Bank of New South Wales
v Commonwealth

Judges: Latham CJ
Rich J and Williams J
Starke J
Dixon J

McTiernan J

Subject References:
Constitutional law
Powers of Commonwealth Parliament
Banking
Acquisition of property
Freedom of trade, commerce and intercourse
Interference with States

Legislative References:
Constitution (Cth) - ss 51(xiii); 51(xx); 51(xxxi); 51(xxxix); 75(iii); 92; 105A
Banking Act 1947 No 57 - The Act

Sydney

Judgment by:
McTiernan J

McTIERNAN J. As I am the sixth member of the Court to state his opinion, I do so as briefly as possible.

The primary question is the interpretation of s. 51 (xiii.) of the Constitution of the Commonwealth.

The conclusion on this question which I think is required by settled principles governing the interpretation of the Constitution and the statements of authority bearing upon the interpretation of s. 51 (xiii.) in particular, is that this provision is a grant of plenary legislative power which extends to the whole subject of banking, that is, the economic activity described by that name and all its adjuncts, subject to the reservation made in regard to State banking, that is, banking by a State-owned bank.

The reservation may make it necessary to imply limitations upon the powers to legislate with respect to "State banking extending beyond the limits of the State concerned" in order to preserve the immunity given to State banking which does not extend beyond State limits. The limitations might be implied from the connection between State banking beyond and State banking within the legislative powers. But such limitations could not logically apply to the powers to legislate with respect to "banking other than State banking." Even if the word "extending" imports survival, that is, it is not merely descriptive of the part of State banking placed under the control of the national Parliament, it would not follow that the power granted to legislate with respect to banking conducted by banks which are not owned by any State is any less than plenary power.

This plenary power is of course subject to anything in the Constitution restricting the powers of the Parliament.

The term "banking" is a statement in outline of the subject matter of the power. It must be given an ample not a narrow meaning.

The grant of power to legislate with respect to banking naturally extends to such matters as the ownership and management of banks and the control of banks and banking. The purposes in respect of which Parliament has power to make laws include the limitation of the number of banks, the selection of banks to carry on banking, the licensing of banks, the prohibition of the carrying on of banking by any bank, the conversion of private ownership or management of any bank into public ownership or management. These observations, of course, do not apply to State-owned banks. If Parliament should seek to accomplish any of these purposes by the acquisition of property from any person, the acquisition could not be made under s. 51 (xiii.): it could be validly made only under s. 51 (xxxi.): it would not be valid unless it was made upon just terms. It would also be a condition of the validity of the acquisition that it was made for a purpose in respect of which the Parliament has power to make laws. If the acquisition is an appropriate means of effectuating or furthering any of the above mentioned purposes it would satisfy that condition.

It follows from this interpretation of s. 51 (xiii.) that a law which prohibits any bank from carrying on banking is a law with respect to banking. The motive of Parliament, if that could be ascertained, for enacting the law is irrelevant to the question whether or not the law is within this legislative power. If, however, the prohibition were made to depend upon some condition, the law might not be a law with respect to banking. The question whether or not it would be a law of this description would be tested by considering its effect and operation. The provisions of s. 46 relating to prohibition contain no such condition. Section 46 (1) is a law with respect to banking. Section 46 (2) and (3) are constitutionally justified by the plenary nature and extent of the power vested by s. 51 (xiii.) in the Parliament. Section 46 (4) is also constitutionally justified by s. 51 (xxxi.). The Parliament has power to make a law prohibiting any bank from carrying on banking. It can confer power upon the Treasurer to accomplish any object within its legislative power. That is an attribute of plenary legislative power. In s. 46 (4) Parliament has not purported to confer upon the Treasurer power to do anything which Parliament has not the power to accomplish. The extent of the powers conferred depends upon the interpretation of the Banking Act. Section 46 (4) is in substance a law with respect to banking.

Section 51 (xiii.), aided if necessary by s. 51 (xxxix.), supports the establishment of the Commonwealth Bank.

Sections 12 and 13 of the Banking Act 1947 provide respectively for the purchase and compulsory acquisition by the Commonwealth Bank of shares in a "private bank." The validity of either of these sections is not to be finally tested by the principle whether the acquisition of shares by the Commonwealth Bank is necessary for or incidental to the carrying on of its banking business. To determine their validity finally by that test is to overlook s. 51 (xxxi.) of the Constitution. This grant of legislative power extends to the making of a law with respect to the acquisition by the Commonwealth Bank of shares (because they are "property") on just terms from any shareholder in a "private bank" for any purpose in respect of which the Parliament has power to make laws. Such purposes are obviously wider than the purposes of any bank. The public control of the banking business of a "private" bank is a purpose in respect of which the Parliament has power under s. 51 (xiii.) of the Constitution to make laws. It is within the discretion of the Parliament to select any appropriate authority for example the Treasurer or the Commonwealth Bank, as the agency to exercise such control. The acquisition of shares in a "private bank" by the Commonwealth Bank is an appropriate means of initiating and extending control by the Commonwealth Bank of the banking business of the private bank. Consequently the acquisition is warranted by s. 51 (xxxi.): but it is necessary that the acquisition should be on just terms.

The Parliament has power under s. 51 (xxxi.), (xxxix.) and (xiii.) to enact the provisions of ss. 12, 13 and 14 (1). Section 14 (1) is necessary to make the acquisition effective for the purpose which constitutionally justifies it.

Section 14 (2) purports to confer upon the Commonwealth Bank a right to transfer any acquired share. This right is not incident to the shares in all the companies. The power of the Parliament under s. 51 (xxxi.) is to acquire shares with the incidents only which attach to them under the constitutions of the companies respectively. It is not within the powers of Parliament to add a right to the bundle of rights which constitute an acquired share. But subject to this principle, the Parliament can authorize the Commonwealth Bank to transfer an acquired share to a nominee to hold the share for it and to act for it as a member of the company. Section 14 (2) is justified by s. 51 (xiii.) but not by s. 51 (xxxi.).

The acquisition of the business of a "private bank" by the Commonwealth Bank is, in my opinion, an integral part of the plan for the management of the "private bank" devised in ss. 17-20 of the Banking Act 1947. Their effect is as follows. The directors appointed under the Constitution of the company are compulsorily retired; power is conferred upon the Governor of the Commonwealth Bank to appoint directors in their place; these directors are given "full power to manage, direct and control the business and affairs of the ... bank" and in particular to dispose of the business of the bank to the Commonwealth Bank. The purposes for which these powers are conferred are declared to be "facilitating the control by the Commonwealth Bank of the banking business in Australia of private banks" and "furthering the expansion of the banking business of the Commonwealth Bank." Any dispositive powers over the assets of the "private bank", which the statutory directors would derive from their general statutory powers or the particular power to dispose of the business of the bank, could hardly be exercised for the purpose of furthering the expansion of the Commonwealth Bank in any way other than by disposing of the assets or the business of the "private bank" to the Commonwealth Bank. This is not to say that it is necessarily a scheme to enable the Commonwealth Bank to get assets of a "private bank" or its business at less than value. Section 19 (3) would not relieve the statutory directors of any fiduciary obligations which would arise from the circumstances. But I cannot agree that an acquisition by the Commonwealth Bank of any property from a "private bank" by the machinery devised in these sections of the Act is within the conception of acquisition upon just terms. I think that, in order to come up to that standard, independent approval of the terms of sale would be necessary. Sections 17-20 are, in my opinion, invalid for the above reasons.

But I do not deny that the conversion of the management of "private banks" into management by directors appointed by an appropriate public authority is a purpose in respect of which the Parliament has power under s. 51 (xiii.) to make laws.

Section 21 is, in my opinion, a law with respect to banking.

The taking over of the business of a "private bank" by the Commonwealth Bank involves the acquisition by the latter bank of the assets used in the business and the taking over of the liabilities. None of the "private banks" carries on any business in Australia other than the business of banking or services incidental to it. The Parliament has power to convert the ownership and management of any "private bank" from private to public ownership and control; and to expand and strengthen the Commonwealth Bank. The taking over of the business of "private banks" is a means which is logically appropriate to accomplish those objects. It follows that the Parliament has power under s. 51 (xxxi.) to make a law for the acquisition of the assets on just terms from the "private bank" by the Commonwealth Bank. The liabilities of the business of the "private bank" are not property of the bank. Section 22 (8) (b) and (d) and s. 24 (5) and (7), which make liabilities of the "private bank" liabilities of the Commonwealth Bank and discharge the "private bank" from those liabilities are laws with respect to banking and are authorized by s. 51 (xiii.). It may be that those provisions could be justified on the ground that they are incidental to the execution by Parliament of its legislative power to acquire the assets. Provisions somewhat analogous to s. 22 (8) (b) and (d) are to be found in the laws passed by the legislature of the United States of America: see United States Code, 1946 Edition, Title 12, Banks & Banking. Sections 34 and 34 (a) of that statute prescribe what is the effect of the consolidation of banks on the property and choses in action of a bank consolidating with another bank.

If the Court of Claims is validly given exclusive jurisdiction to determine claims for compensation against the Commonwealth Bank under ss. 15 and 25 respectively, then, subject to the questions about interest and costs, there could be no doubt that the compulsory acquisition of shares under s. 13 and of property under s. 24 would be on just terms. The concessions in respect of taxation made by s. 23 are limited to voluntary purchases. But that cannot alter the result that compulsory acquisition is on just terms if any bank whose property is compulsorily taken is entitled to recover fair and reasonable compensation in respect of the acquisition. The provisions of the Act giving exclusive jurisdiction to the Court of Claims raise questions under s. 75 (iii.) of the Constitution. These questions are whether a claim against the Commonwealth Bank for compensation under s. 15 or s. 25 is a matter in which the Commonwealth or a person sued on behalf of the Commonwealth is a party. I agree with the opinion of the Chief Justice on these questions.

It is within the legislative power to incorporate a bank and make it an agency to carry on banking for the executive government, the Crown being in effect the banker, or to give the bank authority to carry on banking on its own behalf, the corporation being the banker. In my opinion the Commonwealth Parliament has followed the latter course. Section 11 of the Commonwealth Bank Act 1945 says that the Commonwealth Bank shall act as a central bank. A central bank is not necessarily a branch of the executive government. Section 12 provides that the Commonwealth Bank "shall in so far as the Commonwealth requires it to do so, act as banker and financial agent of the Commonwealth." It is common practice even for a privately owned bank to be the banker and financial agent of a government. Section 17 provides that the Commonwealth Bank shall carry on general banking business. The Crown is not the banker of the customers of the Commonwealth Bank. The bank has a Note Issue Department: Part VII. The privilege of issuing notes is one also which might be granted to a privately owned bank. Section 43 provides that the notes shall be legal tender. This character could be given to notes issued by a privately owned bank. None of these circumstances could justify the conclusion that the Commonwealth Bank is a branch of any Commonwealth department. The provisions of Part V., relating to the management of the Commonwealth Bank, are strong to show that it is not a corporation under the Crown. Indeed s. 9 takes it for granted that the Commonwealth Bank is not a branch of a department of State of the Commonwealth and accordingly provides a means for surmounting a crisis resulting from the general independence of the executive government which the bank has under the Commonwealth Bank Act.

In regard to the questions of interest and costs, I am of the same opinion as the Chief Justice.

It follows that the Banking Act 1947 contains valid and effective provisions for the enforcement of the liability imposed upon the Commonwealth Bank by ss. 15 and 25 and that any acquisition, either of shares in a "private bank" or of its property by the Commonwealth, would be "on just terms."

I agree with the Chief Justice that s. 24 (8) is not justified by any grant of legislative power to the Parliament.

The arguments for the plaintiffs that the Banking Act 1947 is an unconstitutional interference with the rights reserved to the States by the Constitution are answered by the statement of principle in the judgment of Dixon J. in Melbourne Corporation v The Commonwealth ^[[535]] , at p. 84. The Banking Act 1947 is a general Act in the sense that the alterations which its operation would make in the present legal framework of banking would affect the States and everyone else in the same way. In this way its operation differs from that of s. 48 of the Banking Act 1945 which was declared in the above case to be invalid.

The Banking Act 1947 is not inconsistent with the Financial Agreement. There is no express stipulation in the agreement that the system of banking existing at the time it was made should not be altered by either Federal or State legislation and it is, in my opinion, impossible to imply such a stipulation from the terms of the agreement.

I am of opinion that the Banking Act 1947 does not violate s. 92 of the Constitution. On this question I agree entirely with the reasons of the Chief Justice and respectfully adopt them. If the principles laid down in James v The Commonwealth ^[[536]] are applied, I think that the argument for the plaintiffs on this question must be rejected.

Section 51 of the Constitution makes trade and commerce on the one hand and banking on the other hand different heads of power. If banking is trade and commerce as plaintiffs' counsel argued, the Commonwealth could create a bank under s. 51 (i.) to operate within the territorial limits mentioned in this provision. Compare Australian National Airways v The Commonwealth ^[[537]] . Section 51 (i.) would give power to the Parliament to control banks operating across State lines and inter-State banking and do other things in respect of banks and banking which counsel for the plaintiffs argued could not be done under s. 51 (xiii.). They argued that this placitum does not give power to Parliament to create a bank, and that the source of this authority is s. 51 (xxxix.).

Banking is not, in my opinion, trade, commerce or intercourse. Banks provide aids to these activities but banking itself is not one of these things. It is not the buying, selling, bartering or exchange of any commodity, or transportation or communication. Section 92 would of course nullify any legislative restriction on banking depending for its operation on the relation of any banking transaction to trade, commerce and intercourse among the States.

To say that credit is transmitted across a State border is to speak figuratively. Credit is not a commodity or a physical thing. It is not like a message sent by wire or by wireless which could be intercepted. A banker resorts to the post office or other means of communication between the States. If that circumstance attracts the application of s. 92, then any business which is spread over State lines could claim the protection of s. 92 against both State and Federal legislation. Section 92 binds the Commonwealth and the States. If the Banking Act violates s. 92, it is difficult to see how, for example, s. 6 or s. 7 of the Banking Act 1945 could survive an attack on the ground that it violates s. 92; another example is legislation providing for bank holidays; this might be bad for interference with the freedom of trade, commerce and intercourse among the States on those days.

I think that the only declaration which should be made now is that ss. 17-20 inclusive and s. 24 (8) of the Banking Act are invalid.