The High Court has unanimously dismissed a constitutional challenge brought by Fortescue Metals Group Ltd (FMG) and various of its subsidiary companies against the Commonwealth, claiming that parts of the Minerals Resource Rent Tax Act 2012(Cth) (MRRT Act) and the Minerals Resource Rent Tax (Imposition-Customs) Act 2012 (Cth), Minerals Resource Rent Tax (Imposition-Excise) Act 2012 (Cth) andMinerals Resource Rent Tax (Imposition-General) Act 2012 (Cth) (Imposition Acts) were not valid law of the Commonwealth.
Background to the MRRT
The MRRT Act and the Imposition Acts create and impose a tax on the economic rent miners make from certain taxable resources after extraction but before processing (MRRT) and commenced on 1 July 2012. A miner is liable to pay MRTT based on the sum of its MRRT liabilities for each of its mining projects. Certain deductions for expenditure and allowances are taken into account when determining the MRRT liability, but otherwise the liability is the amount calculated by multiplying the MRRT rate (22.5%) and the relevant mining profit. Mining royalties paid to the Commonwealth, States and Territories reduce a miner’s MRRT liabilities for a mining project interest (State Mining Royalties).
Arguments for and against the challenge
FMG’s wholly-owned subsidiaries held registered mining leases in Western Australia and were required to pay MRRT. FMG brought proceedings contending that certain provisions of the MRRT Act and Imposition Acts were invalid.
Invalidity of the MRRT legislation was argued by FMG on four grounds:
- the laws relating to taxation which discriminate between States are contrary to the Commonwealth Constitution s 51(ii) which confers power on the Commonwealth to make laws with respect to taxation, but so as not to discriminate between the States (Ground 1),
- the laws seek to regulate trade, commerce or revenue, in a way which is contrary to the Commonwealth Constitution s 99 relating to the freedom of trade between States, by giving preference to one State over another State (Ground 2),
- the laws contravene the Melbourne Corporation doctrine, on the basis that the legislative powers of the Commonwealth do no authorise legislation directed to the control or hindrance of the States in the execution of their governmental functions (Ground 3). (The Melbourne Corporation doctrine is an implied limit on Commonwealth legislative power under the Constitution. The doctrine renders constitutionally invalid any Commonwealth law that is otherwise valid under a head of power in s 51 of the Constitution, if it denies the existence or ability of a State to govern itself or the federal structure of the Commonwealth and singles out States), and
- the laws are inconsistent with the Commonwealth Constitution s 91, which is a prohibition directed to any law made under a head of power in the Constitutionwhich may hinder a State from granting aid or any bounty in respect of mining for certain minerals (Ground 4).
The Attorneys-General for Western Australia and Queensland intervened in support of FMG’s challenge to the validity of the MRRT Act and the Imposition Acts, reiterating the arguments made by FMG and contending that the MRRT curtailed State sovereignty contrary to the Melbourne Corporation doctrine.
FMG submitted that the effect of the MRRT is that a miner’s MRRT liability is directly linked to the miner’s liability for State Mining Royalties, so that if there were an increased liability for State Mining Royalties, on the converse there would be a decrease in the MRRT liability. While the Commonwealth opposed this view, the Court did decide in determining the questions before the Court that, all things being equal, the MRRT can have the effect that a miner’s liability for MRRT is greater in a State with a lower applicable royalty than in a State with a higher royalty.
The Commonwealth submitted that even if the MRRT Act gave rise to differential treatment or unequal outcomes as between States, it did not follow that it was law made “so as to discriminate between States and parts of States.” It applied the same rules throughout the Commonwealth even though by reason of circumstances existing in one or other States, it may not operate uniformly. The MRRT legislation did not prescribe or make any assumption about the amount or rate of royalty paid by a miner to a State and that any difference in State Mining Royalties was a consequence, not of the MRRT legislation, but of the laws of several States.
The Full Court of the High Court unanimously dismissed the challenge holding that the MRRT Act and Imposition Acts were not invalidated by the Constitution, and FMG was ordered to pay the costs of the proceeding.
The High Court held that a law would only be found to be discriminatory if the distinction drawn by it was not appropriate and adapted to the attainment of a proper objective. More specifically, the High Court found that the high purposes protected by the Constitution are not defeated by uniform Commonwealth laws which have different effects between one State and another because of their interactions with different State legal regimes. Consequently, it was held that it was incorrect to say that the MRRT differs depending on the location of the miner, as the MRRT is levied at a constant rate irrespective of the State in which the miner operates - it is the State Mining Royalties which vary between States. The High Court found that the MRRT legislation did not discriminate between the States.
The High Court also held that because the MRRT Act and the Imposition Acts did not discriminate between one State and another (in contravention of s 51(ii) of the Constitution), neither did they give preference to one State over another (contrary to s 99 of the Constitution).
It was also found that the MRRT Act and Imposition Acts were not aimed at States and did not impose any special burden or disability on the exercise of powers and fulfilment of functions of States that contravened the Melbourne Corporation principle. The legislation did not deny the ability of a State to fix a rate of mining royalty.
Finally, the High Court held that the MRRT Act and the Imposition Acts did not prohibit the States’ legislative powers with respect to granting certain kinds of aid or bounty, such powers being preserved under s 91 of the Constitution. That section also does not limit the legislative powers of the Federal Parliament., only confirms that a State may grant aid or bounties. The section does not deal with how Commonwealth laws might interact with that grant.