[10] The High Court held in D'Emden v Pedder that the salary receipts of federal government employees were not subject to state stamp duty.

[13] Wollaston's case was cited in argument,[14] as that the applicability of the principle in McCulloch v Maryland,[11] to the Constitution was negatived by the decision of the Privy Council in The Bank of Toronto v Lambe.

In assessing the income of Alfred Deakin and Sir William Lyne, the Victorian Commissioner of Taxes had included their salaries as members of parliament, £233, and as Ministers, £1,650.

The outcome of the case would directly affect the interests of both Barton J and O'Connor J as they were in essentially the same position as Lyne, having previously been members of parliament and living in NSW.

[20] The Full Court, Madden CJ, à Beckett & Hodges JJ, decided to follow their earlier decision in Wollaston's case, holding that "As to the applicability of the United States cases, the opinions of the learned Judges in D'Emden v Pedder which apparently lean towards such applicability are merely dicta, and incomplete dicta at that, and we do not regard them therefore as binding upon us."

The argument recorded in the Commonwealth Law Reports does not set out any objection that the decision would directly affect the interests of the judges.

[25] The Victorian Commissioner of Taxes did not accept the decision of the High Court and assessed the taxable income of Mr Outram as including the salary he received from the Commonwealth as the Deputy Postmaster-General.

[26] The only Australian counsel involved in the appeal was Bernhard Wise KC who was led by Sir Robert Finlay for the Commissioner of Taxes.

[27][28] The Privy Council held that a State government could tax Commonwealth officials and criticised the decisions of the High Court in D'Emden v Pedder and Deakin v Webb.

[35] Even the reply from a supporter of the Privy Council described it as "perhaps the worst decision ever given by an ultimate court of appeal", which the author attributed to dealing with a system of law which differed markedly from that in which the members of the tribunal and almost all counsel had spent their professional life.

Similarly the Court of Petty Sessions of Victoria had followed the Privy Council and had found that Flint was liable to pay Victorian income tax in respect of his salary in the Postmaster-General's Department.

The High Court held that it was, in the absence of a certificate under s 74 of the Constitution, the ultimate arbiter on all inter se questions such that it was not bound to follow the decision of the Privy Council in Webb v Outtrim.

Griffith CJ delivered the "rather pugnacious judgment"[38] of the majority as follows : It was common knowledge [at the time of Federation], not only that the decisions of the Judicial Committee in the Canadian cases had not given widespread satisfaction, but also that the Constitution of the United States was a subject entirely unfamiliar to English lawyers, while to Australian publicists it was almost as familiar as the British Constitution.

And no disrespect is implied in saying that the eminent lawyers who constituted the Judicial Committee were not regarded either as being familiar with the history or conditions of the remoter portions of the Empire, or as having any sympathetic understanding of the aspirations of the younger communities which had long enjoyed the privilege of self-government.

[39]The success of the argument put by Higgins KC on behalf of his clients in Deakin v Webb did not sit well with him, writing in 1905 that "The man in the street is startled and puzzled.

"[40] Having been appointed to the High Court along with Isaacs J in 1906, Higgins J set out his dissenting views in Baxter v Commissioners of Taxation (NSW) that: It is true that I have held, and still hold, a strong opinion with regard to the judgment of Marshall CJ in McCulloch v Maryland – the judgment on which Deakin v Webb was based – although I utter the opinion with a feeling that it will be regarded by some as almost blasphemy.

[37] Griffith CJ suggested two ways to escape the inconvenient position, (1) make the appellate jurisdiction of the High Court on federal matters exclusive of the State Supreme Court or (2) legislate that the income provided to federal public servants was subject to the rights of the States to tax them.

[34][46] Despite the failure to obtain certificates under s 74 of the Constitution, the NSW and Victorian commissioners of taxation sought leave to appeal to the Privy Council.