A little while ago now, on 13 May 2019, the Supreme Court of the United States handed down judgment in Franchise Tax Board of California v Hyatt. The judgment, comprising a majority opinion authored on behalf of the Court’s conservative wing by Thomas J and a dissent authored on behalf of the liberal wing by Breyer J, addresses two issues, which might be described as the ‘text’ and the ‘subtext’ of the decision. The text of the decision in Hyatt concerns the capacity of a resident of one State to bring tort proceedings against another State in the courts of his or her home State. The subtext, as many people have pointed out, is about whether the Court will at some time in the near future overrule Roe v Wade. Obviously, this subtext is of greater importance than the text. But the text of the decision in Hyatt is a genuinely interesting discussion of the relationship between the polities of a federal nation. And because of the close historical and textual relationship between Art III of the United States Constitution and Ch III of the Australian Constitution, it raises some interesting (albeit perhaps largely theoretical) questions about the effect of ss 75(iv) and 118 of the Australian Constitution on the capacity of the Australian States to insulate themselves from tort claims by residents of other States.
The litigation in Hyatt has a long and tortured history – in fact, this was the third occasion on which the case had reached the Supreme Court. In short, the respondent was the holder of a number of patents. The appellant board suspected that in 1991 and 1992, the respondent had underpaid California State taxes by falsely claiming that he had relocated to Nevada. It therefore conducted an audit. In 1998, the respondent sued the appellant in a Nevada State court, alleging that during the course of its audit, the respondent and its employees had committed numerous torts against him. At each stage of proceedings, the appellant board claimed that as an emanation of the State of California, it was immune from private law proceedings in the courts of another State.
The legal issues
Art III, s 2(1) of the United States Constitution provides that the judicial power of the United States shall extend to ‘Controversies … between a State and Citizens of another State’. By Art III, s 1, the judicial power is vested in one Supreme Court and in such other inferior courts as Congress may from to time ordain and establish. In the case of a controversy between a State and a citizen of another State, it follows from Art III, s 2(2) that only appellate jurisdiction can be conferred on the Supreme Court; original jurisdiction must be exercised by other inferior federal courts. In 1793, in Chisolm v Georgia, the Supreme Court held that the original jurisdiction capable of being conferred on a federal court pursuant to Art III, s 2(1) extended to cases in which a State was sued by a plaintiff from a different state, as well as to cases in which the State was the plaintiff. Within two years of the judgment in Chisolm, its effect was undone by the eleventh amendment, which was ratified in 1795 and which provides that ‘[t]he Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.’ The result was to deny federal jurisdiction in any case in which a citizen of one State sought to sue another State; the question of State court jurisdiction in such cases remained unsettled for two centuries.
The question was (it now seems, only temporarily) settled in 1979 by the Supreme Court’s judgment in Nevada v Hall. In that case, a vehicle owned by the State of Nevada and engaged in State business collided on a California highway with a vehicle driven by residents of California. The California residents sued the State of Nevada in California State court, claiming damages in negligence. The Supreme Court held that no constitutional principle operated to prevent California law (as interpreted by that State’s Supreme Court) from imposing liability on the State of Nevada in this way. In particular, the ‘full faith and credit clause’ in Art IV, s 1 of the Constitution (which was adapted into s 118 of the Australian Constitution) neither required that the California State court’s jurisdiction be denied nor that the amount of damages capable of being recovered by the California residents be limited in accordance with a Nevada law that imposed a cap on the damages recoverable in tort proceedings against that State.
In Hyatt, the majority held (contrary to the holding of the earlier majority in Hall) that while the United States Constitution ‘assumes that the States retain their sovereign immunity except as otherwise provided, it also fundamentally adjusts the States’ relationship with each other and curtails their ability, as sovereigns, to decline to recognize each other’s immunity.’ The States are not analogous to independent countries that may decline to recognise each other’s sovereign immunity from suit; rather the Constitution ’embeds interstate sovereign immunity within the constitutional design.’ That constitutional design (including the full faith and credit clause) ‘strips States of any power they once had to refuse each other sovereign immunity’ and of any power ‘of one State to hale another into its courts without the latter’s consent.’
Having reached this conclusion, which was plainly inconsistent with Hall, the majority went on to consider whether Hall should be overruled. It held that it should be, on the grounds that the reasoning in Hall ‘failed to account for the historical understanding of state sovereign immunity’, ‘that [Hall] failed to consider how the deprivation of traditional diplomatic tools reordered the States’ relationships with one another’ and that Hall was ‘an outlier’ in the Court’s sovereign immunity jurisprudence. It was this willingness to overrule relatively recent precedent that has left some commentators alarmed about the future of abortion rights in a number of States.
What does any of this have to do with Australia?
The design of the Australian Constitution borrows heavily from that of the United States and from the early judgments of that country’s Supreme Court. For example, based on Sir Henry Parkes’ speech on the third day of the Australasian Federal Conference in 1890, it would not be much of an overstatement to describe the Supreme Court’s judgment in Guy v Baltimore as a founding document in Australian constitutional law. The Australian constitutional provisions dealing with the conferral of federal jurisdiction also borrowed heavily from the United States Constitution and from American legal history. Thus the provision that became s 75(v) was inserted into the Australian Constitution at the insistence of Andrew Inglis Clark who, being familiar with the Supreme Court’s judgment in Marbury v Madison, was concerned that if the provision was not included, the High Court would not be capable of being invested with original jurisdiction in proceedings for judicial review of Commonwealth executive action. At the 1898 session of the Australasian Federation Conference, s 75(v) was the subject of significant debate and was said by Edmund Barton to be necessary ‘so that the High Court may exercise its function of protecting the subject against any violation of the Constitution, or of any law made under the Constitution.’
Section 75(iv) of the Australian Constitution was borrowed directly from from Art III, s 2(1) of the United States constitution (which is described above). Interestingly, the provision does not seem to have been discussed at any great length during the constitutional conventions of the 1890s (although the related provision now contained in s 78 was the subject of some significant debate), nor does the interpretation given to the American provision in Chisolm (or the swift undoing of that interpretation by the enactment of the eleventh amendment) seem to have been something that was of any great interest to those involved in the convention debates. This is perhaps explicable on the basis that by the time of Federation, each of the Australian colonies had enacted legislation providing for the liability of the Crown in tort and contract. For example, insofar as contract claims were concerned, Victoria had enacted the Crown Remedies and Liability Statute 1865 almost forty years before Federation; more than a decade before that, South Australia had enacted the Claims Against the Government Act 1853. In any event, the result of s 75(iv) is that the High Court has original jurisdiction in any tort claim brought by a resident of one State against another State; by virtue of the Judiciary Act 1903 (Cth), each of the courts of the States also has federal jurisdiction (and only federal jurisdiction) over such claims. It follows that the issue that arose in Hall and Hyatt cannot arise in Australia – because federal jurisdiction has been conferred on each of the courts of the States in relation to ‘interstate resident v State’ tort claims, there can be no question of any exercise of non-federal jurisdiction in such claims. However, it is interesting to contemplate whether the combination of ss 75(iv) and 118 has any consequences for the substantive law that must be applied in proceedings between an Australian State and a resident of another State. And the judgment in Hyatt perhaps helps to clarify what these consequences might be.
In proceedings under s 75(iii) of the Constitution, which confers federal jurisdiction in proceedings against the Commonwealth, different views have been expressed as to the source of the Commonwealth’s substantive liability in tort. Early in the High Court’s history, Isaacs, Rich and Starke JJ seemed to state that s 75(iii) itself could give rise to substantive liability in a suit between a State and the Commonwealth, declaring it ‘unthinkable that a State can defeat sec 75 by declining to be liable for its torts against the Commonwealth or another State.’ Nearly a century later, directly opposing views were expressed in The Commonwealth v Mewett, with Dawson J stating emphatically that s 75(iii) ‘does not itself remove the immunity of the Crown from such suits or confer upon a litigant the right to proceed against the Crown in contract or in tort’ and Gummow and Kirby JJ stating that Dawson J’s view would ‘mean that the operation of the Constitution itself was crippled by doctrines devised in other circumstances and for a different system of government’. The position was settled in Blunden v The Commonwealth, in which four members of the Court stated clearly that ‘the liability of the Commonwealth in tort is created by the common law and that s 75(iii) of the Constitution denies any operation to doctrines of Crown or Executive immunity which otherwise might be pleaded in an action to recover damages in respect of a common law cause of action.’ The same position would seem to follow in the case of a tort claim between a State and a resident of another State under s 75(iv).
Of course, none of this means that a State cannot impose limitations on its liability in tort to residents of other States; it just means that a State cannot wholly insulate itself from such liability. Given that each Australian State has enacted legislation under which it accepts some degree of liability in tort, it might be said that whatever effect s 75(iv) has on the substantive rights of parties in tort proceedings no longer matters. However, factual scenarios like those considered by the Supreme Court in Hall and Hyatt seem to me to suggest that there may be a continued role for ss 75(iv) and 118 of the Constitution in tort claims between States and residents of other States. For example, where a resident of South Australia sues the State of Victoria for a tort committed in South Australia, an interesting question would seem to arise as to whether the plaintiff is required by the quirks of the Crown Proceedings Act 1958 (Vic) to identify in his or her pleadings an individual public servant in respect of whose torts the State of Victoria is said to be vicariously liable. If the right to proceed in such a case is conferred by s 75(iv) and the common law choice of law rules dictate that the substantive law governing the claim of is that of South Australia, there would seem to be no role for the Victorian legislation to play. However, if one accepts that s 118 of the Constitution – the precise meaning and extent of which have proved stubbornly difficult to determine – plays a role similar to that attributed by the majority in Hyatt to Art IV, s 1 of the United States Constitution, giving ‘full faith and credit’ to the Victorian law would seem to require that that State should not be subject to tort liability in a manner that exceeds the boundaries of its own government liability legislation. Similar issues might also arise if the South Australian resident were to bring a suit for breach of confidence or breach of fiduciary duty, given that the Victorian Act refers only to liability in tort and contract and not to liability in equity. These may be issues that arise in the future – if they do, the Supreme Court’s reasoning in Hyatt may play some part in their resolution. Of course, given the broad similarities between the various Australian State laws dealing with State liability in private law actions, it may be that these issues are more theoretical than real.