The Doctrine of Immunity of Instrumentalities in The United States and Australia: A Comparative Analysis

THE DOCTRINE OF IMMUNITY OF
INSTRUMENTALITIES IN THE UNITED STATES AND

AUSTRALIA: A COMPARATIVE ANALYSIS
By RONALD SACKVILLE*
I INTRODUCTION
The High Court has often considered the extent to which governments in
the Australian federal system, State and Commonwealth, are immune from
regulation by each other. In doing so, the Court has repeatedly paid close
attention to the approach for the time being of the Supreme Court of the
United States to similar problems. 1 Yet even if, as has been suggested, 2
the High Court has never regarded the Supreme Court's approach as
influential of itself, but as merely providing support for conclusions inde-
pendently reached, a comparison of the doctrines formulated by the two
Courts is useful. A governmental claim to immunity raises analogous issues
for each Court: it is a direct clash between the components of the federal
structure, with the court acting as arbiter and facing sharply focussed
questions as to the nature of federalism and, more particularly, its own
role within the structure. A comparative analysis may not only permit an
evaluation of the respective doctrines in the field of governmental immu-
nities, but may also shed some general light upon the institution of judicial
review in Australia.
The aim of this paper is to trace the fluctuating fortunes of the implied
immunity doctrine in both countries and, in particular, to examine critically
the foundations of the present Australian doctrine in view of the American
experience. It will be contended that the High Court has, for the most part,
seemed not to appreciate fully the extent of and the reasons for the pro-
gressive minimization of the doctrine in the United States. The Supreme
Court has reconsidered the legitimacy of actively invalidating legislation
on the basis of preconceived notions as to the character of federalism and
has, in general, closely examined the practical operation of the doctrine.
The High Court, in the other hand, has revived the use of implications to
* LL.M. (Yale), LL.B. (Hons) (Melb.); Barrister and Solicitor of the Supreme Court
of Victoria.
1 Compare the judgments of Starke and Dixon n. in Melbourne Corp. v. The
CommonweaZ.th (the State Banking Case) (1947) 74 C.L.R. 31, 70-75, 80-81, with that
of Isaacs J. III Amalgamated Society of Engineers v. Adelaide Steamship Co. Ltd
(the Engineers' Case)(I920) 28 C.L.R. 129, 146-48. See infra p. 41, n. 45; p. 59, nn. 31-38.
For a general survey of the use of Supreme Court precedents in the High Court
see Sawer, 'The Supreme Court and the High Court of Australia' (1957) 6 Jour-
nal of Public Law 482, 502-07. Australian constitutional decisions have had virtually
no influence on the Supreme Court, largely because of that Court's huge reservoir
of constitutional precedent. Note, however, Frankfurter J.'s references (somewhat
inaccurate) to Australian decisions designed to support his view that the scope of
implied governmental immunity should be narrowed. Graves v. New York ex rei.
O'Keefe (1939) 306 V.S. 466, 491; New York v. United States (1946) 326 V.S. 572,
583.
2 Sawer, 'The Supreme Court and the High Court of Australia' (1957) 6 Journal
of Public Law 482, 486.
15
16 Melbourne University Law Review [VOLUME 7
justify the striking down of legislation, without, it is respectfully submitted,
always analysing thoroughly the basis of the implications drawn nor their
impact upon the workings of government.
11 THE CONSTITUTIONAL STRUCTURES

It has been said that the governmental structures of both the United
States and Australia are founded upon the principles of 'constitutionalism
and federalism,.a The first principle is seen in the adoption and acceptance
of a written constitution4 which creates the various branches of national
government, authoritatively defines the organization and respective spheres
of power of each branch and expressly prohibits the exercise of govern-
mental power in certain areas. The second is seen in the grant to the
federal government of specific, enumerated powers and the retention by
the States of all powers not granted exclusively to the national government
nor otherwise expressly withdrawn from them. 5 A third common principle
is that. in case of conflict between an exercise of national power and of
State power, the former prevails. 6 There are of course major differences
as well,' but these do not detract from the utility of a comparative study
of significant constitutional doctrine.
A necessary prerequisite to such a study is some understanding of the
manner in which judicial review has functioned in each system. Although
the propriety of judicial review has been hotly debated in the United
States from the very beginning, 8 the fact is that both the Supreme Court
and the High Court do exercise the power of review over federal and
a Kadish 'Judicial Review in the High Court and the United States Supreme Court'
(1959) 2 M.U.L.R. 4, 5.
4 The preamble to the United States Constitution finds the source of the constitu-
tion in a compact of the people. The Australian Constitution, on the accepted view,
derives force from enactment by the Imperial Parliament, as a Schedule to the Com-
monwealth of Australia Constitution Act 1900, 63 & 64 Vict. C. 12. However, the
Australian Constitution is as effective a body of fundamental law as the American
Constitution, notwithstanding formal differences as to the source of authority.
5 The Tenth Amendment to the United States Constitution provides that '(t)he
powers not delegated to the United States by the Constitution, nor prohibited by it
to the States, are reserved to the States respectively, or to the people'. Ss 106 and 107
of the Commonwealth Constitution together provide that the constitution of each
State shall, subject to the Commonwealth Constitution, continue to operate and that
every power of a State Parliament shall continue unless exclusively vested in the
Commonwealth or withdrawn from the State.
6 This proposition is a necessary inference from the terms of the supremacy
clause, Art. VI of the United States Constitution, which provides: 'This Constitution,
and the Laws of the United States which shall be made in Pursuance thereof . . .
shall be the supreme Law of the Land; and the Judges in every State shall be bound
thereby, any Thing in the Constitution or Laws of any State to the contrary notwith-
standing'. The proposition is expressly spelled out in s.109, Commonwealth Consti-
tution.
7 Two of the most obvious differences are perhaps the principles of responsible
government and common sovereignty of the Crown, so heavily relied upon by
Isaacs J. in the Engineers' Case to justify the rejection of American constitutional
authorities, (1920) 28 C.L.R. 129, 146. Infra p. 41, n. 45. There are other distinctions
not important for our purposes. Thus the Commonwealth Constitution, unlike its
American counterpart, has no Bill of Rights, although several sections have a Bill of
Rights flavour, e.g. ss. 51 (xxxi), 80, 116 and 117.
8 The debate continues today. For contrasting views see Black, The People and the
Court (1960); Bickel, The Least Dangerous Branch (1962).
MAY 1969] Immunity of Instrumentalities 17
State legislation. 9 However, there is a divergence of attitudes towards the
task of constitutional adjudication, the contemporary Supreme Court
manifesting, as Professor Kadish puts it,'° 'a self-consciousness in the
face of ... power which finds no parallel in the High Court'. This is seen
in the comparative lack of deference accorded to the legislature by the
High Court l l and its failure to develop techniques such as those permitting
the Supreme Court to exercise its power of review selectively.'2 It is, of
course, quite true that the Supreme Court, especially since 1954, has been
anything but reticent in eliminating what it considers to be unjustifiable
government-sanctioned invasions of civil liberties. '3 However, it is fair to
9 The Supreme Court asserted its power to review federal legislation in Marbury
v. Madison (1803) 1 Cranch. 137 and State legislation in Fletcher v. Peck (1810) 6
Cranch. 87. Judicial review was accepted as axiomatic in Australia from the outset.
See Dixon, 'Marshall and the Australian Constitution' (1955) 29 Australian Law Jour-
nal 420, 422·23, 425. For a latterday attempt to raise doubts about the legitimacy of
judicial review in Australia see Lane, 'Judicial Review or Government by the High
Court' (1966) 5 Sydney Law Review 203.
10 Kadish, 'Judicial Review in the High Court and the United States Supreme
Court' (1959) 2 M.U.L.R. 4, 9.
11 Kadish's comparison of the two Communist Party cases (Australian Communist
Party v. The Commonwealth (1951) 83 C.L.R. 1; Dennis v. United States, (1945)
341 U.S. 494) and his analysis of cases dealing with the defence power. Kadish,
'Judicial Review in the High Court and the United States Supreme Court' (1959) 2
M.U.L.R. 4, 9, 16-18. For a criticism of the approach of the High Court in the Com-
munist Party Case see McWhinney, Judicial Review in the English Speaking World
(1960) 81-90. The most insistent judicial exponent of the need for deference to the
legislature in the United States was Frankfurter J. See Frankfurter, 'John Marshall
and the Judicial Function' (1955) 69 Harvard Law Review 217 and, in the present
context, his opinion in New York v. United States (1946) 326 U.s. 572, 581.
12 Although the High Court will not render advisory opinions as such, In re
Judiciary and Navigation Acts (1921) 29 C.L.R. 257, the generous use of the declara-
tory remedy, when combined with the doctrine that a State or Commonwealth
Attorney-General may challenge the constitutionality of legislation, results in the
High Court giving, in effect, an advisory opinion without a concrete set of circum-
stances being put before it. See, e.g. Attorney-General (Victoria) v. The Common-
wealth (the Pharmaceutical Benefits Case) (1945) 71 C.L.R. 237; Attorney-General
(Victoria) v. Attorney-General (Commonwealth) (1962) 107 C.L.R. 529; Foster, 'The
Declaratory Judgment in Australia and the United States' (1957-1958) 1 M.U.L.R.
207, 347. The acceptance of this doctrine means that the limitations placed upon
the States as constitutional litigants by Massachusetts v. Mellon (1923) 262 V.S. 447,
have no place in the Australian constitutional framework.
Again, although the High Court does accept certain minimal limitations upon the
right of litigants to secure an adjUdication of the constitutionality of legislation,
Anderson v. the Commonwealth (1932) 47 C.L.R. 50 (the Australian counterpart of
Frothingham v. Me/Ion (1923) 262 U.S. 447); Australian Boot Trade Employees'
Federation v. The Commonwealth (1954) 90 C.L.R. 24, it has no counterpart to the
doctrine of the political question employed by the Supreme Court to avoid passing
on delicate issues. See Scharpf, 'Judicial Review and the Political Question: A Func-
tional Analysis' (1966) 75 Yale Law Review 517. Nor is the High Court able, in
constitutional cases, to regulate its calendar in the way the Supreme Court can by
means of a denial of a petition for ceritorari-that is to say, only a small percentage
of constitutional cases reach the Supreme Court as of right. Note that Frothingham
v. Me/Ion has now been at least partially overturned: Flost v. Cohen (1968) 392
V.S.83.
13 Quite apart from 'civil rights' cases, which more recently have concerned the
validity and interpretation of federal legislation protecting civil rights (e.g. Heart of
Atlanta Motel v. United States (1964) 379 V.S. 241) the Supreme Court has gone to
remarkable lengths in its interpretation of constitutional protections, including the
application of most of the provisions in the Bill of Rights (the first ten Amend-
ments) to the States through the Fourteenth Amendment 'due process' clause. See
e.g. Gideon v. Wainwright (1936) 372 V.S. 335 (indigent defendant charged with
felony constitutionally entitled to court-appointed counsel); Miranda v. Arizona
say that the Court's activism has been concentrated in the civil liberties
field and its approach to constitutional adjudication outside this field
continues to support Professor Kadish's analysis.
Undoubtedly the continuing controversy in the United States concerning
the propriety of the institution of judicial review has made the judges of
the Supreme Court more keenly aware of acting as a 'counter-majoritarian
force'I4 and encouraged them to use their power with restraint. The
absence of such a controversy in Australia has perhaps contributed to the
High Court's readiness to impose its view of the nature of the federal
structure upon the other branches of government. Another factor account-
ing for the divergence in the approach of the two Courts (or perhaps
another manifestation of it) has been the nature of the task that the
respective members see themselves as performing. The High Court seems
to accept that constitutional problems are capable of resolution by the
application of strictly 'legal' techniques without analysing considerations of
social or political policy, at least openly.I5 On the other hand, the Supreme
Court, since retreating from its anti-welfare legislation stance of the first
third of this century, has been prepared to acknowledge its creative policy-
making role. 16 It may well be that the High Court is not as unaware of the
political implications of the cases before it as some might suggest; never-
theless it is certainly less willing to evaluate the policy alternatives outside
the framework of precedent than is the Supreme Court. The divergent atti-
tudes emerge clearly from a study of the checkered career of the doctrine
of immunity of instrumentalities in each country.
(1966) 384 V.S. 436 (failure to warn suspect of his right to silence, court-appointed
counsel etc., prior to interrogation is violation of privilege against self incrimination).
The most remarkable extension of the power of judicial review has been made in
the 'apportionment' cases: Baker v. Carr (1962) 369 V.S. 186; Wesberry v. Saunders
(1964) 376 V.S. 1. But these decisions, too, can be regarded as within the category
of 'civil liberties' cases.
14 Bickel, The Least Dangerous Branch (1962), 16.
15 See the remarks of Sir Owen Dixon on his appointment as Chief Justice (1952)
85 C.L.R. xiii. For a criticism of the 'legal positivism' used by the High Court in
some of the landmark constitutional cases see McWhinney, op. cit. ch. iv. See also
Freund, 'A Supreme Court in a Federation: Some Lessons from Legal History'
(1953) 53 Columbia Law Review 597. For a good judicial example see Airlines of
N.S.W. v. New South Wales (1965) 113 C.L.R. 54, 120-21 per Kitto J. cited in
Sawer, 'The Constitution and Federalism' in Mayer, Australian Politics (2nd ed.
1967) 96.
16 In turn, without pretending to an exhaustive analysis, a variety of other circum-
stances may assist in explaining the difference in judicial approach. High Court
judges are appointed virtually exclusively from the ranks of practising barristers,
whereas Supreme Court appointees are drawn from many sources, including the
law schools and Congress. The High Court, because of its position as a general
court of appeal, is not mainly a constitutional court, a factor perhaps accounting
for its failure to develop a distinctive technique of constitutional adjudication. Fur-
thermore, the High Court rarely deals with issues arousing much popular agitation,
avoiding in particular, the contentious field of civil liberties. When it has dealt with
such issues-e.g. in the Bank Nationalization and Communist Party Cases-it has
come out on the side of the electorate as revealed in subsequent elections or re-
ferenda. Consequently the High Court has not received the close and crtical public
attention that the Supreme Court has attracted, maintaining the air of a tribunal
dealing with specialized legal problems beyond the ken of the layman. See Sawer,
'The Supreme Court and the High Court of Australia' (1957) 6 Journal of Public
Law 482, 488.
MAy 1969] Immunity of Instrumentalities 19
III THE DOCTRINE OF IMMUNITY OF INSTRUMENTALITlES:
THE UNITED STATES.
1. Formulation of the Doctrine
McCulloch v. Maryland! 7 is regarded as the foundation stone of the
broad doctrine of implied governmental immunities which, until well into
this century, severely limited the exercise of both State and federal power
in the United States. The action was brought by the State of Maryland
against a cashier of the Baltimore branch of the Bank of the United States
to recover penalities imposed by a State statute for the issue of bank notes
without the payment of specified taxes. It was held that the Bank was a
validly created instrumentality of the United States!8 and that the States
lacked the power to levy a tax upon it.
It is quite clear that the case could have been decided on very narrow
grounds for, on any view, the tax levied by Maryland on the Bank was
'destructive and discriminatory'.!9 It was not a general tax to be paid by
the Bank in common with all other commercial enterprises,20 but was
plainly a tax designed to drive the Bank out of Maryland because of the
disasters that had resulted from its operations there. 21 Such a tax can be
declared unconstitutional without the use of broad doctrine, either on the
ground that the federal structure does not permit one government to seek
actively to destroy the instrumentalities of the other or, preferably, on the
ground that the State tax is inconsistent with the federal legislation estab-
lishing the Bank. However, Marshall C.J. laid down a broad rule that the
States had no power to tax, however lightly, any instrumentality employed
by Congress to execute its powers,22 arguing on two levels. First, the
sovereign powers of the State did not extend to the powers conferred on
the federal government by the people of the United States. While the
States had authority to tax their own people, they had never possessed
the authority to tax the instrumentalities created by the government of the
people of all the States. 23 Secondly, since in the words of Marshall Cl's
most famous dictum, 'the power to tax involves the power to destroy' and
since if the States could tax one federal instrumentality they could tax all,
to permit the States to tax the Bank would make the federal government
dependent upon the States. 24 Such a state of affairs was inconsistent with
the supremacy of the federal government established by the Constitution. 25
17 (1819) 4 Wheat. 316.
18 Congress was said to have power to incorporate a bank under the 'necessary
and proper' clause, Art. 1, §8, corresponding to the incidental power in s.51 (xxxix).
19 Black, Perspectives in Constitutional Law (1963) 44.
20 ct. Marshall's dictum that the opinion 'does not extend to a tax paid by the
real property of the bank, in common with the other real property within the State
.. .' (1819) 4 Wheat 316, 436. This dictum has not been sound since Van Brocklin
v. Tennessee (1886) 117 V.S. 151.
21 Warren, The Supreme Court in United States History (1928) 505-06.
22 (1819) 4 Wheat. 316, 429.
23 Ibid. 428-30. Compare the reasoning of Dixon c.J. in In re Richard Foreman &
Sons Pty Ltd; Uther v. F.C.T. (1947) 74 C.L.R. 508 and The Commonwealth v.
Cigamatic Pty Ltd (1962) 108 C.L.R. 372. Infra pp. 60-63, nn. 38-55.
24 (1819) 4 Wheat 316, 430-32.
25 'The question is in truth a question of supremacy; and if the right of the States
Although Marshall C.J. held the State tax unconstitutional and not
merely inconsistent with paramount federal legislation, the supremacy of the
federal government lay at the heart of his reasoning. 26 The issue as he saw
it was whether the States should have the power to destroy the national
government that had been declared supreme by the Constitution. It is to
read the gloss of later doctrinal developments into the reasoning of Marshall
c.J. to suggest that his opinion shows clearly that '[i]t is the Court's function
to preserve the federal system by striking down such exercise of the taxing
power by either sovereign as will hamper, impede or destroy the other'.27
There is nothing in the opinion to suggest that the result would have
been the same had it been a State instrumentality being subjected to federal
taxation, and, indeed, there are statements clearly indicating that the
contrary is true. 28
The first extension of McCulloch v. Maryland was made by Marshall C.J.
himself in Weston v. Charleston,29 in which a city property tax was held
invalid insofar as it applied to United States bonds. The step thus taken
from McCulloch was a large one, as the tax in Weston was in no way
discriminatory, applying generally to personal property; nor was it levied
on a government instrumentality but on the individual owning the bonds. 30
Marshall C.J. reasoned that the borrowing of money was an essential gov-
ernmental function and the taxing of the contract was a burden on the
exercise of that function by the supreme authority, bearing in mind that the
power to tax was the power to destroy.31 Consequently the case was one
for the application of the McCulloch principle that
the states have no power, by taxation, or otherwise, to retard, impede,

burden, or in any manner control, the operations of the constitutional laws
enacted by Congress, to carry into execution the powers vested in the general
government. 32
Logically, if the property tax in Weston were a burden on the execution

of the powers of the federal government so were many State taxation
measures. 33 This was borne out by Dobbins v. Erie County 34. in which a
general county tax on 'all offices and posts of profit' was held invalid in
to tax the means of the general government be conceded, the declaration that the
constitution and the laws made in pursuance thereof, shall be the supreme law of
the land, is empty and unmeaning declamation'. Ibid. 433.
26 Ibid. 426, 427, 429, 431, 432, 433, 434, 436.
27 Roberts, The Court and the Constitution (1951). Author's italics.
28 Infra p. 21. 29 (1829) 2 Pet. 449.
30 See the dissenting judgment of Thompson J., ibid. 479-80.
31 Ibid. 449, 466-69. 'If the right to impose the tax exists, it is a right which in its
nature knows no limits.' Ibid. 466.
32 (1819) 4 Wheat. 316,436.
33 Several cases in the 1860s applied the principle of Weston v. Charleston. See
Bank of Commerce v. New York City (1863) 2 Black 620; Ban~ ~ax Case (1864) 2
Wall. 200; Bank v. Supervisors (1868) 7 Wall. 26. In 1868 the pnnclple was extended
to certificates of indebtedness issued to government contractors; The Bank v. The
Mayor (1868) 7 Wall. 16.
34. (1842) 16 Pet. 435.
its application to a captain of a United States revenue-cutter because it
interfered with a means by which the United States executed its powers to
levy taxes and regulate commerce. An alternative ground for the holding
was that the tax diminishing the remuneration of the officer was inconsistent
with the law establishing the remuneration. This ground is of course not
without interest in the Australian context.
The doctrine at this stage, although broad, was confined to shielding
federal instrumentalities from potential destruction at the hands of the
States. In each of the three cases the supremacy of the United States had
been stressed as a vital factor in the granting of the immunity; indeed, in
Dobbins an alternative ground for the decision was the inconsistency of the
State tax with federal legislation. In McCulloch Marshall c.J. had expressly
differentiated between State taxation of a federal bank and federal taxation
of a State bank on the ground that in the latter case the people of all
States and the States themselves were represented in Congress, which
therefore, was merely taxing its own 'constituent'. On the other hand, a
State, when it taxed a federal instrumentality, was taxing an institution
created not merely by its own citizens but by others as well for the benefit
of all of them. 35 Notwithstanding this, Collector v. Day 36 'applied' Dobbins
in order to strike down a general federal income tax levied on the salary
of a State judge. To the argument that the supremacy of the federal
government was a key factor in the earlier decisions, Nelson J. replied
that the federal government was supreme only within its appropriate
sphere, while the States were just as supreme within their 'reserved sphere'.
And since the power to tax was the power to destroy in each case, the
two governments were in a position of equality as to the immunity of
their respective instrumentalities from taxation by the other government.
The immunity doctrine was now reciprocal, although this was not achieved
without a telling dissent from Bradley J. who observed, with much force,
that '[n]o man ceases to be a citizen of the United States by being an officer
under the State government'.37
2. The Doctrine's Expand38

After Collector v. Day, 'Pandora's Box was open'.39 The persons within
the shelter of the reciprocal doctrine increased in numbers as the focus
of the Court shifted even further from determining whether there was an
actual burden placed on the exercise of governmental powers. The question
whether immunity was to be accorded was often answered by resort to
35 (1819) 4 Wheat. 316, 435. 36 (1870) 11 Wall. 113.
37 Ibid. 128. Further support was given to the principles of Dobbins v. Eire County
and Collector v. Day by the holding that State taxes could not be levied on land
owned by the United States. Van Brocklin v. Tennessee (1886) 117 U.S. 51. The
rationale was that the ownership of land was another means by which the govern-
ment could exercise its power. Ibid. 177-79.
38 Only the broadening of the doctrines of inter-governmental tax immunities will
be discussed here. Non-tax immunities will be dealt with later.
39 Black, Perspectives in Constitutional Law (1963) 45.
conceptual notions, such as the idea that a tax upon income is a tax upon
the source, supported by reference to the dictum of Marshall c.J. that the
power to tax was the power to destroy.40 For the Court to hold that there
was a burden on governmental functions it seemed necessary only that a
government appear somewhere in the picture, whether as lessor,41 pur-
chaser,42 the grantor of a patent,43 employer,44 borrower,45 or even share-
holder. 46 More often than not, the government itself was not claiming the
immunity, but rather individuals or corporations seeking relief from taxa-
tion were contending that relief was necessary for the protection of the
government. By acceding to such claims without questioning the standing
of private litigants to raise issues of governmental immunity the courts per-
mitted them to become the undeserved beneficiaries of the immunities
doctrine. By failing to consider the actual impact of the alleged burden on
governmental functions the courts were in fact depriving governments of
revenue while purporting to strengthen them.
Although, generally speaking, the expansion of the immunities doctrine
continued into the mid-1930s, the development was not completely un-
interrupted. It was decided that a State could not claim immunity from
taxation unless it was engaged in the exercise of a usual, traditional and
essential governmental function. 47 No similar distinction between the
40 Pollock v. Farmers' Loan & Trust Co. (1895) 157 V.S. 429, (1896) 158 V.S. 601
(a federal income tax on the interest derived from municipal bonds was invalid since
the principal, the source of the interest, was immune from taxation on the basis of
Weston v. Charleston (1829) 2 Pet. 449). Taxes on the income of lessees of federal
land, insofar as the income was derived from the land, were struck down on the
ground that a 'tax upon the leases is a tax upon the power to make them, and could
be used to destroy the power to make them'.
Indian Territory Illuminating Oil Co. v. Oklahoma (1916) V.S. 522, 530; Choctaw,
Oklahoma & Gulf R. R. Co. v. Harrison (1914) 235 V.S. 292; Gillespie v. Oklahoma
(1922) 257 V.S. 501; Burnet v. Coronado Oil & Gas Co. (1932) 285 V.S. 393, applied
the same principle to federal taxation of the income of a lessee of State lands.
41 See cases cited supra n. 40.
42 Panhandle Oil Co. v. Knox (1928) 277 V.S. 218 (Mississippi excise tax on the
sale of gasoline unconstitutional as applied to a sale to the Vnited States Coast
Guard); Graves v. Texas Co. (1936) 298 V.S. 393; Indian Motocycie Co. v. United
States (1931) 283 V.S. 570 (federal sales tax unconstitutional as applied to the vendor
of motorcycles to the State for use by police).
43 Long v. Rockwood (1928) 277 V.S. 142 (State income tax unconstitutional as
applied to royalties from patents or copyrights).
44 Government employees continued to enjoy the benefits of the doctrines of
Dobbins v. Erie County and Collector v. Day: New York ex rei. Rogers v. Graves
(1937) 299 V.S. 401 (General counsel of Panama Rail Road Company exempt from
State income tax as company was a federal instrumentality); Brusk v. Commissioner
of Int. Revenue (1937) 300 V.S. 352 (New York City engineer exempt from federal
income tax).
45 Pollock v. Farmers' Loan & Trust Co. (1895) 157 V.S. 429; (1896) 158 V.s. 601
(federal income tax invalid as applied to interest on municipal bonds); Northwestern
Mut. Life Ins. Co. v. Wisconsin (1927) 275 V.S. 136 (State tax on ~ll interest received
by insurance companies invalid as applied to interest from Vmted States bonds);
Macallan Co. v. Massachusetts (1929) 279 V.S. 620.
46 Callem County v. United States (1923) 263 V.S. 341 (County land tax invalid
as applied to a manufacturing corporation in which all stock was owned by the
Vnited States). Cf. Gromer v. Standard Dredging Co. (1912) 224 V.S. 362.
47 Thus a State could not claim an exemption from general federal taxes when
conducting non-essential functions: South Carolina v. United States (1905) V.S. 437;
Ohio v. Helvering (1934) 292 V.s. 360 (conducting liquor business); Helvering v.
Powers (1934) 293 V.S. 214 (operating street railway); Alien v. Regents (1938) 304
V.S. 439 (conducting sporting event).
government as a trader and as a sovereign was essayed in the case of the
federal government, the reasoning being that, since the federal government
was granted only specific powers by the constitution, every constitutional
exercise of these powers must be an essential governmental function.48
Another limit on the scope of the doctrine arose from several rulings
denying certain corporations and individuals the designation of government
instrumentalities.49 In addition there were a number of cases in which the
doctrine was not applied for no clear reason other than that a majority
perhaps realized that there was no realistic prospect of either government
being impeded in the exercise of its powers by the particular measure. 50
The difference between these cases and those where the doctrine was
applied, was often impossible to discern, although the Court attempted to
point to distinctions. 51 Furthermore, open dissent from the bases of the
immunity doctrine grew, led by Holmes J., who countered the dictum of
Marshall C.J. with another: '[t]he power to tax is not the power to destroy
while this Court sits'.52 It was this view that was soon to prevail.
The excessive reach of the immunity doctrine into the 1930s reflected
the character of American federalism, the politico-economic attitudes of
both politicians and judges and the related failure of the Supreme Court
to develop that self-consciousness in the face of power of which Professor
Kadish has spoken. 53 Until the New Deal period, although the scope of
federal power had gradually increased, 54 the American federal structure
was not dominated by the central government. The commerce and taxation
48 Note, (1946) 55 Yale Law lournal 805.
49 Powell, 'The Waning of Intergovernmental Tax Immunities' (1945) 58 Harvard
Law Review 633, 635 nn. 17-19.
50 See especially Metcalf & Eddy v. Mitchell (1926) 269 V.S. 514 (Non-discrimin-
atory federal income tax could validly apply to income received for work performed
on behalf of a State or local subdivision under a temporary contract). Flint v. Stone
Tracy Co. (1911) 220 V.S. 107, held that a corporate franchise tax could validly
include income received from government bonds. The decision, although not formally
overruled, was not followed in Northwestern Mut. Life Ins. Co. v. Wisconsin (1927)
275 V.S. 136, but was resurrected in Educational Films Corp. v. Ward (1931) 282
V.S. 379. In Willcuts v. Bunn (1931) 282 V.S. 216, an income tax on the profits
derived from the sale of municipal bonds was upheld on the ground that 'a transfer
of government bonds is not inseparably connected with the exercise of the Govern-
ment's borrowing power'. (1931) 282 V.S. 216, 229.
51 Succession taxes on gifts to the Vnited States and a municipality, respectively,
were upheld in United States v. Perk ins (1896) 163 V.S. 625, and Snyder v. Bettman
(1903) 190 V.S. 249, on the ground that the taxes were not levied directly on the
government bodies or their property, but were imposed upon the transmission of
property. Inheritance taxes measured partly by the amount of government bonds in
the estate were upheld in Plummer v. Coler (1900) 178 V.S. U5 and Greiner v.
Lewellyn (1922) 258 V.S. 384.
52 Panhandle Oil Co. v. Knox (1928) 277 V.S. 218, 223 (dissenting opinion); Long
v. Rockwood (1928) 277 V.S. 142 (dissenting opinion). However, Holmes 1's dictum
did not stand well with his earlier opinion in Gillespie v. Oklahoma (1922) 257 V.S.
501 which had struck down a State income tax as applied to income derived by a
lessee of Vnited States land from that land.
53 Supra n. 10. . .., .
54 E.g. Champion v. Ames (1903) 188 V.S. 321 (prOhIbItion of mterstate shipment
of lottery tickets held within interstate commerce power); Hoke v. United States
(1913) 227 V.S. 308 ('White Slave Traffic Act' forb!dd~ng the transJ?Ortation of wo~en
in interstate commerce for the purpose of prostitutIon held valId). Cf. cases cIted
infra p. 24, n. 55.
powers had not yet become the all-pervasive authority for far-reaching
social and economic legislation,s5 partly because the prevailing political
philosophy frowned upon excessive governmental interference in the affairs
of mankind. but mainly because such legislation was thought by the judges
to be outside the sphere of federal competence and within the reserved
power of the States. 56 The federal structure was still seen as a compact
between States that were 'sovereign' in a meaningful sense and not subject
to an all-powerful central government. The broad immunity doctrine was
a by-product of this view in that its premise was the notion that the States•
and federal government were equal partners. not to be impeded. actually
or potentially. in the exercise of their separate and distinct functions. Once
the premise became demonstrably erroneous. as a result of the growth of
federal control and largesse and the rejection of the idea that the States
possessed an inviolate. reserved sphere of power beyond the reach of the
federal government, the doctrine was necessarily doomed.
Having given its imprimatur of validity to the New Deal, the Supreme
Court's attitude to the institution of judicial review changed. Instead of
seeing its role as the mere legalistic comparison of the Constitution and
the text of the enactment. without consideration of the merits of the legis-
lation or the elective nature of its source,51 the Court clearly recognized
its policy-making role and the desirability of restraint. It is no coincidence
that until the change the Court was far less reluctant to invalidate legisla-
tion. both State and federal. than it has been since. In particular. the
immunity doctrine cases revealed the same judicial indifference to inter-
ference with the measures of elected legislatures and the same lack of con-
fidence in their ability to solve the problems of federalism as was apparent
elsewhere. Again it is no coincidence that when the Court modified its
view of the role of a constitutional court, it began to undercut the founda-
tions of the immunity doctrine.
55 Hammer v. Dagenhart (1918) 247 V.S. 251 (prohibition on interstate shipment of

goods produced in factories that employed children held invalid); Bailey v. Drexel
Furniture Co. (1922) 259 V.S. 20 (tax on factories employing child labour held
invalid). Carter v. Carter Coal Co. (1936) 298 V.S. 238. Cf. Wickard v. Filburn
(1942) 317 V.S. 111 (federal quotas on production of wheat held applicable to wheat
consumed on producing farm); Heart of Atlanta Motel v. United States (1964) 379
V.S. 241.
56 This was of course the ground upon which the New Deal legislation initially
foundered until the Supreme Court changed its mind, following Roosevelt's Court
packing plan and a slight, but adequate change in personnel. The cases, the plan
and the legislative sequel are conveniently summarized in Freund et al., Constitutional
Law-Cases and Other Problems (2nd ed. 1961) 243-45.
51 The classic statement is that of Roberts J. in United States v. Butler, (1936) 297
V.S. 1. 'It is sometimes said that the Court assumes a power to overrule or control
the action of the people's representatives. This is a misconception ... When an Act
of Congress is appropriately challenged in the Courts as not conforming to the con-
stitutional mandate the judicial branch of the Government has only one duty-to lay
the article of the Constitution which is invoked beside the statute which is challenged
and to decide whether the latter squares with the former. All the Court does, or
can do, is to announce its considered judgment upon the question . . . The Court
neither approves nor condemns any legislative policy.'
MAy 1969] Immunity of Instrumentalities 2S
3. The Waning of Intergovernmental Tax Immunities58
AlthQugh there were signs in the 1920s and even befQre. that the brQad
dQctrine Qf immunity Qf instrumentalities CQuld nQt Survive. the frQntal
assault did nQt CQmmence until 1937. IQng after the dQctrine had been
abandQned in Australia. The revised attitude was. as we have seen. a mQre
Qr less inevitable result Qf a basic change in the CQurt's nQtiQn Qf its rQle
in the federal structure. HQwever, in additiQn, there were particular features
Qf the applicatiQn Qf the dQctrine that invited specific attack. AlthQugh
designed to' prevent undue interference with the exercise Qf each gQvern-
ment's functiQns, the doctrine had expanded sO' far that private parties had
becQme the main beneficiaries. Within a few years, hQwever, very little Qf
it remained.
(a) State Taxation of the Federal Government and its Instrumentalities

In a series Qf cases the Supreme CQurt withdrew all but a very few Qf
the limits placed UPQn State-taxing PQwer by the immunity dQctrine; in
effect the Qnly prQhibitiQn remaining was where the fQrmal incidence Qf
the tax was actually 'Qn' the federal gQvernment. The States were per-
mitted to' tax federal CQntractQrs, lessees and emplQyees. even where it was
demQnstrable that the eCQnQmic burden Qf the tax WQuld pass to' the
federal gQvernment. The basis Qf this retreat was the eminently sensible
recQgnitiQn that, if the tax did prQve to' be an Qnerous burden Qn the exer-
cise Qf federal functiQns. the federal gQvernment possessed the means to'
protect itself by passing legislatiQn clothing, say, its contractQrs with im-
munity frQm State taxatiQn. In shQrt, the Supreme CQurt decided that the
prQper fQrum fQr determining the issue Qf immunity was CQngress and nQt
itself.59 The Qnly qualificatiQn to' this retreat was the requirement that the
States frame their legislatiQn carefully to' ensure that. in fQrm, the tax was
nQt levied 'Qn' the federal gQvernment.
(i) FEDERAL CQNTRACTORS
The immunity Qf CQntractQrs had never gQne as far as was IQgically PQS-
sible because Qf the hQlding in Metcalf & Eddy v. Mitchell 60 that a State
gQvernment CQntractQr was subject to' federal incQme tax. AlthQugh a case
Qf federal taxatiQn Qf a State CQntractQr, the reasQning Qf StQne J., to' the
58 PoweIl, 'The Waning of Intergovernmental Tax Immunities' (1945) 58 Harvard
Law Review 633.
59 The effect of some decisions was that the executive arm of the federal govern-
ment, in addition to Congress, had power in certain circumstances to decide the
issue of immunity. But the States could overcome this by aptly worded legislation.
Infra p. 27, nn. 69-70. As to Congressional power to grant and withhold immunity
see Carson v. Roane-Anderson Co. (1952) 342 V.S. 232 (upholding immunity accorded
to federal contractors by Atomic Energy Act); lames v. Dravo Contracting Co.
(1937) 302 V.S. 134, 161; Federal Land Bank v. Crosland (1923) 261 V.S. 374;
Pittman v. H.O.L.C. (1939) 308 V.S. 21.
60 (1926) 269 V.S. 514. Supra n. 50.
effect that a non-discriminatory tax could not be said to impair govern-
mental functions significantly merely because it, like all taxation, increased
the cost of government, .foreshadowed and directly influenced the later
cases dealing with federal contractors.
lames v. Dravo Contracting CO. 61 began the general assault on the gov-
ernmerit contractor's immunity by upholding the application of a State
gross receipts tax to a federal contractor. The reasoning of the Metcalf
Case was accepted and the earlier cases 62 sustaining the immunity were in
effect overruled as 'limited to their particular facts'. The Court accepted
that the implied limits upon State taxing power had to be given a practical
construction so as not to impair seriously the ability to raise revenue and
the opinion expressly adopted the proposition that it was not necessarily a
ground of invalidity that a tax increased governmental costS. 63 The old
argument that the power to levy a light tax was the power to levy an
oppressive one, was countered by reference to the congressional power to
immunize its agencies and contractors from State taxation. 64 The Court's
reluctance to interfere with State taxing powers was taken a step further in
Alabama v. King & Boozer/ s which upheld a State sales tax as applied to
the purchase of lumber by a contractor erecting an army camp pursuant to
a 'cost-plus' contract. The 'legal incidence' of the tax. it was said, was on
the person undertaking contractual liability for the price-the contractor-
and it was not to the point that the economic burden was passed on to the
federal government by contractual arrangement. 66 As in the Dravo Case
weight was placed upon the failure of Congress to exercise its power to
grant immunity.61
At one time it appeared that the executive arm of the federal govern-
ment could decide the issue of immunity by providing in, say, a building
contract that purchases of all materials should be made by the contractor
as agent for the government. title to the materials 10 pass directly to the
government. In such a case it was held that the legal incidence of a sales
tax was 'on' the United States and therefore invalid, although it was the
precise economic equivalent of the tax in King & Boozer. 68 However. a
compliant Supreme Court permitted the States to overcome this obstacle
to their taxing powers by measures that taxed the 'use' by federal contrac-
tors of government property. Thus, where Tennessee levied a tax on a com-
pany's 'privilege' to engage in the business of petrol storage. at the rate of
61 (1937) 302 U.S. 134. The United States participated as amicus curiae, urging
rejection of the contractor's claim to immunity. Powell, 'The Waning of Inter-
governmental Tax Immunities' (1945) 58 Harvard. Law Review 633, 637-40.
62 Cases cited supra n. 42. 63 302 U.S. 134, 160.
64 Ibid. 161.
65 (1941) 314 U.S. 1. In this case the United States argued for the immunity of
the contractor. 66 Ibid. 8-9.
61 Ibid. 8. A companion case to King & Boozer upheld a use tax on a government
contractor in respect of materials used by him in the performance of his cost plus
contract, as the tax was 'on' the contractor, not the United States. Curry v. United
States (1941) 314 U.S. 14.
68 Kern Limerick Inc. v. Scurlock (1954) 347 U.S. 110 (purchase of materials for
construction of ammunition depot).
MAy 1969] Immunity of InstrumentaZities 27
six cents per gallon stored, the tax was upheld, notwithstanding that the
company was storing government-owned petrol under a contract which
required the federal government to bear all State taxes. 69 Indeed, the
Supreme Court was actually prepared to correct a legislature's drafting
error in levying a tax upon government property instead of upon the
privilege of possessing it.70 The conclusion to be drawn from these cases is
that the presence of an independent contractor in a government transaction
permits the States to assess, in substance, exactly the same tax on the gov-
ernment-contractor transaction as if no government were involved. 71
(ii) FEDERAL LESSEES
The immunity of lessees of government (State or federal) land from tax

upon income derived from the land was discarded in 1938 on the ground
that such a tax could not be regarded as a substantial interference with
governmental functions.72 The present position is similar to that with
respect to federal contractors: not only is it true that government lessees
are not entitled to immunity, but if the State can find government land in
the hands of a lessee, it can recover taxes in respect of that land as if it
were privately owned. These taxes could not be levied if the United States
occupied, as well as owned the land. The magic formula is that the tax
must be levied on the lessee's privilege of using the land for private busi-
ness purposes. 73
(iii) FEDERAL EMPLOYEES
Given withdrawal of the immunity of government contractors and lessees

and rejection of the notion that a tax upon income is a tax upon the source,
it followed that a general State income tax on federal employees was valid.
69 Esso Standard Oil Co. v. Evans (1953) 345 V.S. 495. It was expressly found
that the tax was non-discriminatory. Ibid. 500.
70 City of Detroit v. Murray Corp. (1958) 355 V.S. 489. A city tax actually styled
a property tax, was assessed against the corporation based on the value of materials
in its factory, title to which materials had passed to the Vnited States. A majority
held the tax to be, in 'practical operation' not on the property itself, but on the
possession of it. The four dissenters, two of whom were prepared to join the
majority in companion cases involving taxes more obviously levied on the privilege
of possessing property, held the tax was what it said it was-a property tax-and
therefore invalid. See also United States v. Boyd (1964) 378 V.S. 39 upholding a
use tax as applied to an Atomic Energy Commission contractor using government
owned materials. The tax was specifically designed to replace a sales tax and to
overcome the Kern Limerick decision, supra n. 68. The Court referred to the express
repeal by Congress in 1953 of the immunity from State taxation previously accorded
commission contractors. Cf. Carson v. Roane-Anderson Co. (1952) 342 V.S. 232,
supra n. 59.
71 In a particular case there might be a question as to whether the interest of the
contractor in the government property is great enough to justify a tax on the full
value of the property. Note, 'The Supreme Court, 1957 Term' (1958) 72 Harvard
Law Review 96, 160. But the Supreme Court held even the insubstantial interest of
a bailee in possession of personal property sufficient in the Murray Corp. Case.
72 Helvering v. Mountain Producers' Corp. (1938) 303 V.S. 376.
73 United States v. City of Detroit (1958) 355 V.S. 446. This was a companion to
the Murray Corp. Case, upholding a State tax on the use by a private party of
exempt property at the same rates as if that party owned the property. The Vnited
States bore the burden of the tax as the lease provided that taxes were to be deducted
from the rental.
It was so held in Graves v. New York ex rei. O'Keefe74 the opinion stress-
ing that such a tax was a normal incident of the co-existence of two gov-
ernments, each with taxing power and, further, that any other view would
unduly restrict State taxing powers. 75
(iv) PROPERTY OF THE FEDERAL GOVERNMENT
The rule that a State cannot tax the property or activities of the United
States or its agencies has survived the demise of the broad doctrine of im-
munity of instrumentalities. It is quite clear, as has been discussed, that the
remaining immunity is of no real consequence where the federal govern-
ment permits its property to be placed in the possession of private parties. 76
The presence of such a party effectively permits the States to tax the pro-
perty of the United States unless Congress itself confers immunity or the
tax is discriminatory;77 the one case that might have proved an obstacle
to this has been distinguished out of existence. 78 Thus the United States
is effectively protected only when it occupies its own land or performs its
own tasks.
The rationale of the remaining immunity clearly cannot be a judicial
desire to protect the federal government from the economic burden of
general, non-discriminatory taxation. Such a hypothesis is inconsistent with
the Supreme Court's acceptance of taxes which, although formerly levied
upon private parties, are borne by the United States and with its emphasis
upon congressional power to insulate the instrumentalities of government
against taxation. There is certainly no economic reason why the federal
government more urgently requires protection from the Supreme Court
when it occupies land and performs activities itself, than when it utilizes
the services of private parties. Possibly the immunity may be justified as
resting upon a comity principle-it would not be consonant with the
74 (1939) 306 V.S. 466 (State income tax upon salary of employee of Federal
instrumentality, Home Owners' Loan Corporation).
75 Ibid. 487. It is interesting to note that the concurring opinion of Frankfurter J.
referred to the 'complete rejection' of the immunity doctrine in Australia in support
for his views. Ibid. 491.
76 Cf. United States v. Township of Muskegan (1958) 355 V.S. 484 (company
using government land pursuant to a mere permit in performance of cost-plus
contract held subject to use tax at rates based on full value of property).
77 A State use tax was held invalid as discriminatory in Phillips v. Chemical Co. v.
Independent School Dist. (1960) 361 V.S. 376 on the ground that lessees of federal
land were assessed on the full value of the premises while lessees of other exempt
property were assessed on the value of their leasehold interest.
78 In United States v. Allegheny County (1944) 322 V.S. 174, an ad valorem tax
assessed upon a government contractor, based upon the full value of government
owned machinery leased by him, was struck down as being, in substance, a tax on
the property of the Vnited States. Powell, 'The Waning of Intergovernmental Tax
Immunities' (1945) 58 Harvard Law Review 633, 772-87. Later cases distinguished
Allegheny by merely asserting that the tax was different, being 'on' government
property. Since that was the very issue before the Court in those cases the distinction
was hardly satisfactory. Esso Standard Oil Co. v. Evans (1953) 345 V.S. 495, 499;
United States v. City of Detroit (1958) 355 V.S. 466, 471; City of Detroit v. Murray
Corp. (1958) 355 V.S. 489, 494-95. In the last case Frankfurter J. in dissent con-
vincingly demonstrated the substantial equivalence of the tax there with that in
Allegheny.
dignity of the national government to require it to pay taxes levied upon
its property or governmental operations. However, since the immunity
constitutes the remnants of a once-broad doctrine, the basis of which has
been discarded, it is not surprising that no modem case offers a satisfac-
tory explanation for its survival. 79
(b) Federal Taxation of the State Governments and their Instrumentalities
(i) STATE EMPLOYEES, CONTRACTORS, LESSEES AND OTHERS
The withdrawal of the immunity of State 'private instrumentalities' fol-

lowed the same pattern as the withdrawal of the immunity of those con-
nected with the federal government. Of course the one significant difference
between the federal and State governments is that the States cannot legis-
late to clothe their instrumentalities with protection against federal taxa-
tion. Nevertheless the cases applied the principle that a general non-dis-
criminatory tax levied on, say, a State contractor could not be said to
burden the States unduly in the performance of their functions, even if the
economic burden were passed on to them. Indeed the same case often
removed the immunity of both State and federal private instrumentalities. 80
Stone J. said in upholding the application of a federal income tax to em-
ployees of the bi-State Port of New York Authority: 81
When enlargement of immunity proceeds beyond the necessity of protecting

the State, the burden of the immunity is thrown upon the national govern-
ment with benefit only to a privileged class of taxpayers . . . In a complex
economic society tax burdens laid upon those who directly or indirectly
have dealings with the states, tend, to some extent not capable of precise
measurement, to be passed on economically and thus to burden the state
government itself. But if every Federal tax which is laid on some new form
of state activity, or whose economic burden reaches in some measure the
19 This analysis is concerned only with these cases where immunity. is founded on
implications drawn from the Constitution. Certain cases that look as though they
might be implied immunity cases in fact depend upon specific constitutional pro-
visions, e.g. Art. I, §8 c1.17, which provides that 'Congress shall have Power . . .
To exercise exclusive Legislation in all Cases whatsoever . . . over all places pur-
chased by the Consent of the Legislature of the State in which the Same shall be,
for the Erection of Forts, Magazines, Arsenals, dock·yards, and other needful
Buildings .. .' See Humble Pipe Line Co. v. Waggoner (1964) 376 V.S. 369 (Louisiana
ad valorem tax on privately owned property-drilling equipment-situated on an
Air Force base, struck down on the ground that the Vnited States had acquired
exclusive jurisdiction of the land on which the base stood); Paul v. United States
(1963) 371 V.S. 245, 263·70. Cf. Polar Ice Cream & Creamery Co. v. Andrews (1964)
376 V.S. 361 (Florida imposed a tax of 0.15 cents per gallon on milk distributed
by a milk wholesaler. Held, the tax could validly apply to milk sold to federal
enclaves over which the Vnited States had exclusive jurisdiction, for the tax was
levied upon the processing of milk in Florida, not upon the sale in the federal
enclaves).
00 E.g. Helvering v. Mountain Producers' Corp. (1938) 303 V.S. 376 (permitting
taxation of income of lessees of government owned land, State or federal); lames
v. Dravo Contracting Co. (1937) 302 V.S. 134 (permitting taxation of State and
Federal contractors).
81 Helvering v. Gerhardt (1938) 304 V.S. 405, 416-17.
state or those who serve it, were to be set aside as an infringement of state
sovereignty, it is evident that a restriction upon national power, devised only
as a shield to protect the states from curtailment of the essential operations
of government which they have exercised from the beginning, would become
a ready means for striking down the taxing power of the nation. 82
(ii) THE PROPERTY AND ACTIVITIES OF THE STATE
Despite the characterization of the immunity doctrine as reciprocal, the

States never enjoyed the same degree of immunity from taxation upon
their property or activities as the federal government. This resulted partly
from the notion that the States were protected against burdensome federal
taxation by their own representation in Congress, but mainly from the
doctrine that, unlike the federal government which had specific powers
delegated to it by the Constitution, not all the powers exercised by the
States were strictly governmental. 83 This doctrine, of course, provided the
basis for the decisions that denied immunity to the States when they en-
gaged in such non-governmental trading activities as the sale of liquor.84
New York v. United States,85 which was decided after the excesses of
the old doctrine had been swept away, raised the issue of the taxability of
the operations of the States. The question was whether a federal tax
applied to the bottling and sale of waters taken from Saratoga Springs by
the State of New York. As Frankfurter J. pointed out,86 the case could
easily have been disposed of on the basis of earlier authority distinguishing
between the governmental and trading functions of the State, but since a
total of 46 States were represented,87 the opinions went further and thereby
created more confusion than previously existed.
Frankfurter J., with whom only Rutledge J. agreed, sustained the tax in
view of the rejection by the Court of the broad governmental immunity
from taxation.
To press a juristic principle designed for the practical affairs of government
to abstract extremes is neither sound logic nor good sense. And this Court
is under no duty to make law less than sound logic and good sense. 88
He rejected the dichotomy between governmental and trading activities
as a useful guide, arguing that it failed to take account of the indivisibility
of governmental powers.89 True to his philosophy of judicial restraint, he
contended that the 'whole tendency' of authority was to limit the role of
the Court in weighing the political and fiscal factors that are necessarily
82 The case was decided before the immunity of federal employees was discarded
in Graves v. New York ex rei. O'Keefe (1939) 306 V.S. 466, and Stone J. felt it
necessary to rely also upon Marshall Cl's somewhat unrealistic view that the States
did not need the protection of the immunity doctrine because they were represented
in Congress and therefore they were taxing themselves. 304 V.S. 405, 415-16.
83 Note, (1946) 55 Yale Law Journal 805, 805-06.
84 Supra n. 47. 85 (1946) 326 V.S. 572.
8Blbid. 574-75.
87 45 States were represented as amici curiae.
88 (1946) 326 V.S. 572, 577. 89 Ibid. 580-81.
MAy 1969] Immunity o/Instrumentalities 31
part of any decision to permit or deny a tax. Thus, 'in the absence of dis-
crimination' the State could not claim exemption from taxation except for
a certain class of State activities and State-owned property with special
characteristics.
Only a State can own a Statehouse; only a State can get income by taxing.
These could not be included for the purposes of any abstract category of
taxpayers without taxing the State as a State. But so long as Congress
generally taps a source of revenue by whomsoever earned and not uniquely
capable of being earned by a State, the Constitution . . . does not forbid
it merely because its incidence falls also on a State. 90
Of course, without further analysing this residual category of immunity,
Frankfurter J. laid himself open to the charge that he was permitting the
government-trading dichotomy to re-enter by the back door.91
The Chief Justice concurred in the result,92 largely on the ground that
a grant of immunity to the State from this non-discriminatory tax would
unreasonably curtail the taxing power of the national government, bearing
in mind that the tax did not 'unduly impair the State's functions of govern-
ment'.93 Although purporting to reject the old dichotomy on which some
of the earlier cases were based,94 he suggested that even a non-discrimina-
tory tax might be unconstitutional if it 'interfere[d] unduly with the State's
performance of its sovereign functions of government'.95 Thus, a general
real estate tax could not be validly applied to the State's Capitol or its
schools or parks because these were functions which the 'Constitution re-
cognizes as sovereign'.96 On the other hand the Chief Justice warned
against the ready withdrawal from the national taxing power of subjects
traditionally within it, pointing to the danger of the States limiting the
raising of federal revenue by extension of their activities. Since the opinion
neither resolved the paradox between these two views, nor elaborated upon
the concept of 'sovereign functions of government' it is by no means easy
to determine the scope of the principles he was stating-although this
difficulty did not deter several members of the High Court of Australia
relying on his opinion in the State Banking Case. 97 Insofar as the Chief
Justice intended to say that a non-discriminatory tax might be invalid if
it placed too great an economic burden upon the State, it ran counter to
the overwhelming trend of authority, the thrust of which was precisely to
prevent invalidation on that ground alone. Moreover the opinion failed
to substantiate the view that a general tax, which did not cripple private
90 Ibid. 582.
91 See the dissenting opinion of Douglas l., ibid. 591-92.
92 Reid, Murphy and Burton JJ. concurred in this opinion.
93 (1946) 326 V.S. 572, 588.
94 Supra n. 47.
95 (1946) 326 V.S. 572, 587.
96Ibid. 588.
97 Melbourne Corp. v. The Commonwealth (1947) 74 C.L.R. 31. Infra p. 59, nn.
31-33.
enterprise, could place undue obstacles in the path of a State seeking to
perform its 'sovereign' functions. However, the Chief Justice, in a dictum.
did specifically affirm that a tax discriminating 'against a State would be
an unconstitutional exertion of power over a coexisting sovereignty within
the same framework of government'.98
The dissent saw the case as posing economic issues, concluding that all
State functions should be immune from taxation. Some State activities
were 'marginal enterprises where private capital refuse[d] to venture'.
Since the States lacked the power to. grant themselves immunity, important
social programmes might be destroyed if the States were taxed on such
enterprises. 98a Moreover, every function undertaken by the State was a
function of government and it was repugnant to the sovereignty and inde-
pendence of the States to allow those functions to be taxed. 99 Nor was it
realistic to fear that expanding State activities would unduly curtail the
sources of federal revenue. However, despite this apparently pragmatic
approach, no example was given of a non-discriminatory tax that would
be likely of itself to deter the States from desirable innovation. The lack
of an example suggests that, in fact, such a federal tax would not be the
straw to break the back of the State's resolve.
Some points emerge clearly from the case. The mere fact that a general
federal tax applies to the States is not of itself a ground of invalidity. On
the other hand, while none of the opinions offers a clear rationale for this
limit on national taxing power, they accept that a tax discriminating
against the States will be struck down. 1 All the opinions agree that the
federal government cannot tax the Statehouse or certain State revenues
but there is no agreement as to the reason for this, nor as to how much
further, if at all, the immunity goes. This remaining immunity seems to be
out of line with earlier authority; certainly there does not seem to be a
realistic justification in economic terms for retention of immunity from
any but, perhaps, a discriminatory tax. 2 It is difficult to conceive of federal
taxation (as imposed upon the States themselves) substantially interfering
with the exercise of State functions unless the States have been singled out
for the imposition of a special burden. But in deciding the principles for
which the case stands, it must be remembered that the Court was con-
sidering the validity of a federal tax. There is consequently no warrant for
treating the case as bearing upon the question of federal regulation of the
States by means other than taxation.
98 (1946) 326 V.S. 572, 586.

98a I bid. 594.
Ibid. 594-96.
99
Cf. Phillips Chemical Co. v. Independent School Dist. (1960) 361 V.S. 376,
1
supra n. 77.
2 A further argument against broadening the immunity of the States is that to do
so unfairly advantages the citizens of the 'socialized State'-i.e., one that undertakes
functions itself rather than leave them to private enterprise. But this argument only
has force if there are significant differences in the degree of socialization among the
States.
4. Non-Tax Immunities
(a) Federal Regulation of the States

The question of subjection of the States and their instrumentalities to
federal regulation has usually arisen in the context of an exercise by Con-
gress of the commerce power. It is hardly surprising, in view of the sup-
remacy clause and the interpretation placed upon the commerce clause.
an interpretation that has so distinctly shaped the character of American
federalism, that virtually no room has been found for the operation of an
immunity doctrine in favour of the States. In general, the fact that a State
is being regulated has counted for naught in the eyes of the Court, both
as a matter of statutory interpretation and constitutional power.
The paradigm case is United States v. California 3 in which the State
Belt Railroad on the San Francisco waterfront was held to be engaged in
interstate commerce and therefore subject to the Federal Safety Appliance
Act. To the argument that California was performing a public function in
its sovereign capacity, the Court replied that 'the sovereign power of the
States is necessarily diminished to the extent of the grants of power to the
Federal Government in the Constitution'.4 The reciprocal tax immunities
were not applicable to the 'plenary power [of Congress] to regulate com-
merce. The States can no more deny the power if its exercise has been
authorized by Congress than can an individual'.5 Further, the aim of the
Act, the protection of employees and the public from defective equipment,
required the State to be bound and therefore there was no reason to pre-
sume that Congress intended to exempt the States from its provisions. 6
The principle has been recently affirmed in Maryland v. Wirtz 7 where the
Supreme Court upheld the validity of an amendment to the Fair Labour
Standards Act, applying the minimum wage provisions of that Act to em-
ployees of State hospitals and schools. The Court emphasized that it would
decline to interfere with the legislation unless there was no rational basis
for Congress' determination that the State enterprises had a substantial
effect upon interstate commerce. The regulation of interstate commerce
did not cease to be valid merely because State activities were involved-
even where those activities provided health and educational services.
There is no doubt that the failure to accord the States immunity from
federal regulation has contributed in some measure to their decline as
powerful forces in the federal structure. But the subjection of the States to
3 (1936) 297 U.S. 175. 4 Ibid. 184. 5 Ibid. 185.

6 See also California v. United States (1944) 320 V.S. 577 (waterfront terminal
operated by California and the City of Oakland held subject to the Federal Maritime
Commission); Case v. Bowles (1946) 327 V.S. 92 (Wartime Emergency Price Control
Act held applicable to the sale of timber by a State from lands used for schools.
The Act expressly applied to the States and the Court reasoned that a grant of
immunity would impair the defence power); Board of Trustees of the University of
Illinois v. United States (1933) 289 U.S. 48 (University liable to pay customs duty
upon scientific apparatus imported by it for use in education). Note the similarity
of the last case to the Steel Rails and Wire Netting Cases, infra p. 39, nn. 33-36.
7 20 L. Ed. 2d 1020.
federal power is the inevitable result of national problems requiring
national treatment. If the States could engage in interstate commerce free
of regulations applicable to private parties. vital national policies might be
thwarted. Thus. in general the 'sovereignty' of the State must yield to· the
demands of national problems. Indeed. it is by no means certain that a law
regulating interstate commerce which discriminated against the States
would be invalid. if there were a rational basis for the discrimination. In
fact the trend of authority interpreting the commerce clause suggests that
a discriminatory law may well be valid. s
(b) State Regulation of the Federal Government

A series of cases appears to have developed a doctrine. based on impli-
cations drawn from the constitutional supremacy of the United States.
that prevents the States regulating any activities of the federal government.
The nature and scope of the doctrine are not clear. largely because the
doctrine itself is framed in unnecessarily broad terms. The most sensible
accommodation of State and federal interests. where a State attempts to
regulate a federal activity, would be to strike down only those regulations
actually inconsistent with the particular exercise of federal power. This
approach removes the Court from the realm of vague constitutional impli-
cations. and into an area more easily referable to the constitutional text,
although the end result is unlikely to be any different. In fact the actual
decisions. but not all the reasoning. are reconcilable with this view.
A representative case is Ohio v. Thomas9 commonly regarded as estab-
lishing the immunity of the federal government from State regulation. In
tbat case the conviction of the governor of a home for disabled veterans
for serving oleomargarine without posting the notice required by State law
was set aside. The Court certainly invoked a constitutional ground-the
State's Jack of power to regulate the internal management of a federal in-
stitution-but also relied on the argument that the State law waS inconsis-
tent with the congressional appropriation for the purchase and serving of
the oleomargarine. lo However. there is language in many cases indicating
that the States lack· power to regulate any federal activity. although the
cases have invariably involved State legislation inconsistent in a substan-
tial sense with federal legislation. 11
A case of interest in this context, since it has an Australian counterpart
going the other way. is lohnson v. Maryland,12 in which the conviction of
8 See South Carolina v. Katzenbach (1966) 383 V.S. 301. permitting Congress on
rational grounds to distinguish between groups of States.
9 (1899) 173 V.S. 270. 10 Ibid. 283.
11 E.g. Mayo v. United States (1943) 319 V.S. 441 (distribution of fertilizer by the
V.S. held free of State inspection requirements); Arizona v. California (1913) 283
V.S. 423. 451-52 (construction of fe<ieral dam not dependent upon approval of
State engineer), both of which could have been decided on inconsistency grounds.
See also the cases dealing with attempted State regulation of private parties sub-
mitting bids for federal contracts: Leslie Miller, Inc. v. Arkanses (1956) 352 V.S.
187; United States v. Georgia Public Comm'n. (1963) 371 V.S. 285.
12 (1920) 254 V.S. 51. Cf. Pirrie v. McFarlane (1925) 36 C.L.R. 170; infra p. 45,
n.57.
a Post Office employee for driving a mail truck without a State licence was
reversed. Holmes J. distinguished between a requirement that a federal
employee desist from his work altogether until State regulations were ob-
served and rules that 'might affect incidentally the mode of carrying out
the employment' such as regulations governing speed. The United States
might be regarded as subjecting itself to State law concerning mere 'inci-
dental' matters. 13 The end result. then. is that the immunity doctrine
operates with full force to prevent State regulation of federal activities.
notwithstanding that the. protection is quite unnecessary and that the
States do not have the benefit of a reciprocal doctrine in their favour.
5. Summary
The Supreme Court. as a result for the most part of a realistic analysis
of the practical effect of taxation upon the federal government and the
States. has whittled away the doctrine of immunity from taxation until
very little remains. Realizing that virtually all taxes ultimately have the
effect of increasing the cost of maintaining governmental operations. the
Court has refused to strike down a tax merely because a government can
be shown to have borne the burden of that tax. In the case of a taxation
of federal instrumentalities. the Court has been influenced. quite properly.
by Congress' power to accord immunity if protection is thought to be
necessary. The Court has also accepted that. in fact. the exercise of State
functions is not significantly burdened by the operation of a general non-
discriminatory federal tax. The remaining immunity has no clear rationale
and its precise extent is doubtful, suggesting that it may be limited even
further in the future.
The denial of immunity to the States from non-tax federal regulation is
an inevitable consequence of the character of American federalism as
shaped by the New Deal decisions broadening the scope of national power.
The Supreme Court has accepted that Congress must have the means of
resolving national problems free from judicial interference in the name of
State sovereignty or federalism. In a sense it is true that the character of
American federalism has devolved into the hands of Congress. The federal
government retains protection from State regulation by an anomalous doc-
trine of constitutional dimensions. the basis of which has not been articu-
lated clearly. Strangely enough it is this doctrine which has most recently
been adopted by the High Court of Australia.
III THE DOCTRINE OF IMMUNITY OF INSTRUMENTALITIES:

AUSTRALIA
I. Importation of the Doctrine
The introduction of the broad doctrine of inter-governmental immunity
in Australia was linked closely with the establishment of judicial review
13 lames Stewart & Co. v. Sadrakula (1940) 309 D.S. 94 (federal contractor con-
structing post office in New York bound by New York safety regulations).
and the struggle of the new High Court to assert itself.14 It was perhaps
inevitable that the High Court, lacking constitutional precedent of its own,
would turn to the Supreme Court -for guidance in formulating general
attitudes towards constitutional interpretation and in developing specific
doctrines. This proved to be so in the early case of D'Emden v. Pedder,15
in which the High Court faced a State Act requiring the stamping of re-
ceipts with duty. In order to avoid a holding of unconstitutionality, the
Act was construed as inapplicable to a receipt given, as required by Com-
monwealth law, by a Commonwealth officer (Deputy Postmaster General
of Tasmania) in respect of his salary. The Chief Justice emphasized the
similarities of the two Constitutions and expressly adopted the doctrine of
McCulloch v. Maryland,16 stating the principle in these terms:
when a State attempts to give its legislative or executive authority an opera-
tion which, if valid, would fetter, control, or interfere with the free exercise
of the legislative or executive power of the Commonwealth, the attempt,
unless expressly authorized by the Constitution, is to that extent invalid and
inoperative. 17
Shortly after D'Emden v. Pedder the High Court, reacting to a challenge
to the doctrine by the Supreme Court of Victoria,18 vigorously reaffirmed
its- intention to accept the implied immunity principle. ID After a full dis-
14 As the matter has been dealt with thoroughly elsewhere, it will be considered
only briefly here. Dixon, 'Marshall and the Australian Constitution' (1955) 29 Aus-
tralian Law lournal 420; Menzies, Central Power in the Australian Commonwealth
(1967) Ch. 3; Howard, Australian Constitutional Law (1968) Ch. 2.
It should be noted that part of the implied immunities doctrine in the United
States is expressly established by s.114 of the Australian Constitution, which forbids
either the Commonwealth or the States from imposing any tax on property of any
kind be10nging to the other.
15 (1904) 1 C.L.R. 91.
16 The judgment treated the United States authorities with great deference. 'We
are not, of course, bound by the decisions of the Supreme Court of the United
States. But we all think it would need some courage for any Judge at the present·
day to decline to accept the interpretation placed upon the United States Constitution
by as great a Judge as long ago as 1819, and followed up to the present day by
the succession of great jurists who have since adorned the Bench of the Supreme
Court at Washington.' Ibid. 112.
The Court also argued that the framers of the Constitution, being familiar with
the American doctrine, must have intended to accept it when they drafted provisions
substantially similar to those in the United States Constitution. Ibid. 113. In fact
there is nothing in the Convention Debates which sheds light upon the true 'intention'
of the framers. Cf. Sawer, Australian Federalism in the Courts (1967) 126. It was
argued by counsel that McCulloch v. Maryland should not be accepted in Australia
because the Crown's power of disallowance of colonial legislation could be employed
to strike down legislation that unduly impeded the functions of another government.
This argument, first raised by Madden C.J. of the Supreme Court of Victoria in
Wollaston's Case (1902) 28 V.L.R. 357, was rejected on the ground that it was the
duty of the Court, not the Executive, to consider the validity of legislation. (1904) 1
C.L.R. 91, 117-18.
H Ibid. 116.
18 Deakin and Lyne v Webb (1904) 29 V.L.R. 748. The Supreme Court followed
Wollaston's Case (1902) 28 V.L.R. 357, an earlier decision of its own, predating the
establishment of the High Court, holding that the doctrine of immunity of instru-
mentalities had no place in Australia. D'Emden v. Pedder was distinguished on the
specious ground (later resurrected in the Engineers' Case) that the case rested upon
the inconsistency of the State legislation with the federal Act fixing the officer's
salary.
19 Deakin and Lyne v. Webb (1904) 1 C.L.R. 585.
cussion of the American authorities, it was held that Victorian income tax
could not constitutionally be imposed upon the salaries of Commonwealth
ministers resident in Victoria. Such a tax fettered the free exercise of the
executive power of the Commonwealth in that it diminished the remunera-
tion of Commonwealth officers and restricted the Commonwealth's free-
dom of action in transferring officers from State to State because of the
differing rates of income tax in each State. The reasoning of Dobbins v.
Erie County was 'unanswerable'.20
Thus the American doctrine of immunity of instrumentalities was ac-
cepted in Australia by reasoning that failed to analyse critically the scope
or practical necessity of the doctrine. This, however, was hardly surprising,
since the first High Court was searching for a general approach to prob-
lems of constitutional interpretation, rather than applying and evaluating
established principle. It was too much to expect the members of the High
Court to engage in an analysis that as yet had escaped the Supreme Court.
But not only did the judgment in D'Emden v. Pedder uncritically accept
the American doctrine, it also relied upon conceptual reasoning of the kind
that has characterized constitutional adjudication in Australia. The Com-
monwealth was said to be 'sovereign' within the ambit of its authority and
'a right of sovereignty subject to extrinsic control is a contradiction in
terms'.21 Oearly the Commonwealth is not 'sovereign' in respect of the
subjects enumerated in section 51 of the Constitution in the sense of having
power to deal with those subjects to the exclusion of the States. The States
have concurrent power over those matters and are only excluded from the
field when the Commonwealth chooses to exercise its power. More im-
portantly, the judgment overlooked the power of the Commonwealth Par-
liament to ensure that the States do not fetter federal instrumentalities, by
clothing the instrumentalities with protection from State interference. 22 In
other words, even if D'Emden v. Pedder had been decided the other way
the Commonwealth's 'sovereignty' would not have been subject to extrinsic
control.
Once accepted, it was inevitable that the doctrine would be applied in
favour of the States and this was in fact done in the Railway Servants'
Case,23 which held that the Commonwealth's conciliation and arbitration
power 24 should not be interpreted so as to permit the Commonwealth to
interfere with State functions by regulating the terms of employment of
railway workers employed by the State. The argument in Collector v. Day
was said to demonstrate incontrovertibly that the principle of D'Emden v.
Pedder was reciprocal and thus should be applied in favour of the States.
20 Ibid. 615. Wollaston's Case was expressly overruled.
21 (1904) 1 C.L.R. 91, 110.
22 Cf. Australian Coastal Shipping Commission v. O'Reilly (1962) 107 C.L.R. 46
where the Commonwealth Parliament was held entitled to exempt the Commission
from State taxes.
23 The Federated Amalgamated Govt Ry and Tramway Service Ass'n v. The
New South Wales Traffic Employees Ass'n (1906) 4 C.L.R. 488.
24 S.51 (xxxv).
This view required a considerable extension of Collector v. Day which was
a case of federal taxation of a State judge-an extension that was never
made in the United States. The High Court reasoned that taxation was
'only an instance of interference and control'25 and that regulation of the
terms of employment of State railway servants was a clear case of inter-
ference with a State instrumentality performing essential governmental
functions. 26 As it is wont to do, the High Court eschewed any creative
function and claimed merely to be interpreting the text of the Constitu-
tion. 27 However, as Professor Sawer points out,28 the implied immunity
doctrine could not be based solely upon the wording of the Constitution,
but rather depended upon a presupposition that the inherent nature of the
federal structure required each government to refrain from regulating the
activities of the other-the idea that both Commonwealth and States were
each guaranteed a sphere of sovereignty by the Constitution. Of course
that presupposition also provided the basis of the implied prohibition doc-
trine which prevented the Commonwealth using its powers so as to invade
the 'reserved sphere of authority' of the States. 29 The same assumption lay
at the heart of American constitutional doctrine and was not shattered until
the cataclysmic events of the 1930s.
Despite a major challenge from the Privy Council,30 the implied im-
munity doctrine remained basically intact until 1920, although three im-
portant qualifications emerged. The first was the dichotomy between the
State exercising traditional and inalienable functions of government and
25 (1906) 4 C.L.R. 488, 538.
26 The High Court rejected an argument, based upon South Carolina v. United
States (1905) 199 V.S. 437, that the operation of rail services was not an essential
State function, hinting that any function undertaken by the State was proper and,
in any case, the operation of railways was recognized at federation to be an
essential function of the Colonies. (1906) 4 C.L.R. 488, 538-39. But in the later
cases of Federated Engine-Drivers and Firemen's Ass'n of Australasia v. Broken Hill
Proprietary Co. (1911) 12 C.L.R. 399 and Federated Municipal and Shire Council
Employees' Union of Australia v. City of Melbourne (1919) 26 C.L.R. 508, certain
municipal activities were held to be mere trading functions not entitled to immunity.
See also A.W.U. v. The Adelaide Milling Co. (the Wheat Lumpers' Case) (1919) 26
C.L.R. 460.
27 (1906) 4 C.L.R. 488, 533-34 (1906).
28 Sawer, Australian Federalism in the Courts (1967) 127.
29 Peterswald v. Bartley (1904) 1 C.L.R. 497; R. v. Barger (1908) 6 C.L.R. 41;
A.G. (N.S.W.) v. Brewery Employees Union of N.S.W. (Union Label Case) (1908)
6 C.L.R. 469.
30 In Deakin and Lyne v. Webb (1904) 1 C.L.R. 585 the High Court had refused
to grant leave to Victoria to appeal to the Privy Council, leave being necessary
as the case involved an inter se question: Constitution, s.74. In Webb v. Outrim,
[1905] V.L.R. 463, the Supreme Court of Victoria followed Deakin and Lyne
v. Webb in according immunity to a Commonwealth postal officer from State
income tax. Victoria then avoided the effect of s.74 by by-passing the High Court
and appealing directly to the Privy Council which,. in advice remarkable. o!1ly for
lack of understanding of the federal structure, dIsapproved of the pnncIple of
D'Emden v. Pedder. The main reason was that no court had power to declare a
State Act invalid. [1907] A.C. 81, 88-91; 4 C.L.R. 356, 358-59. However, the High
Court in Baxter v. Commissioner of Taxation (N.S.W.) (1907) 4 C.L.R. 1087 refused
to follow the Privy Council's decision on the ground that the Constitution had
intended to make the High Court the final arbiter of inter se questions and therefore
the decision was not binding. Deakin and Lyne v. Webb was approved.
Of course inter se questions can no longer be appealed directly from a State
Supreme Court to the Privy Council, Judiciary Act 1903-64 (Cth), s.40A.
the State exercising trading functions,31 following the same lines as that
which had emerged in the United States. The second was a judicially
sanctioned legislative accommodation of the interests of the Commonwealth
and States that avoided some of the excesses of the doctrine. This was
accomplished by the Commonwealth, in response to political pressures, en-
acting legislation declaring that a non-discriminatory State income tax would
not be deemed an interference with the exercise of Commonwealth power
if applied to the salaries of Commonwealth officers. 32 By 1916 all States,
except New South Wales, had passed similar legislation designed to permit
the application of general Commonwealth taxation measures to the salaries
of State officials. The third was a partial retreat by the High Court from
the principle of D'Emden v. Pedder in holding that the States were subject
to the control of the Commonwealth when they imported goods 33 and were
liable to pay customs duty in respect of goods imported. 34 The judgments
pointed out that the effective control of external trade and customs re-
quired the States to be subjected to Commonwealth power,35 a recognition
by the High Court itself that the immunity doctrine might be too restrictive
of legislative competence. 36
All these qualifications constituted retreats from the logical complete-
ness of the immunity doctrine and, as such, they constituted the thin edge
of the wedge that was to be the Engineers' Case. 37 To some extent they
reflected the longstanding dissatisfaction of Isaacs and Higgins JJ. with
the doctrine, but mainly they were the product of a realization by all mem-
bers of the Court that an uncompromising application of the doctrine
would lead to intolerable practical difficulties. A priori assumptions as to
the nature of federalism were already proving unworkable.
2. The Engineers' Case-Rejection of the Doctrine

Unlike the implied immunity doctrine in the United States, which was
to meet its demise rather gradually as a by-product of a constitutional
31 See the cases supra p. 38, n. 26.
32 Commonwealth Salaries Act 1907 (Cth), s.2 upheld in Chaplin v. Commissioner
of Taxes (1911) 12 C.L.R. 375, despite the obvious difficulty in permitting the Com-
monwealth to waive a constitutional immunity.
33 The King v. Sutton (Wire Netting Case) (1908) 5 C.L.R. 789.
34 Attorney General for N.S.W. v. Collector of Customs for N.S.W. (Steel Rails
Case) (1908) 5 C.L.R. 818. The same result was reached in the United States in Board
of Trustees of University of Illinois v. United States (1933) 289 U.S. 48.
35 Wire Netting Case (1908) 5 C.L.R. 789, 798, 803; Steel Rails Case (1908) 5 C.L.R.
818, 835, 842.
36 In the Steel Rails Case (1908) 5 C.L.R. 818, 828, 837, the State argued that to
require it to pay customs duty on imported goods would amount to a tax on its
property in violation of Constitution, s.114. It was held that the duty was not a tax
upon property, but upon the act of importation. This holding ensured that s.114
would be kept within fairly narrow bounds, although dicta suggested that any tax
on State property would be invalid irrespective of the use to which the property
was being put. The decision was followed in A. G. for Queensland v. A. G. for the
Commonwealth (1915) 20 C.L.R. 148, which held, foreshadowing the later American
developments, that Commonwealth land tax could apply to lessees of State-owned
land, since the tax was not on the State's interest in the land but on the lessee's.
37 Amalgamated Society of Engineers v. Adelaide Steamship Co Ltd (1920) 28
C.L.R. 129.
crisis concerned with other issues, the Australian doctrine was abandoned
at one stroke. The Engineers' Case provided the occasion for sweeping
changes in the High Court's approach to constitutional adjudication and.
consequently, the potential scope of national power.
A study of the background to the Engineers' Case could occupy a
volume in itself; the details will not be pursued here. No doubt the decision
was neither a complete break with the past nor totally unexpected. In view
of the changes in the composition of the Court38 and the powerful influence
of Isaacs J., a fervent advocate of national authority, perhaps the abandon-
ment of the immunity doctrine was inevitable. It may also be true, despite
reaffirmation of the doctrine in 1919,39 that the reconstituted High Court
was awaiting an opportune time to re-appraise its role as constitutional
arbiter. Certainly the description of the course of argument in the Engi-
neers' Case by Sir Robert Menzies,40 then successful counsel for the Union.
tends to support such a view. One would think that a factor influencing
the High Court in its boldness was the growth of a new national con-
sciousness fostered by Australian participation in World War I and creating
a climate receptive to judicial extension of central power. On the other
hand, it has been suggested41 that the decision ran contrary to the domi-
nant political feeling of the time, which opposed extension of national
power. But whatever the background, the Engineers' Case was of funda-
mental importance in Australian constitutional history.
The issue before the High Court was essentially identical to that in the
Railway Servants' Case: did the Commonwealth's power to make laws
with respect to conciliation and arbitration for the prevention and settle-
ment of interstate industrial disputes permit the Commonwealth to autho-
rize the Court of Conciliation and Arbitration to make an award binding
the States as employers?
The majority of the High Court, in a judgment written by Isaacs J.,42
38 The original Justices were Griffith C.J., Barton and O'Connor H., all of whom
had had extensive political experience. In 1906 Isaacs and Higgins H. were added
to the Court. In 1912 O'Connor J. died and he was replaced by Gavan Duffy J. At
the same time Powers and Rich H. were added to the Court. None of these three
had had any political experience. Sawer, Australian Federal Politics and Law 1901-
1929 (1956) 106. Griffith C.J. retired in 1919 and was replaced as Chief Justice by
Adrian Knox. Barton J. died in 1920 and was replaced by Starke J. Thus, at the
time of the Engineers' Case, none of the original Justices who had formulated the
implied immunity doctrine remained on the Court. Neither Isaacs J nor Higgins J. had
ever been favourably disposed to the doctrine or to the assumptions which provided
its basis and they were instrumental in introducing the qualifications restricting the
doctrine prior to 1920. For a strong statement of the views of Higgins J., rejecting the
applicability of McCulloch v. Maryland to Australia, see Baxter v. Commissioners
of Taxation (N.S.W.) (1907) 4 C.L.R. 1087. 1164-65.
39 Wheat Lumpers' Case (1919) 26 C.L.R. 460. Although all the judgments accepted
the immunity doctrine, they also (with the exception of Barton J.) stressed the trad-
ing-essential functions dichotomy which clearly could be used to limit the doctrine
in the future.
40 Menzies, Central Power in the Australian Commonwealth (1967).
41 Sawer, Australian Federal Politics and Law 1901-1929 (1956) 329.
42 Knox C.J. Rich and Starke H. joined in the jUdgment. Higgins J. delivered a
separate judgment reaching the same conclusion, but omitting some of the excesses
of the judgment of Isaacs J. Gavan Duffy J. dissented.
answered the question affirmatively. The judgment was 'one of the worst
written and organized in Australian judicial history. Isaacs was given to
rhetoric and repetition, and here he gave these habits full reign':t3 But
every argument in the judgment, whether well founded or not, was de-
signed to advance the cause of broadening the competence of the national
Parliament.
Validly enough, the judgment pointed out that the principle of D'Emden
v. Pedder, as enunciated in that case, gave no solace to the States, for it
merely forbade State interference with the exercise of Commonwealth
power. The later cases creating a reciprocal doctrine depended,
on an implication which is formed on a vague, individual conception of the

spirit of the compact, which is not the result of interpreting any specific
language . . . This method of interpretation cannot . . . provide any secure
foundation for Commonwealth or State action, and must inevitably lead-
and in fact has already led-to divergencies and inconsistencies more and
more pronounced as the decisions accumulate. 44
In an excess typical of the dogmatism of Isaacs J., he went on, not merely
to reject the American cases relating to the immunity doctrine, but to dis-
count all American authorities as not affording a 'secure basis' for inter-
preting the Australian Constitution except 'secondary and subsidiary'
matters. His justification for this chauvinistic attitude was the 'radical'
difference between the two constitutional structures. In particular, he
pointed to the 'cardinal features' of responsible government and the common
sovereignty of the Crown found in the Australian, but not the United States
Constitution. 45 As has been pointed out by Sir John Latham,46 it is difficult
to discern how these descriptive differences could have any meaningful
bearing as questions of constitutional interpretation. On the other hand
Professor Sawer has said that
the references to responsible government [in the Engineers' Case] support

an argument that in the Australian system, as distinct from the American,
the Courts can and should leave relatively more of the problems of adjust-
ment in a federal system to the decision of the electorate. It is a view with
which one can disagree; but it is not rhetoricY
The problem with Sawer's analysis is that, while one may agree with the
conclusion as to the proper role of the Court, it attributes to Isaacs J. an
argument that was not made in his judgmentY In any event it is not easy
to see how Professor Sawer's responsible government argument (if he is
43 Sawer, Australian Federalism in the Courts (1967) 130. For a full analysis of
Isaacs' judicial technique see Cowen, lsaac lsaacs (1967) Chs. 6-7.
44 (1920) 28 C.L.R. 129, 145.
45 I bid. 146.
46 Latham, 'Interpreting the Constitution' in Else-Mitchell, Essays on the Australian
Constitution (2nd ed. 1961) 28-29.
47 Sawer, 'State Statutes and the Commonwealth' (1962) 1 Tasmania University
Law Review 580, 585.
48 Cowen, lsaac lsaacs (1967) 161-62.
urging it) does support his conclusion. Responsible government, in the

sense of a system of executive government by ministers who are members
of and responsible to the legislature, operates in fact within the framework
of a party system. Although governments may be defeated during the life
of a Parliament (especially in some of the more politically fluid States) and
elections subsequently held, this is invariably the product of changing
allegiances within Parliament, rather than direct participation by the
electorate. Similarly, the individual responsibility of ministers to the legis-
lature hardly permits the electorate greater opportunity to achieve 'adjust-
ment' than in the looser United States system. One can agree with the doc-
trine propounded by the Engineers' Case without necessarily accepting all
its reasoning. 49
Having disposed of the American authorities, Isaacs J. contended that
the Court's duty was to interpret the text of the document, according to
settled rules of statutory construction, without consideration of materials
other than the text of the Constitution and the common law and statute
law that preceded it. The words in the text had to be read in their natural
sense and if the legislation were within the grant of affirmative power and
violated no express restriction, the Court could look no further. The possi-
bility that power might be abused was for the consideration of the framers
of a constitution, or the people through their political institutions, not for
judges merely interpreting the words of the d0cuments. 5o Thus it was not
permissible to read the 'affirmative terms of a stated power' as subject to
an implied restriction which would prevent the power extending to the
States. Since the power with respect to individual disputes was not subject
to an express limitation preventing its application to the States, it followed
that the States as employers were subject to Commonwealth regulation, if
the legislation applied to them as a matter of construction. Of course, this
part of the judgment had ramifications extending far beyond the implied
immunity doctrine. In particular it destroyed the basis for the 'implied
prohibition' doctrine developed by the first High Court and paved the way
for a broad interpretation of specific Commonwealth powers.
Despite the revolutionary character of the approach of Isaacs J., only one
case, the Railway Servants' Case, was expressly overruled. D'Emden v.
Pedder was unconvincingly explained as resting upon the inconsistency of
the Commonwealth Act requiring a receipt with the State Act requiring the
stamping of the receipt. The decisions in Deakin and Lyne v. Webb and
Baxter's Case were said to be sustainable on the inconsistency ground;
insofar as those cases were based on the implied immunity doctrine, they
were overruled. The Steel Rails and Wire Netting Cases were approved.
The judgment of Isaacs J. included passages which could be construed as
accepting a passive role for the High Court in constitutional litigation-
49 For a somewhat unenthusiastic attempt to demonstrate the relevance of the
'common sovereignty' argument see Sawer, 'State Statutes and the Commonwealth'
(1962) 1 Tasmania University Law Review 580, 585-86.
50 (1920) 28 C.L.R. 129, 142, 148.
passages which suggest that the Court should defer to the legislative will
and which exhibit apparent reluctance to impose judicial conceptions as to
the nature of federalism upon the other organs of government. Certainly
the case removed implied restrictions upon Commonwealth power and
thus rendered a holding of unconstitutionality in respect of Commonwealth
legislation less likely. But the judgment must be assessed in the light of
Isaacs J.'s general philosophy of constitutional interpretation and, so asses-
sed, it appears not so much as a plea for judicial passivism, but as a major
advance for the cause of national power. Professor Cowen, who has traced
Isaacs J.'s philosophy in detail, has said that notwithstanding his oft-expressed
objections to 'overbroad powers of judicial review, Isaacs, throughout his
career as a judge, was an activist, and the insistent, rhetorical and relent-
less advocate of an expanding national power'.51 In the specific context of
the Engineers' Case, it can be said that Isaacs J. was quite content to remain
passive in the face of an exercise of Commonwealth power, but this was a
far cry from a conscious determination that a constitutional court should
always be reluctant to strike down the declared will of an elected body. In
fact other portions of the judgment demonstrate that constitutional litiga-
tion was not regarded as warranting an approach distinct from other cases
of statutory interpretation, the apposite principles being drawn from the
general body of rules relating to the construction of statutes.
Although the judgment criticises the logical basis of the immunity
doctrine, there is no analysis of the practical impact of the doctrine upon
the workings of federalism. Again, while the effect of the Engineers' Case
was clearly to enlarge the ambit of central power, the judgment does not
explain the necessity for expansion of national competence. In short, the
abandonment of the immunity doctrine, notwithstanding that it resulted
from a great change in the approach to constitutional adjudication, did not
derive from a considered reappraisal of the Court's special role in consti-
tutional adjudication or the practical deficiencies of the doctrine. It is
necessary to turn to the concurring judgment of Riggins J. to find explicit
practical justification for the doctrine. Re pointed out that in Australia
the States carried on numerous activities and, unless they were subjected
to the arbitration power, private employers might be placed at a dis-
advantage. Moreover, the object of the power would be defeated if the
States were exempted from its reach, since disputes in a particular industry
might not be settled if the arbitration power did not coverall employees
in that industry, including State employees. In the absence of compelling
words in the Constitution, it was irrational to distinguish between em-
ployees performing the same functions in the same industry, merely because
51 Cowen, Isaac Isaacs (1967) 152. See generally Ch.7 and especially Isaac J.'s views
on the scope of the defence power (Farey v. Burvett (1916) 21 C.L.R. 433) and his
treatment of the scope of s.92, which he regarded as inapplicable to the Common-
wealth (W. & A. McArthur Ltd v. State of Queensland (1920) 28 C.L.R. 530) but
severely restrictive of State competence (Duncan v. State of Queensland (1916) 22
C.L.R. 556 (dissenting judgment).
some happened to be employed by the State. 52 Of course, Higgins J. was
merely making explicit what was implied in the majority judgment. But
explicitness has the advantage of revealing the true basis of the reasoning
in constitutional litigation, rather than permitting it to remain hidden
behind the legalistic guise of 'interpreting the text of the document'.
Before commencing his detailed analysis in the Engineers' Case, Isaacs J.
did insert a warning as to the limits of the case. The key passage in this
warning stated that
[i]f any future case concerning the prerogative in the broader sense of
arising under some other Commonwealth power-for instance taxation-
the extent of that power should come under consideration . . . the special
nature of the power may have to be taken into account.53
It is not at all easy to see what Isaacs J. had in mind in this passage. He had
previously stated that the case did not involve prerogative power in the
sense of the Crown's inherent non-statutory power. He was probably
making a reference to the prerogative to put aside arguments in the case
based on the Crown prerogative, but it is not clear that he intended an
exception to the general principle he was stating. The reference to the
taxation power was probably no more than an example of a Common-
wealth power that was subject to express limits elsewhere in the Consti-
tution 54 and for that reason could not be given unlimited scope. However,
the apparent qualification has provided a peg upon which those opposed
to the doctrine of the Engineers' Case have been able to hang their attack.
3. Application of the Engineers' Case-and Qualifications

(a) Pirrie v. McFarlane
For some years, despite contemporary criticism,55 the Engineers' Case
was regarded as establishing the broad rule that legislative powers were
not to be limited by an implication that such powers could not embrace
another government or its instrumentalities. In Pirrie v. McFarlane 56 it was
held that a member of the Royal Australian Air Force, who did not have
a Victorian driving licence, had committed an offence against the Motor
Car Act 1915 (Vie.) by driving an Air Force car, although he was driving
under orders from his superior officer on Air Force business. Interestingly
enough the identical issue had been decided the other way only five years
52 (1920) 28 C.L.R. 129, 162-64.

53 Ibid. 143-44.
54 Ss.99, 114.
55 E.g. Garran, 'The Development of the Australian Constitution' (1924) 40 Law
Quarterly Review 202. The essence of the criticism was that the Engineers' Case
had purported to forbid all implications and no constitutional text is self executing
-in other words, implications are always necessary in constitutional interpretation.
However, although the case exhibits an aura of positivism in the sense of refusing
to acknowledge a creative role in the task of interpretation, the judgment does not
suggest that all implications are necessarily improper.
56 (1925) 36 C.L.R. 170
earlier in the United States on the ground that the States lacked power to
regulate federal activities. 57 The majority in Pirrie 58 argued, without refer-
ence to now-discarded American doctrine, that in view of the treatment
of D'Emden v. Fedder in the Engineers Case, State law could apply to the
defence forces unless there was some inconsistency with Commonwealth
legislation and here, as a matter of interpretation, there was no such
inconsistency. Knox c.J. pointed out that the Commonwealth had ample
power to confer protection upon its armed forces from State laws and,
until it acted, the Court should not do SO.59 Isaacs J. revealed his true colours
as a supporter of national power in a typically dogmatic dissent. He
asserted that the conduct of defence was an exclusive power of the gravest
importance, with which the States were powerless to interfere at all. He
conjured up a fearful picture of the defence forces being required to seek
the permission of a State official for every move they made. Starke J. gave
the sensible answer to this contention:
All the State has done in this case is to regulate the use of motor-cars and re-
quire to all citizens to observe provisions for the preservation of public safety
and security. The Act is directed to acts of a purely local character, and its
object is peculiarly within the authority of the State. It is not aimed particu-
larly at the Defence Forces ... nor is it in opposition to any express provision
of the laws of the Commonwealth . . . [T]he Commonwealth has ample
legislative power to maintain its Forces free from any inconvenient legislation
of the States. 60
This case achieves a satisfactory accommodation of the interests of Com-
monwealth and States. Whatever the position regarding Commonwealth
legislation applicable to the States, there is no justification for the High
Court protecting the Commonwealth from State regulation by a doctrine
of constitutional dimensions when the Commonwealth is perfectly able to
protect itself. The Commonwealth Parliament is the body equipped to
make the determination as to whether the State regulation amounts to
undue control-and it has the power to enforce its determination.
(b) A Qualification-Commonwealth Enforcement of State Obligations

In the A.R.U. Case 61 the High Court applied the Engineers' Case so as
to subject State railways to the Commonwealth arbitration power. The
case involved no new question of principle, but was interesting in that
Mr Menzies K.C., relying on the express mention of State railways else-
where in the Constitution62 argued that the Constitution itself revealed an
intention to exclude State railways from the scope of section 51 (xxxv).
57lohnson v. Maryland (1920) 254 U.S. 51. Supra p. 34; nn. 12-13.
58 Knox C.l., Higgins and Starke JJ. Isaacs and Rich JJ. dissented.
59 (1925) 36 C.L.R. 170, 184.
60 Ibid. 228-29.
61 Australian Railways Union v. The Victorian Railways Commissioners (1930)
44 C.L.R. 319-.
62 E.g. ss.98, 102.
Had it been intended that the State railways should be subjected to the
Commonwealth power, Mr Menzies argued, they would have been specific-
ally mentioned in the section. Nevertheless it was held that the general
rule requiring Commonwealth powers to be interpreted without regard to
implications in favour of State instrumentalities was not displaced.62&
The A.R.U. Case was, however, significant for the emergence of a
potential qualification to the Engineers' Case doctrine and a subtle re-
statement of the doctrine by Dixon J., newly appointed to the Bench, which
foreshadowed later, more direct attacks. The Railways Commissioners
argued that they could not be bound by an award, since they lacked power
to pay the wages awarded themselves, being dependent upon parliamentary
appropriations for their funds. And, it was said, the Commonwealth could
not compel the States to appropriate moneys to meet the award. The
Court avoided the argument by holding that the Commissioners could be
'bound' by the awards, regardless of any problems of enforcement. Starke J.,
obiter, suggested that the Commonwealth lacked the capacity to compel
the States to appropriate funds in satisfaction of obligations. 63 In particular
he stated that there was nothing in section 51 (xxxv) authorizing the
Commonwealth to impair the appropriation requirement stipulated in the
State Constitutions. This argument, in effect, reversed the thrust of the
Engineers' Case in that it assumed an area of exclusive State power and
placed the burden of rebutting this assumption upon the Commonwealth.
Surprisingly, Isaacs J. intimated possible acceptance of this view, although
his comments are not free from ambiguity.64 In somewhat obscure fashion,
Dixon J. generalized the problem:
the Engineers' Case ought not to be understood as laying it down that over
a State the power of the Parliament is as full and ample as over the subject
and allows the same choice of remedies, measures and expedients to secure
fulfilment of the legislative will ... It may be that sec.106 provides the
restraint upon the legislative power over States which differentiates it from
the power over the subject and that no law of the Commonwealth can
impair or affect the Constitution of a State. No doubt, sec.106 is conditioned
by the words 'subject to this Constitution' but so too is sec.51. 65
This inroad into the Engineers' Case, which was without precedent in
American constitutional law,66 was carried further in the Garnishee Case
(No. 1).67 There the High Court resolved, partly at least, the greatest crisis
in Australian Federal-State relationships by upholding the provisions of
the. Commonwealth Financial Agreements Enforcement Act 1932. In 1927
62a See also Stuart-Robertson v. Lloyd (1932) 47 C.L.R. 482 where the High Court
held that the Court of Bankruptcy had power to require a bankrupt, who was a
member of the New South Wales Legislative Assembly, to pay to the Official Re-
ceiver portion of his parliamentary allowance.
63 (1930) 44 C.L.R. 319, 389-90.
64lbid. 353-54.
65 Ibid. 391-92.
66 Infra p. 48, n. 75.
67 New South Wales v. The Commonwealth No. 1 (1931) 46 C.L.R. 155.
the Commonwealth and States entered into a Financial Agreement whereby
the Commonwealth agreed to take over the public debt of the States.
The .States agreed, inter alia, to pay the Commonwealth a certain portion
of the interest charges. Section 105A of the Constitution, inserted by way
of amendment in 1929, sanctioned the Agreement by authorizing the
Commonwealth to enter financial agreements with the States, empowering
the Commonwealth to make laws carrying out such agreements (section
105A (3» and providing for such agreements to be binding upon the
Commonwealth and States, notwithstanding anything in their respective
Constitutions (section 105A (5». The 1932 Act empowered the Attomey-
General to apply to the High Court for a declaration, enforceable as a
judgment, declaring the amount due under any such agreement from a
State to the Commonwealth. The judgment was to operate as a charge
upon State revenues and, after the judgment had been obtained, a resolution
of both Houses of Parliament could create an involuntary assignment of
State revenues to the Commonwealth until the State's liabilities were dis-
charged. It was held, as matter of interpretation, without close reference
to the Engineers' Case that the enforcement provisions were warranted by
section 105A (3) and (5), together with certain other sections of the Consti-
tution. 68 The actual decision in the case, therefore, in no way impairs the
principle of the Engineers Case, but there are dicta in the case which do
have that effect.
It had been argued that the enforcement provisions were invaliO since
they disregarded the principle expressed in the A.R.U. Case that the Con-
stitution does not, in the absence of express contrary provision, 'authorize
the imposition upon the States of obligations which are not subject to the
condition that funds shall be appropriated by the Parliaments of the
States'.69 This argument was rejected because section 105A intended, in
sufficiently unambiguous terms, that the Commonwealth could enforce the
Agreement without regard to appropriate provisions in the State Constitu-
tions. Even Dixon J. allowed10 (as he had to, given the circumstances that
generated the Garnishee Case)l1 that any other conclusion would render
the Agreement unworkable. But of the majority,12 Rich, Starke and
Dixon JJ. insisted that the general principle, preventing the Commonwealth
68 Reliance was also placed upon the 'incidental power' in s.51 (xxxix), in con-
junction with both s.105A and s.75 (iii) (which gives the High Court original juris-
diction in cases in which the Commonwealth is a party). Rich and Dixon n. also
referred to s.78 combined with s.105A (5) as a possible source of power. S.78 en-
ables the Parliament to make laws conferring rights to proceed against a State in
respect of matters within the limits of the judicial power.
69 (1931) 46 C.L.R. 155, 176.
10 In the joint judgment of himself and Rich J. (1931) 46 C.L.R. 155, 179. The
judgment also makes specific reference to the circumstances existing at the time of
the case. Ibid. 181-82.
71 For an account of the clash between the Lang Labour government of New
South Wales and the Lyons Commonwealth government, events which culminated
in the dismissal of Lang by the Governor of New South Wales, Sir Phi lip Game, see
Evatt, The King and His Dominion Governors (2nd ed. 1967) 157-65.
12 Rich, Starke, Dixon and McTiernan n. Gavan Duffy C.J. and Evatt J. dis-
sented.
or the Court from directly appropriating State revenues to enforce State
obligations, remained on foot, although it had been displaced here. Now,
at the very least it can be said that a different result in the Garnishee Case
would have sabotaged the Financial Agreement and may have exacerbated
an already chaotic situation. 73 The inability of the Commonwealth to
enforce 'obligations' against recalcitrant States might conceivably have a
similarly disastrous effect on the national policy in a crisis situation where
the Commonwealth is relying on a power other than that in section l05A.
It seems strange to hold that the Commonwealth in general has power to
bind the States by its laws, yet then conclude that the Commonwealth
cannot compel the States to meet their obligations-a conclusion that may
enable an obstinate State to frustrate an exercise of national power. The
result is even stranger when it derives from a priori reasoning that fails to
articulate a practical justification for the result. Professor Howard, who is
sympathetic to the approach of Dixon I. in this area, concedes that there
is ample textual justification for the view that the Commonwealth generally
can enforce its law against States' revenues, if necessary, and that the
contrary view rests upon 'implication'.74 This being so, what can justify
an implication that may frustrate the exercise of national power, yet serve
no immediate obvious practical goals?75
(c) State Taxation of Commonwealth Pensions and Salaries

In West v. Commissioner of Taxation (N.S.W.y6 the High Court held
that the State could validly levy a general income tax upon a pension
received by a retired federal employee. 77 Latham C.I., Starke and Evatt JJ.
contended that, after the Engineers' Case, there was no constitutional im-
pediment to the States levying a general income tax on Commonwealth
pensions and, further, there was no inconsistency between a Common-
wealth Act fixing a pension, and a non-discriminatory State Act taxing
that pension. (This view of course rejected the attempt in the Engineers'
Case to explain the early cases granting Commonwealth salaries immunity
73 Conceivably the situation would still have been resolved by the dismissal of the
Lang government. But that solution, bitterly controversial at the time, could hardly
be acceptable today. Cf. Evatt, The King and His Dominion Governors (2nd ed.
1967) 165 ff.
74 Howard, Australian Federal Constitutional Law (1968) 60. He refers in particular
to ss.78 and 51 (xxxix).
75 The Supreme Court of the United States has held that it is prepared to execute
a jUdgment for money against a State. Virginia v. West Virginia (1918) 246 U.S. 565.
Although this was a suit between States, the judgment makes it plain that the posi-
tion would be the same if the suit were brought by the United States. Ibid. 601-03.
In the Garnishee Case (No. 1) Starke J. referred to Virginia v. West Virginia but
rejected it as savouring 'too much of the exercise of the political power to be within
the proper province of the judicial department'. (1931) 46 C.L.R. 155, 186. On the
other hand McTiernan J. seemed to accept the principle of the case. Ibid. 311-32.
76 (1937) 56 C.L.R. 657. . .
77 The States were able to tax the salaries of Commonwealth offiCials by VIrtue of
the Commonwealth Salaries Act 1907 (Cth) upheld in Chaplin v. Commissioner of
Taxes (S.A.) (1911) 12 C.L.R. 375. Supra p. 39, n. 32. The 1907 Act did not touch
pensions.
from State taxes 78 as resting upon the inconsistency of the Commonwealth
Acts specifying the salary and the State taxing Acts). Rich, Dixon and
McTiernan H. laid more stress upon the terms of the Commonwealth
legislation, which empowered the Governor-General to prescribe the extent
to which the pensions should be subject to State taxes. Since no regulations
had been prescribed, the legislation was said to demonstrate that the Com-
monwealth contemplated the imposition of State taxation ,upon the pensions
and thus there was no inconsistency between the Commonwealth legislation
and the State income tax. This approach is open to the interpretation that
had the Commonwealth legislation not authorized the regulations-that is,
if the legislation merely specified the value. of the pensions-the result
may have been different. However, whether or not this is so, the judgments
cast no doubt upon the rejection by the Engineers' Case of a constitutional
basis for the immunity of Commonwealth salaries or pensions from a
general State income tax. 79 They merely leave open the possibility that a
Commonwealth Act which, without more, fixes a salary or pension will be
inconsistent with a State law taxing that salary or pension.
Wesfs Case also provoked a discussion of the competency of the Com-
monwealth to legislate so as to exclude the application of State income
tax from Commonwealth pensions or salaries. Latham c.J., relying partly
upon the views expressed in Pirrie v. McFarlane,80 considered that the
Commonwealth clearly had power to clothe pensions with immunity.
Evatt J. was just as sure that the grant of immunity would be beyond
power. The High Court in Australian Coastal Shipping Commission v.
0' Reilly 81 has now accepted Latham c.rs views, in holding that section
51(i), the trade and commerce power, authorized legislation which accorded
the Commission immunity from State taxation to which the Common-
wealth itself was not subject. The majority adopted the American position
that the power to establish a corporation, in this case to conduct a national
shipping line, carried with it the power to protect that corporation from
'the embarrassment of taxation by the various States'.81a If the proposition
for which 0' Reilly stands is right (and it appears to be as settled as any
78 Deakin and Lyne v, Webb (1904) 1 c'LR. 588; Baxter v. Commissioners of
Taxation (N.S.W.) (1907) 4 C.LR. 1087. This view also required a reassessment of
Chaplin's Case because it could no longer be explained (a) as a case of waiver of
constitutional immunity nor (b) as a case of removal of the inconsistency always
existing between Commonwealth salaries legislation and State taxing Acts. Starke J.
(and semble Latham c'J.) saw the 1907 Act as amounting to a grant of immunity to
Commonwealth employees, except where the State taxation measure was non-dis-
criminatory. (1937) 56 C.L.R. 657, 678. Evatt J., who rejected the power of the Com-
monwealth to grant its instruntentalities immunity, argued that the result in Chap-
lin's Case would have been the same with or without the 1907 Act because the
States always had power to levy general taxes upon Commonwealth salaries or pen-
sions. Ibid., 695-96.
79 McTiernan J. expressly accepted the Engineers' Case on this point. (1937) 56
C.LR. 657, 711-13.
80 (1925) 36 C.LR. 170. Supra p. 44, n. 56.
81 Australian Coastal Shipping Commission v. O'Reilly (1962) 107 C.LR 46.
81a Ibid. 55. McTiernan J. reached the same result by relying upon s.51 (xxxix),
the incidental power. Menzies J. dissented. The leading Supreme Court case is
Pittman v. H.O.L.C. (1939) 308 V.S. 21. See supra p, 25, n. 59.
principle in this area) it reinforces the correctness of the result in Wesf s
Case. If the Commonwealth has power to shield its instrumentalities from
State taxation (or State regulation, as in Pirrie) the decision whether or not
to protect those instrumentalities is one that can safely be left to Parliament.
The High Court cannot assess the extent to which the tax interferes with
the exercise of Commonwealth functions; only the Parliament is equipped
to do that. Consequently the High Court's role is to enforce State measures
until the Commonwealth Parliament itself calls a halt. On this analysis,
the onus should be upon Parliament to create an immunity. Thus the
preferable view is that there is no inconsistency between a general State
tax, and, say a Commonwealth Act specifying salaries.
(d) The Uniform Tax Cases

In 1942 the Uniform Tax Case,82 the most significant case in the long
march to Commonwealth dominance and State subservience in Australia,
was decided. The Court hearing the case did not include Dixon J. who was
then temporarily away from the Bench acting as war-time ambassador to
the United States. 83 The scheme of legislation upheld in the Uniform Tax
Case was designed to cope with the exigencies of war, but its basic structure
has remained a permanent part of the Australian landscape reducing the
States, potentially at least, to puppets of the Commonwealth. The purpose
of the scheme was the exclusion of the States from the field of taxing of
income, the imposition by the Commonwealth of uniform rates of taxation
and the reimbursement by the Commonwealth to the States of the amounts
formerly raised by them through income taxes. The scheme consisted of
four Acts: the Taxation Act 1942 imposing income tax at high rates so
that it was politically impossible for the States to levy their own income
taxes; the Income Tax Assessment Act 1942 giving priority to Common-
wealth taxes over State taxes; the States Grants (Income Tax Reimburse-
ment) Act 1942 authorizing annual grants to the States approximately
equivalent to their former income tax revenue on condition that they im-
posed no income tax themselves; the Income Tax (Wartime Arrangements)
Act 1942 permitting the Commonwealth to take over State taxation depart-
ments temporarily. Although the various judgments differed to some extent
in their reasoning and there were dissenters as to the Grants and Arrange-
ment Acts,84 the scheme was upheld. The basic reason was that each Act
had to be considered separately, even though it was clear that the four
Acts formed part of a single scheme. The Taxation Act was a valid law
82 South Australia v. Commonwealth (1942) 65 C.L.R. 373.
83 Sawer theorizes that the absence of Dixon J. from the Bench conceivably could
have made a difference to the result. Sawer, Australian Federalism in the Courts
(1967) 134.
84 The Grants Act was held valid by Latham C.J., Rich, McTiernan and Williams
JJ.; Starke J. dissented. Latham C.J. and Starke J. dissented from the holding that
the Arrangements Act was valid. For an analysis of this case and legislative schemes
in general see Singh, 'Legislative Schemes in Australia' (1964) 4 M.U.L.R. 355. See
also Deputy Federal Commissioner of Taxation (N.S.W.) v. Moran (1939) 61 C.L.R.
735, aff'd. (1940) 63 C.L.R. 338, [1940] A.C. 838.
with respect to taxation and the priority provisions of the Assessment Act
could also be characterized as a law with respect to taxation. 85 The Grants
Act rested on section 96 of the Constitution, which authorizes the Com-
monwealth to 'grant financial assistance to any State on such terms and
conditions as [it] thinks fit'.86 Section 96 was interpreted literally: the
Commonwealth could make grants to the States on any conditions at all,
including those designed to induce a State to exercise or refrain from
exercising its powers in a particular manner. Finally, the Arrangements Act
was upheld as a valid exercise of the defence power, despite the dissenters'
argument that there was no reasonable connection between the prosecution
of the war effort and the taking over by the Commonwealth of the State
taxation deparments.
It was argued in the Uniform Tax Case that the scheme as a whole and
the Grants Act in particular amounted to an unconstitutional interference
with the legislative powers of the States. This was because the Common-
wealth was effectively arrogating to itself the power to control State legis-
lation on an essential State function. Only Starke J. accepted the argument,
the others relying upon the distinction between a direct regulation of State
legislative power and a mere inducement to the States to act or refrain
from acting however strong an inducement might be, the States were always
free to disregard it and therefore there was no unconstitutional interference
with their powers.87 However attractive this distinction in theory, it is,
as a practical matter, specious. The States have no real choice but to obey
the command of the Commonwealth expressed in the form of a financial
inducement, if the Commonwealth is resolute enough. The alternative is
either financial or political ruin or both. This is not to say that the States
are without political safeguards. Obviously the Commonwealth cannot
ignore the wishes of the State governments altogether, particularly if they
are of the same political complexion as the current federal government.
In practice the financial relations between States and Commonwealth are
the result of a complex of negotiations, institutional and informal, in which
the Commonwealth, for a variety of reasons, must pay heed to the States
despite its dominant position. 88 This is illustrated by the recent reintro-
duction in several States of an income tax, masquerading in the guise of
a receipt duty, that has not yet drawn reprisals from the Commonwealth. 89
No doubt the Commonwealth has decided for political reasons-the well-
publicised chronic financial troubles of the States and the light burden of
85 McTiernan J. relied upon the defence power to uphold these provisions.
86 Williams J. relied upon the defence power.
87 Victoria v. The Commonwealth (Roads Case) (1926) 38 C.L.R. 399.
88 Sawer, Australian Federalism in the Courts (1967) 145-46.
89 The Victorian legislation is found in the Stamps Act 1958, ss.50-53L inserted by
the Stamps Act 1967. The 'receipt duty' is at the rate of lc. in $10. Western Australia
and Queensland had previously enacted similar legislation. The expressed justifica-
tion for the imposition of the tax was Victoria's dissatisfaction with the amount of
'tax reimbursements' received from the Commonwealth last negotiated in 1965. See
generally Victoria Parliamentary Debates, Legislative Assembly, 24 October 1967,
1173-1228; Victoria Parliamentary Debates, Legislative Council, 14 November 1967.
1721-60.
the State tax-not to intervene. But if the Commonwealth were minded
to prevent the States from levying an income tax, there is no doubt that
it could do so. The point of the First Uniform Tax Case is that section 96
of the Constitution has become the key to the working of Australian
federalism.
Subject to the new, small-scale State income taxes, the broad scheme
of uniform taxation has continued in Australia to the present time, despite
a peacetime challenge in the Second Uniform Tax Case (1957).90 By 1957
the Arrangements Act had ceased to operate, but otherwise the same
scheme was in force and was clearly intended to operate permanently. The
High Court, including Dixon C.J., reaffirmed the main holdings of the
earlier decision, except that the provision conferring priority to federal
income tax over State income taxes was struck down as not being incidental
to the taxation power.91 This in no way destroyed the efficacy of the
scheme as a whole. Dixon C.J. intimated that if section 96 were being
interpreted for the first time, he might have been prepared to hold that
it did not permit the Commonwealth to control the exercise of the legis-
lative powers of the State. But the course of authority precluded such a
holding and the view adopted in the First Uniform Tax Case was but a
logical application of the earlier authorities. His judgment seems to concede
that, since a grant by the Commonwealth merely induces the State to
adopt a particular course of action rather than compels it to do so, the
Court can place no limit upon the power to make grants upon conditions.92
Given the complex economic problems of a modem industrial society
and the role of taxation in solving those problems, substantial central
control over taxation is inevitable. It would be intolerable if Common-
wealth fiscal policy could be frustrated by the unco-ordinated taxing
activities of six State governments. In short the High Court was obliged,
as a matter of policy, to sanction uniform taxation in one form or another.
But it must be remembered that the result of the two Uniform Tax Cases
was to destroy both the factual and legal basis of a claim that the States
in the Australian federal system are 'independent'. 98 This was recognized
in the plainest of terms by Latham c.J. in the First Uniform Tax Case: 94
Thus, if the Commonwealth Parliament Were prepared to pass such legislation
[excluding the States from all tax fields and making grants conditional on
Commonwealth satisfaction with State policies] all State powers would be
controlled by the Commonwealth-a result which would mean the end of
the political independence of the States. Such a result cannot be prevented
by any legal decision . . . The remedy for alleged abuse of power or for
the use of power to promote what are thought to be improper objects is to
be found in the political arena and not in the courts.
90 Victoria v. The Commonwealth (1957) 99 C.L.R. 575.
91 The provision was s.221 Income Tax and Social Services Contribution Assess-
ment Act (Cth) 1903-56. Dixon C.J., Kitto, McTiernan and Taylor JJ.; Williams,
Webb and Fullagar JJ. dissenting. 92 (1957) 99 C.L.R. 575, 609-11.
93 Anderson, 'The States and Relations with the Commonwealth' in Else-Mitchell
Essays on the Australian Constitution (2nd 00. 1%1) 100-06.
94 (1942) 65 C.L.R. 373, 429.
In considering the assumptions lying behind the revival of the implied
immunity doctrine in Australia it is well to keep the Uniform Tax Case
in mind.
4. Revival of Implications in Constitutional Interpretation

Unlike the United States, where the Supreme Court has progressively
minimized the breadth of implied constitutional limits on legislative power,
the High Court of Australia has revived the importance of such implied
limits. The revival has not been dramatic, but, on the contrary, has taken
place over a number of years and may well be incomplete even now.
There are two main reasons for this. First, Australian constitutional de-
velopment is necessarily impeded by the relatively few cases that reach
the High Court. A nation of twelve millions simply does not produce the
same quantity of constitutional litigation as is generated in the United
States. Consequently the primary task of the High Court is not, it must
be remembered, constitutional adjudication. Secondly, the revival of consti-
tutional implications has had to meet the doctrinal difficulties posed by the
Engineers' Case. Since the Court, in the tradition of Anglo-Australian
judicial method (a tradition not, however, notably evidenced by the early
history of the implied immunities doctrine in Australia), has been un-
willing to overturn the rule of that case the modifications to it have
developed piecemeal, in the form of exceptions to the rule. This process
is not conducive to swift and radical reversals of doctrine.
In assessing the revival of implications, it is important to appreciate the
influence of Sir Owen Dixon upon the development. As a Justice and later
Chief Justice of the High Court his influence upon the High Court finds
no parallel in the United States constitutional history except, perhaps, for
the unique case of John Marshall. In spearheading the revival Dixon J. was
acting pursuant to a coherent theory of federalism which he was seeking
to impose upon the governmental structure. And this was so despite his
claims to be merely interpreting the text of the Constitution in a strictly
legalistic manner.95 The Dixonian theory, which strikes at the heart of the
Engineers' Case doctrine, is based upon two assumptions:
(a) that one government will not restrain, hinder, burden or control
another in the exercise of its functions;
(b) that the Commonwealth and States will continue to exist as inde-
pendent entities. 96
It is necessary to turn briefly to the cases to trace the development of
the theory and its application by the High Court.
In the A.R.U. Case and in West's Case Dixon J. took the opportunity
in his concurring judgments to chip away at the doctrine of the Engineers'
Case. In West he rejected the notion that no implications could be made
in interpreting the Constitution.
95 Supra p. 18, n. 15.
96 Zines, 'Sir Dwen Dixon's Theory of Federalism' (1965) 1 Federal Law Review
221, 241.
Such a method of construction would defeat the intention of any instrument,

but of all instruments a written constitution seems the last to which it could
be applied. I do not think . . . the majority of the Court in the Engineers
Case meant to propound such a doctrine. 97
He suggested that there were at least two matters which the general
principle of that case had not intended to embrace. An express exception
to the principle was legislation affecting the prerogative powers of the
States. 98 In addition, the Engineers' Case (although it did not consider the
issue) did not intend to cover legislation by one government discriminating
against the other:
Surely it is implicit in the power given to the Executive Government of the

Commonwealth that the incidents and consequences of its exercise shall not
be made the subject of special liabilities or burdens under state law. 99
Thus he considered that a State law discriminating against, say, Common-

wealth salaries would not only be inconsistent with the Commonwealth
legislation appropriating the salaries but would be struck down on consti-
tutional grounds. 1 Not content with formulating these exceptions to the
principle of the Engineers' Case, Dixon J. restated the principle itself in
a manner that suggested the possibility of even further exceptions:
The principle is that whenever the Constitution confers a power to make

laws in respect of a specific subject matter, prima facie it is to be understood
as enabling the Parliament to make laws affecting the operations of the
States and their agencies. The prima facie meaning may be displaced by
considerations based on the nature or the subject matter of the power or
the language in which it is conferred or on some other provision in the
Constitution. 2
The Engineers' Case, of course, had said nothing about the prima facie
meaning being displaced by the nature of the Commonwealth power.
Shortly after his return to the Bench at the conclusion of World War 11,
Dixon J. took the opportunity to create a further exception to the Engineers'
Case. One question before the High Court was whether a Victorian Act
levying municipal rates upon 'every person who occupies' ratable property
could be applied to the Commonwealth (the Army) as occupier of ratable
(1937) 56 C.L.R. 657, 681-82.

97
Cf. Commonwealth v. Cigamatic Pty Ltd (1962) 108 C.L.R. 372 overruling
98
Uther v. Federal Commissioner of Taxation (1947) 74 C.L.R. 308. Infra nn. 38-55.
99 (1937) 56 C.L.R. 657, 681. It has been shown that the judgment of Isaacs J. in
the Engineers' Case did not intend to permit an implied constitutional prohibition
even against discriminatory legislation. Sawer, 'Implication and the Constitution'
(1948-49) 4 Res Judicatae 15, 85. Zines, Sir Owen Dixon's Theory of Federalism
(1965) Federal Law Review 221, 224-5.
1 Evatt J. agreed that 'neither the Commonwealth nor a State legislature is at liberty
to direct its legislation towards the destruction of the normal activities of the Com-
monwealth or States'. Such an implication was not inconsistent with the rejection of
the implied immunities doctrine, although it was inconsistent with the idea that
there could be no constitutional implications at all. (1937) 56 C.L.R. 657, 687.
2 Ibid. 682. Author's italics.
land. 3 Four members of the Court disposed of the case by construing the
Act so as not to apply to the Crown in right of the Commonwealth. 4
Dixon J. chose the higher ground that 'the State may not levy a tax directly
upon the Commonwealth in respect of the execution of its duties or the
exercise of its functions'.5 He contended that the Engineers' Case had ex-
pressly reserved the question of taxation for later consideration: 'because
of the special nature of the power to tax it was considered that there might
be implied restraints upon its use to which the legislative powers of neither
government were generally subject'. 6 His survey of the American authorities
led to the conclusion that the bulk of the old immunity doctrine had been
abandoned, but the abandonment was now complete and the basic immu-
nity of the property, functions and instrumentalities of the federal govern-
ment remained. Insofar as Dixon J. was contending that on similar facts
the Supreme Court would have accorded immunity to the federal govern-
ment, he was plainly right (although there would have been no difficulty
in taxing the owner of the land by suitably framed legislation). However,
the suggestion that the process of limiting the doctrine was complete was
far from accurate. This is demonstrated by Dixon J.'s strong reliance upon
United States v. Allegheny County/ which invalidated a tax upon the
value of government owned property leased by a government contractor,
the tax being payable by the contractor. It is quite clear that the case
would be decided differently today on the ground that the immunity ex-
tends omy to taxes levied 'on' the federal government itself.8
It might be added that Dixon J.'s analysis of the Engineers' Case was
hardly convincing. The judgment there did not refer to taxation for the
purpose of admitting implied limits upon Commonwealth power.9 Further,
his justification for the creation of the new Commonwealth immunity, was
not persuasive despite a rare moment of Dixonian rhetoric.
It is hardly necessary at this stage of our constitutional development to go
over the considerations which make it impossible to suppose that the Con-
stitution intended that States should levy taxes upon the Commonwealth-
the nature of the Federal Government, its supremacy, the exclusiveness or
paramountcy of its legislative powers, the independence of its fiscal system
and the elaborate provisions of the Constitution governing the financial rela-
tions of the central government to the Constituent States. To describe the
establishment of the Commonwealth as the birth of a nation has been a
common place. It was anything but the birth of a taxpayer. lO
3 Essendon Corp. v. Criterion Theatres Ltd (1947) 74 C.L.R. 1.
4 Latham C.l. argued that if the Act applied to the Commonwealth it would have
imposed a tax on the property of the Commonwealth in violation of s.114. Thus
it should not be applied. Ibid. 13-14. Williams and Rich JJ. considered that the
prima facie presumption that legislation does not intend to embrace the Crown in
any capacity had not been displaced. Ibid. 15-16, 30. McTiernan l. held that the
words 'every person' were not applicable to a body corporate such as the Common-
wealth. Ibid. 28.
5 Ibid. 17. He expressly did not decide the case on the basis of s.114. The tax was
not levied on any 'property' of the Commonwealth as its occupation was for a tem-
porary purpose and was not a property right. Ibid. 6 (1947) 74 C.L.R. I, 19
7 (1944) 322 U.S. 174. 8 Supra pp. 27-28, nn. 70-78.
9 Supra p. 44, n. 54. 10 (1947) 74 C.L.R. 1, 22.
The same considerations may be employed to reach the conclusion that the
Commonwealth may indeed be a taxpayer. Since the Commonwealth is
supreme, it can protect itself against State taxation as the need arises, as
it did in O'Reilly's Case. 10a Thus, supremacy suggests that States should
be free to tax the Commonwealth until the latter calls a halt. Certainly
there is nothing in the idea of Commonwealth paramountcy (in the sense
that valid Commonwealth laws prevail over inconsistent State laws) to
indicate that the States are constitutionally disabled from taxing Common-
wealth functions. Similarly with the 'elaborate provisions' of the Constitu-
tion. Why, for example, was section 114 inserted if the intention was to
accord immunity to all Commonwealth functions? Does not the specific
mention of Commonwealth property in that section indicate that the States
could validly tax the Commonwealth provided the tax was not 'on' pro-
perty? The argument cannot be characterized as 'impossible'.
The new implied immunity doctrine was applied directly for the first
time in the State Banking Case l l to strike down section 48 of the Com-
monwealth Banking Act 1945. Section 48 provided that '[e]xcept with the
consent in writing of the Treasurer, a bank shall not conduct any banking
business for a State or for any authority of a State, including a local
governing authority'. The Labour Government intended by this measure
to achieve the concentration of all governmental accounts in the Common-
wealth Bank and consequent Commonwealth control of State banking
operations. 12 The High Court held the section invalid, by a majority of
five to one. 13
The Commonwealth had enacted section 48 pursuant to its power in
section 51 (xiii) of the Constitution to make laws 'with respect to . . .
[blanking, other than State banking'. The main difficulty arose from the
majority's view that the section, although directed in form to the banks,
was in reality a law discriminating against the States. The characterization
of the law by Latham CJ. was typical of the majority:
It singles out States and State agencies and creates a rule for them and for
no others. It is in substance legislation about States and State authorities. It
can fairly be described as being aimed at or directed against the States. 14
This led the Chief Justice to the conclusion that the law was invalid be-
cause in substance it was not a law 'with respect to' banking, but with
respect to State functions. 15 The other four majority judges interpreted the
banking power broadly and concluded that the section was prima facie a
law with respect to banking. Further, the law did not come within the
State banking exception, since that phrase referred to the State as banker
(1962) 107 C.L.R. 46, supra n. 81a.
lOa
Melbourne Corp. v. The Commonwealth (1947) 74 C.L.R. 31.
11
12 Holmes, 'Back to Dual Sovereignty' (1948) 21 Australian Law Journal 162.
13 Latham C.l., Rich, Starke, Dixon and Williams H.; McTiernan l. dissenting.
14 (1947) 74 C.L.R. 31, 62.
15 See also his judgment in West v. Commissioner of Taxation (N.S.W.) (1937) 56
C.L.R. 657, 668-69. There are of course grave difficulties in applying this approach.
MAy 1969] Immunity 0/ Instrumentalities 57
rather than customer. Nevertheless the law was held to be invalid because
it discriminated against the States. Extensive references were made to the
various opinions in New York v. United States 16 to support the argument
that the very minimum implication from the federal Constitution was that
neither government had power to discriminate against the other. In the
words of Dixon J. :
the efficacy of the system logically demands that, unless a given legislative
power appears from its content, context or subject matter so to intend, it
should not be understood as authorizing the Commonwealth to make a law
aimed at the restriction or control of a State in the exercise of its executive
authority. 17
Of the majority, only Williams J. admitted the possibility of qualifications

to this general principle. 'Many emergencies could arise which would
justify the Commonwealth enacting legislation under the defence power
during hostilities which would discriminate against a State or States.'18
This was a prudent, if somewhat anomalous, qualification which permitted
the Court to avoid potentially disastrous consequences flowing from an
over-rigid application of the discrimination doctrine.
Dixon J.'s argument has been subjected to destructive analysis by Pro-
fessor Sawer who has demonstrated that the conclusion is not 'logically'
compelled, but rather derives from an assumption about the nature of
federalism which does not necessarily receive support from the text of the
Constitution. 19 In particular, sections 51 (xiii) and 51 (ii) (the taxation
power) expressly provide a measure of State immunity from federal regu-
lation suggesting that 'the States and. the Commonwealth are to be subject
to each other's laws unless expressly excepted'.20 To this can be added two
other criticisms. First, it is futile to attempt to shore up the powers of the
States by implications based upon assumptions that, at least since the
Uniform Tax Cases, lack a solid factual foundation, let alone textual sup-
port. Secondly, Dixon J. places reliance upon New York v. United States
to establish the proposition that federal laws which discriminate against
the States are necessarily invalid. But it must be remembered that the re-
marks in that case concerning discriminatory legislation were directed only
to federal tax laws. The case says nothing about laws enacted under some
other head of power and, as we have seen, the trend of the commerce
clause cases suggests that if there is a rational basis for the discriminatory
enactment, it will be upheld. 21
Rich and Starke JJ. adopted a similar approach to that of Dixon J.,
contending that the Constitution necessarily envisaged the continued exis-
16 (1946) 326 U.S. 572.
17 (1947) 74 C.L.R. 31, 83.
18 Ibid. 99.
19 Sawer, 'Implications and the Constitution' (1948-49) 4 Res Judicatae 15, 19-21,
85.
20 Ibid. 20.
21 Supra pp. 51-54, nn. 85-99, 1-2.
tence of the States and Commonwealth as functioning entities in a dual
system. Such a constitutional structure could not countenance either gov-
ernment seeking specially to control the other. in the exercise of its func-
tions. 22 Again, as Professor Sawer shows,23 although there are specific
references in the Constitution to certain State functions there is no neces-
sary guarantee of the continued existence of the States. Certainly there is
nothing in the text of the document warranting the assumption that specific
Commonwealth powers must be limited to preclude interference, discrimi-
natory or otherwise, with State functions.
McTiernan J.'s dissenting judgment expounded and applied the prin-
ciples of the Engineers' Case in a perfectly straightforward manner. The
language of section 51 (xiii) made it quite plain that the Commonwealth
could legislate to bind the States. On the ordinary rules of construction,
freed from the implied restrictions on Commonwealth power disapproved
in the Engineers' Case, the banking power could be employed to its fullest
extent. 24 Significantly, McTiernan J., alone of the Court, displayed a lively
awareness of the economic necessity for a central bank to control the ex-
pansion or contraction of government credit. His point was not to assess
the merits of the legislation but to demonstrate that section 48 was a law
concerned with banking transactions and not merely the regulation of State
agencies. The implication was that the Court was delving into issues
beyond its special competence.
An issue unresolved by the State Banking Case was the extent to which
the reasoning could be used to strike down non-discriminatory legislation
affecting either the States or Commonwealth. Dixon J. was concerned only
to discuss discriminatory laws and indeed suggested that the States were
obliged to accept the legal system as they found it. Thus, he hinted, the
States could not complain if the Commonwealth 'lawfully' established a
monopoly in banking. 25 However, although his approach has been said to
have the virtue of 'precision'26 the criteria for deciding whether a law is
discriminatory were not made entirely clear. At one point Dixon J. seemed
to suggest a test based on the purpose of the legislation,21 elsewhere he
spoke of attempts 'to isolate the State from the general system'.28The dis-
tinction, while clear enough on the surface, would be difficult to apply to,
say, Commonwealth legislation framed in general terms, but which in fact
22 (1947) 74 C.L.R. 31, 66, 70. Cf. the judgments of Latham C.J., ibid. 55-56 and
Dixon J., ibid. 81-82. Williams J. presented a similar argument, ibid. 98-99, although
he also partly relied on a characterization approach.
23 Sawer, 'Implications and the Constitution' (1948-49) 4 Res ludicatae 15, 18-19,
85.
24 (1947) 74 C.L.R. 31, 88-89.
25 Ibid. 84. Presumably his statements were subject to exceptions for taxation laws
(Essendtm Corp. Case) and laws affecting the prerogative (see the dissent of Dixon J.
in In re Foreman & Sons Pty Ltd; Uther v. Federal Commissioner of Taxation
(1947) 74 C.L.R. 508). Cf. Bank of New South Wales v. The Commonwealth (1948)
76 C.L.R. 1, 338.
26 Howard, Australian Federal Constitutional Law (1968) 67.
21 Supra p. 57, n. 17, passage cited.
28 (1947) 47 C.L.R. 31, 84.
imposes an especially severe burden upon the States. 29 He also suggested
that the immunity of the federal government might be affected by different
considerations because of the supremacy of the Commonwealth. 30 But he
did not elaborate and it must be remembered that in West's Case he was
prepared to strike down legislation discriminating against Commonwealth
pensions on constitutional grounds.
Starke, Rich and Williams JJ. were prepared to accept that a general law
which in its application to the States prevented or impeded the perfor-
mance of 'normal and essential functions of government' might be invalid.31
relying in part on passages in the opinions in New York v. United States.
They were apparently prepared to accept the doctrine as reciprocal. Starke
J. stated the rule to be 'that neither federal nor State governments may
destroy the other nor curtail in any substantial manner the exercise of its
power or obviously interfere with one another's operations'.32 However he re-
jected the old dichotomy between essential and trading governmental
functions, leaving it quite unclear what functions were protected. No
attempt was made to provide a standard for determining what kind of law
might be an interference with such functions, nor to explain how the new
formula would overcome the inconsistencies and absurdities of the old
immunities doctrine. After all, that doctrine was thought to rest upon the
mutual independence and continued existence of the States and Common-
wealth free from interference in the exercise of their functions.
The limited discussion of the relevant American authorities revealed,
with respect, an imperfect understanding of the practical difficulties that
led to the drastic restriction of the immunities doctrine in the United
States. In particular, Starke J. seemed to approve of the broad doctrine
that once held sway and he sternly characterized the more recent restric-
tions of its scope as depending upon 'practical considerations rather than
juristic principles'.33 He relied upon statements in New York v. United
States to support the view that a non-discriminatory law might be uncon-
stitutional as applied to certain State activities. However those statements
were obiter and in any event were limited to the problem of the federal
government levying a tax upon the States. The Supreme Court has clearly
decided, in the context of the commerce clause, that the States cannot
claim exemption from federal regulation.
Despite the breadth of these views, an opportunity to expand the scope
of the revived immunities doctrine was not seized in the Bank N ationaliza-
tion Case. 34 The Commonwealth Labour government, responding to
Dixon J.'s apparent invitation in the State Banking Case, attempted to
29 An example might be customs duty (or a prohibition) imposed upon the import
of goods in fact used only by States. Cf. Steel Rails Case.
30 (1947) 74 C.L.R. 31, 84.
31 Ibid. 66, 74, 98-99.
32 Ibid. 74.
33 (1947) 74 C.L.R. 31, 71. He referred particularly to Helvering v. Gerhardt (1938)
304 V.S. 405.
34 Bank of New South Wales v. The Commonwealth (1948) 76 C.L.R. 1.
nationalize the private banks and thereby give the Commonwealth a

monopoly of all banking. The legislation was struck down on a variety of
grounds, but the argument that it was invalid as an undue interference
with the administration of State governments was rejected. A distinction
was drawn between legislation placing the States under a particular dis-
ability and general legislation establishing a particular form of organiza-
tion for the whole community. The States had to accept the general legal
system as they found it notwithstanding that, as far as they were concerned,
the result of this legislation was identical with that of the legislation in-
validated in the State Banking Case. 35 The conclusion clearly amounted to
a rejection of the broad doctrines hastily asserted in the earlier case. 36 Again,
as has been seen,37 the Second Uniform Tax Case declined to apply the
principles of the State Banking Case on the ground that the legislation did
not compel the States to do anything, but merely offered them inducements.
5. The Cigamatic Case-State Regulation of the Commonwealth

In 1962 the High Court decided the Cigamatic Case,38 which may prove
to be a landmark in defining the competence of the States to formulate
rules binding upon the Commonwealth. The issue was whether a State Act
prescribing an order of priority for the payment of debts owed by a com-
pany in liquidation, was binding upon the Crown in right of the Common-
wealth, which claimed a prerogative right to priority for debts owing to it
(sales tax and telephone charges). Precisely the same issue had been de-
cided adversely to the Commonwealth in Uther's Case 39 in 1957, with
Dixon J. the sole dissenter. The extraordinary influence of Dixon c.J.
over the High Court was demonstrated in Cigamatic where a majority40
acceded to his view and overruled Uther.
In Uther the majority held that the Commonwealth Acts imposing the
charges (sales tax and payroll tax) did not attempt to confer priority on
those charges in the event of liquidation, although the Commonwealth had
power to so provide if it wished. Further, they held that the State Act did
intend to bind the Crown in right of the Commonwealth and thus limit its
prerogative right to priority. Finally they decided that there was no con-
stitutional impediment to the States binding the Commonwealth in this
manner. The Commonwealth was necessarily subject to much State law,
such as the rules of contract or property. The power of the States to legis-
late for their own peace, order and good government permitted them to
35 (1948) 76 C.L.R. I, 337-40 per Dixon J.

36 (1948) 76 C.L.R. 1, 325-26 per Starke J.; ibid. 397 per McTiernan J
37Supra p. 52, nn. 90-92.
38The Commonwealth v. Cigamatic Ply Ltd (1962) 108 C.L.R. 372. For a more
detailed analysis than is possible here see Sawer, 'State Statutes and the Common-
wealth' (1961) 1 Tasmania University Law Review 580.
3,9 In re Richard Foreman & Sons Pty Ltd; Uther v. Federal Commissioner of
Taxation (1947) 74 C.L.R. 508.
40 Dixon C.J., Kitto, Menzies, Windeyer and Owen JJ.; McTiernan and Taylor JJ.
dissenting.
abrogate the Commonwealth's prerogative until the Commonwealth chose
to confer priority upon itself by legislation. This did not mean that State
legislation could always bind the Commonwealth-legislation, for example,
attempting to regulate the Governor-General's power of dissolution would
be invalid as unrelated to the peace, order and good government of the
State. 41
Dixon J. was not content with this apparently simple exposition of prin-
ciple. He contended that it was beyond State competence to destroy the
Commonwealth's priority.42 One reason was a narrow one-the priority
sprang from the prerogative and he had previously excluded prerogative
powers from the Engineers' Case doctrine. 43 But the bulk of his analysis
rested on a much broader proposition: State law could not of its own force
regulate the relationship between the Commonwealth and its subjects,
although '[g]eneral laws made by a State may affix legal consequences to
given descriptions of transaction and the Commonwealth, if it enters into
such a transaction, may be bound by the rule laid down'.44 It was fal-
lacious, in considering the residual powers of the State to reason as though
the States were granted specific heads of power.
In the present case the fallacious process of reasoning could not begin from
s.107 as the error has so commonly done in the past. For it is not a question
whether the power of the Parliament of a Colony becoming a State con-
tinues as at the establishment of the Commonwealth. The Colony of New
South Wales could not be said at the establishment of the Commonwealth
to have any power at all with reference to the Commonwealth. Like the
goddess of wisdom the Commonwealth uno iclu sprang from the brain of
its begetters armed and of full stature. At the same instant the Colonies
became States; but whence did the States obtain the power to regulate the
legal relations of this new policy with the subjects? If formed no part of
the old colonial power. The Federal Constitution does not give it. Surely it
is for the peace, order and good government of the Commonwealth, not for
the peace, welfare and good government of New South Wales, to say what
shall be the relative situation of private rights and of the public rights of the
Crown representing the Commonwealth, where they come into conflict.4 5
The result of this analysis 46 seems to be that the States are constitution-
ally incompetent to regulate the Commonwealth's relations with its sub-
jects. This incompetence does not derive from an implied immunity for
Commonwealth governmental functions, but from an alleged historical
41 See generally the judgment of Latham c.J., In re Richard Foreman and Sons
Pty Ltd; Uther v Federal Commissioner of Taxation (1947) 74 C.L.R. 508, 520-21.
42 Dixon J. had put forward the same views in obiter dicta in F. C. of T. v. Official
Liquidator of E. O. Farley Ltd (1940) 63 C.L.R. 278.
43 Supra p. 54, n. 98.
44 (1947) 74 C.L.R. 508, 528. The example is given of the Commonwealth con-
tracting with a company and being bound by the form of contract in the Companies
Act. See also Commonwealth v. Bogie (1953) 89 C.L.R. 229, 260 per Fullagar J. (if
the Commonwealth makes a contract in Victoria it may be bound by the provisions
of the Victorian Goods Act).
45 (1947) 74 C.L.R. 508, 530-31.
46 Shared by Fullagar J. in Commonwealth v. Bogie (1953) 89 C.L.R. 229.
incapacity of the States. 41 However the Commonwealth may apparently
subject itself to State law, presumably by entering transactions in a manner
implying an acceptance of State law (this may be the ground upon which
Pirrie v. McFarlane remains good law)48 or by adopting State law by re-
ference, as in sections 79 and 80 of the Judiciary Act. To illustrate the
unresolved issues that attend this analysis, it might be noted that section
79, which states that the laws of each State shall, except as otherwise pro-
vided by the Constitution or Commonwealth laws, be binding on all Courts
exercising federal jurisdiction in cases to which they are applicable, seems
to suggest that Cigamatic should have been decided the other way, although
the point was not considered by the High Court.483o
The argument of Dixon J. in Uther's Case (accepted by the majority in
Cigamatic49 seems to rest on the sheer logical impossibility of the· States
acquiring power to govern the relations between the new juristic entity,
the Commonwealth and its subjects. But, with respect, this view is not
logically compelled at all and an equally plausible argument can be made
the other way-an argument plausible enough to be accepted by the
majority in Uther's Case and by the dissenters in Cigamatic. The counter-
argument has as its starting point the proposition that the States both
before and after 1900 had the same power-to legislate for their own
peace, order and good government-although of course after 1900 this
power was subject to the express provisions of the Commonwealth Con-
stitution. The regulation of priorities of creditors in the liquidation of
companies within a State is obviously a matter for the peace, order and
good government of that State. The regulation, insofar as it embraces the
Commonwealth, does not merely affect the rights of the Commonwealth
vis-a-vis its subjects, for the Commonwealth is bound as part of a unified
scheme dealing with the distribution of company assets to creditors. Con-
sequently, despite the special character of the prerogative rights of the
Commonwealth, a State law purporting to regulate the priority of Com-
monwealth debts in liquidation proceedings is at least capable of answering
the description of a law for the peace, order and good government of the
State. As such it will remain in force until displaced by an inconsistent
Commonwealth law.
If it is true that each argument is equally plausible as a matter of logic,
surely the Court should apply that principle which is more conducive to
the effective working of government. In this case there is no doubt that
the Commonwealth is able to protect its tax revenues by conferring priority
upon taxation debts in liquidation or bankruptcy proceedings. None of the
47 Sawer, 'State Statutes and the Commonwealth' (1961) 1 Tasmania University Law
Review 580.
48 Howard thinks the case is overruled by Cigamatic. Australian Constitutional Law
(1968) 92-96. Sawer thinks the case may survive. Australian Federalism in the Courts
(1967) 138. In any event it will be necessary for the High Court to define the cir-
cumstances in which the Commonwealth is deemed to submit to State law.
4830 Cf. Musgrave v. The Commonwealth (1937) 57 C.L.R. 514, 547-48.
49 For detailed criticism see Sawer, 'State Statutes and the Commonwealth' (1961) 1
Tasmania University Law Review 580.
judgments in Cigamatic suggests that such a law would not be incidental
to the taxation power. Similarly, the Commonwealth is able to accord its
instrumentalities immunity from undesirable State regulation. There is no
compelling reason for the High Court to protect Commonwealth revenues
or the operations of Commonwealth instrumentalities pending federal
legislative action. The Commonwealth has only six State governments to
consider and it is hardly possible that the States, by applying their laws to
the Commonwealth, could frustrate the will of a resolute federal govern-
ment.
However, the main vice of the Cigamatic doctrine is not merely that it
is unnecessary, but that it is likely to discourage timely and considered
legislative solutions to problems such as that presented in the case itself.
As Taylor J. pointed out in his dissenting judgment,50 the position con-
cerning the priority of debts due to the Commonwealth was badly in need
of legislative reform, as there was a hotch-potch of apparently inconsistent
and incomplete statutes bearing on the issue. The decision removed any
incentive for the Commonwealth to clarify the general question of the
priority of debts due to it. A different result would have forced the federal
government to consider whether it wished to be bound by the order of
priorities stipulated in the uniform State companies legislation (drafted,
incidentally, on the assumption that Uther was good law) or whether a
new code regulating the priority of Commonwealth debts was required.
It must be admitted that the Cigamatic principle approximately corres-
ponds to current United States doctrine which, as we have seen,51 prevents
the States from regulating transactions to which the United States is a
party. This doctrine has been reached by a rather different route from that
employed by the High Court, being a relic of the broad immunity doc-
trine. 52 However the stringency of the American doctrine has been tem-
pered by the willingness of the Supreme Court to allocate law-making
competence rationally between the federal government and the States
according to their legitimate spheres of interest. The question that is asked
is whether the transaction is one of predominantly federal or State con-
cern, rather than whether the federal government has 'subjected itself' to
State law or waived its constitutional immunity.53 Thus State law has been
applied to an action by the United States in trespass to land, 54 but federal
law to claims by the United States for the loss of services of a soldier neg-
ligently injured by the defendant and for conversion of a cheque drawn
by the federal government. 55 No doubt the task facing the High Court is
50 (1962) 108 C.L.R. 372, 385, 388. 51 Supra pp. 34-35 nn. 9-13.
52 Some of the reasoning of Dixon C.J. is reminiscent of that employed by Mar-
shall C.J. in McCulloch v. Maryland (1819) 4 Wheat. 316, supra p. 19, n. 23.
53 Von Mehren and Trautman, The Law of Multi-State Problems (1965) Ch. viii;
Hart and Wechser, The Federal Courts and the Federal System (1953) Ch. 6, sect. 5.
54 Cotton v. United States (1850) 11 How. 229; Mason v. United States (1922)
260 V.s. 545.
55 United States v. Standard Oil of California (1946) 332 V.s. 301; Clearfield
Trust & Co. v. United States (1943) 318 V.S. 363. These two cases were referred to
by Dixon J. in his dissenting judgment in Uther. See also D'Oench, Duhme & Co. v.
F.D.I.C. (1941) 315 V.S. 447.
to detennine the circumstances in which the Commonwealth will be deemed
to submit to State law and perhaps in due course the two systems may
reach similar positions. But, given the conceptual origins of the Cigamatic
doctrine, it may be doubted whether the High Court will reach a satisfac-
tory accommodation of the competing interests in its self-imposed task. A
better solution would be to pennit the application of State law to Com-
monwealth transactions until the Commonwealth Parliament decides that
federal interests are adversely affected.
6. Summary
The present status of the revived implied immunity doctrine in Australia
IS uncertain. The High Court may confine the implied limits upon the
Commonwealth's power to regulate the States to the three 'exceptions' to
the Engineers' Case fonnulated by Dixon C.J.-Iaws relating to taxation or
the Crown prerogative and laws discriminating against the States. This is
suggested by the Professional Engineers' Case,56 in which Dixon C.J. dealt
with the question for the last time prior to his retirement from the Bench.
In his judgment, Dixon c.J. reaffirmed the subjection of the States to
Commonwealth power over interstate industrial disputes, applying the
orthodox Engineers' principle that, in general, Commonwealth powers
must be construed free of any implied restrictions. He made it quite clear
that the implied immunity argument could not be employed in any fonn
at all 57 to curtail the scope of Commonwealth power in section 51 (xxxv).
On the other hand some of the language in the State Banking Case sup-
ports a much broader doctrine which would proscribe any attempt by one
government to impede the other in the exercise of its functions. But this
language seems to have been conveniently forgotten. Yet even if the High
Court were to discard the excesses of the State Banking Case and to confine
the implied limits upon governmental power to the three exceptions to the
Engineers' Case, it could give these exceptions extremely wide scope. In
particular the taxation exception could give birth to immunities rivalling
the absurdities of the old doctrine itself. 58
The extent of State power to regulate Commonwealth activities is even
more obscure following the Cigamatic Case. The lesson of the decision
seems to be the absolute constitutional incapacity of the States to attach
legal consequences to the Commonwealth's relations with its subjects. The
one thing that is certain is that the Cigamatic doctrine must undergo con-
siderable refinement and modification as the full ramifications of the de-
cision are worked out by the High Court.
56 Ex Parte Professional Engineers Association (1959) 107 C.L.R. 208, 234. Ibid.
276 per Windeyer J.
57 The argument was that a dispute between a State and its employees performing
'governmental functions' could not amount to an industrial dispute within s.51
(xxxv). This was said to revive the old immunity doctrine in a new form. (1959) 107
C.L.R. 208, 234-35, 276.
58 The essential issues would be raised if the States decided to challenge the Com-
monwealth payroll tax which has been applied to them for a number of years.
The revival of the implied immunity doctrine in Australia has been the
product of an assumption that the Constitution necessarily envisages the
continued existence of the States and the Commonwealth as independent
entities unimpeded in the exercise of their functions. It has been submitted
that this assumption does not square with the legal and factual character
of Australian federalism. Not only are the States dependent upon the
Commonwealth for funds, but they can be forced to mould their policies
to Commonwealth requirements: in a real sense it is true that the survival
of any meaningful role for the States in Australian federalism depends
upon the consent of the Commonwealth. In view of the untenable founda-
tions upon which the new doctrine is erected, it is hardly surprising that
the High Court has failed to enunciate standards that would permit the
doctrine to function more satisfactorily than its predecessor. Nor is it sur-
prising that the High Court has failed to appreciate the reasons that have
induced the Supreme Court to curtail its propensity to limit the scope of
legislative power on the basis of constitutional implications. The American
authorities have been cited, in more recent times, to justify increased
judicial activism by the High Court. A closer analysis of those authorities
would have revealed a progressive trend towards minimization of the role
of the Court in formulating implied limits on governmental power.
If judicial review is to be meaningful, it is obvious that a constitutional
court must not discard the authority to invalidate legislation as ultra vires.
However; the striking down of legislation is a grave step which the Court
should be reluctant to take. Certainly the Court should not seek to achieve
its conception of the ideal federal structure by imposing its solutions upon
the other components of the system through judicial activism. The charac-
ter of federalism must ultimately depend upon the assessment by the
nation's political institutions of the appropriate responses to governmental
problems. The direction in which the High Court moves will depend upon
whether it realizes that it is not always the body best suited to make the
political judgments required to resolve conflicts between governments in
the federal structure. Conceptual notions removed from the real world of
political relations do not provide a solid basis for constitutional adjudi-
cation.
IV CONCLUSION
The history of the respective implied immunity doctrines in Australia
and the United States reflects the divergent attitudes of the High Court
and the Supreme Court to the task of judicial review. The American doc-
trine has progressively diminished in extent during the past three decades
and, as an effective curb on governmental power, is at its lowest ebb since
its inception. This diminution has followed from the general (although by
no means complete) appreciation by the Supreme Court of the practical
difficulties generated by the doctrine. The Court has revised its role as
constitutional arbiter, declining to pursue an active role in striking down
legislation as infringing constitutional implications. It has become increas-
ingly conscious of the need to exercise its powers with restraint (outside
the field of civil liberties) and, in particular, of the desirability of permit-
ting conflicts between governments within the federal structure to be re-
solved through the political processes. The main consequence is that the
federal government is generally able to frame solutions to national prob-
lems without those solutions being frustrated by the immunity of the
States from regulation.
The Australian doctrine, by contrast, is in the process of resuscitation
and may well produce significant restraints upon legislative power, federal
and State. The High Court's active role is justified by partly articulated
assumptions about the character of federalism, some of which do not cor-
respond with current realities, in view of the inevitable expansion of
national power after the Uniform Tax Case. In keeping with its general
approach to constitutional adjudication the High Court has been far from
reticent in asserting its powers to review. Consequently, it has invalidated
legislation (or threatened to do so) without always paying close regard to
the practical impact of its actions and without always considering whether
its imposed solutions adequately reconcile the competing interests in the
particular governmental conflict. Nor has the approach been compelled by
the clear terms of the constitutional text. From first to last, the doctrine
has been the creature of judicial inventiveness, lacking support from any
specific provision in the Constitution. Recent reliance upon American
authorities has been at least partially misplaced, for the High Court has
not been prepared to accept that, although remnants of the doctrine remain
in the United States, the overwhelming tendency has been to curb the
impact of the doctrine upon governmental power.
Many observers consider that the most disturbing feature of the federal
systems of both Australia and the United States has been the inexorable
expansion of national power and the consequent decline of the States as
independent units. This has resulted from the use of the taxing power in
one case and the commerce power in the other. But if it be a desirable
goal to restore the States to a position of significance in the federal struc-
ture, some means other than a revival of the doctrine of implied govern-
mental immunities must be employed to reach that goal.

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The Doctrine of Immunity of Instrumentalities in The United States and Australia: A Comparative Analysis

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THE DOCTRINE OF IMMUNITY OF

INSTRUMENTALITIES IN THE UNITED STATES AND

11 THE CONSTITUTIONAL STRUCTURES

the states have no power, by taxation, or otherwise, to retard, impede,

Logically, if the property tax in Weston were a burden on the execution

2. The Doctrine's Expand38

55 Hammer v. Dagenhart (1918) 247 V.S. 251 (prohibition on interstate shipment of

(a) State Taxation of the Federal Government and its Instrumentalities

(i) FEDERAL CQNTRACTORS

(ii) FEDERAL LESSEES

The immunity of lessees of government (State or federal) land from tax

Given withdrawal of the immunity of government contractors and lessees

(iv) PROPERTY OF THE FEDERAL GOVERNMENT

(b) Federal Taxation of the State Governments and their Instrumentalities

(i) STATE EMPLOYEES, CONTRACTORS, LESSEES AND OTHERS

The withdrawal of the immunity of State 'private instrumentalities' fol-

When enlargement of immunity proceeds beyond the necessity of protecting

(ii) THE PROPERTY AND ACTIVITIES OF THE STATE

Despite the characterization of the immunity doctrine as reciprocal, the

98 (1946) 326 V.S. 572, 586.

(a) Federal Regulation of the States

3 (1936) 297 U.S. 175. 4 Ibid. 184. 5 Ibid. 185.

(b) State Regulation of the Federal Government

III THE DOCTRINE OF IMMUNITY OF INSTRUMENTALITIES:

2. The Engineers' Case-Rejection of the Doctrine

on an implication which is formed on a vague, individual conception of the

the references to responsible government [in the Engineers' Case] support

urging it) does support his conclusion. Responsible government, in the

3. Application of the Engineers' Case-and Qualifications

52 (1920) 28 C.L.R. 129, 162-64.

(b) A Qualification-Commonwealth Enforcement of State Obligations

(c) State Taxation of Commonwealth Pensions and Salaries

(d) The Uniform Tax Cases

4. Revival of Implications in Constitutional Interpretation

Such a method of construction would defeat the intention of any instrument,

Surely it is implicit in the power given to the Executive Government of the

Thus he considered that a State law discriminating against, say, Common-

The principle is that whenever the Constitution confers a power to make

(1937) 56 C.L.R. 657, 681-82.

Of the majority, only Williams J. admitted the possibility of qualifications

nationalize the private banks and thereby give the Commonwealth a

5. The Cigamatic Case-State Regulation of the Commonwealth

35 (1948) 76 C.L.R. I, 337-40 per Dixon J.

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