Constitutional Puffery: The ‘Protection’ of Sydney Water in the NSW Constitution
9.11.23
NSW Premier Chris Minns went to the 2023 state election promising to ‘change the constitution of NSW to protect Sydney Water and Hunter Water from privatisation!’ A change to the constitution, according to Minns, would put ‘a lock to make sure future governments don’t sell [Sydney Water and Hunter Water] off’. After the election, Minns’ government introduced legislation to amend the state’s constitution, explaining that it ‘effectively put a sphere of protection around both entities, preventing privatisation, preventing unreasonable price spikes and ensuring these essential assets will always belong to the people of NSW.’ But does the Constitution Amendment (Sydney Water and Hunter Water) Act 2023 (NSW) (the Amendment Act) actually ‘lock’ or ‘protect’ the State’s water infrastructure as Minns claims?
‘Protection’ in State Constitutions
When Australians think of ‘the Constitution’, they typically think of the Commonwealth Constitution. They think of ‘protecting something in the Constitution’ in terms of how the Commonwealth Constitution occupies a paramount position over laws made by the federal or State Parliaments and cannot be changed except by a referendum.
State constitutions are less likely to come to mind for ordinary Australians. They are also in a different position to the Commonwealth Constitution: State constitutions are simply Acts of Parliament where most of their provisions can be altered in the same way that other legislation can be changed. Generally, when lawyers speak about changing a State constitution to ‘protect’ or put a ‘lock’ on a matter, they are referring to the matter being entrenched with what is known as a ‘manner and form’ requirement. Such a requirement imposes some additional hurdle, such as a parliamentary supermajority or referendum, before the provision can be repealed or amended so that future changes are made more difficult — but not impossible.
The most accepted basis for entrenchment provisions is s 6 of the Australia Act 1986 (Cth & UK), which provides that a law shall be of no force or effect unless it is made in accordance with manner and form requirements provided by the Parliament. Before the Australia Acts, a similar provision existed in s 5 of the Colonial Laws Validity Act 1865 (Imp). On its face, the scope of laws that may be entrenched under s 6 is narrow — it is limited to laws ‘respecting the constitution, powers or procedure of the Parliament of the State’. Provisions that impose supermajorities or require referendums to change the number of electorates or amend the qualifications for voters and candidates would fall within s 6 of the Australia Acts because these matters concern how the Parliament is constituted. But it is doubtful whether a law regulating any sale of the state’s water infrastructure would fall within these bounds.
A further potential basis has been under the principle laid out by the Privy Council in Bribery Commissioner v Ranasinghe [1965] AC 172 that ‘a Legislature has no power to ignore the conditions of law-making that are imposed by the instrument which itself regulates its power to make laws’. The relevant instrument would be the constitution itself. There is no limit on the subject-matter or scope under the Ranasinghe principle so securing public ownership of water infrastructure may well be included. However, four Justices in Attorney-General (WA) v Marquet (2003) 217 CLR 545 cast doubt as to whether the Ranasinghe principle can apply in Australian States because ‘the express provisions of s 6 [of the Australia Act] can leave no room for the operation of some other principle, at the very least in the field in which s 6 operates’.
On this issue, Professor Anne Twomey has highlighted that a State Parliament’s scope of making laws that impose manner and form requirements on future laws is ‘murky’. It was left unresolved in Marquet and the High Court’s most recent consideration of the requirements in Mineralogy Pty Ltd v Western Australia (2021) 274 CLR 219. The murkiness of the permissible scope for manner and form provisions, and the fact that they impose extraordinary hurdles for passing laws, makes them a rather rare occurrence in State laws.
One example is s 7A of the Constitution Act 1902 (NSW) (NSW Constitution), which provides that a bill that abolishes or alters the constitution or powers of the Legislative Council must not receive assent unless it has been approved by a majority of the electors in a referendum. This provision was added in 1929 in the dying days of a conservative government that was concerned that a future Labor government would seek to abolish the Legislative Council, as the Lang Labor government had unsuccessfully attempted to do in 1925 and 1926, and as the Queensland Labor government had successfully done in 1922. As it turns out, their concerns were not unfounded. On returning to power in 1929, the Lang government tried a second time to abolish the Legislative Council by passing one bill to repeal s 7A and then a second bill to abolish the Legislative Council — both by ordinary legislation. The Privy Council held that, without a referendum, both bills were invalid as s 7A may only be amended (and the Legislative Council may only be abolished) in accordance with the manner and form provisions in s 7A (Attorney-General (NSW) v Trethowan (1932) 47 CLR 97). This is clearly a case of a manner and form provision supported by s 6 because the number of Houses goes to the constitution of the Parliament.
Entrenchment of Water Services in Victoria
Notwithstanding that murkiness, the Constitution Act 1975 (Vic) (Victorian Constitution) purports to entrench a number of matters. There are provisions that seem to entrench matters that are commonly found in a State constitution such as the recognition of Aboriginal people (s 1A) and the jurisdiction of the Supreme Court (Pt III, although this may arguably be protected by the Commonwealth Constitution since Kirk v Industrial Court of New South Wales (2010) 239 CLR 531). There are also provisions that appear to entrench some rather interesting provisions, including the system of local government (Pt IIA), the Judicial Commission (Pt IIIA), the office and independence of the Auditor-General (Pt V Div 3) and, perhaps most bizarrely, the prohibition of fracking and coal seam gas mining (Pt VIII).
Most relevantly, the Constitution (Water Authorities) Act 2003 (Vic) added Part VII to the Victorian Constitution. This Part mandates that water services (defined broadly to include water supply, sewerage and irrigation) that were under the control of a public authority when the 2003 Act commenced must remain under the responsibility of a public authority and that public authority must be accountable to a Minister of the Crown. A ‘public authority’ is defined as a public statutory authority, a local council, a company with all of its shared held by the State or an agency head who is a corporation sole.
Section 18 of the Victorian Constitution was amended to provide that any bill that repeals, alters or varies Part VII, or transfers responsibility for the delivery of a water service to a body that is not a public authority must receive an absolute three-fifths majority in both the Legislative Assembly and Legislative Council.
Assuming that manner and form provisions can cover public ownership of water assets, the 2003 amendments to the Victorian Constitution effectively protect against the delivery of water services being privatised by both the Parliament passing ordinary legislation and the executive government. Only a supermajority in both Houses can authorise any privatisation.
The Position in New South Wales
The privatisation of public assets has been a hot political issue in NSW for decades. Both major parties have been responsible for privatising public assets. One particularly controversial occasion was the ‘Gentrader transactions’ in 2010 when the former Keneally Labor Government sold off parts of the State-owned electricity network for $5.3 billion. In the leadup to the decision, eight directors from the boards of Delta Electricity and Eraring Energy resigned in protest, forcing the Treasurer to hastily appoint four new directors. The opposition claimed that the assets were being sold at half their value and sought to hold a parliamentary inquiry in the Legislative Council.
On the day that the inquiry was formally requested, the Premier advised the Governor to prorogue the Legislative Council for almost six months from 22 December 2010 to 10 May 2011, and asserted that parliamentary committees may not conduct business when Parliament is prorogued. This would have meant that no inquiry could be held until after the March 2011 State election. The committee nevertheless persisted with its inquiry during the prorogation, having received advice from the Clerk of the Parliaments on its power to do so. But this was hampered because, following advice from the Crown Solicitor that there was a risk that evidence provided to the committee would not be protected by parliamentary privilege, the Premier’s Department directed agencies not to provide any ‘privileged’ documents or even an index of privileged documents. Both the recently resigned and newly appointed board directors also refused to give evidence because of ambiguity about whether their evidence would be protected by parliamentary privilege. This controversial state of affairs resulted in legislative reforms to the power to prorogue Parliament in NSW.
Sydney Water and Hunter Water are established under the Sydney Water Act 1994 (NSW) and Hunter Water Act 1991 (NSW), respectively. (For convenience, both corporations will be referred to together as Sydney Water.) They are a ‘statutory SOCs’ under the State Owned Corporations Act 1989 (NSW) (SOC Act). Before the Amendment Act, any decision to privatise the operations or assets of Sydney Water required the approval of its ‘voting shareholders’, who were ministers nominated by the Premier. In essence, a decision to privatise any assets of Sydney Water would be one made by the executive. So did NSW do the same thing as Victoria by entrenching public ownership and responsibility of Sydney Water with a manner and form provision? No.
The Amendment Act added s 57 to the NSW Constitution. This section provided that Sydney Water or a subsidiary, or a ‘main undertaking’ of Sydney Water (defined as including the supply of water, sewerage services, stormwater drainage systems and disposal of wastewater), ‘must not be sold or otherwise disposed of unless authorised by an Act of Parliament’. The section was to prevail over the SOC Act to the extent of any inconsistency.
The effect of s 57 is to fetter the executive’s powers and capacity to contract in respect of Sydney Water under the SOC Act by requiring Parliament’s approval in the decision-making process. In effect, it displaces the mechanisms in the SOC Act that allowed the government to unilaterally sell or dispose of these water assets. Now, if the government wants to privatise Sydney Water, it can only proceed after both Houses of Parliament agreed to a bill authorising this. But unlike Victoria, it has not been entrenched into the NSW Constitution. And there is no supermajority or other manner or form requirement for any future Act of Parliament.
Conclusion
It is strictly true that the Amendment Act now puts Sydney Water into the NSW Constitution. But it is not entirely accurate for Minns to describe it as being ‘a lock to make sure future governments don’t sell [Sydney Water] off’ or that the Amendment Act has ensured that these assets ‘will always belong to the people of NSW.’ A future government can sell off Sydney Water, provided that the sale is authorised by the Parliament of the day. If the Minns government wanted the strongest protection for these important assets, it may have looked to enacting similar manner and form protections to those contained in the Victorian Constitution.
Perhaps the Minns government was reluctant to copy the Victorian provisions because it was conscious of the legal uncertainty relating to the scope of manner and form provisions for state constitutions. Or perhaps they considered that they only wanted an ordinary majority threshold, and not a supermajority, for any future Act of Parliament.
But whatever the reason, it is true that the Amendment Act does give Sydney Water a ‘sphere of protection’. It ensures that any future privatisation decision is not one that the executive can take alone, but one that they may only take with the approval of the people’s elected representatives in Parliament. In effect, this might make it harder for privatisation to occur politically — any bill proposing this would likely be fiercely debated and divided on, where every single member of Parliament would have their name and stance on the matter recorded in the Minutes of Proceedings forever. The historically non-government controlled Legislative Council would also be a hurdle that the executive would need to overcome.
Lastly, Minns said that ‘[i]f we put it in the Constitution it has to go through Parliament’. This is puffery because there is nothing special about putting s 57 into the NSW Constitution. It would have the same effect if the words of s 57 were placed into the SOC Act or any other Act of Parliament. Legally, it does not ‘lock’ in public ownership of Sydney Water. It is therefore more accurate to describe the Amendment Act as providing a form of parliamentary oversight or check on the executive, rather than providing any kind of constitutional protection for Sydney Water.
Dane Luo is a Bachelor of Civil Law candidate at the University of Oxford. He graduated with Bachelor of Commerce (Hons I) / Bachelor of Laws (Hons I) at the University of Sydney. He was previously the Associate to the Chief Judge in Equity, Justice Hammerschlag, at the Supreme Court of New South Wales. This piece was written in his personal capacity.
Suggested citation: Dane Luo, ‘Constitutional Puffery: The ‘Protection’ of Sydney Water in the NSW Constitution’ (9 November 2023) <https://www.auspublaw.org/blog/2023/11/constitutional-puffery-the-protection-of-sydney-water-in-the-nsw-constitution>