For the second time in two years, the High Court has found the Commonwealth's funding arrangements for the National School Chaplaincy and Student Welfare Program are invalid, casting doubt on the validity of many similar schemes providing around $40 billion in funding (Williams v Commonwealth of Australia [2014] HCA 23).

Williams No. 1 leads to remedial legislation

The plaintiff, Mr Williams, whose children attend a public school, first challenged the scheme's validity in 2012. The High Court held that neither the agreement under which the Commonwealth paid money for provision of chaplaincy services in schools, nor the payments it had made under that agreement, were supported by the executive power of the Commonwealth under section 61 of the Constitution.

More generally, it held that:

  • the appropriation of moneys in accordance with the requirements of sections 81 and 83 of the Constitution does not itself confer a substantive spending power; and
  • the power to spend appropriated moneys must be found elsewhere in the Constitution or in statutes made under it.

The Commonwealth responded by passing legislation to rectify the problem, so that this and other schemes would have legislative authority:

  • Financial Framework Legislation Amendment Act (No 3) 2012 (Cth), Sched 1, item 9;
  • Financial Management and Accountability Act 1997 (Cth), section 32B; and
  • Financial Management and Accountability Regulations 1997 (Cth), Pt 5AA, Sched 1AA.

Mr Williams then challenged their validity.

The validity of the impugned provisions

Section 32B of the Financial Management and Accountability Act as amended dealt with the power to make a commitment to make one or more payments of public money. Section 32B was a sort of omnibus provision which provided that if, apart from section 32B, the Commonwealth did not have the power to make or administer an arrangement under which public money was to be paid and the relevant arrangement was specified in the Regulations or was of a class specified in the Regulations, then the Commonwealth had the power to make or administer the specified arrangement. The Regulations were also amended to refer to, amongst other programs, the chaplaincy program.

While section 32B could be read literally to give very broad powers to grant of money, including to make or administer programs for the payment of grants in situations where the Parliament did not have constitutional power to authorise the making of grants, the High Court rejected this interpretation.

In its view, consistent with the Acts Interpretation Act, section 32B should be read so as not to exceed the legislative power of the Commonwealth. As such, the section should be read as giving the Commonwealth the power to make, vary or administer arrangements or grants onlywhere it was within the power of the Parliament to authorise the making, variation or administration of those arrangements or grants.

Accordingly, in considering the validity of the Regulations which specified the program at issue in this case, an examination was required of the heads of legislative power that the Commonwealth claimed supported the agreement and subsequent grant of money.

Is this a "benefit to students"?

The Commonwealth can make laws to provide benefits to students (section 51(xxiiiA) of the Constitution). It may be assumed, said the High Court, that providing chaplaincy services at a school will help some students and benefit them in some way.

However, the Court found that section 51 (xxiiiA) requires more than there be some advantage to a student. There must be, at a bare minimum, some material aid (such as money or a service) to an identified or identifiable student to provide for human wants which are as a consequence of being a student.

The scheme was said to do none of these things. It was found to merely facilitate the payment of an amount (in this case to an intermediary) which can be used to pay the wages of a chaplain to "support the wellbeing" of a particular group of children i.e. those attending an identified school. The scheme does not give them aid for any human wants which they have as a consequence of being students.

Not a law with respect to trading corporations

Many (but not all) of the entities paid money under the scheme are corporations. The other defendant in this case, Scripture Union Queensland, contended that, as the payments are to corporations, the relevant provisions were laws with respect to trading corporations.

The High Court rejected this, saying that a law giving the Commonwealth the authority to make an agreement or payment is not "with respect to trading or financial corporations" as it does not regulate or permit any action by a corporation, not create its capacity to make an agreement or receive payments.

General lessons from Williams No 2 on the scope of the Commonwealth's power to spend public money

On these grounds alone the High Court found the laws invalid in so far as they related to the chaplaincy program, so it will be back to the drawing board for the Commonwealth if it wishes to continue with the school chaplains scheme. Although other similar schemes were not considered, it is conceivable that some will suffer from similar legal flaws, and remedial action or reconsideration will be required for them too.

Although it was not necessary to do so, the High Court considered and rejected some other arguments contended for by the Commonwealth. From all of this, some general propositions emerge for the future Commonwealth funding arrangements:

  • the Executive does not have unlimited power to spend appropriated moneys for the purposes identified by the appropriation;
  • nor is its power to spend or contract the same as Britain's executive power – it operates in a federation, not a unitary state;
  • the High Court will therefore examine the heads of legislative power pursuant to which the Commonwealth claimed the right to make or vary any funding agreement or arrangement, and subsequent grant of money.