification. In the case of preferences by the States there is merely a power given to the Parliament to forbid such preferences as are undue and unreasonable, or unjust to any State; in the case of the Commonwealth, every preference whatever is forbidden by the Constitution itself, irrespective of injustice or unreasonableness.

A preference involves a departure from the standard of equality; but it is not always easy to determine what that standard is. Where, in any two cases that may be compared, there is exact similarity of all material circumstances, any departure from equality of treatment is easily detected. But exact similarity of circumstances seldom occurs; and in comparing dissimilar circumstances it must often be difficult to determine what constitutes inequality of treatment, i.e., a preference. Where the circumstances are dissimilar, a preference may arise either because the dissimilarity of treatment is excessive, or because the similarity of treatment is excessive. With regard to taxation, perhaps no serious difficulty is likely to arise; but with regard to charges for services, equal charges for different services may cause as great inequality as unequal charges for similar services. For instance if on a railway line there are three points, A, B, C, in that order, a rate for the long haul A C may be preferential by being lower than, or equal to, the rate for the short haul A B; or the rate for the short haul A B may be preferential by falling disproportionately short of the rate for the long haul A C.

The Constitution prescribes no definite test of equality under dissimilar circumstances. Cost of service will presumably be a main element; but if it were the only


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element, it would lead to the illegality of “group rates” on railways of the Commonwealth—i.e., equal rates from one point to all points within a “group” or “zone.” It would also be inapplicable to postage rates, where equality of charges—even where the cost of service varies largely—is almost essential, and where any attempt to proportion the charge to the cost of service is both impracticable and undesirable. It is submitted that in deciding what is and what is not a preference the following principles should be applied:—

(1.) The section should be construed in a broad and liberal manner, with especial reference to the evil which it is intended to prevent, viz., arbitrary discriminations between States or localities. The rule that no law of the Parliament will be held invalid unless it appears clearly to infringe the Constitution requires that only a plain and substantial preference should justify judicial interference.

(2.) In determining what constitutes equality of treatment, recognition should be given to the practical necessities of the case, and to all the sound administrative or business principles involved. The cost of service should be a main element, but should not exclude other considerations; such as the expediency of a zone system on railways, or the expediency of a uniform charge for postal and telegraphic services.

It seems, in short, that though the section contains no such words as “undue or unreasonable,” but prohibits preferences in general, yet in order to arrive at a decision as to what is a preference, the question of what is due and reasonable is to a certain extent involved. If a difference of treatment is arbitrary, or if its purpose is to advantage or prejudice a locality, it is undue and unreasonable, and is accordingly a preference. If on the other hand the difference of treatment is the reasonable result of the dissimilarity of circumstances — or if it is based on recognized and reasonable principles of administration — it is no preference. The intention and the effect must both be looked to in order to decide whether a preference exists; and in neither inquiry can reasonableness be ignored.

This does not mean that the words “undue or unreasonable” are to be read into the section. On the contrary, their absence would seem to materially increase its stringency. Reasonableness must be taken into consideration in ascertaining whether a preference exists; but a preference, though ascertained by that test to exist, need not necessarily be an unreasonable preference.

Preferences within the meaning of this section are not confined to fiscal regulations.

“We can easily conceive that, if the spirit of sectionalism ever should take possession of Congress, the dominant section might devise many little petty annoyances for boats entering the harbours of the other section which would amount to an unjust preference of the ports of the former. The mere improvement of a particular harbour, the clearing of the navigation of a river which involves the altering of its channel (South Carolina v. Georgia, 93 U.S. 4), the erection of a bridge which obstructs navigation (Pennsylvania v. Wheeling Bridge Co., 18 How. 421)—all these, while they may incidentally benefit one port more than another, are not preferences within the meaning of the prohibition. The people, in adopting the Constitution, intended to stop forever one State requiring exactions from the people of another for its own peculiar benefit; but they never intended to prevent the federal Government for the good of all the States from undertaking public works in a particular locality.” (Lewis, Federal Power over Commerce, pp. 20–21.)

§ 415. “To one State or any Part thereof.”

The corresponding words of the United States Constitution are “to the ports of one State over those of another.” At the time when that Constitution was framed, navigation was the only means of carriage on a large scale, and the prohibition against preferences to ports seemed, to the Convention of 1787, to cover the whole field of necessary commercial regulation. Prentice and Egan (Commerce Clause, p. 306) suggest that—

“It is probable that the construction which will be given to the clause will be in accordance with this broad purpose. Freedom of transportation from conflicting,


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discriminating, and burdensome restrictions was the purpose of the Constitution; and while the language employed was almost necessarily such as referred to the means of transportation then in existence and within the knowledge of the Convention, nevertheless the operation of the Constitution is not confined to the instrumentalities of commerce then known, but keeps pace with the progress of the country, and is adapted to new developments of time and circumstance. Within a hundred years the means of transportation has so changed that the commerce among the States conducted by land is more important than that conducted by water. Provisions of the Constitution which at first were applied only to navigation may therefore now be applied to railways, as in the case of the clause which forbids the States from laying any duty of tonnage; and the same view may also be taken of the preference clause.”

In this section the scope thus contended for has been definitely expressed; and the words cover all commerce, whether by land or sea.

The preferences prohibited are preferences to localities. The other two kinds of preferences—preferences to particular persons, or to particular classes of traffic (see Note, § 430, infra) are not mentioned. Of course, however, a preference to a locality consists of a preference to persons or goods in that locality; and accordingly it would seem that a preference to particular persons or classes of traffic — even though no locality were expressly mentioned—might, if it specially favoured any State or part of a State against another State or part of a State, be within the section.

It is to be noticed also that a preference, to come within this section, must not only be a preference to one locality over another, but must be a preference to a locality in one State over a locality in another State. Discriminations between parts of the same State are not provided against by this section. The purpose is to safeguard the interests of the States as against one another, by prohibiting inter-state preferences. The section is “evidence of the intention of the framers of the Constitution to protect the freedom of commerce from the selfish interference of a State, through its influence in the National Government.” (Lewis, Federal Power over Commerce, p. 20.)

Nor abridge right to use water.

100. The Commonwealth shall not416, by any law or regulation of trade or commerce417, abridge the right of a State or of the residents therein418 to the reasonable use419 of the waters of rivers420 for conservation or irrigation421.

HISTORICAL NOTE.—The only mention of rivers in the Bill of 1891 was in the clause enumerating the legislative powers of the Federal Parliament, which contained a sub-clause “River navigation with respect to the common purposes of two or more States or parts of the Commonwealth.” (Conv. Deb., Syd., 1891, pp. 689–92; see p. 138, supra.)

Adelaide Session, 1897.—The sub-clause as proposed by the Constitutional Committee, and embodied in the first draft at Adelaide, empowered the Federal Parliament to legislate as to “The control and regulation of navigable streams and their tributaries within the Commonwealth and the use of the waters thereof.” The debate is summarized at pp. 174–6, supra. The clause was ultimately cut down to “The control and regulation of the navigation of the River Murray, and the use of the waters thereof, from where it first forms the boundary between Victoria and New South Wales to the sea.” (Conv. Deb., Adel., pp. 794–829.)

Melbourne Session, 1898.—Both Houses of the South Australian Parliament had proposed to extend the clause—the Assembly to all the tributaries of the Murray, and the Council to the rivers Darling, Murrumbidgee, and Lachlan. The result of the first debate (see pp. 194–6, supra) was that after a number of amendments had been proposed and rejected, the sub-clause was struck out altogether (Debates, p. 480), and all proposals


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made in substitution for it were defeated; the question of river control being thus left, as in the United States, to the operation of the “trade and commerce” power. (Conv. Deb., Melb., pp. 31–150, 376–642.)

On the second recommittal (see pp. 196–7, supra) Mr. Glynn moved an addition to the “trade and commerce” sub-clause, defining “navigable rivers” on the broad basis of American decisions; but the question was eventually postponed until after the settlement of the navigation power. The New South Wales representatives feared that the paramountcy of the federal navigation power might injure State rights of water conservation and irrigation; and Mr. Carruthers proposed to add to the “Navigation and Shipping” sub-clause a proviso that the use of the river waters for navigation should be subordinate to conservation in the States. This was eventually withdrawn in favour of Mr. Reid's amendment to the effect that the navigation power should not “abridge the rights of a State or its citizens to the use of the waters of rivers for conservation and irrigation.” Sir John Downer's amendment to add “reasonable” before “use” was carried, and the sub-clause as amended was agreed to. (Conv. Deb., Melb., pp. 1947–90.) After the fourth Report, it was amended to stand as a separate clause.

§ 416. “The Commonwealth shall Not.”

(See Note on the same words in the preceding section, § 412, supra) This section is a further limitation of the trade and commerce power. The necessity for the provision arose out of the twofold importance of the rivers—as highways of inter-state commerce, and as channels and reservoirs for the water which is essential for the development of the land. In the event of any conflict between these two purposes, the power of the Federal Parliament to regulate navigation would have prevailed absolutely against any claims by the States to the use of the water, and the object of this section is to limit the paramountcy of the navigation power so far as it may interfere with “the reasonable use” of the waters for State purposes.

The river systems of Australia bear a very close analogy, in many respects, to those of the arid portion of the United States, in which the rainfall is not sufficient for the production of the crops, and which covers about two-fifths of the whole area of the United States.

“Here the paramount interest is not navigation of the streams, but the cultivation of the soil by means of irrigation. Even if, by the expenditure of vast sums of money in straightening and deepening the channels, the uncertain and irregular streams of this arid region could be rendered to a limited extent navigable, no important public purpose would be subserved by it. Ample facilities for transportation, adequate to all the requirements of commerce, are furnished by the railroads, with which these comparatively insignificant streams could not compete. But, on the other hand, the use of the waters of all these streams for irrigation is a matter of the highest necessity to the people inhabiting this region, and if such use were denied them, it would injuriously affect their business and prosperity to an extent that would be an immeasurable public calamity.” (United States v. Rio Grande Dam and Irrigation Co., New Mexico, 51 Pac. Rep. 674; cited Prentice and Egan, pp. 116–7.)

In these arid regions difficulties arose not only between the States, but between higher and lower riparian owners in the same State. The riparian common law of England, which required every riparian owner to permit the flow of the water undiminished in quantity and unimpaired in quality, had grown up under totally different conditions, and was found inapplicable to the circumstances of the arid regions.

“Notwithstanding the unquestioned rule of the common law in reference to the right of a lower riparian proprietor to insist upon the continuous flow of the stream as it was, and although there have been in all the western States an adoption or recognition of the common law, it was early developed in their history that the mining industry in certain States, the reclamation of arid lands in others, compelled a departure from the common law rule, and justified an appropriation of flowing waters both for mining purposes and for the reclamation of arid lands, and there has come to be recognized in those States, by custom and by State legislation, a different rule—a rule which permits,


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under certain circumstances, the appropriation of the waters of a flowing stream for other than domestic purposes.” (United States v. Rio Grande Dam and Irrigation Co., 174 U.S. at p. 704.)

But though each State of the American Union may, as between its own citizens, regulate the right to use the waters of rivers, the rights of the States are subject to the paramount power of Congress with respect to navigation. Thus in 1890, Congress passed a comprehensive Act prohibiting the creation of any unauthorized obstruction to the navigable capacity of waters over which the United States have jurisdiction; and under this Act it has been held that if the navigability of a navigable stream is substantially affected by impounding the waters of a non-navigable tributary—even though such tributary be wholly within one State—the Federal Government has power to interfere. When proceedings are taken by the United States for that purpose,

“It becomes a question of fact whether the act sought to be enjoined is one which fairly and directly tends to obstruct (that is, to interfere with or diminish) the navigable capacity of a stream. It does not follow that the courts would be justified in sustaining any proceeding by the Attorney-General to restrain any appropriation of the upper waters of a navigable stream. The question always is one of fact, whether such appropriation substantially interferes with the navigable capacity within the limits where navigation is a recognized fact. In the course of the argument this suggestion was made, and it seems to us not unworthy of note, as illustrating this thought. The Hudson River runs within the limits of the State of New York. It is a navigable stream and a part of the navigable waters of the United States, so far at least as from Albany southward. One of the streams which flows into it and contributes to the volume of its waters is the Croton River, a non-navigable stream. Its waters are taken by the State of New York for domestic purposes in the city of New York. Unquestionably the State of New York has a right to appropriate its waters, and the United States may not question such appropriation, unless thereby the navigability of the Hudson is disturbed. On the other hand, if the State of New York should, even at a place above the limits of navigability, by appropriation for any domestic purposes, diminish the volume of waters which, flowing into the Hudson, make it a navigable stream, to such an extent as to destroy its navigability, undoubtedly the jurisdiction of the National Government would arise, and its power to restrain such appropriation be unquestioned: and within the purview of this section it would become the right of the Attorney-General to restrain such proceedings.” (United States v. Rio Grande Dam and Irrigation Co., 174 U.S. at p. 709.)

The above case was decided in October, 1898, after the Convention had finished its sittings; but the principles on which the decision is based were already well understood, and it was with the view of modifying to some extent the application of those principles that this section was framed. Under this Constitution the mere fact that navigability is substantially affected, or even destroyed, does not enable the Commonwealth to restrain the use of the water by a State or its residents unless such use is unreasonable.

§ 417. “By any Law or Regulation of Trade or Commerce.”

(See Note to similar words, § 413 supra, § 427 infra.) The power of the Parliament to make laws with respect to trade and commerce extends to navigation and shipping (sec. 98), and therefore to navigation upon rivers. That it extends not only to shipping, but to the highways themselves upon which the shipping is carried on, is expressly recognized by this section, which imposes a limitation on the Federal control of such highways; and it remains to discuss the extent of this power.

NAVIGABLE WATERS OF THE COMMONWEALTH.—Incident to the power to make laws in respect of navigation with other countries and among the States, is a power of control over all waters upon which such navigation may be carried on—which are, in fact, navigable for the purposes of inter-state and foreign commerce. In the Convention, there was some discussion, in connection with the words “navigable” and “navigability.” which occurred in some proposed amendments (see Conv. Deb., Melb., pp. 111, 112, 409, &c.), whether navigability would be interpreted according to the English decisions—which make the ebb and flow of the tide the test of navigability, marking the line


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where prerogative of the Crown ends and private ownership of the river-bed begins—or according to American decisions, which make actual capacity for navigation the test. As the Constitution stands, however, the word “navigable” does not occur. We have only to deal with “navigation;” and in discussing the extent of the jurisdiction with regard to navigation, we are free to use the word “navigable,” not in the artificial sense of the English decisions, but in the natural sense which has received statutory and judicial recognition in America—a sense which it is convenient to adopt, because the area of federal jurisdiction over rivers in the United States has for the most part been decided in connection with the words “navigable waters of the United States” in Federal statutes. It will be useful to trace those decisions.

In the Daniel Ball, 10 Wall. 557, at p. 563, Mr. Justice Field, delivering the opinion of the Court, said:—

“The doctrine of the common law as to the navigability of waters has no application in this country. Here the ebb and flow of the tide do not constitute the usual test, as in England, or any test at all, of the navigability of waters. There no waters are navigable in fact, or at least to any considerable extent, which are not subject to the tide, and from this circumstance tide water and navigable water there signify substantially the same thing. But in this country the case is widely different. Some of our rivers are as navigable for many hundreds of miles above as they are below the limits of tide water, and some of them are navigable for great distances by large vessels, which are not even affected by the tide at any point during their entire length. A different test must therefore be applied to determine the navigability of our rivers, and that is found in their navigable capacity. Those rivers must be regarded as public navigable rivers in law which are navigable in fact, and they are navigable in fact when they are used or are susceptible of being used in their ordinary condition as highways for commerce, over which trade and travel are or may be conducted in the customary modes of trade and travel on water.”

In The Montello, 11 Wall. 411, it was held that if a river is not of itself a highway for commerce with other countries, or does not form such highway by its connection with other waters, and is only navigable between different places within the same State, then it is not a navigable water of the United States, but only a navigable water of the State, and subject to the exclusive jurisdiction of the State. And see Lake Shore and Michigan R. Co. v. Ohio, 165 U.S. at pp. 367–8, where a doubt was expressed whether all navigable waters, even though wholly within a State, are “waterways of the United States.” These decisions are upon the words of American statutes. It is clear, however, that inter-state commerce, wherever found, is subject to federal control, and that Parliament could legislate in respect of commerce upon the navigable waters of a State, if such commerce came from, or was destined for, other States.

In The Montello, 20 Wall. 430, it was said that navigability does not depend on the mode of navigation, but upon whether the river in its natural state is such that it affords a channel for useful commerce. “It is not, however, as Chief Justice Shaw said (21 Pickering, 344), every small creek in which a fishing skiff or gunning canoe can be made to float at high water which is deemed navigable, but, in order to give it the character of a navigable stream, it must be generally and commonly useful to some purpose of trade or agriculture.”

“The mere fact that logs, poles, and rafts are floated down a stream occasionally at times of high water does not make it a navigable river.” (United States v. Rio Grande Dam and Irrigation Co., 174 U.S. at p. 698, where it was held that the Rio Grande, between the points mentioned in the case, was not navigable.)

It seems clear from the principle of these cases that a river may be deemed navigable even though it is in fact only intermittently navigable, provided that it is really useful for commerce.

If, however, a stream be in fact connected with the waters of other States, it is immaterial that in its natural condition it was not an inter-state highway. Such a limited construction “cannot be adopted, for it would exclude many of the great rivers of this country, which were so interrupted by rapids as to require artificial means to enable them to be navigated without break. Indeed, there are but few of our fresh water


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rivers which did not originally present serious obstructions to an uninterrupted navigation.” (The Montello, 20 Wall. at p. 439.) And it has even been held to be immaterial that the stream is entirely of artificial construction. (Ex parte Boyer, 109 U.S. 629.)

“The control vested in the general Government to regulate inter-state and foreign commerce involves the control of the waters of the United States which are navigable in fact, so far as may be necessary to ensure their free navigation, when by themselves or in connection with other waters they form a continuous channel for commerce among the States or with foreign countries.” (Escanaba Co. v. Chicago, 107 U.S. at p. 682.) Accordingly the Chicago River and its branches, though lying within the limits of the State of Illinois, were held to be navigable waters of the United States, which Congress may control so far as to protect, preserve, and improve, free navigation.

Whether a river is or is not navigable at any point is ordinarily a matter of proof; though the fact that some rivers are navigable, and others not, may be a matter of common knowledge, and judicially noticed. (United States v. Rio Grande Dam and Irrigation Co., 174 U.S. 690.)

EXTENT OF FEDERAL AUTHORITY.—The extent of the federal authority over navigable waters has in the United States been the subject of numerous decisions, and has been laid down in very wide terms. Thus it is held that the power to regulate navigation includes the power to improve the navigable channel (Wisconsin v. Duluth, 96 U.S. 379); to close one of several channels of a river in order to improve the navigability of another (South Carolina v. Georgia, 93 U.S. 4); and to make a new channel (Prentice and Egan, Commerce Clause, p. 110). In short the federal power includes authority to do everything necessary “to make and keep the highway open and safe (Prentice and Egan, Com. Clause, p. 109). “Congress can do anything which, in its reasonable effect, regulates inter-state or foreign commerce, or the instruments of commercial intercourse; and the word ‘regulate,’ as employed in the Constitution, not only covers all rules prescribing the way in which such commerce can be conducted, but also all real or supposed improvements of the means of communication. In this idea of the word regulate is found the judicial justification of all our internal improvements.” (Lewis, Federal Power over Commerce, p. 19) The power of Congress to pass laws for the navigation of rivers, and to prevent all obstructions therein, cannot be disputed. (United States v. Bellingham Bay Boom Co., 176 U.S. 211.)

The words of this Constitution are even wider. The Parliament has power, not merely “to regulate commerce,” but “to make laws with respect to trade and commerce,” a phrase which would seem to be as wide as the most extended construction which the American courts have given to the word “regulate.”

For the carrying out of these public purposes the Federal Parliament has all the incidental powers which are necessary. Thus it has been held in the United States that Congress has the power of eminent domain over the shores and the submerged soil. (Monongahela Navigation Co. v. United States, 148 U.S. 312; Stockton v. Baltimore, &c., R. Co., 32 Fed. Rep. 9; Prentice and Egan, Com. Clause, p. 110.) “All navigable waters are under the control of the United States for the purpose of regulating and improving navigation; and although the title to the shore and submerged soil is in the various States, and individual owners under them, it is always subject to the servitude in respect of navigation created in favour of the Federal Government by the Constitution.” (Gibson v. United States, 166 U.S. 269.) In that case it was held that riparian ownership of navigable rivers is subject to the obligation to suffer the consequences of an improvement of the navigation under an Act passed by Congress in the exercise of its dominant right, and that damages resulting from such improvement cannot be recovered. (See South Carolina v. Georgia, 93 U.S. 4; Shively v. Bowlby, 152 U.S. 1; Eldridge v. Trezevant, 160 U.S. 452.) In this Constitution, the power of acquiring the property of States or individuals for “any purpose in respect of which the Parliament has power to make laws” is expressly given by sec. 51 — xxxi.




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In Green Bay and Mississippi Co. v. Patten Paper Co., 172 U.S. 58, it was held that water power incidentally created by the erection and maintenance of a dam and canal by the United States was (under the facts in that case) subject to control and appropriation by the United States. The Court afterwards explained that this decision did not apply after the waters had flowed over the dam and through the sluices, and found their way to the unimproved bed; and held further that though State courts might legitimately take cognizance of controversies between riparian owners as to the use and apportionment of waters flowing in non-navigable parts of a stream, they could not interfere, by mandamus, injunction, or otherwise, with the control of the surplus power incidentally created by the Federal dam and canal. (Green Bay, &c, Co., v. Patten Paper Co., 173 U.S. 179.)

The Congress of the United States has power, not only to improve the navigability of waters, but to prevent their obstruction by any State or person, by means of bridges, dams, piers, or other structures which interfere with navigation. It follows as a corollary to the power to preserve free navigation that Congress has the paramount right to conclusively determine what shall be deemed, so far as commerce is concerned, an obstruction. (Miller v. Mayor of New York, 109 U.S. 385.) “Congress has the right to abate all bridges which obstruct the free passage of inter-state commerce on a river. The fact that a greater amount of inter-state commerce passes over than under the bridge is immaterial.” (Lewis, Fed. Pow. over Comm. p. 18; Bridge Co. v. United States, 105 U.S. 470; The Clinton Bridge, 10 Wall. 454. For Federal legislation on this subject in the United States, see Prentice and Egan, Commerce Clause, pp. 112, 126.) It has even been held that a dam on a non-navigable tributary may, by diminishing the supply of water to a navigable river, become an obstruction. (United States v. Rio Grande Dam and Irrigation Co., 174 U.S. 690.) In this Constitution the Federal power of interference in such cases is substantially limited by the prohibition contained in this section.

“An unlawful obstruction in public navigable waters which threatens irreparable injury to an individual may be the subject of relief in equity (Texas and Pac. R. Co. v. Inter-State Transportation Co., 155 U.S. 585), and, when constructed, may be a public nuisance which any interested person may abate.” (Prentice and Egan, Comm. Clause, p. 112.)

Not only can Congress prevent obstructions by the States; it can, by virtue of its paramount power over trade and commerce, create or authorize the creation of obstructions such as bridges and dams. (See a long list of cases cited by Prentice and Egan, Comm. Clause, p. 111.)

Except as to the limitation in favour of user of the water by States and by residents therein, these decisions seem applicable to the trade and commerce power as conferred by this Constitution. It appears clearly from the debates of the Convention, and particularly the debates referred to in the Historical Note to this section, that the Convention was fully aware of the wide scope of the American decisions, and was content that they should be applied—with the limitation mentioned—to this Constitution.

In the case of railroads, indeed, the Constitution does seem to contemplate a more limited power of control than exists in the United States. The express powers given (sec. 51—xxxiii., xxxiv.) to acquire State railways with the consent of a State, and to control railways in a State with the consent of the State, not only imply that those powers may not be exercised without such consent, but perhaps imply also that the powers would not have existed, or that their existence might have been doubtful, without express words. It may be argued that the facts that it was deemed necessary to give such express powers at all, and that the powers so given were limited by requiring the consent of the States, show that a narrower scope was contemplated for the whole trade and commerce power. Such arguments from implication, however, are never very strong. If the Convention had meant the navigation power to be construed more narrowly than in the United States, the matter would hardly, in the face of the


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American authorities, have been left to implication. Besides, the express gift of the power of eminent domain (sec. 51—xxxi.) which enables the Commonwealth to acquire property “for any purpose in respect of which the Parliament has power to make laws,” evidences a broad view not only of the trade and commerce power, but of all the legislative powers vested in the Commonwealth. It is submitted, therefore, that subject to exceptions expressed or arising by clear implication from the language of the Constitution—such as the exception expressed in this section in favour of the user of water, and the exception implied in sec. 51—xxxiii. and xxxiv. against the acquisition of the railways of a State, or the construction of Federal Railways in a State, without the consent of the State—the trade and commerce power, with respect to navigable waters, has as wide a scope as in the United States. In this view, the Commonwealth may create waterways for inter-state commerce, or any other kind of highway except railways; and for that purpose it may not only improve the navigability of navigable streams, but may create navigability in naturally non-navigable streams, and may cut canals where no streams previously existed.

CONCURRENT POWERS OF THE STATES — The navigation power, being part of the trade and commerce power, is not “exclusively” vested in the Parliament of the Commonwealth, and, therefore, the concurrent power of the States to deal with interstate navigation and with navigable waters will continue, subject to be ousted, in part or in whole, by Federal legislation.

In the United States, the distinction between those parts of the commerce power which are in their nature exclusive, as requiring uniform legislation, and those which are concurrent, as admitting of auxiliary local legislation in the absence of Federal legislation (see pp. 527, 530, supra), has led to a subordinate distinction being drawn between streams which are wholly within the limits of a State, and streams which form the boundary between two States, or flow through two or more States. With regard to the former streams much wider concurrent powers of control have been conceded to the States than with regard to the latter.

“It has always been the rule that, in the absence of Federal legislation, the States may prevent obstruction of navigable waters within their limits; may regulate the placing of buoys and beacons; the construction of wharves; and may deepen channels; change outlets of lakes and rivers, construct dams and locks to increase the depths of water or for other purposes, care being taken not to create serious impediments to the navigation of important waters; may construct canals around falls and improve their harbours and rivers generally, and may collect a charge from vessels using the improved navigation, as a compensation for the facilities thus afforded.” (Prentice and Egan, Comm. Clause, p. 113; Mobile v. Kendall, 102 U.S. 691; State v. Illinois Central Railway, 146 U.S. 387; Pound v. Turck, 95 U.S. 459; Willson v. Blackbird Creek Marsh Co., 2 Pet. 245; Sands v. Manistee R. Improvement Co., 123 U.S. 288; Monongahela Nav. Co. v. United States, 148 U.S. 312; Huse v. Glover, 119 U.S. 543; Gloucester Ferrv Co. v. Pennsylvania, 114 U.S. 196.)

Thus it was held in Huse v. Glover, 119 U.S. 543, that if, in the opinion of a State, its commerce will be more benefited by improving a navigable stream within its borders than by leaving it in its natural condition, it may authorize the improvements though individuals may be inconvenienced; and that a river does not change its legal character as a highway if crossings by bridges or ferries are allowed under reasonable conditions, or if dams are erected under like conditions. “The erection of bridges with dams and the establishment of ferries for the transit of persons and property, are consistent with the free navigation of rivers.” (Huse v. Glover, at p. 547.)

In the same case it was held that a toll for the use of the improvements was not a tax. “The fact that if any surplus remains from the tolls, over what is used to keep the locks in repair, and for the collection, it is to be paid into the State Treasury as a part of the revenue of the State, does not change the character of the toll or impost.” (Huse v. Glover, at p. 549.)

And a State may not only, in the absence of Federal legislation, improve the navigability of rivers, but may even obstruct navigability. Thus in Hamilton v. Vicksburg R. Co., 119 U.S. 280 (following Cardwell v. Bridge Co., 113 U.S. 205) it was held


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that persons acting under the authority of a State may construct bridges over navigable streams. The opinion of the Court contains the following passage:—

“What the form and character of the bridges should be, that is to say, of what height they should be erected, and of what materials constructed, and whether with or without draws, were matters for the regulation of the State, subject only to the paramount authority of Congress to prevent any unnecessary obstruction to the free navigation of the streams. Until Congress intervenes in such cases, and exercises its authority, the power of the State is plenary. When the State provides for the form and character of the structure, its directions will control, except as against the action of Congress, whether the bridge be with or without draws, and irrespective of its effect upon navigation. As has often been said by this Court, bridges are merely connecting links of turnpikes, streets, and railroads; and the commerce over them may be much greater than that on the streams which they cross. A break in the line of railroad communication from the want of a bridge may produce much greater inconvenience to the public, than the obstruction to navigation caused by a bridge with proper draws. In such cases, the local authority can best determine which of the two modes of transportation should be favoured and how far either should be made subservient to the other.”

When a bridge is lawfully built over a navigable river, its owners may have recourse to the courts to protect it; and relief granted by the courts is not a regulation of commerce. (Texas and Pacific R. Co. v. Inter-state Transp. Co., 155 U.S. 585.)

The general principle, as finally settled by the courts of the United States, is summed up by Prentice and Egan (Comm. Clause, p. 117) as follows:—“The question whether or not an obstruction should be permitted in navigable waters wholly within a State is essentially legislative, and this, it is now held, in the absence of federal legislation, is controlled entirely by the States.”

The principles which, in the absence of federal legislation, would govern inter-state streams, are less clearly defined in the United States—chiefly because federal legislation has, as a matter of fact, occupied the field, and made the question one of little practical importance. Authority seems to show, however, that the power of the Federal Government to authorize obstructions is in such cases regarded as exclusive. (Albany Bridge Case, 2 Wall. 403; Pennsylvania v. Wheeling Bridge Co., 13 How. 518; Prentice and Egan, Comm. Clause, pp. 118–120; Lewis, Federal Power over Commerce, p. 56.)

It is contended, however, by Dr. Lewis (Fed. Pow. over Comm. pp. 58–9) that the question whether a stream is within the limits of a State, or flows through or between two or more States, is not the conclusive test of concurrent control.

“It is impossible to draw the boundary line between rivers which are under the concurrent control of the State, and those which are national in their character. Such a rule as the one above stated, concerning the national character of streams flowing on the boundaries of States, and the local character of those wholly within a State, is purely empirical. A stream is not national in character because of its geographical position; the national character depends upon the importance of its navigation to the people of the Union as a whole. … We do not wish to minimize the value of general rules indicating the class of rivers under the concurrent power of the State. Nevertheless, the Supreme Court will not have to overrule its previous decisions in order to change or modify empirical distinctions. They are invented for utility; whenever a strict adherence would result in a palpable absurdity they will be abandoned. To say that all rivers on the boundaries of States are national in character and require the exclusive control of Congress, or that a State can place physical obstructions in all navigable streams entirely within her boundaries, means, and can mean nothing more, than that the majority of rivers of a particular class are national or are local in character.”

It thus appears that in the United States three classes of navigable waters are recognized:—

  • (1.) Waters which are wholly within a State, and do not connect with the waters of other States (either by ocean, lake, river, canal, or otherwise) to form a continuous inter-state waterway. These waters are under the exclusive control of the State.
  • (2.) Waters which are wholly within the limits of a State, but which connect with the waters of other States to form a continuous inter-state waterway. These may be controlled by the Union, but in the absence of Federal legislation are subject to the concurrent control of the States.



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  • (3.) Waters flowing on the boundaries of States or through two or more States. These are under the exclusive control of the Union.

Or perhaps, following Dr. Lewis' principle of classification, it might be said that streams on which there can be no Federal navigation are exclusively controlled by the States; that streams on which Federal navigation is unimportant, may be controlled by the States until the Union chooses to exercise control; and that streams on which Federal navigation is important are exclusively controlled by the Union.

APPLICATION OF AMERICAN DECISIONS.—In considering the applicability of the American decisions, it must be borne in mind that the Australian Constitution is explicit on two points on which the Constitution of the United States is silent. It provides (sec. 92) that after the imposition of uniform duties, inter-state commerce shall be absolutely free; and it provides (sec. 107) that every power of the State Parliaments, unless exclusively vested in the Federal Parliament or withdrawn from the State Parliaments, shall continue. No part of the commerce power (except customs, excise and bounties), or of the navigation power which it includes, is “exclusively” vested in the Federal Parliament; and therefore—in the absence of Federal legislation—it would seem that the States may exercise concurrent control over all navigable waters within their jurisdiction, except so far as the power to obstruct may be “withdrawn” from the State Parliaments by the constitutional provision that trade among the States shall be “absolutely free” (sec. 92). That provision, it would seem, does not extend to prevent such incidental physical obstructions as may arise from the bona fide exercise by the States of the concurrent power to regulate inter-state commerce in the absence of Federal legislation. It is to be noted that the provision for freedom of trade is as binding on the Commonwealth as on the States. Any obstruction which would be unlawful under sec. 92, if created by a State, would be equally unlawful if created by the Commonwealth; so that no argument for an exclusive power can be founded on that section. It would seem therefore that, in the absence of Federal legislation, the States may exercise concurrent control over all navigable waters within their jurisdiction; subject of course to all the constitutional conditions—such as the prohibitions against interfering with freedom of trade (sec. 92) and against discriminating against the citizens of other States (sec. 117)—by which the exercise of State power is controlled.

§ 418. “Abridge the Right of a State or of the Residents Therein.”

These words do not preserve the pre-existing rights of the States in their entirety. They forbid the Commonwealth to abridge the right of a State or its residents to the “reasonable” use of the waters for certain purposes; but they do not forbid the Commonwealth to abridge the right of a State or its citizens to the unreasonable use of the waters for those purposes, or to their use for other purposes. (See Notes §§ 419, 421, infra.)

RIGHTS BEFORE FEDERATION.—Before Federation, it is clear that the legal rights of each Colony—or of the residents of that colony, as against residents of another colony—to the use of the waters of rivers flowing through the colony, were absolute. There is no such thing as a riparian law between independent States; and as regards their direct relations with each other the several colonies were practically independent. Each colony received, as a part of its heritage, the common law of England; and consequently each colony had, as part of its law, the riparian common law of England. But that law became the law of each colony separately, and not law between the colonies, nor the general law of all the colonies. Each colony had power, by legislation, to alter the common law with regard to the rights to use the waters. Accordingly the Parliament of Victoria, by the Irrigation Act, 1886, No. 898, amended by the Act No. 983, and now re-enacted in the Water Act, 1890, sec. 293, dealt in a comprehensive manner with the control of river waters and watercourses, and riparian rights in connection therewith.


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And the Parliament of New South Wales, by the Water Rights Act, 1896, defined the rights of riparian proprietors in that colony, and, subject to those rights, vested in the Crown the right to the use and flow and to the control of water in all rivers and lakes. A precisely similar course of events happened in some of the American States. In each State the common law of riparian rights at first prevailed; but in the “arid region,” where the use of the water is necessary for development, the common law, which entitled every riparian proprietor to the continued natural flow of the water, was found unsuitable, and by custom and State legislation a different rule was recognized, which permits, under certain circumstances, the appropriation of the waters of a flowing stream for mining, agricultural, and other purposes. (United States v. Rio Grande Dam and Irrigation Co., 174 U.S. 690; and see Conv. Deb., Melb., pp. 420–3; Prentice and Egan, Comm. Clause, p. 116.)

It was suggested at the Convention, by Mr. Gordon, Mr. Holder, and others, that there were some riparian rights between the colonies, based either upon common law, or upon international law, or upon international comity; and that relief might be had, if not in the colonial courts, at least by application to the Imperial Government. (See Conv. Deb., Adel., pp. 794, &c.; Melb., pp. 31, &c.; 405, &c.) So far, however, as these claims rest upon any suggestion of a legal right, they fail, not only, as was suggested in the Convention (for instance, Conv. Deb., Melb., p. 493), for want of a tribunal, but for want of a law which such tribunal should administer.

Nor does international law carry the matter any further. There is no principle which limits the rights of a State or its citizens to the use of waters flowing through the State. Free navigation of such waters, subject to certain conditions, is indeed generally a subject of treaty or convention between States, and it may be that a refusal to enter into any such convention might be a breach of international comity. (Pitt Cobbett, Cases on Internat. Law, p. 43; Walker, Pub. Internat. Law, p. 37; Hall, Internat. Law, § 39; Conv. Deb., Adel., p. 795; Melb., p. 419.) But there is certainly no principle of international law, and no conventional usage, which purports to apportion the rights of States to appropriate the waters of rivers. The rights of irrigation do not seem to have even formed the subject of international questions in Europe.

“The only irrigating rivers in Europe are those of France, Italy, and Spain, which flow wholly within the territory of the States concerned, and have as yet afforded no opportunity for any difference of opinion on this point. The rivers in regard to which international agreements have been made, and of which the River Danube is an excellent example, are not rivers used for the purpose of irrigation, even to an infinitesimal extent. As a matter of fact, the only river, so far as we know, in which different States are interested, and in which this question has assumed any importance, is the River Rio Grande, dividing Mexico from the United States of America, and there the Mexican Republic, so far as I know, has never been able to obtain any official recognition of its claims from the United States Government, although that river, in many portions, has been almost entirely deprived of its water at certain seasons of the year.” (Mr. Deakin, Conv. Deb. Melb., pp. 1970–71.

Besides rivers flowing through two or more States, the question of boundary rivers needs to be discussed. In Australia the boundaries between States are mostly parallels of latitude and meridians of longitude; but there are two river boundaries—namely, that formed by the Murray River between New South Wales and Victoria, and that formed by the Dumaresq and MacIntyre Rivers between New South Wales and Queensland. The rule of international law as to boundary rivers is that “where it is not proved that either of the riparian States possesses a good title to the whole bed, their territories are separated by a line running down the middle, except where the stream is navigable, in which case the centre of the deepest channel, or, as it is usually called, the Thalweg, is taken as the boundary.” (Hall, Internat. Law, § 38; and see Rorer, Inter-State Law, p. 438.)

In the case of the Dumaresq and MacIntyre Rivers (see Letters Patent of 6th June, 1859, p. 73, supra) this rule would undoubtedly apply; but in the case of the Murray River, special provision is made by the Australian Colonies Government Act (13 and 14


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Vic. c. 59) and by the New South Wales Constitution Statute (18 and 19 Vic. c. 54). Sec. 4 of the Australian Colonies Government Act defined the territory of Victoria as “bounded on the North and North-East by a straight line drawn from Cape Howe to the nearest source of the River Murray, and thence by the course of that river to the eastern boundary of the colony of South Australia” Sec. 5 of the Constitution Statute recited that doubts had arisen as to the true meaning of this description of the boundary, and declared and enacted that—

“The whole water-course of the said River Murray from its source therein described to the eastern boundary of the colony of South Australia is and shall be within the territory of New South Wales. Provided nevertheless that it shall be lawful for the Legislatures and for the proper officers of customs of both the said colonies of New South Wales and Victoria to make regulations for the levying of customs duties on articles imported into the said two colonies respectively by way of the River Murray, and for the punishment of offenders against the customs laws of the said two colonies respectively committed on the said river, and for the regulation of the navigation of the said river by vessels belonging to the said two colonies respectively. Provided also that it shall be competent for the Legislatures of the said two colonies by laws passed in concurrence with each other to define in any different manner the boundary line of the said two colonies along the course of the River Murray and to alter the other provisions of this section.”

Under this section the whole watercourse of the Murray, so far as that river forms the boundary, is within the territory of New South Wales; and it has been contended on behalf of New South Wales that this grant carries with it the entire control of the river, except so far as concurrent jurisdiction is expressly given to Victoria. The jurisdiction as to customs duties and customs offences will become obsolete on the imposition of a uniform tariff, and need not be considered. The only remaining jurisdiction of Victoria, it would seem, is “to make regulations … for the regulation of the navigation of the said river by vessels belonging to Victoria.” This power to regulate the navigation of the river by particular vessels is clearly a much more limited right than the power to regulate navigation generally; it appears to mean the licensing and general control of the vessels themselves, and not to extend to physical control of the river except as regards wharves or landing places on the Victorian side.

“Upon whatever ground property in the entirety of a stream or lake is established, it would seem in all cases to carry with it a right to the opposite bank as accessory to the use of the stream.” (Hall, Internat. Law, § 38.) A water-course consists of the bed, the two banks, and the water; the bank being the uttermost part of the bed in which the river naturally flows. (Angell on Water-courses; Conv. Deb., Melb., p. 440.) The whole water-course being within the territory of New South Wales, it would seem that that colony had—subject to the Victorian right to regulate the navigation by Victorian vessels—the same control over its waters as over the waters of a river flowing through the colony.

In respect of boundary streams, to which the title of both colonies depends on an Imperial grant, it may be that, notwithstanding the absence of an inter-colonial riparian law, there may be mutual rights to the appropriation of the water, which may be the subject of adjudication in a court. See Stillman v. White Rock Manuf. Co., 3 Wood. and M. 538 (cited Rorer, Inter-State Law, p. 446) an interesting case decided in a Circuit Court of the United States. The parties owned mills on opposite sides of the River Pawcatuck, the centre of which is the boundary line between Connecticut and Rhode Island. Both were supplied with water-power from the river, and one of them, by a canal, diverted more than one undivided half of the water. Notwithstanding that the two mills were situated in different States, and in different circuits, it was held that an injury was committed for which an injunction could be had in the Circuit Court which had jurisdiction on the side on which the canal was cut. The decision was based on the principle that each party, as against the other, had a corporeal easement or right to an undivided half of the water of the whole stream, or a tenancy in common therein; and that there was therefore a remedy both for the direct injury to the easement and to the consequential injury to the lands adjoining. This, of course, is altogether different


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to the proposition that the common law right to an undiminished flow has any inter-state application. If good law, the case might possibly be applicable to a boundary stream, such as the MacIntyre, between two colonies.

RIGHTS AFTER FEDERATION.—The establishment of the Commonwealth, though it confers on the Federal Parliament new, and to some extent dominant, legislative powers, does not, in the absence of federal legislation, greatly alter pre-existing rights. There are indeed the provisions that the citizens of other States must not be discriminated against (sec. 117), and that after uniform duties trade must be free; but it seems quite clear that each State retains its own riparian law, and that no inter-state riparian law arises, nor—except as to navigation—can arise. The Federal Parliament has power to legislate as to inter-state navigation, and it may incidentally—subject to the restriction as to reasonable use—control the waters for that purpose; but it has no power to dispose of the water for any other purpose, such as irrigation or conservation. Nor can there be any Federal common law regulating such appropriation; for that would lead to the absurdity that there was a part of the common law which could not be altered either by the Federal Parliament or by the State Parliament. There can be no federal common law on matters outside the legislative power of the Federal Parliament; so that after federation—as before—the claim to an undiminished flow, as between States or citizens of different States, would seem still to fall on the ground that there is no law applicable to the case.

§ 419. “The Reasonable Use.”

REASONABLE USE.—As originally proposed by Mr. Reid, without the word “reasonable,” this provision would have prevented any interference whatever by the Federal Parliament, under the trade and commerce power, with the absolute right of the States to appropriate the waters of rivers for the purposes named. On the other hand, the omission of the whole provision would have left the navigation power supreme over the rights of the States, and would have made it legally possible for the Federal Parliament to ignore the requirements of conservation and irrigation altogether. The words as they stand recognize the supremacy of the navigation power only so far as it does not conflict with “reasonable use” for conservation and irrigation—thus subordinating navigation to the reasonable requirements of the States for such purposes.

Before discussing the interpretation of the word “reasonable,” it will be well to point out how, in the United States, in spite of the legal supremacy of the navigation power, the actual necessities of the “arid region” have secured some slight recognition at the hands of the courts.

In Broder v. Water Co., 101 U.S. 274, 276, the court said: “It is the established doctrine of this court that rights of miners, who had taken possession of mines and worked and developed them, and the rights of persons who had constructed canals and ditches to be used in mining operations and for purposes of agricultural irrigation, in the region where such artificial use of the water was an absolute necessity, are rights which the Government had, by its conduct, recognized and encouraged and was bound to protect, before the passage of the Act of 1866. We are of opinion that the section of the Act which we have quoted was rather a voluntary recognition of a pre-existing right of possession, constituting a valid claim to its continued use, than the establishment of a new one.”

This was a recognition of a right of “reasonable use,” based on encouragement on the one side and expectation on the other, apart altogether from federal legislation.

In United States v. Rio Grande Dam and Irrigation Co., New Mex., 51 Pac. Rep. 674, it was held in the Court of the Territory of New Mexico that where a stream is of small value for navigation, and of great importance for irrigation, a State may destroy its navigability in the interests of irrigation. In the Supreme Court, however, this doctrine was not upheld. It was admitted that every State has the power, within its


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dominion, to alter the common law rule as to the appropriation of flowing waters, and to permit their appropriation for such purposes as the State deems desirable. It was also admitted that by Acts of Congress (cited in the opinion) Congress had recognized and assented to such appropriation; but it was not to be inferred that Congress thereby meant to confer on any State the right to appropriate all the waters of the tributary streams which unite into a navigable watercourse, and so destroy the navigability of that watercourse, in derogation of the interests of the people of the United States. (United States v. Rio Grande Dam and Irrigation Co, 174 U.S. 690.)

This Constitution, however, gives explicitly what Congress and the Courts of the United States have only partially conceded—the right of the States and their residents to the reasonable use of the water for certain purposes, notwithstanding that navigability may be interfered with.

WHAT IS REASONABLE.—The difficulty of conceding absolute paramountcy to either navigation on the one hand, or conservation and irrigation on the other hand, has been met by the word “reasonable,” which gives the “reasonable use” for conservation or irrigation a priority over navigation, but which gives navigation a priority over the unreasonable use for conservation or irrigation. That is to say, the question of priority is not determined absolutely by the Constitution, but is left to be determined in each case according to the circumstances, by the application of principles laid down by the Constitution.

What is “reasonable” must depend on the facts of each case; but the facts in each case ought to be considered and balanced in accordance with fixed principles. To secure uniformity and certainty in the law, it is important that the elements of reasonableness —the principles upon which any use is declared reasonable or unreasonable—should be clearly laid down. This can only be done authoritatively by the Courts; but a short discussion of some aspects of the question will perhaps be useful.

From whose point of view is “reasonableness” to be decided? Are the requirements of the conserving or irrigating State or citizen to be taken into account alone, irrespective of the needs of navigation; or are the public interests as a whole to be considered, by balancing the requirements for both purposes, and regulating the use of the water according to the relative importance of the two purposes? On the first assumption, the fair requirements of cultivation have to be estimated independently, whether the damage to navigation be great or small; on the second assumption, the amount of water which may reasonably be used for cultivation will vary according to its importance for navigation. Neither assumption is wholly free from difficulty. On the one hand, if the amount which the cultivator may appropriate is to be determined irrespective of navigation, it would seem “reasonable” for him to drain the river dry, if he derived the least profit from doing so, although the damage to navigation might be immensely greater than his gain. From his point of view, every use would be reasonable which benefited him, no matter how much it might cost others. On the other hand, if navigation and cultivation are to be weighed equally in the balance, according to their respective value to the community, the reasonable priority of user may vanish altogether, and the importance of navigation may make it unreasonable, in some cases, to take a single drop for cultivation.

Or again it may be argued that the spirit and intention of the clause require an intermediate basis—one which would not determine “reasonable use” without reference to the requirements of navigation, but which would, whilst considering both requirements, give a “reasonable” degree of priority to the rights of cultivators. It may be said that the section refers to existing rights, and forbids any abridgment of those rights so far as they involve reasonable use; and that the spirit of this prohibition requires a liberal construction of existing rights, and a strict construction of the abridging power. The reasonableness of use may involve questions, not only of the amount of water taken, but of the season at which it is taken, the utility of the purpose to which it is applied, and the manner of its application to that purpose. It may


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be unreasonable to conserve or divert any water when the river is low, but reasonable to conserve or divert large quantities when the river is high; it may be reasonable to irrigate, but unreasonable to adopt a needlessly wasteful mode of irrigation; and so on.

ANALOGY WITH THE COMMON LAW.—The limitation placed by this section on federal legislation bears an interesting analogy with the rules of the common law on the subject of riparian rights. The common law recognizes, and is obliged to some extent to compromise between, the right of the lower riparian proprietor to an undiminished flow, and the right of the upper riparian proprietor to use the water. The compromise it makes is to require, on the one hand, that the flow shall not be substantially diminished, and on the other that the consumption of water must be reasonable. (Embrey v. Owen, 6 Exch 353.)

“If a lower proprietor has a right to the free flow of the water without diminution or alteration, a right to consume the water before it reaches him is apparently irreconcilable with it; but such inconsistencies are to be met with in all natural rights, and the law reconciles them by holding that each is only to be enjoyed reasonably, that they are not absolute rights without limit, but that they are rights modified by all the rights of others. The right to uninterrupted flow of water is therefore subject to limit by the right to reasonable use and consumption of the water by others, and the right to use and consume must be exercised so reasonably and moderately that others may not be immoderately deprived of the quantity of water they are entitled to.” (Encycl. of the Laws of Eng. sub tit. “Watercourse.”)

“On the one hand, it could not be permitted that the owner of a tract of many thousand acres of porous soil abutting on one part of the stream could be permitted to irrigate them continually by canals and drains, and to cause a serious diminution of the quantity of water; .… on the other hand, one's common sense would be shocked by supposing that a riparian owner could not dip a watering-pot into the stream in order to water his garden, or allow his family or his cattle to drink it. It is entirely a question of degree.” (Per Parke, B., Embrey v. Owen, 6 Exch. at p. 372.)

The distinction has been drawn in another way by saying that every proprietor has a right to the “ordinary” use of the waters without regard to the effect on other proprietors, but he is not entitled to the “extraordinary” use if he thereby interferes with the rights of others. (Miner v. Gilmour, 12 Moo. P.C. 156; Ormerod v. Todmorden Joint Stock Mill Co., 11 Q.B.D. 155.)

The principle of modifying the right to the uninterrupted flow by a countervailing right to “reasonable use” is therefore a part of the common law of England; but its application, under English conditions, has been to restrict the “reasonable use” within very narrow limits—to allow a riparian proprietor to “dip a watering-pot,” but to insist on a substantially undiminished flow. (See Medway Navigation Co. v. Romney, 9 C.B.N.S. 575; Wilts and Berks Canal Co. v. Swindon Waterworks Co., L.R. 9 Ch. 451.) In Australia the use of the water for cultivation is vastly more important; and though the principle of ‘reasonable use” is the same, its application must be widely different. Parke, B., in the case cited, chose irrigation as a striking example of an unpermissible and unreasonable use; but in Australia the wholesale appropriation of the water may be not only reasonable, but often essential to pastoral and agricultural settlement.

ANALOGY WITH RAILWAYS.—The section also presents an interesting analogy with the sections dealing with unreasonable preferences on railways. The interests of cultivation and navigation in the one case may be compared with the interests of the railways and the ports in the other; and the State-right of user of water with the State-right of making developmental rates. In the case of the rivers, however, the protection given to State-rights is not so complete as in the case of the railways. The right to make developmental rates—if they apply equally to goods from other States—is absolutely preserved, no matter what may be their effect on inter-state commerce; but the right to the user of water may be abridged so far as it is unreasonable.

In the case of rivers, the Constitution does not provide, as in the case of railways, that a use may not be deemed unreasonable unless the Inter-State Commission decide that it is so. The question of unreasonableness, however, would seem to be more proper


  ― 893 ―
for the Commission than for the courts; and under sec. 101 the Parliament may give the Inter-State Commission such powers of adjudication and administration as it deems necessary for the execution of this, as every other, part of the trade and commerce law.

§ 420. “The Waters of Rivers.”

A river is a stream flowing in a defined channel; and the waters of a river are the waters flowing over its bed and between its banks. Rainwater flowing over or percolating through the soil, but not flowing in a defined channel, is not the water of a river (see McNab v. Robertson [1897], App. Ca. 134). Artesian water is therefore not the water of a river; nor, it would seem, is flood-water which has escaped from the banks of a river and overflowed the surrounding country. One interesting question that arises is whether the great lakes and billabongs into which the Darling River spreads in flood-time can be called part of the river, or whether the waters which they then contain can be called the waters of the river. As defined by text-book writers, the bed of a river is, generally speaking, all the soil below the high-water mark of the ordinary tides and the ordinary floods. How far the bed and banks of such a river as the Darling extend is a question of fact; and it may be that the unique conditions of that river make a strict adherence to the definitions of English judges and text-book writers impracticable.

In connection with this question, the further question may arise whether the Federal Parliament, in the exercise of its navigation power, can in any way prevent the appropriation of waters which are not the waters of rivers. In the gift of the navigation power (sec. 51—i. 98) no mention is made of rivers, but this section prohibits the abridgment, by trade and commerce laws, of the State-rights of reasonable use of the waters of rivers. This section seems to show that the Constitution did not contemplate federal control of other inland waters. No riparian law in the world, it is believed, extends to waters not within the ripae, or banks, of a stream. The American cases extend the authority of the Union, in respect of navigation, to all the tributary streams of a navigable river; and it would seem that this is the utmost limit of control. This distinction may be important in connection with the conservation of waters in flooded areas.

§ 421. “For Conservation or Irrigation.”

The scope of the section is limited to reasonable use for these two purposes. Any use by a State or its residents which does not come within one of these heads is not protected by these sections, but is subject to the dominant power of the Federal Parliament with respect to navigation. Conservation and irrigation were the two modes of use which engaged the special attention of the Convention, as being the only modes of use which were contemplated on a large scale, and which seemed to threaten the navigability of the rivers. It is clear, however, that they do not exhaust the ways in which, or the purposes to which, water may be appropriated. Water may be diverted as a source of power, or for sluicing purposes, or in many other ways.

CONSERVATION.—Conservation means the retention and storage, in a natural or artificial reservoir, of waters which would naturally flow down the channel of a river. Every dam which backs up the waters of a river conserves water in a reservoir formed partly by the bed and banks of the river, and partly by the dam. But conservation within the meaning of this section need not, it is conceived, be within the bed of the river, but would include the diversion of the waters of a river to a reservoir wholly outside the bed.

“The use of waters for conservation” is a somewhat indefinite phrase. Conservation, unlike irrigation, is rather a means of use than an actual use. It is in fact the storage of water, with a view to subsequent use in any way whatever—for irrigation, or for pastoral purposes, or for driving machinery, or for the water-supply of a town.


  ― 894 ―
“The use for conservation” would seem to mean rather “the conservation for use.” The right to conserve must imply the right to use the water conserved, otherwise it would be useless; and as no particular use is specified, it follows that conservation for any purpose—provided the use is reasonable—is authorized by the section. Thus the conservation of waters from the Nepean in the Prospect Reservoir, for the supply of the city of Sydney—or the conservation in the Yan Yean Reservoir of waters from the Watt River, a tributary of the Yarra, for the supply of the city of Melbourne—cannot be interfered with by the Federal Parliament so far as it is a reasonable use; though it seems that in the United States, in such a case, if the navigability of the river lower down were interfered with, not only might Congress interpose, but the Attorney-General under laws already made by Congress might obtain an injunction. (See United States v. Rio Grande Dam and Irrigation Co., 174 U S. 690, cited p. 890 supra; and also Wilts and Berks Canal Co. v. Swindon Waterworks Co., L.R. 9 Ch. 451.)

From the above analysis the curious result would seem to follow that a use of waters which does not come directly under the protection of the section may come indirectly under that protection by the storage of the water before use. The great conservation schemes which have been projected in regard to Australian rivers, as well as the actual conservation schemes already carried out, are almost wholly for the purposes of pastoral and agricultural settlement. (See speeches by Mr. J. H. Carruthers, Conv. Deb., Adel., pp. 802–5; Melb., pp. 52–6, 388–399, 468–472, 1955–8; Report of Colonel Frederick J. Home, R.E., on the Prospects of Irrigation and Water Conservation, N.S.W. Parl. Papers, 1897, Vol. 5, p. 249.)

IRRIGATION.—Irrigation is the distribution of water through artificial channels over cultivated land. Unlike conservation, it involves the use of water for a single definite purpose—that of supplying moisture for plant life. Irrigation is extensively practised in many European countries, and also in India and America. In Australia it is largely in the experimental stage, the most important irrigation works at present being in the colony of Victoria. (See Australian Handbook, 1900, p. 236; Mr. A. Deakin's speeches, Conv. Deb., Adel., pp. 805–9; Melb., pp. 38–45, 452–60, 636–40, 1970–4; Colonel Home's Report, N.S.W. Parl. Papers, 1897, Vol. 5, p. 249.)

One of the essential requirements of a profitable system of irrigation is a continual and regular supply of water; and therefore on the intermittent rivers irrigation works can hardly be undertaken except in combination with conservation schemes which will secure that regular supply. Close settlement is another essential condition; and it appears from the report of Colonel Home (cited above), that whilst conservation is an immediately practical question, irrigation is likely to be confined for many years to the more closely-settled districts.

PROBABLE EFFECT ON NAVIGATION.—Irrigation and navigation may, owing to the insufficiency of water for both, involve a conflict between the two uses; but the present prospects of irrigation do not point to any immediate danger to navigability. Conservation, on the other hand, is not necessarily antagonistic to navigation. The conservation of flood waters will render it possible to maintain a more regular flow and to increase the continuity of navigability. (See Mr. A. Deakin's speeches, Conv. Deb., Syd., 1891, p. 691; Melb., 1898, p. 40.) Whether there will ultimately be any serious conflict between the rights of navigation and the rights of conservation and irrigation is therefore problematical.




  ― 895 ―

Inter-State Commission.

101. There shall be422 an Inter-State Commission423, with such powers of adjudication and administration424 as the Parliament deems necessary425 for the execution and maintenance, within the Commonwealth, of the provisions of this Constitution relating to trade and commerce, and of all laws made thereunder.

UNITED STATES.—A Commission is hereby created and established to be known as the Inter-State Commerce Commission, which shall be composed of five Commissioners.—Inter-State Commerce Act, 1887, sec. 11.

HISTORICAL NOTE.—The provision for an Inter-State Commission was first suggested at the Adelaide session, 1897, when the Bill as first drafted contained the following clauses:—

“93. The Parliament may make laws constituting an Inter-State Commission to execute and maintain the provisions of this Constitution relating to trade and commerce upon railways within the Commonwealth, and upon rivers flowing through, in, or between, two or more States.”

“95. The Commission shall have such powers of adjudication and administration as may be necessary for its purposes, and as the Parliament may from time to time determine.” (Then followed a limitation as to railway rates; see Hist. Note to sec. 102.)

As to the expediency of constituting a commission, there was hardly any debate; and the only amendment made was the omission of the limitation alluded to in brackets. (Conv. Deb., Adel., pp. 1113–5, 1117–40.)

At the Melbourne session, 1898, a suggestion by the Legislative Assembly of South Australia, to provide that the Parliament “shall” constitute an Inter-State Commission, was discussed. In view of the decision just arrived at (see Hist. Notes to secs. 102, 104) to make the Inter-State Commission the arbiter of unfairly preferential rates, this proposal gained strong support; though some of the Victorian representatives argued that its creation should be optional with the Parliament. The amendment was eventually withdrawn in favour of a proposal by Mr. Kingston, to substitute “There shall be” a Commission. The Convention desired to secure to the Commission a large measure of independence from Parliamentary control, and this amendment was agreed to. The words limiting the scope of the Commission to railways and rivers were then omitted, in order that the Parliament might be free to give the Commission the widest powers of administering the trade and commerce provisions. (Conv. Deb., Melb., pp. 1512–39.)

Before the first report, the two clauses were redrafted into one, as follows:—“There shall be an Inter-State Commission with such powers of adjudication and administration as the Parliament from time to time deems necessary, but so that the Commission shall be charged with the execution and maintenance,” &c. On the second re-committal, Sir Geo. Turner objected to the independence of the Commission, as regards its constitution and powers, and proposed to substitute “Parliament may constitute” the Commission. This was negatived by 23 to 13, but Mr. Barton met Sir Geo. Turner half way by giving Parliament full control over the powers of the Commission. (Conv. Deb., Melb., pp. 2393–6.) Two verbal amendments were made after the fourth report.

§ 422. “There shall be.”

The Constitution stops short of actually organizing an Inter-State Commission; it merely gives a definite direction to the Parliament that there “shall be” such a Commission. Until the Parliament provides for the number of members and their salary, the Commission cannot exist at all; and until the Parliament determines what powers of adjudication and administration are necessary to it, it can have no powers at all.




  ― 896 ―

The Parliament cannot, of course, be compelled—except by its constituents—to constitute a Commission, or to give it any powers when constituted. The imperative words of this section, however, receive some support from the fact that sec. 102 will be inoperative until such a Commission is constituted and given certain powers of adjudicating as to preferences and discriminations.

§ 423. “An Inter-State Commission.”

The establishment of an Inter-State Commission for the Commonwealth was directly suggested by the Inter-State Commerce Commission created in the United States by an Act of Congress in 1887; but in some respects it bears a closer resemblance to the Commission constituted by the English Railway and Canal Traffic Act, 1888 (51 and 52 Vic. c. 25). The functions of the American Inter-State Commerce Commission were in turn based to some extent on those of the English Railway Commissioners appointed under the Regulation of Railways Act, 1873 (36 and 37 Vic. c. 48); and the original prototype of all these commissions is the Committee of the Queen's Privy Council, familiarly known as “the Board of Trade”—that very “Committee on Trade and Plantations” which in 1849 devised the first crude scheme of Australian Federation (see p. 83, supra). A short account of the English and American Commissions thus formed will help to an understanding of the nature of the Inter-State Commission, and the part which it is intended to play in this Constitution.

ENGLISH COMMISSIONS.—The idea of a railway commission dates back as far as 1840. “In that year powers were given to the Board of Trade not unlike those now exercised by the Massachusetts Railroad Commission [i.e., powers to report and secure publicity]. These powers were further defined in 1842. The Board of Trade was as well adapted to the work as any body then existing. It had for years past performed similar functions in connection with shipping. It failed where the Massachusetts Commission succeeded, not because of a difference in the law, but because the English public sentiment with regard to railroads was not sufficiently active to give such a body the necessary moral support to make up for lack of legal authority.” (Hadley, Railroad Transportation, p. 171.) A railway Commission was appointed in 1844 with more specific powers, but the following year it “died of too much work and too little pay.” It was succeeded in 1846 by another abortive Commission with no powers at all, which “died of too much pay and too little work.” (Id.)

The Railway and Canal Traffic Act, 1854 (17 and 18 Vic. c. 31), which first made definite provision against “undue preferences,” and the withholding of “reasonable facilities” for through traffic (see Notes, § 430, infra), had been framed with a view to submitting questions arising under it to the Board of Trade. By the influence of the railway companies, it was so amended in the House, that these questions came under the jurisdiction of the Court of Common Pleas. Many of the questions raised, however, were of a technical character with which the Court declined to grapple, and in consequence the remedial scope of the Act was seriously narrowed.

At last, by the Regulation of Railways Act, 1873 (36 and 37 Vic. c. 48), this jurisdiction was transferred to Railway Commissioners, with judicial powers to hear and determine complaints arising under the Act of 1854 (sec. 6). The Commissioners were empowered, and at the request of a party were required, to state a case for the Court of Appeal upon any question of law; but otherwise their decisions were final.

“The Railway Commission was a Court. Not an executive body, but to all intents and purposes a court of law. And in establishing this new Court, in addition to those already existing, Parliament had two ends in view: (1) To have a tribunal which would and could act, when others would or could not. (2) To avoid the expense, delay, and vexation incident to litigation under the old system. Neither end was well fulfilled.” (Hadley, Railroad Transportation, p. 173.) The chief reasons for failure seem to have been that the jurisdiction of the Commission was too restricted, and that it had no executive power to enforce its decrees.




  ― 897 ―

On the face of the Act of 1873, the decisions of the Commission, as to what were questions of fact or questions of law, appeared to be final. But by writ of mandamus from a court of appeal the decision on this point could at once be taken out of the hands of the Commission by compelling them to state a case, which could then be made the subject of action in the higher court. So this important power was made of no effect.

By the Railway and Canal Traffic Act, 1888 (51 and 52 Vic. c. 25), the Railway Commissioners were replaced by the Railway and Canal Commission, with greatly enlarged jurisdiction, and with power to award damages to complainants. Sec. 17 gave an appeal from the decisions of the Commission to the Court of Appeal, “but not on any question of fact or locus standi;” and provided that the Commission should not be restrained by prohibition, injunction, certiorari, or otherwise.

THE AMERICAN INTER-STATE COMMERCE COMMISSION.—“In the United States, before the passing of the Inter-State Commerce Act, attempts had been made in many of the States to deal with the problem of railway rates by means of Commissions. Some of these Commissions were empowered to establish rates; others (the most successful of which was the Massachusetts Railroad Commission) had little or no power to act, but were simply established for the sake of securing publicity.” (Hadley, Railroad Transportation, p. 136.)

In 1887, the Inter-State Commerce Act was passed by Congress. The provisions of that Act dealing with preferences and discriminations are dealt with in the Notes to sec. 102; here we are only concerned with the constitution and general powers of the Inter-State Commerce Commission created by the Act. Sec. 11 establishes the Commission, and provides for the appointment and tenure of its members. Sec. 12 authorizes the Commission to inquire into the management of the business of “all common carriers subject to the provisions of this Act” (i.e., all common carriers engaged in inter-state or foreign commerce), to keep itself informed as to the manner and method in which such business is conducted, and to obtain from such carriers full and complete information necessary to enable the Commission to perform the duties and carry out the objects for which it was created. The Commission is further authorized to require the attendance of witnesses and production of documents, and to invoke the aid of the federal courts in case of disobedience to its summons. Sec. 13 provides that any person complaining of any act done by a carrier in contravention of the Act may apply to the Commission by petition. The Commission is then to call upon the carrier to satisfy the complaint, or answer it. If the carrier does not satisfy the complaint, or if there appears to be reasonable ground for investigating the matters complained of, it is the duty of the Commission to investigate them. The Commission may also investigate any complaint forwarded by the Railroad Commission of any State, or may institute any inquiry on its own motion.

It is the duty of the Commission to make reports of all investigations, including the findings of fact on which its conclusions are based, and its recommendations, if any, as to what reparation should be made by the carrier to any persons injured; and such findings are in all judicial proceedings prima facie evidence as to the facts found. (Sec. 15.) If the Commission is satisfied that any carrier has violated the Act, or that any party has sustained injury by such violation, it must forward to the carrier a copy of its report, with a notice to desist from such violation, or to make reparation, or both. (Sec. 15.) If a common carrier violates or disobeys any order of the Commission, it is the duty of the Commission, and lawful for any person interested, to apply in a summary way, by petition, to the proper Circuit Court, alleging such violation or disobedience; and the Court must hear and determine the matter speedily, as a court of equity, but without formal pleading or proceedings, and in such manner as to do justice, and may restrain the carrier by injunction or other process, mandatory or otherwise, and may enforce such process by attachment or fine, and may order the payment of costs. When the subject in dispute is of the value of $2000 or more, either party may appeal to the Supreme Court. (Sec. 16.)




  ― 898 ―

The constitutionality of the gift of these powers to the Commission rests entirely upon the power to “regulate commerce,” and has been the subject of much litigation. It has been clearly laid down that the Commission is a purely executive body, and neither judicial nor legislative. “It cannot be judicial, for its members are not appointed to hold office during good behaviour.” (Prentice and Egan, Commerce Clause, p. 289; citing Kentucky Bridge Co. v. Louisville, &c., Co., 37 Fed. R. 567.) In Inter-State C.C. v. Brimson, 154 U.S. 447, it was argued that the power of investigation to determine whether an offence had been committed was essentially of a judicial nature, and could not be constitutionally exercised by the Commission. The majority of the Court held that the power to investigate and to summon witnesses was an executive power, which was validly vested in the Commission. It seems, however, that an enquiry as to the past—whether rates already collected are reasonable—is judicial (Inter-State C.C. v. Cincinnati, &c. Co., 167 U.S. 479); and such an enquiry is perhaps beyond the powers of the Commission (Prentice and Egan, Com. Cl. p. 390).

That the Commission is not a legislative body is equally clear. “Congress has not conferred upon the Commission the legislative power of prescribing rates, either maximum or minimum or absolute. As it did not give the express power to the Commission, it did not intend to secure the same result indirectly by empowering the tribunal to determine what in the past was reasonable and just, whether as maximum, minimum, or absolute, and then enable it to obtain from the courts a peremptory order that in future the railroad companies should follow the rates thus determined to have been in the past reasonable and just.” (Inter-State C.C. v. Cincinnati, &c., R. Co., 167 U.S. 511; following Cincinnati, &c., R. Co. v. Inter-State C.C., 162 U.S. 184. Followed in Inter-State C.C. v. Alabama Midland R. Co., 168 U.S. 144.)

The American Commission is a corporate body, with power to sue and be sued in the federal courts. (Texas and Pacific R. Co. v. Inter-State C.C., 162 U.S. 197.)

THE INTER-STATE COMMISSION.—In this Constitution it was deemed advisable not to rely upon the trade and commerce power for the right to establish an Inter-State Commission, but to provide for its establishment in the Constitution itself. The first clause framed for this purpose was merely an enabling one, to remove any doubt that might exist as to the power of the Parliament to constitute such a Commission, with powers of adjudication and administration. But at Melbourne the case assumed a somewhat different complexion. The contest whether the Parliament or the Court was the proper judge of what constituted an unreasonable preference was compromised by referring the question of reasonableness absolutely to the Inter-State Commission. The Commission thus assumed the form of an arbiter between the States, exercising its judgment independently of Parliament; and it was accordingly determined not merely to empower, but to require the Parliament to execute it, and the independence of its members was adequately secured.

But although the establishment of the Inter-State Commission is directed by the Constitution itself, no powers are given to it by the Constitution. It is to have such powers of adjudication and administration as the Parliament deems necessary for the execution and maintenance of the law relating to inter-state and foreign trade and commerce. In one respect, however—namely, as regards the control of railway rates—the legislative power given to the Parliament cannot be carried into effect except through the agency of the Commission; so that whenever legislation under sec. 102 is resorted to, the power to adjudge a preference or discrimination be to undue or unreasonable, or unjust to a State, cannot be assigned to any other tribunal.

The Inter-State Commission thus provided for has points of resemblance to and difference from the Inter-State Commerce Commission in America and the Railway and Canal Commission in England. As an administrative body, to supervise the execution and prevent the violation of laws relating to inter-state and foreign commerce, it chiefly resembles the American Commission; as a body which is to have power to adjudicate, and whose decisions are to be final on questions of fact, it resembles the English Commission.




  ― 899 ―

The powers of adjudication which may be given to the Inter-State Commission, and which cannot be given to any other body, mark a wide distinction between it and its American prototype. The American Commission can investigate and prosecute, but it cannot adjudicate; it is wholly dependent on the courts to confirm and enforce its decrees. Even its findings on fact are only prima facie evidence, which may be rebutted before the court. But though the powers which may be given to the Australian Commission are far wider than those which have been given to the American Commission, they are not so wide as those which may be given to the American Commission, if Congress chooses. The powers of the Australian Commission cannot exceed the limits prescribed by the Constitution itself. The Parliament cannot give it any powers except those of adjudication or administration, or authorize it to disregard the financial responsibilities incurred by a State, or make its decisions final on matters of law. The provisions of the Australian Constitution, by defining the scope of the Commission, limit the extension of that scope. On the other hand Congress, which passed the Inter-State Commerce Act, could if it wished pass an Act giving it widely-extended powers; could constitute the Commission in such a way that it might exercise judicial powers; and could even (so far as this did not involve a delegation of legislative power—see Prentice and Egan, pp. 309–313) empower the Commission to fix rates.

STATE RAILWAYS.—There is one important respect in which, owing to the difference in Australian conditions, the duties of the Inter-State Commission will differ widely from those of the English and American Commissions. In Australia, nearly the whole of the railways are owned by the Governments of the States; in England and America they are owned almost wholly by private corporations. The American Inter-State Commerce Commission is an arbiter between innumerable competing or monopolizing railway companies on the one hand, and the public on the other hand. It is only indirectly and occasionally that it becomes an arbiter between the States. But in Australia the railway companies are the States; and the Inter-State Commission—so far as railways are concerned—will be chiefly an arbiter between the States. In one aspect this circumstance will immensely simplify the work of the Commission. It will not have to cope with all the secret rebates and drawbacks, all the personal discriminations to favoured shippers, all the ingenious devices, born of the strain of commercial competition, for the purpose of evading the law. The competing interests will be fewer and less complex, and governments may be expected to obey at least the letter of the law. But if simplified in one way, the work of the Commission will be more responsible, and perhaps more difficult, in another. If the competing interests are fewer, they will be correspondingly greater, and will perhaps be involved with large political issues. The chief object of establishing the Commission was to secure an impartial and non-political tribunal to interpret and administer the laws of the Federal Parliament relating to rates on State railways. (See Notes to sec. 102.)

§ 424. “Such Powers of Adjudication and Administration.”

ADJUDICATION.—The power of adjudication is a judicial power. To adjudicate is “to adjudge; to try and determine, as a court; to settle by judicial decree.” (Webster's Internat. Dic.) Sec. 102 shows that the Inter-State Commission is intended to exercise powers of an essentially judicial nature, and indeed, in one class of subjects, is given exclusive jurisdiction, and a final decision on questions of fact. Unlike the American Commission, which can only investigate and prosecute, the Inter-State Commission may be given—and no other tribunal can be given—power to decide as to the reasonableness of rates on State railways. A further index of the judicial nature of these duties is given by the provision for an appeal from the Inter-State Commission to the High Court on questions of law (sec. 73). An appeal is the removal of a matter from a lower judicial tribunal to a higher (see Note, § 301, supra); and the appellate jurisdiction of the High Court implies a judicial determination by the lower tribunal.




  ― 900 ―

The Inter-State Commission, therefore, in respect of its powers of adjudication, is, like the English Railway and Canal Commission, a court. It is doubtful, however, whether it is one of the courts in which the judicial power of the Commonwealth is vested by sec. 71. It is apparently not a court “created by the Parliament;” for though the Parliament is left to organize and endow it with powers, it is virtually created by the Constitution itself. Moreover, to rank it as a court created by the Federal Parliament would be to introduce an inconsistency between sec. 103, which defines the tenure of the members of the Commission, and sec. 72, which defines the tenure of Justices of “Courts created by the Parliament.” It may be contended, however, that the Inter-State Commission comes within the definition of courts which the Parliament invests with federal jurisdiction, though the courts especially contemplated by that phrase are the courts of the States; see sec. 77—iii. The Commission will have no jurisdiction until the Parliament invests it with jurisdiction; for, though the Constitution forbids the Parliament to vest elsewhere the jurisdiction as to the unreasonableness of preferences and discriminations, it does not vest that jurisdiction in the Commission—and in fact the jurisdiction will not exist until the Parliament has legislated under sec. 102.

The question whether the Inter-State Commission is one of the courts in which by sec. 71 the judicial power of the Commonwealth is vested may perhaps seem to be of theoretical interest rather than of practical importance; since this section clearly enables part of the actual judicial power of the Commonwealth to be vested in the Inter-State Commission. It might, however, arise in a very practical way; if, for example, the Parliament were to attempt to make the jurisdiction of the Inter-State Commission exclusive of that of the State Courts (see sec. 77), or if the Parliament were to make laws conferring rights to bring a State before the Commission, in some controversy relating to commerce but not connected with State railways. (See secs. 78, 98.)

ADMINISTRATION.—The functions of the Commission, however, are not to be solely judicial. It may also be invested with all administrative powers which are necessary for the execution of the federal trade and commerce law. In this capacity it can be entrusted with all the powers and duties of investigation, inquiry, and prosecution which belong to the American Commission. A solely judicial tribunal can take no steps until a complaint in the nature of a judicial proceeding is brought before it; but an administrative department, armed with the proper powers, can make inquiries and take action upon its own initiative. The Commission is intended to be policeman as well as judge.

NTO A LEGISLATIVE BODY.—The Commission may have judicial powers, and executive powers, but no mention is made of legislative powers. The Constitution does not contemplate the existence of any legislative organ of the Federal Government other than the Federal Parliament itself. Apart altogether from the question whether the Federal Parliament can delegate any part of its legislative power to other bodies, it would seem that any such powers are by direct implication denied to the Inter-State Commission. The Parliament could no more confer legislative power upon the Inter-State Commission than upon the High Court. (See Cincinnati, &c., R. Co. v. Inter-State C.C., 162 U.S. 184; Texas and Pac. R. Co. v. Inter-State C.C., 162 U.S. 197; Inter-State C.C. v. Cincinnati, &c., R. Co., 167 U.S. 479.

This does not prevent power being given to the Commission to frame purely administrative regulations. If the Commission has power, of its own motion, to promulgate general orders, these must be confined to the obvious purposes and directions of the statute law, since it has no legislative powers. (Inter-State C.C. v. Cincinnati, &c., R.Co., 167 U.S. 479.)




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§ 425. “As the Parliament Deems Necessary.”

The Constitution, though it requires an Inter-State Commission to be established, does not itself endow the Commission with any powers—though some of the powers of the Parliament (see sec. 102) cannot be carried into effect except with the help of the Commission. The Commission can only have “such powers of adjudication and administration as the Parliament deems necessary” for the execution and maintenance of the trade and commerce provisions of the Constitution and of federal laws made thereunder. The power thus given to the Parliament is a very wide one. The extent of the power of the Parliament to make laws with respect to trade and commerce has already been discussed (sec. 51—i.); and the Parliament itself is the sole judge of the extent to which it is necessary to vest in the Inter-State Commission the power of adjudicating upon and administering such laws. Practically the whole administration of the law upon this vast subject, and a great part of the judicial work in connection therewith, could be entrusted to the Commission. The only express limitation upon the power of the Parliament in this respect is in the provision (sec. 73) that there is an appeal from the Inter-State Commission to the High Court on questions of law; and even this right of appeal is subject to exceptions and regulations prescribed by the Parliament. (See Notes, § 307, supra.)

The general functions which may be assigned to the Inter-State Commission are defined in this section; whilst certain special judicial functions with regard to preferences and discriminations on State railways are referred to in secs. 102, 104. It is perhaps unnecessary to repeat that the latter functions, though the Convention Debates concerning the Commission are almost wholly occupied with them, are only a part of the wide powers which can be conferred under this section.

Parliament may forbid preferences by States.

102. The Parliament may426 by any law with respect to trade or commerce427 forbid428, as to railways429, any preference or discrimination430 by any State, or by any authority constituted under a State, if such preference or discrimination is undue and unreasonable, or unjust to any State431; due regard being had432 to the financial responsibilities incurred by any State in connexion with the construction and maintenance of its railways. But no preference or discrimination shall, within the meaning of this section, be taken to be undue and unreasonable, or unjust to any State, unless so adjudged by the Inter-State Commission433.

HISTORICAL NOTE.—The only provision in the Bill of 1891 against preferences by States was a clause empowering the Parliament to annul any State law or regulation “having the effect of derogating from freedom of trade or commerce between the different parts of the Commonwealth.” Upon the “trade and commerce” sub-clause the question arose in the Sydney Convention of 1891 whether there was power to regulate railway rates on intercolonial lines; and upon the sub-clause dealing with “control of railways with respect to transport for the purposes of the Commonwealth,” Mr. Gordon moved to add “and the regulation of traffic and traffic charges upon railways in any State in all cases in which such regulations are required for freedom of trade and commerce, and to prevent any undue preference to any particular locality


  ― 902 ―
within the Commonwealth or to any description of traffic.” The proposal was criticized as being too wide, and was negatived by 21 votes to 11. An amendment by Mr. Inglis Clark, for the prevention of discriminating rates giving any preference or advantage, was also negatived. (Conv. Deb., Syd., 1891, pp. 662–70, 692–8.)

Adelaide Session, 1897.—In the Bill as drafted at Adelaide there was added to the “preference” clause (see Hist. Note to sec. 99) a prohibition of State laws or regulations having the effect of derogating from freedom of inter-state trade. Mr. Gordon moved to add to this “or having the effect of inducing trade or commerce in any particular direction within the Commonwealth unfairly, and in particular by one part of the Commonwealth offering greater inducements than other parts wherever the inducement offered returns no direct profit as regards the particular trade or commerce induced to that part of the Commonwealth offering the inducement.” This he afterwards withdrew. (See pp. 178–180, supra; Conv. Deb., Adel., pp. 1070–85, 1103–13, 1117–40.)

The clause dealing with the powers of the Inter-State Commission (see Hist. Note to sec. 101) provided, as originally drafted, that the Commission should have “no powers in reference to the rates or regulations of any railway in any State, except in cases of rates or regulations preferential in effect and made and used for the purpose of drawing traffic to that railway from the railway of a neighbouring State.” Sir Geo. Turner feared that these words would check Victoria's “short haul” competition, but leave New South Wales absolutely untouched, and they were struck out. (See pp. 178–180, supra.)

Melbourne Session, 1898 (Debates, pp. 1250–1506, 1510–12, 2390–1).—Mr. Barton moved a comprehensive clause forbidding all preferences by the Commonwealth or a State (see notes to sec. 99). A long debate followed (see pp. 199–200, supra), in which distinctions were drawn between obstructive rates, which derogated from freedom of trade; unfairly attractive rates, which derogated from equality of trade; and fair development rates, which might be differential, but whose object was to promote trade, not to divert it. The problem was to prevent preferential or differential rates of an unfederal character, whilst allowing such differential rates as were necessary to an effective railway policy. Mr. Higgins (Debates, p. 1270) moved an amendment to prohibit rates made “with the view of attracting trade to ports of one State against ports of another State;” but this was negatived. A suggestion by the Legislative Council of South Australia (identical with Mr. Gordon's Adelaide amendment) was also negatived.

Finally the clause was struck out (Debates, p. 1335), and Mr. Barton proposed to substitute a simple prohibition of Commonwealth preferences (see Hist. Note to sec. 99).

An amendment by Sir John Downer, to extend the clause to preferences by States, was negatived. An amendment by Mr. Higgins, to prohibit rates made with a view of attracting trade, was carried by 18 votes to 15. Mr. Higgins' object was to prevent rates which, though not “preferential,” were unfairly differential; but the New South Wales representatives complained that the words were far too wide, and Mr. Reid moved an amendment to prevent interference with rates arranged “so as to secure payment of working expenses and interest upon the cost of construction.” The debate became heated, and the Convention found itself in a difficulty. Mr. Reid's amendment was negatived; but the proposition carried by Mr. Higgins caused so much dissatisfaction that it was decided to reconsider the whole question.

The clause was postponed, and Sir Geo. Turner (Debates, p. 1372) came to the rescue with a new clause empowering the Parliament to execute the trade and commerce provisions upon State railways, “and particularly to forbid such preferences and discriminations as it may deem to be undue and unreasonable, or unjust to any State.” A long debate ensued, chiefly on the question whether Parliament was a suitable tribunal to decide this matter (see p. 200, supra); but eventually the clause—with the omission of the word “particularly”—was carried, by 25 votes to 16. Mr. Barton's clause was


  ― 903 ―
then reconsidered, and the amendment carried by Mr. Higgins—being now superseded by Sir Geo. Turner's clause—was struck out. A series of amendments were then moved (see pp. 200–202, supra) which, after long discussion, were withdrawn to be proposed as separate clauses. Mr. Grant's “Development” clause (see Hist. Note to sec. 104) was carried; and then (Debates, pp. 1510–2) the following clause by Mr. Reid was agreed to:—

“Due consideration shall be given to the financial responsibility incurred in connection with the construction and working expenses of State railways.”

On the second recommittal, Mr. Barton brought up a redraft of the clauses, practically in their present form. Mr. Glynn (for Mr. Higgins) moved to add “or differential rate” after “preference or discrimination,” contending that “discrimination” applied only to persons and things; but Mr. O'Connor argued that it covered localities also, and the amendment was negatived. Sir Geo. Turner proposed to substitute “the Parliament” for “the Inter-State Commission,” but this also was negatived by 22 votes to 15, and the clause was agreed to.

§ 426. “The Parliament May.”

This section, though enabling in form, is really restrictive in effect. It was held in Inter-State C.C. v. Brimson, 154 U.S. 447, that the Congress of the United States has plenary power, subject to the limitations imposed by the Constitution, to prescribe the rule by which commerce among the several States was to be governed; and it was said to be indisputable that the prohibition of unjust charges, discriminations, or preferences by carriers engaged in inter-state commerce was a proper regulation. In this Constitution, State railways are expressly made subject to the trade and commerce power; so it would appear that the power to prohibit unjust charges would exist independently of this section.

The object of the section is partly to ensure the existence of such powers; but chiefly to ensure their limitation. At Adelaide (see Historical Note) the clause was originally drawn in a restrictive form; and when it was afterwards altered at Melbourne to an enabling form, it was hedged round with the restrictions, express and implied, contained in this section and sec. 104.

The express limitations are:—

  • (1.) That due regard must be had to the financial responsibilities incurred by any State in connection with the construction and maintenance of its railways.
  • (2.) That no preference or discrimination shall be taken to be undue and unreasonable, or unjust to any State, unless so adjudged by the Inter-State Commission.
  • (3.) That a rate upon a State railway cannot be declared unlawful if it is deemed by the Inter-State Commission to be necessary for the development of the territory of a State, and if the rate applies equally to goods within the State and to goods passing into the State from other States.

The implied limitations seem to be:—

  • (1.) That the Parliament cannot, upon State railways, forbid any charge which is not either a preference or a discrimination.
  • (2.) That the Parliament cannot forbid a preference or discrimination except on the ground that it is undue and unreasonable, or unjust to a State.

§ 427. “By Any Law with Respect to Trade and Commerce.”

The power defined by this section is a part of the general power to make laws with respect to trade and commerce, and is therefore restricted to “trade and commerce with other countries, and among the States.” With rates or the purely internal traffic of a State the Federal Parliament has nothing to do.




  ― 904 ―

A number of American authorities defining inter-state commerce have already been cited (Note, § 163, supra); but in none of the American cases did the distinction between inter-state and internal commerce arise in precisely the same way as it is likely to arise under this section; and it would seem that some of the definitions may have to be modified to carry out the true principle of the distinction. It will be convenient to repeat here a few of the leading definitions.

“Comprehensive as the word ‘among’ is, it may very properly be restricted to that commerce which concerns more States than one.” (Per Marshall, C.J., Gibbons v. Ogden, 9 Wheat. 1.)

“When goods, the product of a State, have begun to be transported from that State to another State, and not till then, they have become the subjects of inter-state commerce, and, as such, are subject to national regulation, and cease to be taxable by the State of their origin.” (Coe v. Errol, 116 U.S. 517.)

“Transportation of goods under one control and by one voyage from a point in one State to a point in another is inter-state commerce, and subject to the exclusive regulation of Congress. A statute of a State, intended to regulate or to tax or to restrict such traffic, cannot be enacted by a State, even in the absence of legislation by Congress; and such statutes are void even as to that part of the transmission which may be within the State.” (Wabash, &c., R. Co., v. Illinois, 118 U.S. 557.)

One of the mischiefs which this section is intended to meet is undue competition, by means of discriminating rates on State railways, for the traffic of particular localities. Now, when the effect of such a rate, made upon railways of any State, is to secure the traffic for the ports of that State, and thus prevent its flowing to the ports of another State, it may be argued, from such dicta as those above quoted from Coe v. Errol, and Wabash R. Co. v. Illinois, that the trade thus retained within the limits of a State is not inter-state trade at all, because it has not “begun to be transported from that State to another State.” It was clearly, however, the intention of the Convention that trade which by a discriminating rate was prevented from flowing to the ports of another State should be considered as inter-state trade; and it is equally clear that it comes within Chief Justice Marshall's broad definition, “commerce which concerns more States than one.” The State which is discriminated against is concerned because the discriminating rate prevents transportation to that State from the other; and the State which prevents that transportation cannot be heard to say that the discrimination does not affect inter-state trade. Traffic which would, but for an undue discrimination, flow from one State to another, is clearly inter-state trade within the contemplation of this section. It is to be noticed that in none of the American decisions does the question arise whether the discriminating rate prevents the traffic from crossing a State boundary; the question in every case was whether the particular commerce in question was or was not subject to State taxation or State regulation.

§ 428. “Forbid.”

The widest and simplest way in which the Parliament could exercise its power of prohibition would be by a law following the words of this section, and so occupying the whole field. It is clear, however, that the Parliament is not restricted to the alternatives of exercising all the power or none. It may legislate to prevent personal preferences and discriminations only, or preferences and discriminations only which are unjust to any State. It need not forbid all preferences and discriminations which are undue, &c.; it may forbid any preference or discrimination which is undue, &c.

It is equally clear, however, that the Parliament has no power to define or interpret what constitutes a preference. If the Parliament departs from the words of the section, and attempts to forbid, in general terms, particular kinds of rates, such as low long-haul rates, or group rates or terminal charges, it will be powerless to make such rates preferential unless they are, in fact and in law, preferential. And if the Parliament prohibits a general class of rates which, qua that class, are not necessarily preferential, it will run the risk of the whole law being declared void by the High Court. It does not seem, however, that any exception could be taken to a law which prohibited a special


  ― 905 ―
kind of rate—for instance, a less charge for a long-haul than for a short-haul—“so far as the same may be a preference or discrimination which is undue and unreasonable, or unjust to any State.”

§ 429. “As to Railways.”

PRIVATE RAILWAYS.—That this section applies to the Government railways of the States, whether controlled directly by the Executive Government of the State, or vested in a corporate body of Railway Commissioners, is clear. It seems that the subsequent words, referring to preferences made “by any authority constituted under a State,” are wide enough to include not only Railway Commissioners, but also railway companies incorporated by an Act of the Parliament of a State. The only importance of the question seems to be that if privately-owned railways are not included in this section, they will be subject to the full operation of the trade and commerce power, without limitations which are placed by this section upon the power of the Parliament.

RAILWAYS OF THE COMMONWEALTH.—This section does not apply to railways of the Commonwealth. In the event of railways being owned by the Federal Government, the Parliament could of course impose what prohibitions it pleased; but the Constitution itself imposes an absolute prohibition against any preference whatever being given by the Commonwealth to any State. (See sec. 99, and Notes, § 414, supra.)

§ 430. “Preference or Discrimination.”

HISTORY OF THE WORDS.—The phrases “undue preference,” “unjust discrimination,” and so forth, have a history in English and American legislation, and in the judicial decisions of those countries, from which it is impossible to disassociate them, and which forms a valuable aid to the interpretation of the words in this Constitution. It has been held in the Supreme Court of the United States, with respect to these same words, that so far as Congress, in the Inter-State Commerce Act, adopted the language of the English Railway and Canal Traffic Act, it is to be presumed that it had in mind the construction given by the English courts to the adopted language, and intended to incorporate it into the Act. (Inter-State C.C. v. Baltimore, &c., R. Co., 145 U.S. 263. See Texas and Pacific R. Co. v. Inter-State C.C., 162 U.S. 197.)

English Legislation.—When railways were first authorized in England, it was expected that the railways would be public highways like turnpikes or canals; that the companies would merely provide the highway, and take toll for its use; and that the public, or carriers, would employ their own locomotives, carriages, and waggons—just as on roads and canals they employed their own horses, coaches, carts, and (sometimes) barges. (Grierson, Railway Rates, pp. 71, 94; Hadley, Railroad Transportation, p. 165.) It has been said by Wills, J., that “no proper understanding of a good deal of our railway legislation, and pre-eminently of clauses relating to tolls or charges, can be arrived at, unless it (this notion) is firmly grasped and kept steadily in view.” (Hall v. London Brighton, &c., R. Co., 15 Q.B.D. at p. 536.) Accordingly the early railway Acts required equal mileage rates—the same charge per ton per mile, on all parts of the line, for the same class of goods.

It soon became clear, however, that this anticipation was a mistake, and that three cases had to be provided for, on railways, as on canals:—(1) where the railway companies simply provided the highway and took tolls for its use; (2) where the railway companies, without being carriers, provided trucks and locomotives; (3) where the companies were common carriers upon their own highway. (Grierson, Railway Rates, p. 94.) Accordingly by the Railway Clauses Consolidation Act, 1845 (8 and 9 Vic. c. 20, sec. 90) the prohibition against differential rates was repealed. It was recited to be expedient that companies should have power to vary the tolls upon their lines “so as to accommodate them to the circumstances of the traffic,” but that this power “should not be used for the purpose of prejudicing or favouring particular parties, or for the


  ― 906 ―
purpose of collusively and unfairly creating a monopoly, either in the hands of the company or of particular parties.” It was therefore enacted that companies might alter or vary the tolls authorized by their special Acts, either upon the whole or any part of the railway; “Provided that all such tolls be at all times charged equally to all persons and after the same rate, whether per ton, per mile, or otherwise, in respect of all passengers and of all goods or carriages of the same description, and conveyed or propelled by a like carriage or engine, passing only over the same portion of the line of railway under the same circumstances; and no reduction or advance in any such tolls shall be made either directly or indirectly in favour of or against any particular company or person travelling upon or using the railway.”

This section—the “equality clause,” as it is called—only applies where circumstances are absolutely the same; and then it requires an absolutely rigid equality. It is immaterial that the allowance is made to meet competition. (London and N.W.R. Co. v. Evershed, 3 Q.B.D. 134; 3 App. Ca. 1029; and see Phipps v. London and N.W.R. Co. [1892] 2 Q.B. at p. 249.) A carrier cannot be charged higher rates than other members of the public. (Great Western R. Co. v. Sutton, L.R. 4 H.L. 226; see Ford v. London and S.W.R. Co., 60 L.J. Q.B. 130.) But the proviso only applies to goods carried between the same points of arrival and departure, and does not forbid a uniform charge from different points, or disproportionate rates for unequal distances. (Denaby Main Colliery Co. v. Manchester, &c. R. Co., 11 App. Ca. 97.)

The Railway and Canal Traffic Act, 1854 (17 and 18 Vic. c. 31, sec. 2), provides that no railway or canal company “shall make or give any undue or unreasonable preference or advantage to or in favour of any particular person or company, or any particular description of traffic, in any respect whatever, nor shall any such company subject any particular person or company, or any particular description of traffic, to any undue or unreasonable prejudice or disadvantage in any respect whatever.”

This section has been supplemented by the Railway and Canal Traffic Act, 1888 (51 and 52 Vic. c. 25). Sec. 27, sub-s. i. of that Act, provides that whenever it is shown that a railway company makes any difference in treatment to any trader or class of traders, or to the traders in any district in respect of the same or similar merchandise, or the same or similar services, the burden of proving that the difference in treatment is not an undue preference is on the company. Sub-sec. ii. enacts that in deciding whether a lower charge or difference in treatment is an undue preference, the Court or the Commissioners may, if they think it reasonable, take into consideration whether the lower charge, or difference in treatment, is necessary for securing, in the interests of the public, the traffic in respect of which it is made, and whether the inequality is not removable without unduly reducing the rates charged to the complainant; with the proviso that no railway shall make, nor shall the Court or the Commissioners sanction, any difference in the rates for, or any difference in the treatment of, home and foreign merchandise, in respect of the same or similar services. (For comparison with the “development” clause of this Constitution, see Note, § 437, infra). Sub-sec. iii. deals with the question of long and short hauls. It provides that “the Court or the Commissioners shall have power to direct that no higher charge shall be made to any person for services in respect of merchandise carried over a less distance than is made to any other person for similar services in respect of the like description and quality of merchandise carried over a greater distance on the same line of railway.” Sec. 29 deals with “group rates.” It provides that any railway company may group together any places in the same district, situated at various distances from any point of destination or departure, and charge a uniform rate to and from any place in the group, provided that the distance shall not be unreasonable and that the group rates and the places grouped together shall not be such as to create an undue preference.

Sec. 55 defines an “undue preference” for the purpose of the Act, as including “an undue preference, or an undue or unreasonable prejudice or disadvantage, in any respect, in favour of or against any person or particular class of persons or any particular description of traffic.”




  ― 907 ―

The decisions on the Act of 1854, first by the Court of Common Pleas, and then by the Railway Commissioners and the Court of Appeal, show a considerable difficulty in fixing the principles upon which the reasonableness of a rate is to be determined. It has been clearly settled, however, that the fact that a trader has access to a competing route for his goods may be taken into consideration in deciding whether lower rates constitute an undue preference; and that the question whether a preference is undue or unreasonable is a question of fact in each particular case. (Phipps v. London and N.W.R. Co. [1892], 2 Q B 229.) For the decisions of the Railway Commissioners, see Annual Reports of the Railway Commissioners (Parl. Papers); and for comments on some of them, see Grierson, Railway Rates, pp. 173–8; Hadley, Railroad Transportation, pp. 182–5. It will be convenient here to cite the decisions which bear on the interpretation of the Act of 1854, and to quote extracts from some of the judgments.

The Court may take into consideration the fair interests of the railway itself, and entertain such questions as whether the Company might not carry larger quantities, or for longer distances, at lower rates per ton per mile than smaller quantities, or for shorter distances, so as to derive equal profits to itself. A rate for one company's coal, to compete with coals of another merchant partly sea-borne, held an undue preference. Ransome v. Eastern Counties R. Co. [1857], 26 L.J. C.P. 91.)

A railway company made a special rate with certain merchants “in order to introduce the northern coke into Staffordshire.” Held that this was no legitimate ground for a preference, and that lowering rates for that purpose, there being nothing to show that the pecuniary interests of the company were affected, was an undue preference. (Oxlade v. Eastern Counties R. Co. [1857], 26 L.J. C.P. 129.)

A railway company is justified in carrying goods for one person at a less rate than for another if there be circumstances which render the cost of carrying for the former less than for the latter. (Id.)

Excluding the omnibus of one omnibus proprietor from within the station gates, and admitting another, no justifying circumstances being shown, held an undue and unreasonable preference. Inconvenience to passengers was relied on as one element. (Marriott v. London and N.W.R. Co. [1857], 26 L.J. C.P. 154.)

Where a company gave a cab proprietor, for a consideration, an exclusive right to stand at the station, no public inconvenience being shown, no injunction was granted. (Beadell v. Eastern Counties R. Co. [1857], 26 L.J. C.P. 250; and see cases cited Dig. Eng. Case Law, iii. 138.)

Carrying coals from one colliery at a lower rate than from another in the same locality, in consequence of a threat from the owner of the first colliery to construct another railway, is an undue preference. (Harris v. Cockermouth, &c., R. Co. [1858], 27 L.J. C.P. 162.)

A scale of charges for carriage of coal from two points, the effect of which was to diminish the natural advantages of dealers at one point, by annihilating, in point of expense of carriage, a portion of the distance, held an unreasonable preference. (Ransome v. Eastern Counties R. Co. [1858], 27 L.J. C.P. 166.)

“The effect of such a scale of charges is to diminish the natural advantages which the position of the dealers at Ipswich, by reason of its greater proximity, gives them over the dealers at Peterborough, in respect of the traffic at Thurston, &c., … by annihilating, in point of expense of carriage, a certain portion of the distance between Peterborough and those places; and just in proportion by which that natural advantage is diminished, an undue preference is given to the Peterborough dealers, and an undue disadvantage is brought upon the complainants and the other Ipswich dealers.” (Per Williams, J, id. at p. 169.)

The words “undue” and “unreasonable” imply that there may be advantage to one person or one class of traffic, and prejudice to another, which would not be within the Act. It is not undue or unreasonable for a railway company to carry goods for A at a lower rate than for B, in consideration of A's guarantee of large quantities and full loads at regular periods (provided that the object of the company be to obtain thereby a greater profit by the diminished cost of carriage) although the effect may be to exclude B from the lower rate. (Nicholson v. Great Western R. Co., 1859, 28 L.J. C.P. 89.)

A railway company may make special agreements securing advantages to individuals, where it clearly appears that the company has in view only the interests of the proprietors and the legitimate increase of the profits of the railway, and the consideration given to the company in return for the advantages is adequate, and the company is willing to afford the same facilities to all others upon equal terms. (Id.)




  ― 908 ―

A preference to a customer who engaged to employ other lines of the company, for traffic distinct from and unconnected with the goods in question, was held unreasonable. (Baxendale v. Great Western R. Co., 1859, 28 L.J. C.P. 69.)

A company charged rates inclusive of delivery charges, in order to compel customers to employ them as carriers, apart from their line of railway. Held an undue preference to themselves. (Baxendale v. Great W.R. Co., 1859, 28 L.J. C.P. 81; Garton v. Great W.R. Co., id., 158.)

A facility given to one carrier by receiving goods at a later hour is an undue prejudice to others. (Garton v. Bristol, &c., R. Co., 1859, 28 L.J. C.P. 306.)

A deduction to certain persons, in consideration of their contracting to consign all goods by the railway, and not by water or other means, is an undue preference, unless it be clearly shown that it is done to prevent a competition with the railway, or that there is secured thereby to the company such an amount of traffic as to compensate for the reduction. Bona fide competition, held out to the public generally, might be good. (Id.)

A reduced rate for a full trainload is good, though the company, for its own convenience, divides the trainload If the rate is valid, the mode of carriage is immaterial. (Ransome v. Eastern Counties R. Co., 1860, 29 L.J. C.P. 329.)

The gratuitous cartage of the goods of one firm, though done bona fide to meet competition and at a profit on the whole carriage, is an undue preference. (London and N.W.R. Co. v. Evershed, 1877, 2 Q.B.D. 254; 3 Q.B.D. 134; 3 App. Ca. 1029.)

“We are of opinion that the gratuitous cartage and the allowance of rebate granted by the defendants to the three brewing firms mentioned in the case, but not granted to the plaintiffs, although made bona fide for the simple purpose of attracting their traffic to the defendants' line of railway, in lieu of its being sent by competing lines, and although such traffic realized a profit to the defendants notwithstanding such an allowance or rebate, did under the circumstances amount to an undue preference or advantage given to them by the defendants' company, and is contrary to the language and meaning of the equality clause, 8 and 9 Vic. c. 20, s. 90, and also of 17 and 18 Vic. c. 31, s. 2.” (Per Mellor, J., 2 Q.B.D. at p. 265.)

“We think that a railway company cannot, merely for the sake of increasing their traffic, reduce their rates in favour of individual customers, unless, at all events, there is a sufficient reason for such reduction, which shall lessen the cost to the company of the conveyance of their traffic, or some other equivalent or other services are rendered to them by such individuals in relation to such traffic.” (Id. at p. 267.)

Group Rates.—A railway company carried coals to a point, from a group of collieries at different distances along the same line, at the same rate. In an action for overcharge, it was held by the Court of Appeal and by the House of Lords, overruling the Queen's Bench Division, that this was not a breach of the equality clause, and that no action for an overcharge lay for an undue preference. (Denaby Main Colliery v. Manchester, &c., R. Co., 1883, 13 Q.B.D. 674, 14 Q.B.D. 209, 11 App. Ca. 97.)

By sec. 29 of the Railway and Canal Traffic Act, 1888 (see p. 906, supra), it is provided that a railway company may group together places in the same district, situated at various distances from any point of destination or departure, and charge uniform rates to and from all places within the group, provided that the distance is not unreasonable, and the group rates charged are not such as to create an undue preference.

The works of the applicant were on the line of the Furness R. Co., 18 miles from a junction. Other similar works were situated on the same line, 38 miles from the junction. The company grouped these works together and charged them a uniform rate, except that the applicants were charged sixpence a ton less for coke. Held, that so far as the rate for coke was concerned, the company had made sufficient allowance; but as regards the other rates, the places grouped were so far apart that there was an undue preference. (North Lonsdale Iron Co. v. Furness R. Co., 1891, 60 L.J. Q.B. 419. See also Newry v. Great Northern R. Co., 7 Ry. and Can. Traffic Cas. 184; cited Dig. Eng. Case Law, iii. 146.)

Competition.—The fact that a trader has access to a competing route for the carriage of his goods may be taken into consideration in deciding whether lower rates charged to such trader are an undue preference. (Phipps v. London and N.W.R. Co., 1892, 2 Q.B. 229.)

“The second section of the Act of 1854 does not afford to the tribunal any kind of guide as to what is undue or unreasonable. It is left entirely to the judgment of the court on a review of the circumstances. Can we say that the local situation of one trader, as compared with another, which enables him, by having two competing routes to enforce upon the carrier by either of those routes a certain amount of compliance with


  ― 909 ―
his demands, which would be impossible if he did not enjoy that advantage, is not among the circumstances which may be taken into consideration? I am looking at the question now as between trader and trader. It is said that it is unfair to the trader who is nearer the market that he should not enjoy the full benefit of the advantage to be derived from his geographical situation at a point on the railway nearer the market than his fellow trader who trades at a point more distant; but I cannot see, looking at the matter as between the two traders, why the advantageous position of the one trader in having his works so placed that he has two competing routes is not as much a circumstance to be taken into consideration as the geographical position of the other trader, who, though he has not the advantage of competition, is situated at a point on the line geographically nearer the market. Why the local situation in regard to its proximity to the market is to be the only consideration to be taken into account in dealing with the question as a matter of what is reasonable and right as between the two traders, I cannot understand. Of course, if you are to exclude this from consideration altogether, the result must inevitably be to deprive the trader who has the two competing routes of a certain amount of the advantage which he derives from that favourable position of his works. All that I have to say is that I cannot find anything in the Act which indicates that when you are left at large, for you are left at large, as to whether as between two traders the company is showing an undue and unreasonable preference to the one as compared with the other, you are to leave that circumstance out of consideration any more than any other circumstance which would affect men's minds.” (Per Lord Herschell, id. p. 242.)

“It seems to me that, whether you look at the Act of 1854 by itself, or whether you look at it in connection with the provisions of sub-sec. 2 of sec. 27 of the Act of 1888, to which I have been referring, it is impossible to say that there is anything in point of law, which compels the tribunal to exclude from consideration this question of competing routes. I do not go further than that. It is not necessary to go further than that. I am not for a moment suggesting to what extent it is to weigh. I am not suggesting that there may not be such an excessive difference in charge made in cases of competition, as that it would be unreasonable and unfair when you are looking at the position of the one trader as compared with the other. That may be so, but all that is matter for the tribunal to take into account, and certainly I think that they are entitled to take it into account, and to give weight to it as far as is reasonable. If that be so, it is of course sufficient to dispose of the present case.” (Per Lord Herschell, id. pp. 245–6.)

“Now, the appeal here is put, as it must be put, upon a question of law—viz., whether there is any rule which compels us to say that the Commissioners had no right to take into their consideration the fact that Butlins and Islip had two routes of communication westward instead of one. It appears to me that there is no such rule, and I cannot help thinking it would be extremely unreasonable if there were. Upon what principle of good sense can any business man or anybody else exclude from his consideration the locality of either place? If there is a physical difference in favour of one or the other, or an artificial difference by reason of the facilities of traffic, whether by sea or by land, why is not everything which is material to be taken into account, and upon what principle can it be said that you are to exclude from consideration one of the main elements in the case?” (Per Lindley, L.J. id. pp. 250–1.)

“I think it is clear that the section implies that there may be a preference, and that it does not make every inequality of charge an undue preference Of course, if the circumstances so differ that the difference of charge is in exact conformity with the difference of circumstances, there would be no preference at all. But, as has been pointed out before, what the section provides is that there shall not be an undue or unreasonable preference or prejudice. And it cannot be doubted that whether in particular instances there has been an undue or unreasonable prejudice is a question of fact. In Palmer v. London and South Western Ry. Co., Erle, C.J., said: ‘I beg to say that the argument from authority seems to me to be without conclusive force in guiding the exercise of this jurisdiction; the question whether undue prejudice has been caused, being a question of fact depending on the matters proved in each case.’ In Denaby Main Colliery Co. v. Manchester, &c., R. Co., when it was before the Court of Appeal, not in the action brought by the Denaby company against the railway company, but on an appeal arising out of the proceedings before the Railway Commissioners, Lord Selborne, then Lord Chancellor, said at p. 441: ‘They gave a decided, distinct, and great advantage, as it appears to me, to the distant collieries. That may be due or undue, reasonable or unreasonable, but under the circumstances is not the reasonableness a question of fact? Is not it a question of fact and not of law whether such preference is due or undue? Unless you could point to some other law which defines what shall be held to be reasonable or unreasonable, it must be and is a mere question, not of law, but of fact.’ The Lord Chancellor there points out that the mere circumstance that there is an advantage does not of itself show that it is an undue preference within the


  ― 910 ―
meaning of the Act, and further that whether there be such an undue preference or advantage is a question of fact, and of fact alone. No rule is given to guide the Court or the tribunal in the determination of cases or applications made under the 2nd section of the Act of 1854. The conclusion is one of fact, to be arrived at looking at the matter broadly and applying common sense to the facts that are proved. I quite agree with Wills, J., that it is impossible to exercise a jurisdiction, such as is conferred by this section, by any process of mere mathematical or arithmetical calculation. When you have a variety of circumstances differing in the two cases, you cannot say that such a difference of circumstances represents or is equivalent to such a fraction of a penny difference of charge in the one case as compared with the other. A much broader view must be taken, and it would be hopeless to seek to decide a case by any attempted calculation. I should say that the decision must be arrived at broadly and fairly, looking at all the circumstances of the case, that is, looking at all the circumstances which are proper to be looked at.” (Per Lord Herschell, id. pp. 236–8.)

“What is an undue preference? Now, if you look at the sections which relate to this matter, beginning with the equality clause, s. 90 of the Act of 1845, s. 2 of the Act of 1854, and this s. 27 of the Act of 1888, you find these expressions used, all of which appear to me to point to the same sort of mischief. You have ‘undue’ or ‘unreasonable,’ or ‘unfair’ ‘preference,’ or ‘prejudice,’ or ‘disadvantage,’ or ‘favour.’ What is undue, &c., is a question of degree, and being a question of degree, it is obviously a question of fact, and if it is a question of fact, there is no appeal.” (Per Lindley, L.J., id. pp. 251–2)

Home and Foreign Merchandise.—The Railway and Canal Traffic Act, 1888 (51 and 52 Vic. c. 25) s. 27 sub-s. 3, which empowers the Commissioners to take into consideration whether a rate is necessary “for securing, in the interests of the public, the traffic,” contains a proviso “that no railway company shall make, nor shall … the Commissioners sanction, any difference in the tolls, rates, or charges made for, or any difference in the treatment of, home and foreign merchandise, in respect of the same or similar services.” Held that the effect of this proviso is not to prohibit all inequalities in rates as between home and foreign merchandise, but that, if the railway company has proved facts which would justify the admitted differences, had the goods in question been home goods, the company is not debarred from relying on those facts as an answer, merely because the goods which receive the benefit of the provision are of foreign origin. (Mansion House Association v. London and S.W.R. Co. [1895] 1 Q.B. 927.)

American Inter-State Commerce Act.—In 1887 the Congress of the United States passed the Inter-State Commerce Act, which was adapted from, and to a large extent followed the language of, the English Acts of 1854 and 1873.

The Act applies to any common carrier engaged in the transportation of passengers or property wholly by railroad, or partly by railroad and partly by water, when both are used under a common control, management, or arrangement, for a continuous carriage, or shipment, from one State or Territory of the United States to another, or between any place in the United States and a foreign country. It does not apply to transportation wholly within one State. “Transportation” includes all instrumentalities of shipping or carriage. The Act first provides generally, that all charges made for any service rendered in connection with transportation, or with the handling of property, shall be reasonable and just; and every unjust and unreasonable charge for such service is prohibited and declared unlawful (sec. 1).

Sec. 2 provides that if any common carrier directly or indirectly, by any special rate, rebate, drawback, or other device, charges any person a greater or less compensation for any such service than it charges any other person for a like and contemporaneous service in the transportation of a like kind of traffic under substantially similar circumstances and conditions, the carrier is guilty of unjust discrimination, which is prohibited and declared unlawful. (Cf. English “equality clause,” Railway Clauses Cons. Act, 1845, s. 90.)

Sec. 3 makes it unlawful for a common carrier to make or give any undue or unreasonable preference or advantage to any particular person, company, firm, corporation, or any particular description of traffic, in any respect whatsoever, or to subject any particular person, company, firm, corporation, or locality, or any particular description of traffic, to any undue or unreasonable prejudice or disadvantage in any respect whatsoever. It further provides that common carriers shall afford proper and reasonable


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facilities for through traffic with connecting lines, and shall not discriminate in their charges between such connecting lines. (Cf. Railway and Can. Traffic Act, 1854, s. 2.)

Sec. 4 makes it unlawful for any common carrier to charge any greater compensation in the aggregate for the transportation of passengers or of the like kind of property, under substantially similar circumstances and conditions, for a shorter than for a longer distance over the same line in the same direction, the shorter being included in the longer distance; but this is not to be construed as authorizing as great a compensation for a shorter as for a longer distance. It is provided, however, that on application to the Inter-State Commerce Commission, a carrier may in special cases, after investigation by the Commission, be authorized to charge less for the long-haul than for the short-haul and the Commission may prescribe, from time to time, how far such carrier may be exempt from this section. (Cf. Railway and Can. Traffic Act, 1888, s. 27—iii.)

Sec. 5 prohibits combinations for the pooling of freights. Sec. 6 provides that carriers shall print and publish schedules of their rates, stating separately the terminal charges, &c. Sec. 8 provides that for any contravention of the Act a carrier shall be liable to the person injured for the full amount of damages sustained. Sec. 9 enables any person injured either to make complaint to the Commission or to sue for damages, at his election, but not to pursue both remedies. Sec. 10 provides that any carrier, or any director, officer, agent, or employee of a carrying company, who is privy to any violation of the Act, is guilty of a misdemeanour, and liable to a fine not exceeding $5000 for each offence. The rest of the Act deals with the establishment and duties of the Inter-State Commerce Commission. (See Note, § 423, supra.)

“The principal objects of the Inter-State Commerce Act were to secure just and reasonable charges for transportation; to prohibit unjust discriminations in the rendition of like services under similar circumstances and conditions; to prevent undue or unreasonable preferences to persons, corporations, or localities; to inhibit greater compensation for a shorter than for a longer distance over the same line ; and to abolish combinations for the pooling of freights. It was not designed, however, to prevent competition between different roads, or to interfere with the customary arrangements made by railway companies for reduced fares in consideration of increased mileage, where such reduction did not operate as an unjust discrimination against other persons travelling over the road. In other words, it was not intended to ignore the principle that one can sell at wholesale cheaper than at retail. It is not all discriminations or preferences that fall within the inhibition of the statute; only such as are unjust or unreasonable.” (Inter-State C.C. v. Baltimore, &c., R. Co., 145 U.S. at p. 276.)

Consequently a party-rate ticket for passengers is not a discrimination or preference; and see Texas and Pacific R. Co. v. Inter-State C.C., 162 U.S. 197.

“Subject to the two leading prohibitions that their charges shall not be unjust or unreasonable, and that they shall not unjustly discriminate, so as to give undue preference or advantage to persons or traffic similarly circumstanced, the Act to Regulate Commerce leaves common carriers as they were at the common law, free to make special contracts looking to the increase of their business, to classify their traffic, to adjust and apportion their rates so as to meet the necessities of commerce, and generally to manage their important interests upon the same principles which are regarded as sound, and adopted in other trades and pursuits.” (Cincinnati, &c., R. Co. v. Inter-State C.C., 162 U.S. 184, at p. 197.)

“The conclusions of the court, drawn from the history and language of the Acts under consideration, and from the decisions of the American and English courts, are:— (1) That the purpose of the Act is to promote and facilitate commerce by the adoption of regulations, to make charges for transportation just and reasonable, and to forbid undue and unreasonable preferences. (2) That in passing upon questions arising under this Act, the tribunal appointed to enforce its provisions, whether the Commission or the courts, is empowered to fully consider all the circumstances and conditions that reasonably apply to the situation, and that, in the exercise of its jurisdiction, the tribunal may and should consider the legitimate interests as well of the carrying companies as of the traders and shippers, and in considering whether any particular locality is subjected to an undue preference or disadvantage, the welfare of the communities occupying the localities where the goods are delivered is to be considered as well as that of the communities which are in the locality of the place of shipment. (3) That among the circumstances and conditions to be considered, as well in the case of traffic originating in foreign ports, as in the case of traffic originating within the limits of the United


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States, competition that affects rates should be considered, and in deciding whether rates and charges made at a low rate to secure foreign freights which would otherwise go by other competitive routes are or are not undue and unjust, the fair interests of the carrier company and the welfare of the community which is to receive and consume the commodities are to be considered. (4) That if the Commission instead of confining its action to redressing, on complaint made by some particular person, firm, or corporation, or locality, some specific disregard by common carriers of provisions of the Act, proposes to promulgate general orders, which thereby become rules of action to the carrying companies, the spirit and letter of the Act require that such orders should have in view the purpose of promoting and facilitating commerce, and the welfare of all to be affected, as well the carriers as the traders and consumers of the country.” (Texas and Pac. R. Co. v. Inter-State C.C., 162 U.S. 197.)

The mere fact that the disparity between through and local rates is considerable does not necessarily constitute undue discrimination—especially if not complained of by any one affected. (Texas v. Inter-State C.C., 162 U.S. 197.)

“A rate may be unreasonable because it is too low, as well as because it is too high. In the former case it is unreasonable and unjust to the stockholder, and in the latter to the shipper.” (Inter-State C.C. v. Cincinnati R. Co., 167 U.S. at p. 511.)

The portion of a through rate received by one of several railway companies transporting the goods as inter-state commerce may be less than its local rate. (Parsons v. Chicago and N.W.R. Co., 167 U.S. 447.)

Competition is one of the most obvious and effective circumstances that make the conditions under which a long and a short haul is performed substantially dissimilar. The following conclusions were affirmed:—

  • (1.) That competition between rival routes is one of the matters which may lawfully be considered in making rates for inter-state commerce.
  • (2.) That essential dissimilarity of circumstances and conditions may justify common carriers in charging greater compensation for the transportation of like kinds of property for a shorter than for a longer distance over the same line in such commerce. (Inter-State C.C. v. Alabama Midland R. Co., 168 U.S. 144.)

The meaning of the previous decisions is that, under sec. 4, substantial competition which materially affects transportation and rates may produce dissimilarity of circumstances and conditions which may justify a carrier, even without authority from the Commission, in charging less for a longer than for a shorter haul. (Louisville and Nashville R. Co. v. Behlmer [1900], 175 U.S. 648.)

Sec. 4 of the Act has in view only transportation by rail. Free cartage after arrival does not concern the Commission. (Inter-State C.C. v. Detroit Grand Haven, &c., R., 167 U.S. 633.)

PREFERENCE OR DISCRIMINATION.—Guided by the English and American authorities, we may now proceed to discuss the meaning of the words “preference” and “discrimination” in this Constitution. Before any clear idea can be formed of what constitutes a preference or discrimination which is undue and unreasonable, or unjust to any State, it is necessary to obtain some definition of the words “preference” and “discrimination” themselves.

A preference is a setting of one person or thing before another; here it means a dissimilarity of treatment, involving advantage to one person, locality, or class of goods, or prejudice to another. Discrimination is a difference of treatment; as applied to railways it is defined by Webster's Internat. Dict. as “the arbitrary imposition of unequal tariffs for substantially the same service.” In the English Railway and Canal Traffic Act (see p. 906, supra) “preference” is applied to persons, and to descriptions of traffic; in the American Inter-State Commerce Act (see p. 910, supra) it is applied to persons, descriptions of traffic, and localities. “Discriminations,” in the Inter-State Commerce Act, sec. 4, is applied to persons only, and means a departure from equal treatment of persons in respect of substantially the same service. In sec. 5, discrimination between connecting lines is referred to. There seems, however, no reason why the word “discrimination,” used generally, should not apply as between localities and descriptions of traffic, as well as between persons. Thus Hadley (Railroad Transportation, p. 111) speaks of “the three forms of discrimination—between classes of


  ― 913 ―
business, localities, or individuals.” At least it is clear that the words “preference” and “discrimination” together cover differences of treatment (1) as between different persons; (2) as between different descriptions of traffic; and (3) as between different localities. That is to say, the words include the unequal treatment of persons, the arbitrary classification of goods, and the unequal treatment of localities.

The difficulty, however, is to get a satisfactory test of what constitutes a difference of treatment. Where the circumstances are exactly, or even substantially similar, the difficulty disappears; but where circumstances are dissimilar—as they must be between different localities and different goods, and may be between different persons—a difference due to the dissimilarity of circumstances is not a discrimination at all; and the problem is to find out how far the difference of treatment is due to the dissimilarity of circumstances. Before discussing the three kinds of discriminations, it will be necessary to allude briefly to the chief principles of equality which have been laid down. They may be shortly described as mileage, cost of service, and value of service.

(1.) Mileage.—The principle of equal mileage rates is now universally discarded. It was never strictly applied except in connection with a classification of goods, which gave some recognition to both cost and value of service. Even if the terminal charges are assessed separately, equal mileage charges are quite unsuited to the requirements of railway traffic. Mileage is in fact only one element arbitrarily selected as a test of the cost of service; it ignores other elements which may be equally important. (See Grierson, Railway Rates, pp. 13–20; Acworth, The Railways and the Traders, Chap. II.)

(2) Cost of Service.—The cost of the service is sometimes laid down as the true principle on which rates should be based. That it is one important element cannot be doubted. In the first place, however, it is practically impossible to estimate the proportion of the total expenses of the railway which each article ought to bear. “Broadly speaking, the cost of carriage, whether of passengers, or goods, is made up of four different items: locomotive or movement expenses, terminals or station expenses, maintenance of way and works, interest on capital.” (Acworth, The Railways and the Traders, p. 24.) The permanent-way expenses are practically constant; many of the working expenses vary with the traffic. The apportionment of these among the different classes of traffic must always be to a certain extent arbitrary.

But even if the cost of service were always ascertainable, it is not always a practicable basis. In many cases “the traffic will not bear” rates based on the cost of service, for the simple reason that the cost of the service—if a share of the interest on the fixed capital is included—is greater than the value of the service. Yet if the traffic cannot be had on other terms, it may be profitable to carry it at a margin above working expenses, and the public benefit resulting from the development of trade may be enormous. (See Grierson, Railway Rates, pp. 8–12; Acworth, The Railways and the Traders, Chap. I.; Lewis, National Consolid. of Railways, Chap. V.)

(3.) Value of Service.—This basis, usually known as “charging what the traffic will bear,” is one which, with careful qualifications, is most favoured by scientific writers as the true basis, but is sometimes used by railway companies as a pretext for “charging what the traffic will not bear,” or “bleeding the traffic to death.” Charging what the traffic will bear is the basis—or chief basis—of every system of classification of goods. “Railroads divide their freight into four or more classes, the division being mainly based on the value of the goods. Thus, dry goods are placed in the first class, and lumber in the fourth; and the charges on the former are made two or three times as high as on the latter. There is a difference of cost of handling, and of risk; but nothing like so great as the difference in charge. The railroad does not base its classification upon cost of service, but upon what the traffic will bear. A ton of lumber has so little value that, if they attempted to charge the same rates for it as for the dry goods, they would get none of it to carry; the traffic would not bear the higher rate.” (Hadley, Railroad Transportation, p. 112.) The value of the service is of course affected by the laws of supply and demand; it varies with the value of the articles, and with the


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facilities offered by competing modes of transit. (See Grierson, Railway Rates, pp. 68–77; Acworth, The Railways and the Traders, Chaps. III., IV.; Lewis, National Consolid. of Railways, Chap. V.)

In the case of Government Railways, the further element is introduced that the proprietors of the railway represent also the public interests of the State, and that rates may be fixed with a view to other things besides a direct profit on the railways, as a business concern. “A Government enterprise may be managed on any one of four principles: (1) as a tax; (2) for business profits; (3) to pay expenses; (4) for public service, without much regard to the question of expense.” (Hadley, Railroad Transportation, p. 240.)

Having touched upon the chief principles of rate-making, we may recur to the definition of a preference or discrimination as an arbitrary difference of treatment. An arbitrary difference is one which is not based upon any satisfactory principle. So far as any of the above principles are thought satisfactory, differences of rates based upon their application will not be preferential or discriminating.

It should be noticed that whilst questions of reasonableness and unreasonableness are questions of fact, the question whether the facts proved constitute a preference or discrimination at all is a question of law. The interpretation of the words “preference” and “discrimination” is, in the last resort, for the High Court; and that court alone can authoritatively decide the principles upon which the question of preference or no preference is to be determined. If there is no preference, there can be no unreasonable preference; if there is a preference, whether it is reasonable or unreasonable is a question of fact which the Inter-State Commission alone can decide.

(1.) Personal Discriminations.—Personal discriminations, when the facts are known, are the easiest of all to decide. Between persons, as individuals, there is not likely to be any serious discrimination by the States. Between classes of persons there might conceivably arise cases of discrimination affecting inter-state traffic.

A law prohibiting discriminations does not ignore the principle that one can sell wholesale cheaper than retail, so long as reductions are made impartially to all, under the same circumstances. Consequently a party-rate ticket for passengers is not a discrimination or preference. (Inter-State C.C. v. Baltimore, &c., R., 145 U.S. 263. See Texas and Pac. R. Co. v. Inter-State C.C., 162 U.S. 197; Nicholson v. Great Western R. Co., 28 L.J. C.P. 89; Hadley, Railroad Transportation, p. 119.)

(2.) Discriminations between Classes of Traffic.—The classification of goods is the most generally recognized form of departure from the principle of cost of service. Such classification, if it is challenged by any person who is prejudiced, must, it is conceived, be based upon some definite principle; and that principle might, in the case of a State railway, either be the value of the service to the producer or the importance of the service to the public. It does not necessarily follow, because a class of business is done at less than average rates, or even at less than the average cost, that such business is an actual loss to the road, or that other business is taxed to make up for it. And still less does it follow that there is a loss to the country. (Hadley, Railroad Transp. p. 112.)

(3.) Local Discriminations.—The preferences and discriminations which will probably assume the greatest importance are local discriminations between States—rates made by the competing railways of different States in order to secure or retain the traffic of particular localities. It is only between States that competition between railway and railway exists. Experience suggests that this competition needs regulating; and at the same time the power of the Commonwealth in this regard is hedged about with special restrictions in order that this competition may only be interfered with so far as it is unfederal in character, and not so far as it is necessary to secure the profitable working of the railways of a State, or the development of the territory of a State.

But the competition is not only between railway and railway; it is also between railway and river. Questions are likely to arise as to how far it is justifiable to reduce


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the rates at competitive points as compared with the rates at non-competitive points; how far it is justifiable to reduce the rate for the long-haul as compared with the rate for the short-haul, and so forth. (See Notes on “Undue and Unreasonable,” § 431, infra.)

§ 431. “Undue and Unreasonable, or Unjust to Any State.”

The only preferences or discriminations which can be forbidden under this section, are preferences or discriminations which are either (1) undue and unreasonable, or (2) unjust to any State. The preferences prohibited by the Railway and Canal Traffic Act, 1854, and by the American Inter-state Commerce Act, are preferences which are “undue or unreasonable.” As no distinction seems ever to have been judicially drawn between the words “undue” and “unreasonable,” but on the contrary they have been declared to “point to the same sort of mischief” (per Lindley, L.J., Phipps v. London and N.W.R. Co. [1892] 2 Q.B. at p. 251), it would seem that their use conjunctively instead of disjunctively makes no material difference.

The words “unjust to any State” may be compared with the words “unjust discrimination” in sec. 2 of the American Inter-state Commerce Act. The American Act, designed to control persons and corporations, was chiefly concerned with injustice to persons; but this constitutional provision is designed to control the States themselves in their capacity as carriers, and is therefore concerned with injustice by one State to another. The insertion of these words, “unjust to any State,” perhaps does not definitely include any preference which was not already included in undue and unreasonable preferences; but it indicates that the section expressly contemplates the prevention of injustice between States, and it also indicates that States, as well as individuals, will be entitled to complain of any breach of federal legislation as to preferences. It may be compared with sec. 13 of the American Inter-State Commerce Act, which provides that “any person, firm, corporation.… or any body politic or municipal organization complaining” of any violation of the Act may apply to the Commission.

Question of Fact.—What constitutes undueness, unreasonableness, or injustice to a State, is a question of fact to be determined broadly on a consideration of the circumstances of each case; and on these questions the decision of the Inter-State Commission is absolutely final. (See Phipps v. London and N.W.R. Co. [1892] 2 Q.B. 229; Palmer v. London and S.W.R. Co., L.R. 1 C.P. 593; Texas and Pac. R. Co. v. Inter-State C.C., 162 U.S. 145.)

Since the question whether a rate is reasonable or not is a question of fact, to be determined on consideration of the circumstances of each case, it would seem to be beyond the power of the Parliament to empower the Commission to prescribe rates. The power to forbid a preference or discrimination is not the power to make a rate unlawful, but the power to forbid a difference between two rates. The Parliament under this section cannot empower the Commission to forbid a rate, but only to forbid a preference or discrimination caused by an inequality of rates. Moreover, to prescribe a general rate would be practically to decide that the rate is reasonable, and so to prejudge the case without reference to the circumstances.

“It is argued on behalf of the Commission that the power to pass upon the reasonableness of existing rates implies a right to prescribe rates. This is not necessarily so. The reasonableness of a rate, in a given case, depends on the facts, and the function of the Commission is to consider these facts and give them their proper weight. If the Commission, instead of withholding judgment in such a matter until an issue shall be made and the facts found, itself fixes a rate, that rate is prejudged by the Commission to be reasonable.” (Cincinnati, &c., R. Co. v. Inter-State C.C., 162 U.S. at pp. 196–7.)

Though what is undue, unreasonable, or unjust, is a question for the Commission alone, it will be useful to point to some of the principles which seem to be indicated by


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the Constitution, read in the light of the authorities already cited. The three kinds of rates to which special reference may be made are (1) prohibitive rates, intended to prevent the flow of trade in one direction, with a view to inducing it in another; (2) competitive rates; (3) long-haul and short-haul rates.

(1.) Prohibitive Rates.—Any rate made unreasonably high for the purpose of preventing inter-state traffic in any direction could undoubtedly be forbidden by the Federal Parliament if any person or State were thereby prejudiced. And it seems clear that, even without federal legislation, any such rate would be unlawful under sec. 92 as an interference with freedom of trade, irrespective of any question of discrimination. If this were not so, any State could practically levy export or import duties upon State railways.

The common law, though it does not oblige a carrier to charge all customs equally, limits him to a reasonable charge. (Baxendale v. Eastern Counties R. Co., 27 L.J. C.P. 137.) It is unnecessary to argue that this rule of the common law becomes applicable as inter-state law, under the Constitution; but it seems that some such test is involved in the requirement of freedom of trade between the States. That is to say, whilst federal legislation is needed in order to forbid the relative inequality of rates, a rate which is in itself unreasonably obstructive is forbidden by the Constitution itself. (See Notes to sec. 92.)

(2.) Competitive Rates.—“A rate may be unreasonable because it is too low, as well as because it is too high. In the former case it is unreasonable to the stockholder, and in the latter to the shipper.” (Inter-State C.C. v. Cincinnati, &c., R. Co., 167 U.S. at p. 511.) In this constitution it is undoubtedly contemplated that a rate may be unreasonable, or unjust, by being, in comparison with other rates on the same railway, too low— not indeed from the point of view of the stockholder, but of the locality which suffers by the discrimination. Every discrimination is in fact a matter of comparison between two or more rates, one of which is relatively too low, and one relatively too high.

As regards competitive rates, the Constitution expressly recognizes, in the provision that due regard shall be had to the financial responsibilities of the States, the business principle of competition within reasonable limits, for the purpose of preventing a financial loss in connection with the construction and maintenance of railways. And the Constitution also safeguards rates which are made low—even though from the point of view of another State they may be unreasonably and unjustly low, and even though they may be competitive in effect—if they are necessary for the development of the territory of a State (sec. 104).

These provisions seem to indicate that the Constitution contemplates reasonable competition between State railways, but at the same time recognizes that competition may become unreasonably and unjustly preferential. This is substantially in accordance with the English and American decisions already cited. (Phipps v. London and N.W.R. Co. [1892] 2 Q.B. 229.)

“It seems to me that … it is impossible to say that there is anything in point of law which compels the tribunal to exclude from consideration this question of competing routes. I do not go further than that. It is unnecessary to go further than that. I am not for a moment suggesting to what extent it is to weigh. I am not suggesting that there may not be such an excessive difference in charge made in cases of competition, as that it would be unreasonable and unfair when you are looking at the position of one trader as compared with the other.” (Per Lindley, L.J., Phipps v. London and N.W.R. Co. [1892], 2 Q.B. at p. 245.)

(3.) Long-haul and Short-haul.—Two questions arise in connection with rates for short and long hauls; whether a greater aggregate charge for the short-haul than for the long-haul is an undue preference; and whether an equal charge for the short-haul and for the long-haul is an undue preference. Neither the American nor the English Acts answer these questions absolutely, but they afford indications which may be a valuable guide.




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The American Act does not declare a greater aggregate charge for a shorter than for a longer haul to be an undue preference, but it prohibits it. The prohibition, however, is not absolute; the Commission being authorized to exempt any carrier, after investigation, from the operation of the section (sec. 4). The English Act of 1888 merely empowers the Commission to forbid a greater charge for a shorter than for a longer haul. (Sec. 27; see p. 906, supra.) Both provisions seem to imply that such a charge is not necessarily, though it may be usually, an undue preference. (See Hadley, Railroad Transportation, pp. 114–9.)

With the question of an equal charge for a shorter and for a longer haul, the American Act only deals negatively. Following the prohibition of a greater charge for a shorter haul, it declares that “this shall not be construed as authorizing any common carrier within the terms of this Act to charge and receive as great compensation for a shorter as for a longer distance.” In other words, it leaves the question, whether an equal charge is permissible, to the operation of the preference and discrimination clauses; merely rebutting the inference that might arise, from a greater charge being forbidden, that an equal charge was permitted. The English Act of 1888, in the provision for group rates, arrives at a somewhat similar result in a more explicit way. It provides (sec. 29, see p. 906, supra) that uniform charges may be made to and from a group of places at reasonable distances from each other; but subject to the proviso that the rates must not be such as to create an undue preference. This is a distinct recognition of the principle that an equal charge for a shorter and a longer haul is not necessarily an undue preference.

The resulting inferences would seem to be: (1) that generally speaking there should be a greater aggregate charge for a longer than for a shorter haul; (2) that a system of “group-rates” may justify an equal charge for a longer and for a shorter haul; (3) that in exceptional cases a greater charge for a shorter than for a longer haul may be justifiable; (4) that the question whether a long or short haul rate creates an undue preference must be decided accordingly to the circumstances of each case.

It should be noticed, however, that both the English and American provisions are chiefly for the protection of the short-haul customer who is discriminated against; in this Constitution the chief concern is for competing railways and traders who are prejudiced by the diversion of traffic due to the long-haul rate. In the one case the complaint is that short-haul rates are unfairly high as compared with long-haul rates; in the other, that long-haul rates are unfairly low as compared with short-haul rates.

§ 432. “Due Regard Being Had.”

The object of this provision, which was first introduced by Mr. Reid (Conv. Deb., Melb., pp. 1510–2) was to safeguard New South Wales against any possibility of such federal interference with the long-distance rates of that colony as would make it impossible to work the lines at a profit. In each colony the railways had been constructed with the provincial object of drawing all trade to the ports of that colony. New South Wales had sunk a large amount of capital on long-distance lines reaching out into the competitive areas which are geographically nearer to Melbourne than to Sydney, or which are within reach of the river route to Victoria and South Australia. The fear that the powers of the Constitution might possibly be exercised in such a way as to make some of these railways “waste iron” led to the insertion of this provision.

It is here declared explicitly that one of the things to be taken into consideration, in deciding whether a preference or discrimination is undue or unreasonable, or unjust to any State, is the financial responsibility incurred by a State in connection with the construction and maintenance of its railways. It does not say that any rate which helps the railways is reasonable and just, but requires “due regard” to be had to the financial interests of the States.

Who is to pay this due regard is not stated. The provision was accepted by Sir George Turner on the distinct understanding that it was to be appended to the words


  ― 918 ―
empowering the Parliament to forbid preferences; he wished the words to mean “due consideration by the Parliament,” but he did not insist on the insertion of the words “by the Parliament,” as that “might appear to be invidious.” (Conv. Deb., Melb., p. 1510.) His desire was to prevent the High Court being appealed to on this question. It would seem that the words may involve a direction to the Parliament, in legislating upon the subject, to have due regard to the financial responsibilities of the States; but it would be clearly impossible for the High Court to declare a law invalid on the ground that the Parliament had not had this due regard.

It seems clear that the real importance of the words is in connection with the duty of the Inter-State Commission to adjudge whether a discrimination is undue or unreasonable, or unjust to any State. The question of “due regard” is an element in the decision whether a preference or discrimination is undue, &c., and must be considered by the tribunal which decides that question. What regard is “due” is obviously a question of fact on which the decision of the Commission is final; but if the Commission declined to take the question into consideration at all, it seems that there would be an appeal on the ground of an error in law. If the Commission takes into consideration something which the law excludes it from taking into consideration, or declines to take into consideration something which the law requires it to take into consideration, that is clearly a mistake in law. (See Phipps v. London and N.W.R. Co. [1892] 2 Q.B. 229.)

§ 433. “Unless so Adjudged by the Inter-State Commission.”

The Parliament may forbid preferences or discriminations which are undue and unreasonable, or unjust to any State; but it cannot prejudge the question of fact as to whether any particular preference, under all the circumstances of the case, is of that character. That is a judicial question, which belongs to the Inter-State Commission solely and finally. That is to say, the preferences and discriminations which the Parliament is empowered to forbid by law are those which are undue, &c.; the application of the law to the facts of each case is a matter with which the Parliament, as a solely legislative body, can have no concern.

Commissioners' appointment, tenure, and remuneration.

103. The members of the Inter-State Commission434—

  • (i.) Shall be appointed by the Governor-General in Council:
  • (ii.) Shall hold office for seven years435, but may be removed within that time by the Governor-General in Council, on an address from both Houses of the Parliament in the same session praying for such removal on the ground of proved misbehaviour or incapacity:
  • (iii.) Shall receive such remuneration as the Parliament may fix; but such remuneration shall not be diminished during their continuance in office.



  ― 919 ―

HISTORICAL NOTE.—The first draft of the Bill at the Adelaide session provided for the members of the Commission holding office during good behaviour, on exactly the same terms as the federal justices. Some members, however, who were not convinced that an Inter-State Commission was really necessary, or would have very serious duties, thought that this provision tied the hands of the Parliament too much; and the clause was struck out. (Conv. Deb., Adel., pp. 1114–7.)

Melbourne Session, 1898.—The important duties cast upon the Commission in connection with railway rates led to the question of independent tenure being reconsidered. On the third recommittal Mr. Barton (in pursuance of a promise made during the debate on the powers of the Commission) introduced the clause in its present form. Objections were made on the score of economy, and it was suggested that it might be found desirable that the Railway Commissioners for the time being should act; but the arguments for the independence of the Commission prevailed, and the clause was passed. (Conv. Deb., Melb., pp. 2457–62; and see Hist. Note to sec. 101.)

§ 434. “The Members of the Inter-State Commission.”

No provision is made by the Constitution as to the number of the members of the Inter-State Commission, or as to their qualification. The (Imperial) Interpretation Act, 1889 (52 and 53 Vic. c. 63, sec. 1) provides that in all Acts of the Imperial Parliament, unless the contrary intention appears, words in the plural shall include the singular. The words “the members of the Inter-State Commission” would seem clearly to express a very definite intention that there must be more Commissioners than one; a single Commissioner would not be a “member” of a Commission; not—according to Webster's definition—could he be a “Commission.” A Commission is “a company of persons joined in the performance of some duty or the execution of some trust; as, the Inter-State Commerce Commission.” (Webster's Internat. Dict.) The Parliament, in the exercise of its general powers and its duty of establishing the Commission, will be able to fix the number of members, and, if thought fit, to prescribe a qualification.

§ 435. “Shall Hold Office for Seven Years.”

Except that the appointment need not be for a longer term than seven years, the tenure of a Commissioner is the same as that of a Justice of the High Court. (See sec. 72, supra.) The provision for removal is indeed framed in an enabling instead of a prohibitive form, but that is because it is in derogation of the preceding words “shall hold office for seven years,” which exclude all modes of removal except that specified.

The fixity of tenure is for the purpose of securing to the Commission independence from political influence in the exercise of its important judicial and administrative functions. On the other hand, the variation from the judicial tenure is a recognition of the fact that the work of the Commission is administrative as well as judicial, and that the reasons which make the life tenure of administrative office undesirable and inconvenient may be applicable in this case.

The requirement that the members “shall hold office for seven years” does not prevent the Parliament, if it should think fit, from conferring a longer tenure of office.




  ― 920 ―

Saving of certain rates.

104. Nothing in this Constitution shall render unlawful any rate436 for the carriage of goods upon a railway, the property of a State, if the rate is deemed by the Inter-State Commission to be necessary for the development of the territory of the State437, and if the rate applies equally438 to goods within the State and to goods passing into the State from other States.

HISTORICAL NOTE.—At the Melbourne session, 1898, after the adoption of Sir George Turner's “undue preference” clause (see Hist. Note to sec. 102) the New South Wales representatives feared that the tapering “long-haul” rates necessary for the working of their railway system might be interfered with by the Federal Parliament— which was the tribunal provided for at that stage. It was argued that Sir George Turner's clause, as it stood, affected the internal traffic of a State as well as inter-state traffic. Accordingly Mr. O'Connor proposed (Debates, p. 1410) to insert a provision that nothing in the Constitution should be taken to render a rate on any State railway unlawful “on the ground that it is unduly low.” The intention was to allow unlimited competition, so far as “cutting rates” was concerned, subject only to the prohibition against preferential treatment. Sir George Turner complained that this neutralized his clause, because nine times out of ten the injustice would be that a rate was unduly low. He wished to prevent unfair competition. The position became critical, and Mr. O'Connor, to relieve the strain, modified his proposal to read that a rate on a State railway should not be prohibited on the ground that it was unduly low “if such rate is imposed for the development of traffic between places within the limits of the State.” He insisted strongly that the clause as it stood meant that the internal trade of New South Wales was to be “fixed to suit somebody else.” Sir George Turner still objected to the amendment; low rates would be wanted, not for development, nor for the benefit of producers, but for the conserving of “traffic.” At last (p. 1443) Mr. Grant appeared as mediator. He admitted that Sir George Turner's amendment was meant fairly, but thought it might hinder development; and he moved an amendment providing that notwithstanding anything in the Constitution, “such laws [i.e., federal trade and commerce laws] shall not have the effect of preventing the development of the internal resources of any State.” This, after discussion, he modified to provide that “Nothing in this Constitution shall prevent the imposition of such railway rates by any State as may be necessary for the development of its territory, if such rates apply equally to goods from other States.” Sir George Turner and Mr. Isaacs were willing to accept this if it were worded as an instruction to the Federal Parliament, instead of being left to the High Court. They did not wish to prevent rates which were honestly developmental, but insisted that this was a political question, and that Parliament was the proper tribunal. The question now was practically which of the three tribunals should be adopted: the High Court, the Parliament, or—as a compromise between the two— the Inter-State Commission. At last the amendments were withdraw, and Mr. Grant (p. 1506) moved his proposal in the form of a new clause. Sir George Turner moved to insert “in the opinion of the Parliament.” Mr. Holder, however, proposed to substitute “Inter-State Commission” for “Parliament,” and this was agreed to on the voices. The clause in this form was carried by 22 votes to 21. (Conv. Deb., Melb., pp 1410–1510.)

On the second recommittal a redraft of the clause was carried. (Conv. Deb., Melb., pp. 2392–3.) After the fourth report further drafting amendments were made.




  ― 921 ―

§ 436. “Shall Render Unlawful Any Rate.”

Strictly speaking, it would seem that there is nothing in the Constitution—except the provision of sec. 92 that inter-state trade shall be “absolutely free”—to render a rate, considered by itself, unlawful. Sec. 102 renders unlawful any preference or discrimination which is forbidden by the Parliament and which is adjudged by the Commission to be undue and unreasonable, or unjust to any State; but what may be forbidden by that section is not a rate, but a difference between rates. On this ground it has been held under the English preference clauses that there is no right of action for an overcharge, because the court cannot decide what the rate ought to be, but only that there is an undue difference between two rates. (Denaby Main Colliery Co. v. Manchester, &c., R. Co., 11 App. Ca. 97; Rhymney R. Co. v. Rhymney Iron Co., 25 Q.B.D. 146.) “Where there is a breach of the equality clause, no doubt you may sue to recover the difference on the basis that you can compel the railway company to pay you back anything which you have paid over what, for precisely the same service, they have charged to another. But under the Railway and Canal Traffic Act, as was pointed out in the House of Lords, the company have their option. They may put up one charge, they may put down the other.” (Per Lord Herschell, Phipps v. London and N.W.R. Co., 1892, 2 Q.B. at p. 248.)

When therefore a rate is complained of, and it is adjudged that in connection with another rate it constitutes an undue preference, the rate complained of is adjudged to be, not absolutely, but relatively, unlawful; to be unlawful on the assumption that the preference is not removed by the alteration of other rates. That is clearly the sense in which the prohibition contained in this section is intended. The debates, and the words of the section itself, show that this provision is meant as a qualification of the power to prevent preferences by a State, so far as they may be “necessary for the development of the territory of the State.”

§ 437. “Necessary for the Development of the Territory of the State.”

Mr. O'Connor's first suggestion, that a rate should not be unlawful if imposed “for the development of traffic between places within the limits of a State” (see Historical Note) was objected to by Sir George Turner as referring not to the development of the country, but to conserving the traffic in the competitive area. Accordingly Mr. Grant's amendment, from which the section is adapted, spoke of the development of territory.

The section is a recognition of the fact that the railways, being owned by the State, are in a different position to private companies. They are public institutions as well as business concerns, and may be worked, not merely for the purpose of making a profit on the railway business, but for the purpose of developing the resources of the State by which they are owned. Rates which, in the case of a company, would be preferential, might conceivably, from the point of view of a State, be necessary for the development of its territory; and the object of this section is to protect rates imposed with that object, whilst leaving unprotected any rate the purpose of which is to interfere with the equality of inter-state trade.

That public interests should be considered is the basis of all railroad legislation. It has been laid down in numerous American cases that railways are public highways, and subject to government control (see Smyth v. Ames, 169 U.S. 466; Cherokee Nation v. Kansas R. Co., 135 U.S. 641). What this section recognizes is a particular exemption from control by the Federal Government, so far as is necessary for development of the resources of the States.

A curious analogy to this provision may be found in the (Imperial) Railway and Canal Traffic Act, 1888, sec. 27, sub-sec. ii., which empowers the court or the Commissioners, in deciding whether a lower charge or difference of treatment is an undue


  ― 922 ―
preference, to take into consideration whether the lower charge or difference is “necessary for the purpose of securing in the interests of the public the traffic in respect of which it is made.” (See p. 906 supra.)

The question, whether a rate is necessary for the development of the territory of a State, is one of fact, to be decided in each case as it arises by the constitutional tribunal. The test of the legality of such a rate is its necessity. Not every rate which does as a fact develop or tend to develop a territory will be valid. It must have something more than a mere developing effect to place it beyond attack. It must not be merely “for the development,” but “necessary for the development;” and the Commission, not the State authority, is the sole judge of that necessity. Consequently a State could not under the name and guise of a development rate make a charge for the carriage of goods on a railway which is not fairly and reasonably essential for developmental purposes, but which is in reality intended to act as a preference or to draw trade and traffic from its natural flow and destination.

The “territory” contemplated by this section is no doubt that region of the State within the sphere of influence of the railway on which the rate is operative. The development of localities beyond that sphere could not be taken into consideration.

§ 438. “If the Rate Applies Equally.”

The section of the Railway and Canal Traffic Act, 1888, just mentioned, contains the following proviso, which makes the analogy even more marked:—“Provided that no railway company shall make, nor shall the court or the Commissioners sanction, any difference in the tolls, rates, and charges made for, or any difference in the treatment of, home and foreign merchandise, in respect of the same or similar services.” Just as, in New South Wales, complaint has been made of the “special rates” by which the Riverina trade is drawn to Melbourne, so in England complaints were made of “special import rates” for foreign merchandise. The difference was that in England the complaint was made by the rival home producers, who objected to the encouragement of the imported article; here it is a complaint, by the merchants of one State, against unfair competition by another State for the export trade.

Under the English section, it has been held that the effect of the proviso is not to prohibit all inequalities in rates as between home and foreign merchandise, but that, if the railway company has proved facts which would justify the admitted differences, had the goods in both cases been home goods, the company is not debarred from relying on these facts as an answer, merely because the goods which receive the benefit of the difference of are foreign origin. (Mansion House Association v. London and S.W.R. Co. [1895], 1 Q.B. 927.)

The effect of the provision is that, if a rate infringes the provision of equality as between States, it loses the protection of this section, and becomes subject to the operation of federal laws as to preference and discrimination.

Taking over public debts of States.

105. The Parliament may take over439 from the States their public debts as existing at the establishment of the Commonwealth440, or a proportion thereof according to the respective numbers of their people as shown by the latest statistics of the Commonwealth, and may convert, renew, or consolidate such debts441, or any part thereof; and the States shall indemnify the Commonwealth442 in respect of the debts taken over, and thereafter the interest payable in respect of


  ― 923 ―
the debts shall be deducted and retained from the portions of the surplus revenue of the Commonwealth payable to the several States, or if such surplus is insufficient, or if there is no surplus, then the deficiency or the whole amount shall be paid by the several States443.

UNITED STATES.—All debts contracted and engagements entered into, before the adoption of this Constitution, shall be as valid against the United States under this Constitution as under the Confederation —Const., Art. VI, sec. 1. (This refers to the war debt of the Confederation—not to the debts of the States.) CANADA.—Canada shall be liable for the debts and liabilities of each Province existing at the Union.—B.N.A Act, 1867, sec. 111. (The Provinces were made liable to Canada for the amounts by which their indebtedness exceeded certain specified amounts.—Secs. 112–116.)

HISTORICAL NOTE.—The original clause in the Bill of 1891 was as follows:—

“The Parliament of the Commonwealth may, with the consent of the Parliaments of all the States, make laws for taking over and consolidating the whole or any part of the public debt of any State of States, but so that a State shall be liable to indemnify the Commonwealth in respect of the amount of a debt taken over, and that the amount of interest payable in respect of a debt shall be deducted and retained from time to time from the share of the surplus revenue of the Commonwealth which would otherwise be payable to the State.”

In the Sydney Convention of 1891, Sir John Bray moved an amendment, somewhat on Canadian lines, to make the Commonwealth liable at once for the debts of each State existing at the time of union, and to make the States liable to the Commonwealth for any excess of such debts over a fixed amount per head of the population. Most of the members favoured ultimate consolidation, but this was thought to go too far. The points in its favour were that it would get rid of the dangerous surplus, and result in a large saving of interest; the chief point made against it was that it involved the transfer of a liability without corresponding assets. The last argument was answered by pointing out that the revenue powers of the Commonwealth were the equivalent asset; but the real objection, from the point of view of New South Wales, was that the proposal might dictate a high revenue tariff. The amendment was negatived. A protest was made against requiring the consent of “all the States,” but the clause was passed without alteration. (Conv. Deb., Syd., 1891, pp. 835–49.)

Adelaide Session, 1897.—The clause as introduced at Adelaide provided that the Parliament might, with the consent of the Parliament of any State, take over the whole or any part of the debt of that State. The rest of the clause was as before, with an addendum that “upon any conversion or renewal of the loan representing the debt, any benefit or advantage in interest or otherwise arising therefrom shall be applied to the reduction of the debt.” There was much diversity of opinion upon the whole subject. Mr. Reid had nothing to say, so long as no compulsory proposition was made. Sir George Turner would have liked a compulsory taking over of all the debts, but in view of Mr. Reid's strong objection he did not press this. Still, he thought that the power should be to take all the debts of all the States, and he objected to the consent of the States being required. Mr. Holder and Mr. McMillan pointed out that compulsory consolidation meant making a present of the federal security to the bondholders; but they approved of giving the Parliament power to act without the consent of the States. Some thought that the power should be limited to existing debts; others that it ought to extend to future debts; some thought that future State borrowing should be restricted; others that this was impossible.

Eventually, on Sir George Turner's motion, the requirement of the consent of the State Parliaments was omitted, on division, by 20 to 15, and the power was limited to “the whole, or a rateable proportion of the public debts of the States as existing at the establishment of the Commonwealth.” The provision requiring any savings made to be spent in reduction of interest was negatived, and Mr. Higgins added a declaration that


  ― 924 ―
the “rateable proportion” should be calculated on a population basis. (Conv. Deb., Adel., pp. 1085–1103.)

Melbourne Session, 1898.—At Melbourne, Mr. Glynn moved an amendment providing for compulsory consolidation of debts, each State indemnifying the Commonwealth for any excess of its debts over the average indebtedness. This, after a long debate, was negatived.

Mr. Holder (for Mr. McMillan) then moved (Debates, p. 1577) to insert, after “Parliament,” the words “may take over the whole or any part of the debt of the State, subject to the consent of the State.” On this Sir Geo. Turner moved the substitution of “shall” for “may,” which was carried by 25 votes to 8; a division which, coming as it did after the rejection of the guarantees, signified a desire on the part of the Convention to make some definite provision with regard to the threefold problem of the debts, the railways and the guarantees. Mr. Holder lamented this “unfortunate vote” on the ground that it would at least put our worst securities on a level with our best, and would make a present of millions to the bondholders; whilst Mr. Reid (who had been absent when the vote was taken) objected on the ground that it dictated a high tariff. The Convention, after some debate, showed a disposition to reverse the effect of its vote. The amendment was consequentially amended by the omission of all words after “shall take over;” but the proposal to insert these words in the clause was negatived, on division, by 19 to 18, and the clause was agreed to without any amendment. (Conv. Deb., Melb., pp. 1540–1653.) Drafting amendments were made before the 1st Report, and after the 4th Report.

§ 439. “The Parliament May Take Over.”

The power given to the Parliament by this section is absolute, and may be exercised without the consent of the States. The power can of course only be exercised under an Act passed by the Parliament for that purpose. Such an Act will presumably not be passed so as to effect the transfer itself, or even so as to direct absolutely that the transfer shall be made; as either of these courses would be open to the objection raised by Mr. Holder to a peremptory provision in the Constitution—namely, that it would make a present of the federal security to the bondholders, and so prevent any possibility of an advantageous conversion before maturity. It will probably be in an enabling form, authorizing the Federal Treasurer to negotiate with the bondholders, and so offer them the federal security in exchange for some concession which will share the benefits of the transfer between the Commonwealth and the bondholders.

The effect of the transfer will be to substitute the credit of the Commonwealth for the credit of the States—to make the Commonwealth the debtor to whom the bondholders will have to look, and to release the States from any obligation to the bondholders, imposing on them instead an obligation to indemnify the Commonwealth for the amount of principal and interest.

§ 440. “Their Public Debts as Existing at the Establishment of the Commonwealth.”

The Parliament, when it takes action under this section, will have two alternatives open to it; either to take over the whole of the debts of all the States, as existing at the time of the establishment of the Commonwealth, or to take over from each State a certain definite sum per head of its population. If it chooses to adopt the latter course, it may fix the per capita indebtedness to be taken over at any amount up to, but not exceeding, the per capita indebtedness of the State whose per capita indebtedness is lowest. In other words, all the possible alternatives may be expressed thus:— If the public debt of each State is divided by the number of its people, we get the per capita indebtedness of each. The result, taking the figures for 1900 (Coghlan's Statistics of the Seven Colonies, 1900, p. 25) is as follows:—




  ― 925 ―

                 
Colony.  Public Debt.  Indebtedness per capita. 
£  £  s.  d. 
New South Wales  65,332,993  48 
Victoria  49,324,885  42 
Queensland  34,349,414  70 
South Australia  26,156,180  70  16 
Western Australia  11,804,178  66  11 
Tasmania  8,413,694  46 
Total  £195,381,344  £52  10 

The minimum indebtedness per head of population is that of Victoria, £42 4s. 6d. Adopting the “proportional” alternative, the Commonwealth may take over from each State any amount per head that may be decided upon, up to £42 4s. 6d. Beyond that sum the proportional plan cannot go, because no greater amount can be taken over from Victoria; and if it is desired to take over a larger amount, the only way is to take over the whole of all the debts.

It should be observed that in calculating the indebtedness per head, though the amount of the debts is taken as at the establishment of the Commonwealth, the population is taken from “the latest statistics of the Commonwealth” at the time when the transfer is proposed. The powers given to the Commonwealth, if the whole debts are not taken over at first, may be exercised from time to time; that is to say, if a proportion less than the maximum has been taken over at one time, a further proportion may be taken over at another; or the whole balance may be taken over.

This section gives no power except with regard to debts “as existing at the establishing of the Commonwealth.” After the establishment of the Commonwealth there is nothing to prevent the States continuing to borrow on their own credit; but there is no provision in the Constitution to allow the Commonwealth to assume liability in respect of such subsequently incurred debts.

The question arises whether, in the event of any debt of a State falling due and being renewed before the debts are taken over, such renewed debt can be taken over by the Commonwealth under this section. It is submitted that it can; and that the effect of the words “as existing at the establishment of the Commonwealth” is to fix the amount of the debts which can be taken over, and not to identify the particular contracts of debt existing at that time.

§ 441. “And may Convert, Renew, or Consolidate such Debts, or any Part thereof.”

These words were inserted on Sir George Turner's motion at the Adelaide Convention (Debates, p. 1097; Proceedings, p. 99); but they hardly seem to be necessary. The powers of conversion, renewal, and consolidation would seem to be necessarily incidental to the power to take over the debts—or at least to be included in the power to borrow money on the public credit of the Commonwealth (sec. 51—iv).

§ 442. “The States shall Indemnify the Commonwealth.”

The indemnity here given seems, by the subsequent words, to be limited to the principal and interest payable by the Commonwealth, and not to include charges other than interest, or the expenses of administration, which are apparently to be treated as expenditure of the Commonwealth, and charged against the States (so long as sec. 89 or sec. 93 is in operation) in proportion to population.




  ― 926 ―

§ 443. “Shall be Paid by the Several States.”

It would seem that the indemnity, coupled with the direction that the amount shall be paid, is sufficient to create a debt owing by the State to the Commonwealth. The Constitution contains no provision for the recovery of this debt, and the States, apart from legislation, are not suable except by their own consent (§ 338, supra); but it is submitted that a suit by the Commonwealth for payment, being a matter “in which the Commonwealth is a party,” is within the judicial power, and therefore that the Federal Parliament may, under sec. 78, make laws conferring rights to proceed against the States in such matters.

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