Where to now for Commonwealth grants programs post-Williams (No 2)?

Key Points:

The implications of the High Court's decision in Williams go beyond the Chaplaincy Program, and Agencies will need to review their programs for potential invalidity.

The Australian Government has a range of arrangements, programs and grants that are designed to deliver benefits, services or transfer payments to individuals, industry/business or the community as a whole.

However, its ability to fund its arrangements, programs and grants has recently been brought back into the spotlight because of the High Court's decision last week in Williams v Commonwealth of Australia [2014] HCA 23 (Williams (No 2)).

In this article we'll see what the High Court's decision in that case means for Agencies and its implications for Government programs.

Mr Williams challenges the School Chaplaincy Program – twice

Williams (No 2) related specifically to the Australian Government's National School Chaplaincy and Student Welfare Program, which was administered by the Department of Education. The objective of the Chaplaincy Program was "to assist school communities to support the wellbeing of their students, including by strengthening values, providing pastoral care and enhancing engagement with the broader community."

Mr Williams first successfully challenged the Chaplaincy Program in 2012, with the High Court concluding that payments made under the Chaplaincy Program were not supported by the executive power of the Commonwealth (Williams v The Commonwealth (2012) 248 CLR 156; [2012] HCA 23; (Williams (No 1)). Specifically, it found that the power to spend appropriated moneys must be found elsewhere in the Constitution or in statutes made under it.

The Commonwealth subsequently enacted the Financial Framework Legislation Amendment Act (No 3) 2012 (Cth) "in an attempt to provide legislative support for the making of agreements and payments of the kind which were in issue in Williams (No 1), but also for the making of many other arrangements and grants." Mr Williams brought new proceedings in the High Court challenging the validity of some of the provisions it inserted into the Financial Management and Accountability Act 1997 (Cth) (FMA Act) and Financial Management and Accountability Regulations 1997 (Cth) (FMA Regulations).

The Chaplaincy Program is beyond the Commonwealth's power

In those new proceedings, the High Court unanimously held that aspects of the amendments are invalid as they extend beyond the scope of Parliament's constitutional power to authorise the making, varying or administration of arrangements or grants.

The High Court specifically looked at section 51(xxiiA) of the Constitution, which was said to be the relevant legislative power for the program. It held that while the Commonwealth can make laws to provide benefits to students under section 51(xxiiA), this 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 Chaplaincy Program was found to exceed section 51(xxiiA) because it:

merely facilitated the payment of an amount (in this case to an intermediary) which could be used to pay the wages of a chaplain to "support the wellbeing" of a particular group of children (ie. those attending an identified school); and
did not provide aid for any human wants which that group of children may have as a consequence of being students.

So what does that mean for Agencies?

While the High Court's decision relates specifically to the Chaplaincy Program, its decision has implications that go beyond the scope of the Chaplaincy Program and may impact other funding initiatives the Australian Government is currently undertaking.

As a first step, each Agency will need to undertake a review of the programs it provides to assess whether they may be similarly invalid as the Chaplaincy Program.

This will require Agencies to have an understanding of:

the heads of legislative power of the Commonwealth; and
the purpose / objective of each Program.

Is your program supported by one of the Commonwealth's heads of legislative power?

The heads of legislative power, which were given to the Commonwealth on federation, are mostly contained in sections 51 and 52 of the Constitution. The heads are extensive despite being limited to particular subjects. They include defence; external affairs; interstate and international trade; taxation; foreign, trading and financial corporations; marriage and divorce; immigration; bankruptcy; and interstate industrial conciliation and arbitration.

The majority of spending programs being undertaken by the Commonwealth will be within the legislative power of the Commonwealth (whether or not they are also supported by legislation), and accordingly the decision in Williams (No 2) will have no bearing on those Programs.

There may, however, be some programs that exceed the scope of the Commonwealth's legislative power. Key areas to be examined include where the Commonwealth expressly does not have legislative power, starting with the legislative powers that have been retained by the States (being broadly all matters that occur within State borders, including police; hospitals; education; and public transport). Any gaps in Commonwealth legislative power could be covered by a referral of state powers to the Commonwealth under section 51(xxxvii) of the Australian Constitution.

What is the purpose or objective of your program?

Where it is possible a Program exceeds the Commonwealth's legislative powers, the relevant Agency will need to review the purpose / objective of each Program as against the relevant head of legislative power. As was seen in Williams (No 2), this may require an assessment of case law as to the meaning of certain heads of legislative power (in that case, it was the meaning of "benefits to students").

It is likely that programs will require more robust governance during their course to ensure that they remain within the scope of the relevant legislative power, and also to ensure that all funding is used for purposes sufficiently connected to the relevant legislative power (including where the money is paid to intermediaries for subsequent disbursement). Agencies may require greater reporting from funding recipients in this regard to assist it in discharging its responsibilities.

Recovering funding that should not have been paid

If it is found that an Agency has been administering a program that exceeds power, the Agency (in consultation with the relevant Ministers, including the Finance Minister) will need to assess whether or not to recover any funds paid under that Program as a debt due to the Commonwealth.

In the case of the Chaplaincy Program, the Commonwealth "has decided to waive its right to recover payments that have already been made under the program funding agreements. In reaching this decision, the Commonwealth has given careful consideration to the range of factors that are relevant to the exercise of its power to waive debts owing to it."

The Commonwealth's entitlement to recover moneys already paid under a Program will depend upon the relevant agreement between the Commonwealth and the funding recipient, as well as the Commonwealth's obligation to collect debts due to it under the FMA Act. It could also be affected by any potential equitable claim in restitution or estoppel which the recipient might have.

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