The language of s 51(xxxi) was adapted from the final words of the Fifth Amendment to the United States Constitution. Unlike the American provision, however, it is primarily a grant of Commonwealth law-making power. It is clear that the requirement of "just terms" does not affect the State Parliaments. In Grace Bros Pty Ltd v The Commonwealth (1946) Justice Dixon stated that the inclusion of the condition was to "prevent arbitrary exercises of the power at the expense of a State or a subject."
The interpretation of the terms "acquisition" and "just terms" by the High Court of Australia have had the effect, however, of limiting its protection of property rights. Moreover, it operates at any time the Commonwealth makes a compulsory acquisition of property. As such, it is a contingent guarantee rather than a general constitutional right or freedom to enjoy property rights.
The Commonwealth may only acquire property on just terms for a "purpose in respect of which the Parliament has power to make laws". This means that every law supported by s 51(xxxi) must also be supported by at least one additional legislative power.
The effect of the section was famously the subject of the iconic Australian film The Castle.
An example of the breadth of the concept of property in section 51(xxxi) is provided by Bank of New South Wales v Commonwealth (the Bank Nationalisation Case). In that case, Federal legislation contemplated the acquisition of private banks through vesting of shares in private banks in the Commonwealth, and later the appointment of directors by the Governor of the Commonwealth Bank. Justice Dixon characterised the provisions as removing effective control over the property of the private banks. He concluded that this was, in the essential sense, an acquisition of a proprietary right.
While statutory licences have sometimes been equated with proprietary interests, the removal of rights enjoyed under a statutory licence does not typically constitute an acquisition of property within section 51(xxxi), as licence conditions are inherently susceptible to change.
For the purposes of section 51(xxxi), property must have been acquired by somebody, and the acquisition must be for a Commonwealth purpose. This is in contrast to the Fifth Amendment, where the destination does not matter - it is enough that the holder of property has been deprived of it.
Typically, a determination of just terms based on the market value of the property at the time of acquisition will be sufficient to satisfy the requirement of just terms. Unlike the "just compensation" requirement in the Fifth Amendment, however, "just terms" imports no equivalence of market value. The arrangements offered must be "fair", or such that a legislature could reasonably regard them as "fair". However, this judgment of "fairness" must take account of all the interests affected, not just those of the dispossessed owner.
The requirement of "just terms" does not necessarily require that a compensation package be presented as part of the acquisition scheme. It is sufficient that the scheme provides adequate procedures for determining fair compensation. However, the Court may scrutinise such procedures closely to ensure their adequacy.
There may be some acquisitions of property to which section 51(xxxi) does not apply.
Section 51(xxxi) is an exception to the norm for interpretation of the subsections of section 51, that one grant of power cannot be used to "read down" another. In this case, however, the Court will not allow another grant of power to be read so broadly as to circumvent the specific limitation to the power granted by section 51(xxxi).