Bank of New South Wales v Commonwealth
76 CLR 1[1948] 2 ALR 89
1948 - 0811A - HCA
(Decision by: Latham CJ)
Bank of New South Wales
v Commonwealth
Judges:
Latham CJRich 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
Judgment date: 11 August 1948
Sydney
Decision by:
Latham CJ
The following written judgments were delivered:
LATHAM C.J. In these five actions referred for trial to the Full Court the plaintiffs challenged the validity of the Banking Act 1947, enacted by the Commonwealth Parliament.
Introduction.
The Act does not apply to State banking, but, with this exception, it would, if put into full operation, give a monopoly of banking in Australia to the Commonwealth Bank of Australia constituted under the Commonwealth Bank Act 1945. The 1947 Act applies to fourteen named companies carrying on banking business in Australia. Eight of these companies are incorporated in Australia, three in England and three elsewhere. They are called "private banks" in the Act.
The Act provides means for the acquisition of shares by the Commonwealth Bank in any private bank by agreement or, in the case of the Australian banks, by compulsion; for the management of Australian banks by directors chosen and appointed by joint action of the Commonwealth Bank and the Treasurer of the Commonwealth; for the taking over by the Commonwealth Bank of the business in Australia of any of the banks by agreement or by compulsion; for the acquisition by the Commonwealth Bank of the assets of any private bank in Australia and elsewhere by agreement or by compulsion; for transfer of liabilities of the banks to the Commonwealth Bank; for the payment of compensation as determined by a Court of Claims; for the prohibition of the carrying on of banking by any of the private banks upon notice given by the Treasurer; and for the taking over of the staffs of the plaintiff banks by the Commonwealth Bank. The operation of all the provisions of the Act depends upon some action by the Commonwealth Treasurer in giving a notice to a particular bank or approving a recommendation or agreement made by the Commonwealth Bank.
This legislation is valid only if it is legislation with respect to a subject matter with respect to which the Commonwealth Constitution gives power to the Commonwealth Parliament to make laws and if it does not infringe any relevant constitutional prohibition. The plaintiffs contend that the Act is not legislation with respect to any such subject matter and, in particular, that it is not authorized by the powers which the Constitution, s. 51, vests in the Commonwealth Parliament to make laws with respect to:
"(xiii.) Banking, other than State banking; also State banking extending beyond the limits of the State concerned, the incorporation of banks, and the issue of paper money:"
"(xx.) Foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth:"
"(xxxi.) The acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws:"
"(xxxix.) Matters incidental to the execution of any power vested by this Constitution in the Parliament or in either House thereof, or in the Government of the Commonwealth, or in the Federal Judicature, or in any department or officer of the Commonwealth."
It is contended for the plaintiffs that the fact that the legislation applies to banks does not make it legislation with respect to "banking" and that it is not a law on that subject; that s. 51 (xx.) does not apply to banking corporations, and that it does not authorize in the case of any corporation the making of laws prohibiting the carrying on of business by the corporation or controlling the manner of carrying on such business; that the acquisition of shares and assets for which the Act provides is for various reasons not acquisition of property for a purpose in respect of which the Commonwealth Parliament has power to make laws; that the acquisition is not upon just terms; that the provisions with respect to the Court of Claims oust the jurisdiction conferred by the Constitution upon the High Court, and are therefore invalid; and that the provisions under which the Commonwealth Treasurer at his arbitrary will can prohibit a bank from carrying on banking business are not authorized by the Constitution.
It is also argued for the plaintiffs that the provisions with respect to the acquisition of shares and assets and the prohibition of carrying on banking business infringe s. 92 of the Constitution, which provides that "trade, commerce and intercourse among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free."
The plaintiffs further contend that the Act is invalid as interfering with the performance of essential governmental functions by the Governments of the States in relation to the management, custody and control of public moneys, and that it is invalid as being inconsistent with provisions of the Financial Agreement between the Commonwealth and the States (see Financial Agreement Act 1944, Schedule) to which overriding effect is given by s. 105A of the Constitution.
The 1947 Act deals only with certain specified banks-but they are all the private banks which in fact carry on business in Australia. No bank can carry on business in Australia without the authority of the Governor-General: Banking Act 1945, ss. 6, 7. Accordingly, the 1947 Act, if put into full operation, together with the last-mentioned Act, enables the Commonwealth through the Treasurer and the Commonwealth Bank to control or to conduct the whole of the banking business of Australia except in the case of State banks.
The Act, if put into full operation, provides for the nationalization of banking, but the questions before the Court are not to be determined by any opinion with respect to the merits or demerits of such a policy. Such opinions have nothing to do with any of the legal questions to be decided by the Court, which are whether the legislative provisions which the Banking Act 1947 contains are within the constitutional powers of the Commonwealth Parliament, and not whether the policy which they represent is wise or prudent or desirable.
The constitutional validity of a statute, it should be observed at the outset, cannot be determined by the fact that Parliament desires or hopes to attain a particular object by the legislation (see South Australia v The Commonwealth [[1]] , at p. 412 and cases there cited), but by what the law actually enacts. Thus in the present cases the questions are whether the particular provisions of the Act are valid. It is not a general question as to whether the Commonwealth Parliament has power by some means or other to acquire a monopoly of banking (other than State banking) for a corporation controlled or controllable by the Commonwealth. The question of power must be separately considered in relation to the particular means adopted in the Act; for example, the acquisition provisions, the prohibition provisions-are these specific provisions within power or beyond power? Another operation of the Act, if valid, is to enable directors appointed by the Governor of the Commonwealth Bank and approved by the Commonwealth Treasurer to control Australian banks. Is such legislation valid? Another operation of the Act, if valid, will be to prevent some or all of the private banks from carrying on any banking business in Australia. Is such legislation valid? These are examples of the actual operation of the Act. It is such particular and precise matters which have to be considered in relation to the provisions of the Commonwealth Constitution.
"Private bank" means a body corporate the name of which is set out in the First Schedule: 1947 Act, s. 5. These corporations are divided in that schedule into three classes: Part I., private banks incorporated in Australia (eight banks); Part II., private banks incorporated in the United Kingdom (three banks); Part III., private banks incorporated elsewhere (three banks).
In the first of the five actions now before the Court all the private banks incorporated in Australia (Part I. of First Schedule) are plaintiffs. Shareholders and directors are also parties (except in the case of the Queensland National Bank Ltd , which is in liquidation) who sue on behalf of themselves and all other shareholders on any register in Australia of the bank, and other shareholders who sue on behalf of themselves and of other holders of shares on any register outside Australia of the bank.
In the second action the banks incorporated in England are the plaintiffs. In the other three actions the States of Victoria, South Australia, Western Australia and their respective Attornies-General are plaintiffs.
The defendants are the Commonwealth of Australia, the Treasurer of the Commonwealth and the Governor of the Commonwealth Bank of Australia.
Claims of the Plaintiff Companies.
In the first and second actions (in which the Australian and English banks respectively are plaintiffs) the plaintiffs claim declarations that the Banking Act 1947 is beyond the powers of the Parliament of the Commonwealth, contrary to the Constitution of the Commonwealth, and void and, alternatively, declarations that specified sections are void. There is also a claim for injunctions restraining the Commonwealth Treasurer and the Governor of the Commonwealth Bank from giving notices etc which would bring the Act into operation. The claims of the English banks are substantially identical with those made by the Australian banks, with certain omissions in respect of sections which do not apply to the English banks, as, for example, ss. 17-19, purporting to authorize the Governor of the Commonwealth Bank to appoint directors of a bank-a provision which is limited to Australian banks.
In the actions in which the States are plaintiffs claims are made that the Banking Act, or certain provisions thereof, are invalid, and injunctions are sought against the Treasurer giving notices under certain sections for the purpose of bringing the Act into operation. In the actions in which the States of South Australia and Western Australia are plaintiffs a declaration is sought that certain provisions of the Act are breaches of the Financial Agreement contained in the schedule to the appendix to the amending Financial Agreement Act 1944.
The plaintiffs applied for interlocutory injunctions in each action. Affidavits were filed in support of the motions and in reply. The parties agreed that the motions for interlocutory injunctions in each action should be treated as the trial of the action, and also that the actions should be heard together. An order was made that the motions be treated as the trials of the actions and be heard together upon the affidavits filed in the applications for interlocutory injunctions.
Constitution of Plaintiff Companies.
The Australian banks are incorporated under the Companies Acts of the various States with the exception of the Bank of New South Wales which was incorporated under the Bank of New South Wales Act 1850. The English banks are incorporated in Great Britain-the Bank of Australasia under a Royal Charter of 1834 as amended, the Union Bank and the English Scottish and Australian Bank under the English Companies Act.
The memoranda of association of the Australian private banks in all cases authorize the banks to carry on the business of banking. There is to be found in either the memorandum of association or the articles of all the plaintiffs express power in some form to sell the business and undertaking of the bank-in some cases subject to ratification by the company in general meeting. The memoranda of association also contain powers, in the case of all the Australian banks except two, to amalgamate with other banks or to purchase the business of other banks.
The memoranda of association of the plaintiff banks in several cases give power to carry on any business which may conveniently be carried on with banking business and to carry on any business of a financial character; that is, the plaintiff banks are not absolutely limited by their memoranda of association to what is strictly banking business. In some cases there is express power to act as executor or trustee and to enter into guarantees.
The deed of settlement of the Bank of New South Wales provides that no corporation shall be a shareholder.
The articles of association of three of the plaintiff banks provide that no member shall hold more than a fixed number of shares. In the case of the Bank of New South Wales the limit is 1/25th of the paid up capital; in the case of the Commercial Banking Co of Sydney and the Ballarat Banking Co Ltd the maximum number of shares that any member can hold is 2,000.
All the banks concerned in this litigation, Australian and English, have provisions in their articles of association dealing with the voting power of members. In some cases one vote is given for every five, or some other small number of shares, and there is a provision that no vote is given beyond a certain fixed number.
The articles of association of all the banks, Australian and English, contain restrictive provisions with respect to the transfer of shares. In some cases the approval of a transferee by the directors is required in the case of any transfer of shares: in other cases, only when the shares are not fully paid or the company has a lien upon them.
The articles of association of all the banks provide for the election of directors by shareholders.
Evidence.
The evidence upon which the plaintiff banks relied was contained in affidavits of experienced banking officers.
The shareholders in the Bank of Adelaide, the Ballarat Bank and the Brisbane Bank are all on registers which are kept in Australia. In the case of all the other banks, there are principal registers and branch registers. Registers of these banks are kept at several of the State capital cities in Australia and in some cases in London and New Zealand. The shares on the Australian registers varied in number from sixty-eight per cent to ninety-nine per cent of the shares issued (figures as at 19th December 1947). There is nothing to prevent the registers outside Australia being closed at the will of the shareholders or directors, with the result of bringing all the shares on to Australian registers.
The Australian private banks have nearly 1,600 branches in Australia, New Zealand and London and many hundreds of agencies. These banks have about 1,038,000 customers' accounts. The English private banks have about 500 branches and a large number of agencies. There are about 250,000 accounts in these banks.
The customers of the private banks include several State Governments, and those banks hold some hundreds of accounts of State Government Departments of one kind and another. In the case of the State of New South Wales and the State of Victoria formal agreements have been made under the provisions of State Audit Acts between the Governments and certain of the banks for the conduct of the banking business of the State Government. Most of the private banks hold accounts of State Savings Banks.
The affidavits filed on behalf of the plaintiffs in the first two actions show that the plaintiff banks are organized upon an Australian basis and that the members of their staffs are interchanged between branches in the different States. The banks conduct a great deal of inter-State banking business, the nature of which is explained under the following heads:
"(a) the collection and negotiation of inter-State Bills of Exchange, cheques and Promissory Notes,
(b) the transfer of funds inter-State,
(c) the establishment of inter-State credits,
(d) the issue and negotiation of travellers cheques."
Transactions of this character involve large numbers of communications between the branches of a bank or the branches of one bank and the branches of another bank in different States and the transmission of many documents across State boundaries. The nature of these transactions is stated in detail in the affidavits filed on behalf of the plaintiffs. The amount of money dealt with in inter-State banking operations carried on by the private banks is stated to be "of the order of PD300,000,000 per annum."
The evidence for the plaintiffs shows that the conduct of modern business and, in particular, of trade and commerce, requires for its normal operation the utilization of banking facilities. These banking facilities in Australia are provided principally by the private banks.
Inter-State and intra-State banking operations are not only closely associated, but are so interwoven that it would be difficult to disentangle them and treat them separately. What begins as an intra-State transaction may lead up to and develop into a inter-State transaction and vice versa, and intra-State elements and inter-State elements may appear at several stages of the same transaction. The funds of the banks are used indifferently for inter-State and intra-State transactions.
The affidavits filed on behalf of the plaintiffs show that at any given time thousands of transactions are in progress which involve the transport or transmission of goods or funds in which the banks are interested. The persons with whom these transactions are conducted will be in many countries and will possibly be changing their residence from time to time. Upon these facts an argument is founded that it would be difficult, if not impossible, to distinguish between assets and liabilities which should be regarded as being situated in Australia and those which should be regarded as being situated outside Australia (see definition of Australian assets and Australian liabilities in s. 5 of the Act).
In the affidavits filed on behalf of the plaintiffs in the actions in which the States are parties it is stated that banking facilities are essential in order to enable a State to carry on and perform its necessary governmental functions. The State Audit Acts provide for the appointment of banks by the Governor in Council into which public moneys are to be paid and in pursuance of these provisions a number of the plaintiff banks have been so appointed and they transact the banking business of the States. As already stated, in the case of Victoria and New South Wales formal agreements exist between certain of the banks and the Governments with respect to the public accounts and the transaction of banking business for State Governments, and those Governments maintain a large number of accounts with the private banks.
There is a Commonwealth Savings Bank which is associated with the Commonwealth Bank. The Commonwealth Bank is stated to be an active competitor for Savings Bank business with the State Savings Bank of Victoria and South Australia and therefore, it is said, it would not be feasible to appoint the Commonwealth Bank as agent for the existing State Savings Banks or for others which might be established.
In the action in which the State of South Australia is the plaintiff an affidavit directs attention to the balance sheet of the Commonwealth Bank showing that the only assets available to pay compensation to shareholders of the private banks consist of Commonwealth Government securities, including Commonwealth Treasury bills and debentures, of the aggregate face value of about PD500,000,000. No public loan for the purpose of paying compensation has been authorized by the Loan Council in accordance with the Financial Agreement. In the State of South Australia there is a State bank, but at present it operates on a rather small scale. The principal banking account of the State is kept with the Commonwealth Bank. The affidavit records an objection to the State being compelled to do all its business with the Commonwealth Bank for the reason that "if the Treasurer of the Commonwealth were to give to the Council of the Commonwealth Bank a direction as to its policy which affected prejudicially or sought to control the banking business of the State or any part thereof, the State would be unable to avoid such prejudice or escape such control by transferring its banking business to any other bank or conducting it by any other means."
The State bank has made arrangements with the private banks and the Commonwealth Bank for clearing-house facilities and providing moneys for customers at places where the State bank has no branch or agency. The affidavit expresses the following opinion: "In order to enable the State to perform its governmental functions it is essential that it should be able to have independence and freedom from the control of any other Government, and any governmental instrumentality, and any person or body of persons or any corporation, in the selection of a bank or banks which will act as the bank or banks for the State."
In the action in which the State of Western Australia is the plaintiff the evidence for the plaintiffs is similar to that in the case of the State of South Australia. There is a State bank in Western Australia operating upon a small scale.
The evidence for the defendants consists in the first place of an affidavit by Professor L. G. Melville, Chief Economic Adviser to the Commonwealth Bank, a Fellow of the Institute of Actuaries, and formerly Professor of Economics in the University of Adelaide. Professor Melville has had extensive experience in relation to banking. He refers to the report of the Royal Commission on Monetary and Banking Systems in Australia dated July 1937. He states that the Australian banking system consists of the Commonwealth Bank and the Commonwealth Savings Bank, State banks in New South Wales (the Rural Bank of New South Wales), South Australia and Western Australia, State Savings Banks in Victoria and South Australia, private banks specified in the First Schedule to the Banking Act 1947, and the Agricultural Banks of Queensland and Tasmania. Reference is also made to pastoral and finance companies and building societies which carry on a limited form of banking business but not the general business of banking, which have been exempted by the Treasurer of the Commonwealth under s. 10 of the Banking Act 1945 from certain of the provisions of that Act.
Professor Melville refers to the fact that the number of banks in Australia has been reduced by amalgamations and other means to ten since 1893, when there were twenty-three banks. Evidence as to the increase of trade and commerce in Australia since 1893, as to the facilities provided by the Post Office for transmission of money by money orders and postal notes, and a statement of opinion that the Commonwealth Bank will, when the Banking Act 1947 is in operation, be capable of providing full banking facilities without any adverse effects on Australian business were objected to. This evidence is, in my opinion, inadmissible.
With respect to the suggested difficulties in the way of determining the location of assets and liabilities, Professor Melville points out that under ss. 40 and 41 of the Banking Act 1945 a weekly statement of liabilities and assets within Australia is prepared and delivered to the Commonwealth Statistician, no difficulties being experienced in practice in the performance of this obligation. But the fact that there may, in some cases, be difficulties in determining the locality of assets or liabilities cannot have any bearing upon the constitutional validity of the Act.
The opinion is expressed by Professor Melville that the Commonwealth Bank will be able to pay in cash any required amount of compensation and it is stated (as the fact is) that the Commonwealth Bank has power to expand credit without any limitation depending upon the value of the assets held by the bank at any particular time. The extent to which this power is exercised on particular occasions will depend upon the policy adopted by the bank.
It is further pointed out that the course of banking business is the same in inter-State as in intra-State transactions.
Much of Professor Melville's affidavit consists of argumentative material relating to the function of banks in relation to the creation of credit, and expounding, in particular, the theory of central banking. He expresses the opinion that the primary functions of the private banks are to borrow and to lend and to recall credit.
The working of exchange settlement accounts, whereby cheques drawn on the various banks are cleared, is explained. The banks maintain exchange settlement accounts with the Commonwealth Bank, and through these accounts inter-bank liabilities are adjusted. The transmission of funds by a private bank from one State to another is generally effected through an exchange settlement account in the Commonwealth Bank.
Professor Melville explains the relation of trading banks to a central bank which is "a banker's bank" controlling credit and monetary policy. Legal tender in Australia at the time when the affidavit was sworn amounted to about PD203,000,000, but the the amount of credits in the deposit accounts (excluding accounts of Governments and other banks) in all banks amounted to PD1,560,000,000, the difference, PD1,357,000,000, representing credit created by the banks. This creation of credit was controlled by the Commonwealth Bank under the Banking Act 1945. The banks determined their policy in relation to making advances by reference to the amount of their cash reserves, but the policy of one bank was necessarily affected by the policy of the other banks, and the banking system as a whole was subject to a large degree of control by the central bank. The banks were compelled under s. 20 of the Banking Act 1945 to maintain in special accounts with the Commonwealth Bank amounts determined by the Commonwealth Bank under that Act. In November 1947 the amount standing to the credit of the special accounts of the plaintiff banks was PD249,000,000. The Commonwealth Bank could, by requiring additions to or permitting subtractions from the special accounts, exercise an effective instrument of credit control. Under s. 27 of the Banking Act 1945 the Commonwealth Bank had the power of determining the policy in relation to advances to be followed by private banks. This power had been exercised by giving to private banks extensive and detailed directions with respect to the classes of advances to be made and the matters to be taken into consideration in making advances. The degree of control exercised by the Commonwealth Bank was illustrated by reference to a list of subject matters in respect of which directions had been given to the private banks by the Commonwealth Bank. These subject matters included the following:
"Construction of new buildings, alterations and additions to, and repair of existing buildings.
Investments in shares, stock, etc
Retailers.
Agricultural, pastoral and dairying production.
Semi-governmental and local authorities.
Advances to take up Commonwealth Loans.
Purchase of real estate.
Financing of hire purchase transactions and cash order businesses.
Manufacturers.
Advances to repay existing mortgages or retire debts which have not yet matured.
Amusement and sporting activities.
Advances for the purpose of meeting taxation commitments.
Wholesalers, manufacturers' agents, and indent agents, selling and commission agents.
Exports.
Imports.
Establishment of new businesses or purchase of an existing business.
Ex-servicemen.
Fixed deposits.
Speculative buying or holding of commodities.
Production and exploitation of raw materials.
Probate duties and payment of legacies.
Transport (including aviation and shipping).
Personal needs.
Companies and or their subsidiaries and persons resident outside the sterling area."
Reference is also made to the fact that under s. 28 of the Banking Act 1945 the Commonwealth Bank has power to limit the purchase by private banks of Government securities, and also, under s. 39, to control the rates of interest payable to or by private banks.
Professor Melville explains how the central bank affects the amount of credit available by issuing Australian notes, by financing Commonwealth and State Government operations, by purchasing or subscribing to securities, by granting loans to customers and by acquiring overseas funds. By the use of these means the Commonwealth Bank was able to regulate the volume of money in the community and thereby facilitate and maintain not only trade and commerce, but also production, manufacture and many other important activities of its citizens.
The affidavit of Mr. G. M. Shain, Deputy Governor of the Commonwealth Bank, sets out the history of the Commonwealth Bank and its functions as a general banker and as the Commonwealth Savings Bank.
Mr. S. G. McFarlane, Secretary to the Treasury, states in his affidavit that until 1930 the State Governments obtained necessary temporary financial accommodation by overdraft from banks in Australia, but that thereafter this banking accommodation (particularly for the purpose of financing the Governments during annual lags in receipt of revenue) had in fact been provided by the issue of Commonwealth Treasury bills.
The affidavits in reply of the plaintiffs refer to the extent of inter-State operations and restate that the private banks sometimes themselves become the owners of drafts and the pledgees of bills of lading. The affidavit of Mr. S. J. Gandon in reply included the following paragraph:"In each of the countries in which it carries on business the plaintiff the Bank of New South Wales has numerous and valuable rights against and is subject to numerous and substantial obligations in favour of persons who are not customers of that Bank and which rights and obligations do not arise out of any relation of banker and customer. From my knowledge of the nature of the businesses carried on by the other private trading banks I am of opinion that the same is true of each of such other banks." The banks own, or lease, for example, many buildings in the Commonwealth and elsewhere. Accordingly, they have many rights and obligations as property owners.
A further affidavit in reply was sworn by Professor Torleiv Hytten, Economist to the Bank of New South Wales, Mr. Donald Henry Merry, Mr. A. J. Tyrer and Mr. G. R. Mountain. All these gentlemen are experienced in banking and economics. The effect of their affidavit is that in their opinion the essential function of trading banks is "to transact general banking business with the public. The essential function, on the other hand, of a central bank is to exercise control over the volume of credit. A central bank commonly acts as a banker's bank and as banker for the Central Government. It is not an essential function of a central bank as such to transact general banking business with the public." It was accordingly argued in the affidavit that a central bank in the true sense necessarily involved the co-existence of other banks which were trading banks and that the operations and functions of those trading banks were in substance and essence the same whether there was a central bank or not. A central bank was only one of several means by which to influence (inter alia) the volume of production, the flow of trade and the level of employment. Among other such means were fiscal policy, including taxation and loan operations, price control, customs regulations, etc Accordingly, it was submitted that the abolition of independent trading banks would not be a development of central banking, as Professor Melville was understood to suggest.
Upon this evidence Dixon J. made the order for trial before the Full Court and granted interlocutory injunctions preventing the Act being brought into operation until judgment was finally pronounced in the actions or until further order of the court.
Banking Act 1947.
Part I.
Part I. of the Act contains the following provision in s. 3:
"The several objects of this Act include-
- (a)
- the expansion of the banking business of the Commonwealth Bank as a publicly-owned bank conducted in the interests of the people of Australia and not for private profit:
- (b)
- the taking over by the Commonwealth Bank of the banking business in Australia of private banks and the acquisition on just terms of property used in that business:
- (c)
- the prohibition of the carrying on of banking business in Australia by private banks."
It is a practice in some countries to introduce statutes with a statement of the objects of the legislature in making an enactment and an explanation of its general character. Such a statement is useful for the information of legislators and of the public. Where, however, a Parliament, as in the case of the Commonwealth Parliament, has only limited powers, the declaration of Parliament that a law is enacted for the purpose of securing the stated objects cannot bring an enactment within power if its operative provisions have no real connection with a subject with respect to which the Parliament has power to make laws. Such a declaration is entitled to respectful consideration, but it cannot be decisive upon a question of validity. Under a unitary constitution, a parliament may be the judge of its own powers, but that is not the case under the Federal Constitution of Australia.
The validity of many of the provisions of the Act is challenged. These provisions must be considered according to their own terms and their actual operation, and the belief of Parliament that they would assist in achieving particular objects cannot in itself establish their validity, even if the objects specified are themselves directly within parliamentary power. Each provision must be considered in the context of the Act, independently of any such statement of objects-though such a statement may suggest a connection between the legislation and a relevant subject matter: cf. for example, Andrews v Howell [[2]] , at p. 275. These considerations become important in relation to the power conferred upon the Federal Parliament by s. 51 (xxxi.) to make laws for the acquisition of property on just terms for any purpose in respect of which the Parliament has power to make laws.
Section 5 contains various definitions. "Australian assets and liabilities" means assets and liabilities situated, or deemed by law to be situated, in Australia. "Australian private bank" means a private bank which was formed within the limits of the Commonwealth and the name of which is set out in Part I. of the First Schedule. "Australian shares" means shares situated, or deemed by law to be situated, in Australia. "Private bank" means a body corporate the name of which is set out in the First Schedule.
Part II,
Part II, consists of s. 6, which is a declaration of legislative intention. It is in the following terms:
"It is hereby declared to be the intention of the Parliament-(a) that if any provision of this Act is inconsistent with the Constitution, that provision and all the other provisions of this Act shall nevertheless operate to the full extent to which they can operate consistently with the Constitution; (b) that the provisions of the last preceding paragraph shall be in addition to, and not in substitution for, the provisions of section fifteen A of the Acts Interpretation Act 1901-1941; and (c) that this section and section fifteen A of the Acts Interpretation Act 1901-1941 shall have effect notwithstanding that their operation may result in this Act having an effect different, or apparently different, in substance from the effect of the provisions contained in this Act in the form in which this Act was enacted by the Parliament."
This provision requires that the Act shall be interpreted as far as possible so as to be valid, though parts of it may be declared to be invalid. Thus the Act is to be construed upon a general presumption of severability. Each provision is to be given its fullest possible valid operation, even though, by reason of the invalidity of other provisions of the Act, that provision may have an effect which is different from that which it would have had if those provisions had been valid. In Vacuum Oil Co Pty Ltd v Queensland [[3]] in considering the question of the severability of valid from invalid provisions of a statute, Dixon J. said [[4]] : "The statute will not operate upon the matters within the powers of the legislature unless it is capable of applying to them in the same way and with the same consequences to the persons and things affected." I call attention to the words "with the same consequences." Section 6 (c) is directed to the exclusion of the principle there stated. Part I. has declared its intention that effect shall be given to any valid provisions of the Act whatever the consequences may be. But, nevertheless, one provision of the Act may be so dependent upon another provision that the invalidity of the latter necessarily involves the invalidity of the former. The Court cannot re-write a statute and so assume the functions of the legislature.
Whatever view may be taken as to the severability of particular provisions, it is the first duty of the Court to consider the validity of each provision of the Act which is challenged according to its terms, construed in their context. Questions of severability-of necessary dependence of one provision upon some other provision-arise only after questions of construction have been determined.
The provisions of the Act have been so drafted that they can be utilized separately or together in varying combinations, the Commonwealth Bank or the Treasurer of the Commonwealth bringing them into operation by taking specified action-giving a notice or making an agreement. The compulsory acquisition of shares, the cesser of office of existing directors and the substitution of other directors, the compulsory acquisition of assets and transfer of liabilities, and the prohibition against a bank carrying on business, come into operation only when certain notices are given. There is no provision which compels the giving of all of these notices or of any particular one of these notices.
Such notices may be given to one or more of the plaintiff banks or to all of them.
They may be given at the same time or at different times.
They may be given immediately or in the distant future.
The validity of the Act must be considered in relation to all these possibilities, and not merely in relation to the present position of the plaintiff companies in respect of shareholdings, of assets and liabilities, or to the business which at the present time is carried on by them.
Part III. Application of Act.
Section 7 provides that nothing in the Act shall apply to State banking. This section is a recognition of the constitutional limitation involved in s. 51 (xiii.) of the Constitution, which gives to the Commonwealth Parliament power to make laws with respect to "banking other than State banking: also State banking extending beyond the limits of the State concerned." In Melbourne Corporation v The Commonwealth [[5]] it was held that the words, "State banking," in this provision refer to the business of banking conducted by a State as a banker and not to transactions between a State as a customer and a bank. In this Court the plaintiffs had to argue upon the basis of accepting this decision.
Section 8 provides that the Act shall extend to the territories under the authority of the Commonwealth.
Part IV.
Part IV. is entitled "Expansion of Banking Business of Commonwealth Bank." It consists of four Divisions: Division 1 - Preliminary; Division 2 - Acquisition of Shares in Private Banks; Division 3 - Management of Private Banks; Division 4 - Taking over of Businesses of Private Banks.
Part IV. Division 1. Section 9 declares that the powers with respect to the acquisition of shares in private banks and the management of private banks are conferred "for the purposes of facilitating the control by the Commonwealth Bank of the banking business in Australia of private banks and for the purpose of furthering the expansion of the banking business of the Commonwealth Bank."
If, as the defendants contend, the power of the Commonwealth to make laws with respect to banking enables the Commonwealth to make laws in order to facilitate control of banking by the Commonwealth Bank and of furthering its expansion, then s. 9 states purposes with respect to which the Parliament has power to make laws. But, as already stated in relation to s. 3, the declaration by Parliament of its purpose is making a law, though entitled to careful consideration and respect, cannot be conclusive upon a question of validity. The law must really be a law with respect to a subject matter with respect to which Parliament has power to make laws. The declaration by Parliament that it has a particular purpose in view might, in some circumstances, operate to invalidate a law (e.g., by reason of s. 92 of the Constitution), but it can never in itself establish the validity of a law. The Court must consider the actual operation and effect of the actual provisions contained in an enactment apart from any declaration by Parliament itself that in the opinion of Parliament the enactment falls within some particular category.
Section 10 of the Act provides that the provisions of Divisions 2 and 3 of Part IV. shall have effect, notwithstanding anything in any other law, or in any charter or other instrument, which is inconsistent with those provisions. So far as State laws are concerned, this section states only what the position would have been if the section had not been included in the Act. A Commonwealth law, if valid, prevails over any State law independently of such a provision as s. 10: see the Constitution, s. 109. So also, a charter or other instrument cannot prevail against a valid Commonwealth law. But, as will be seen, in some cases a Commonwealth law can have a valid operation only with respect to matters the existence and characteristics of which depend upon State laws or charters or other instruments. For example, the Act provides for the acquisition of shares in the plaintiff banks by the Commonwealth Bank. But it is State law or English law which determines what a share in a company is.
Section 11 provides that it shall be the duty of the Commonwealth Bank to provide adequate banking facilities for any State or person requiring them, to conduct its business without discrimination, to observe ordinary banking usages, and not to divulge information except in accordance with the law or customary practices and usages.
Part IV. Division 2 - Acquisition of Shares. This Division provides for the acquisition of shares in private banks by agreement or by compulsion. The provisions relating to agreement apply to all private banks. The provisions for compulsion are limited to Australian private banks.
Section 12 contains the provision for acquisition of shares by agreement. It provides that the Commonwealth Bank may, subject to the approval of the Treasurer, purchase all or any of the shares in any of the Australian or English banks at a price not less than the market price of 15th August 1947.
Under the Commonwealth Bank Act 1945 s. 13, the Commonwealth Bank has power (inter alia) to buy, sell, discount and rediscount bills of exchange, promissory notes and Treasury bills, to buy and sell securities issued by the Government and other securities, and to buy, sell and otherwise deal in foreign currency, specie, gold and other precious metals. Section 12 of the 1947 Act increases the power of the Commonwealth Bank by allowing it to purchase shares in private banks with the approval of the Treasurer.
Section 13 contains the provisions for compulsory acquisition by the Commonwealth Bank of Australian shares in Australian private banks. It provides that:"Where the Treasurer is satisfied that the majority in number of the shares in an Australian private bank are Australian shares, the Treasurer may, by notice published in the Gazette, declare that, upon a date specified in the notice, the shares in that bank which are Australian shares upon that date shall be vested in the Commonwealth Bank."
Sub-section (2) provides that a notice may be amended from time to time by substituting a later date. Sub-section (3) provides that upon the date specified in the notice the shares in the Australian private bank concerned which upon that date are Australian shares (see definition in s. 5) shall by force of the Act be vested in the Commonwealth Bank. The effect of this section is that shares on the Australian register of an Australian bank will on the date specified become vested in the Commonwealth Bank so as to become the property of the Commonwealth Bank.
Sub-section (4) provides that all other shares in that Australian private bank which, after the specified date, become Australian shares shall, by force of the Act, upon the date when they become Australian shares, be vested in the Commonwealth Bank. Sub-section (5) provides for freeing shares vested in the Commonwealth Bank from trusts, mortgages, charges, etc
Section 14 provides, first, that the Commonwealth Bank shall be the "holder" of the shares in an Australian private bank which have been purchased or acquired under Division 2 and, secondly, that the Commonwealth Bank shall be "a member" of the Australian private bank in respect of those shares. Section 14 (2) provides that the Commonwealth Bank may transfer any such shares to any person, and that that person shall, for all purposes, be the holder of those shares and be a member of the bank in respect of such shares.
Section 15 provides for the payment by the Commonwealth Bank of fair and reasonable compensation in respect of the acquisition of shares by the Commonwealth Bank under s. 13.
It is convenient to make some short comments upon these provisions before examining other provisions with which they are associated.
As already stated, the Treasurer is under no obligation to give a notice under s. 13 to all the banks or to any particular bank. The legislation as enacted is of indefinite duration and action could be taken with respect to one bank now and to other banks from time to time and possibly many years later.
The plaintiffs drew attention to the fact that the operation of s. 13 depends upon the Treasurer being satisfied that the majority of shares in an Australian bank are Australian shares and it is argued that the Treasurer may make a mistake in forming an opinion as to whether the majority of shares are Australian shares. It was suggested that this possibility in some way affected the validity of the section. No satisfactory argument, however, was presented upon this matter. The condition of the operation of the section is that the Treasurer is satisfied as to a particular matter, and not that his opinion on the matter is accurate in fact.
It is further pointed out by the plaintiffs that it is possible (though doubtless improbable) that the operation of s. 13 might not, in a particular case, result in the Commonwealth Bank becoming the owner of a majority of shares in a bank or obtaining voting control. It is true that the Act must be considered in relation to any possible operation and not upon any assumption as to the probable proportions of Australian and other shares at the time when the power conferred by s. 13 is exercised. But the particular possibility mentioned cannot affect the validity of the Act. If the Commonwealth Bank did not have sufficient shares to control voting by shareholders, the only consequence would be that the Bank could not, until it gained that control, do what only an effective majority of votes could accomplish. But every share acquired would be a step towards control, and if extending control of banking by the Commonwealth Bank is within Federal legislative power, the fact that s. 13 does not, in all conceivable circumstances, place the Commonwealth Bank in control of another bank uno ictu, does not place s. 13 beyond power.
The date specified in the Treasurer's notice under s. 13 may be any date chosen by him now or years ahead, and a later date may be substituted from time to time. These provisions would enable a Commonwealth Treasurer to keep shareholders in what might be described as a state of suspended animation for an indefinite period; but that fact does not constitute any objection to the validity of the legislation.
The provisions as to the shares becoming vested in the Commonwealth Bank, the Commonwealth Bank becoming the holder of those shares and a member of the banking company, and as to the power to transfer shares to "any person" raise questions as to the power of the Commonwealth Parliament to exclude the operation of State legislation and articles of association dealing with these matters.
Part IV., Division 3 - Management of Private Banks.-This Division applies only to Australian private banks and not to private banks incorporated elsewhere than in Australia. Under this Division the Commonwealth Bank, with the approval of the Commonwealth Treasurer, may assume the management of any Australian private bank through directors appointed by the Governor of the Commonwealth Bank.
Section 17 provides as follows:"(1) Upon the date specified in a notice under sub-section (1) of section thirteen of this Act (or, if that notice has been amended under sub-section (2) of that section, upon the date specified in that notice as so amended), the directors of the Australian private bank in relation to the shares in which the notice was given shall, by force of this Act, cease to hold office." This is followed by a provision for compensation of directors for loss of office.
It is pointed out by the plaintiffs that this provision operates upon a date specified in a notice given under s. 13 (1), whether or not a majority of the shares in the bank are in fact Australian shares, and whether or not any of the shares are in fact acquired. It is the giving of a notice under s. 13, and not the actual acquisition of shares, which brings s. 17 into operation.
Section 18 provides as follows:"(1) The Governor of the Commonwealth Bank may, with the approval of the Treasurer, appoint directors of an Australian private bank the directors of which have ceased to hold office under the last preceding section and may appoint one of the directors so appointed to be chairman of directors. (2) The directors so appointed shall hold office notwithstanding any lack of qualification or any disqualification arising under any law, charter or other instrument."
This provision is permissive and not mandatory in form-the Governor of the Commonwealth Bank "may" appoint directors. But in fact, as the original directors would have ceased to hold office by virtue of s. 17 (1), the bank would be left without any directors at all and, accordingly, with no provision for management, unless the Governor of the Commonwealth Bank actually exercised his powers under s. 18. The articles of association of the plaintiff banks provide for a share qualification for directors, and State laws prevent undischarged bankrupts from holding office as directors. Section 18 (2) excludes the operation of any such provisions.
The powers of the directors appointed under s. 18 are defined in s. 19 as follows:"(1) Directors appointed under the last preceding section shall have full power to manage, direct and control the business and affairs of the Australian private bank of which they are directors and, in particular, shall have power-(a) to declare dividends; (b) to dispose of the business in Australia of that Australian private bank to the Commonwealth Bank; and (c) to dispose of all or any of the other business of that Australian private bank. (2) The exercise of any power under paragraph (b) or (c) of the last preceding sub-section shall be subject to the approval of the Treasurer after the Treasurer has obtained a recommendation from the Governor of the Commonwealth Bank. (3) Subject to the last preceding sub-section, the exercise of any power by the directors of an Australian private bank appointed under the last preceding section shall be in their sole discretion and shall not be subject to any qualification, restriction or condition provided by or under any law, charter or other instrument relating to the exercise of the powers of the directors of that bank."
Section 21 deals with the intended result of the Commonwealth Bank becoming the sole shareholder in one of the private banks (e.g., as in the case of the Bank of Adelaide, the Ballarat Banking Co and the Brisbane Permanent Building and Banking Co Ltd , where all the shares are Australian shares), or acquiring so many shares that the number of shareholders would be reduced below the number required by the provisions of the relevant State Companies Act. The State Companies Acts contain provisions imposing unlimited liability for certain debts of the company upon shareholders if the number of shareholders falls below a specified number; for example, the Companies Act 1928 (Vict.), s. 124, provides that in the case of a (non-proprietary) company if the number of shareholders falls below five and the company carries on business for more than six months while the number is so reduced, the members of the company during the time that it so carries on business thereafter, having cognizance of the fact that it is carrying on business with fewer than five members, shall be severally liable for the payment of the whole of the debts of the company contracted during that time. State laws also provide, e.g., Companies Act (Vict.) 1928, s. 137 (4), that if the number of members of a company is reduced below a specified number the company may be wound up by the court.
Part IV. Division 4 - Taking over of Businesses of Private Banks. This Division provides that the business in Australia or outside Australia of any private bank (Australian or English) may be taken over by agreement (s. 22) and that the business in Australia of any of the private banks may, if an agreement is not made in response to an invitation of the Treasurer be taken over by compulsion (s. 24)-with assets and liabilities as defined.
Section 22 provides a carefully specified procedure for the purpose of making an agreement and (sub-s. (8)) for the effect of an agreement made under the section. An agreement made under the section has the operation and effect specified in the section, and therefore is to be distinguished from an agreement made, for example, with a private bank through its directors (original or substituted) which is not made as a result of the procedure prescribed by s. 22, and which, as will appear, could not, as an agreement, bring about the results specified in s. 22 (8).
Section 22 (1) provides that the Treasurer may, by notice given in writing to a private bank, invite a private bank to make an agreement with the Commonwealth Bank not later than the date specified in the notice for the taking over by the Commonwealth Bank of the business in Australia of that private bank.
It should be observed that a notice may be given under s. 22 (1) independently of any acquisition of shares by the Commonwealth Bank, and that it may be given either before or after nominee directors have been placed in control of a bank under Division 3 of Part IV. If the notice is given after Division 3 has been brought into operation, the nominee directors would be the persons to deal with the invitation of the Treasurer to make an agreement for disposing of the business of the bank.
Other provisions in s. 22 provide for the amendment of a notice. Sub-section (5) provides that the Commonwealth Bank may, subject to the approval of the Treasurer, make an agreement with a private bank for the taking over by the Commonwealth Bank of all the business in Australia of that bank. Sub-section (6) provides that an agreement under the section "may be made with a private bank, whether or not a notice has been given under sub-section (1)," but that if such a notice has been given an agreement with a private bank shall not be made after the original or amended date specified in the notice. Thus an agreement under s. 22 can be made only before or on the specified date.
Sub-section (7) provides that "an agreement under this section" may include provisions for the taking over by the Commonwealth Bank of "any of the business, assets and liabilities outside Australia" of a private bank.
Sub-section (8) contains provisions with respect to the effect of an agreement made under the section. It will be seen that this sub-section is a statutory enactment purporting to give an effect to "an agreement made under this section" which, apart from statute, no agreement between the Commonwealth Bank and a private bank could accomplish.
Paragraphs (a) and (b) relate to Australian assets and Australian liabilities "subsisting" upon the date of taking over of the business. Paragraph (b) provides, not only that the liabilities of the private bank shall become liabilities of the Commonwealth Bank, but also that the private bank shall be discharged from its obligations in respect of those liabilities. Accordingly, a depositor in a private bank or any other creditor of the bank would, when these provisions came into operation, find that instead of being a creditor of the private bank he had become a creditor of the Commonwealth Bank and that the private bank owed nothing to him. No agreement between the Commonwealth Bank and a private bank to which the creditor was not a party could bring about such a result. The creditor is, without his consent, deprived by statute of his rights against the private bank, that bank is released from its liabilities to him, and the Commonwealth Bank is substituted as his debtor. This result depends upon the statute and not upon the agreement as such. The agreement has the effect, as a consequence of the statutory provision, which is set forth in detail in pars. (a), (b), (c), (d) of s. 22 (8).
Paragraphs (a) and (b) relate to assets and liabilities which are Australian assets and liabilities whether they have a direct connection with banking transactions or not; for example, the buildings in Australia owned by a bank would pass as Australian assets, and Australian liabilities of a bank for rent of buildings occupied by the bank would pass as Australian liabilities.
Paragraph (c) relates to assets which become Australian assets after the date of transfer. These assets are vested in the Commonwealth Bank upon the date upon which they become Australian assets but only if they are assets "which relate to banking transactions." Such assets might become so vested from time to time at different dates. This fact has a bearing upon the question whether the Court of Claims, which determines compensation, must determine compensation once and for all in a single proceeding.
Paragraph (d) corresponds in the case of liabilities to par. (c) in the case of assets. It provides for the transfer of all the liabilities of the bank "which relate to banking transactions" which become Australian liabilities after the date of transfer. The section provides (as in par. (b)) for the discharge of the private bank from such liabilities.
Section 23 provides for a taxation concession to a private bank and its shareholders in respect of taxation upon incomes or profits in a case where an agreement has been made "under the last preceding section." Thus if a company makes an agreement under s. 22 - which, as already pointed out, is different from an agreement made apart from s. 22 - the bank and its shareholders receive a benefit in respect of taxation. If, however, a bank declines to make an agreement and insists upon its rights under the Act and proceedings are instituted for compensation, there is no such taxation concession. This provision raises questions as to whether the terms of compulsory acquisition of assets are just terms within s. 51 (xxxi.) of the Constitution.
Section 24 contains the provisions for compulsory taking over of business, acquisition of assets and transfer of liabilities. Its operation depends upon the giving of a notice under s. 22 (1) of the Act. Such a notice specifies a date not later than which a private bank is invited by the Treasurer to make an agreement with the Commonwealth Bank.
Section 24 (2) provides that where a private bank to which a notice has been given under s. 22 (1) has not made an agreement with the Commonwealth Bank "under that section" before the specified date the business in Australia of that private bank shall, upon the date of transfer (that is, the day after the specified date: sub-s. (1)) be taken over by the Commonwealth Bank. "Taking over a business" is not a technical legal term. When a business is taken over by agreement, the agreement provides for the transfer of identified assets, including goodwill, perhaps for an indemnity against business liabilities, and perhaps the agreement contains a covenant in restraint of trade. The agreement may or may not contain provisions relating to the staff employed in the business. There is a distinction between the assets of a business and the property of the person or company which carries on the business: In re Th. Goldschmidt Ltd [[6]] , at p. 197. Where a statute provides for the "taking over of a business" the effect depends entirely upon the terms of the statute. In the present case s. 24, sub-ss. (4) to (8), expressly state what taking over the business of a private bank means. Taking over the business of a bank does not terminate the juristic existence of the company whose business is taken over, nor does it itself prevent the bank from continuing to carry on business, including banking business. (But s. 46 (3) does, where the business of a bank is acquired, prevent the bank carrying on banking business.) Sub-sections (4), (5), (6) and (7) correspond to pars. (a), (b), (c) and (d) of sub-s. (8) of s. 22. Paragraphs (a) and (b) provide for vesting of "subsisting" assets, transfer of subsisting liabilities, and the discharge of the private bank from the liabilities taken over by the Commonwealth Bank. Under sub-s. (6) assets which relate to banking transactions and become Australian assets after the date of transfer but before a date prescribed in respect of a particular private bank become vested in the Commonwealth Bank upon the date upon which they become Australian assets. Sub-section (7) is a similar provision with respect to liabilities which relate to banking transactions.
The prescribed date under sub-ss. (6) and (7) might be any date in the future.
All the Australian assets "subsisting upon the date of transfer" are taken over (s. 24 (4)) and all the "subsisting" Australian liabilities are transferred (s. 24 (5)). These provisions relate to all such assets and liabilities, whether they "relate to banking transactions" or not. Assets which become Australian after the date of transfer and before a prescribed date become vested in the Commonwealth Bank under s. 24 (6) only if they "relate to banking transactions." Thus the bank could continue in a non-banking business in Australia or elsewhere and could own assets of any kind in Australia, provided that it was not attempting to carry on banking transactions. Sub-section (8) of s. 24 applies to assets of a private bank which are not Australian assets, e.g., buildings or other property in London or New Zealand, bills of exchange or deposits with other banks anywhere in the world outside Australia. The section provides that the Commonwealth Bank may, at any time after a notice has been given to an Australian private bank under s. 22 (1), require the private bank to take such action as is necessary to vest in the Commonwealth Bank such assets (not being Australian assets of the bank) as the Commonwealth Bank specifies. The application of this provision does not depend upon any relation of the assets to "banking transactions" or even to a business carried on in Australia. If valid, it enables the Commonwealth Bank, at any time in the future, to require any of the plaintiff banks to transfer to the Commonwealth Bank any property which it may own in any part of the world outside Australia. This section is the first of a number of sections which provide for a penalty of PD10,000 a day for each day on which a contravention occurs.
Section 25 completes Division 4 by providing that the Commonwealth Bank shall pay fair and reasonable compensation in respect of the acquisition of property by the Commonwealth Bank under s. 24.
Part V.-The Federal Court of Claims.
Under this Part a Court of Claims is established in accordance with the provisions of the Constitution with valid provisions for the appointment and tenure of judges etc Section 33 provides that the court shall have jurisdiction to hear and determine claims for compensation arising under the Act. Section 34 provides, inter alia, that the judgment of the court shall not be subject to prohibition, mandamus or injunction in any court on any account whatever. This particular provision is invalid in so far as it seeks to exclude the jurisdiction conferred upon the High Court by s. 75 (v ) of the Constitution to grant writs of mandamus, prohibition or injunction against officers of the Commonwealth: see, for recent cases in which this matter has received consideration, R. v Connell; Ex parte Hetton Bellbird Collieries Ltd [[7]] ; R. v Hickman; Ex parte Fox [[8]] .
Part VI. Assessment of Compensation for Shares.
Division 1 provides for the keeping by the Commonwealth Bank of a register of rights to payment of compensation in respect of the acquisition of shares and for notification of interests in compensation by persons whose names are not on the register. Persons who do not give such a notice can obtain compensation only in pursuance of an order made by the court: s. 40 (7).
Section 40 provides that the amount of compensation payable shall, unless agreed upon, "be determined by the court and not in any other manner." Where a person whose name is not upon the register claims to be entitled, then under s. 40 (4) "the persons entitled to payment of compensation in respect of the acquisition of these shares shall be determined by the court and not in any other manner." The determination of the persons entitled to compensation is plainly a judicial act. Section 40 (5) emphasizes the intention of Parliament that only the Court of Claims shall deal with questions of compensation, by providing:"The amount of compensation payable, and the amount payable to each person, shall be determined by the Court and not in any other manner and payment shall be made accordingly."
Sub-section (8) provides-"The payment of compensation by the Commonwealth Bank in pursuance of this section or of an order made by the Court shall be a good and valid discharge to the Commonwealth Bank."
Part VI.-Division 2. Compensation in respect of the Acquisition of Assets.
Section 42 provides that such compensation shall be ascertained in accordance with Division 2 and "not in any other manner." Section 43 provides that a private bank the business of which has been taken over by the Commonwealth Bank in pursuance of section twenty-four shall, subject to Division 2, be paid such compensation as is determined by agreement between the Commonwealth Bank and the bank. Such an agreement is subject to the approval of the Treasurer (sub-s. (2)). A bank might refuse to make an agreement under s. 22 to sell its business to the Commonwealth Bank. The Treasurer could then bring about the taking over of the business by the Commonwealth Bank under s. 24. He could then give a notice under s. 13 (1) and displace the original directors (s. 17) and place nominee directors in office (s. 18). Those directors could then make an agreement for compensation under s. 43 (1) with the Commonwealth Bank with the approval of the Treasurer.
If no agreement as to compensation is made a private bank may make a claim in writing to the Commonwealth Bank for compensation (s. 43 (3)).
Section 44 deals with procedure. Where a claim for compensation is made the Commonwealth Bank shall, as soon as practicable, serve a notice specifying how much the Commonwealth Bank is prepared to pay (sub-s. (3)). That offer is deemed to be accepted unless within two months after service the private bank requires the Commonwealth Bank to refer the claim to the court (sub-s. (3)). If within six months after a claim is made the Commonwealth Bank does not serve a notice specifying the amount of compensation which it is prepared to pay the private bank may require the Commonwealth Bank to refer the claim to the court (sub-s. (4)) and the court then determines the compensation which it thinks fair and reasonable (sub-s. (5)). Section 45 provides that the amount of compensation determined by the court under s. 44 shall be payable by the Commonwealth Bank to the private bank in full satisfaction of the claim to which the determination relates.
Part VII. Prohibition of the Carrying on of Banking Business by Private Banks.
Section 46 provides in sub-s. (1) that: "Notwithstanding anything contained in any other law, or in any charter or other instrument, a private bank shall not, after the commencement of this Act, carry on banking business in Australia except as required by this section." The Banking Act 1945, s. 7, provided that a body corporate should not carry on business without an authority granted by the Governor-General, and s. 8 provided that such an authority should be granted to all the banks which are plaintiffs in these cases. Section 46 substitutes for the general authority to carry on banking business given to the plaintiff banks under the Banking Act the limited authority conferred by s. 46. The private banks are to carry on banking business only as required by s. 46.
Section 46 (2) provides that each private bank shall, subject to s. 46, carry on banking business in Australia and shall not "except on grounds which are appropriate in the normal and proper conduct of banking business" cease to provide any facility or service provided by it in the course of its banking business on 15th August 1947. Section 46 concludes with the provision: "Penalty: Ten thousand pounds for each day on which the contravention occurs." If this provision applies to sub-s. (2), then this penalty is incurred if the private bank ceases to continue to provide an existing facility or service in respect of each day upon which it so ceases.
Sub-section (3) provides that sub-s. (2) shall not apply to a private bank if its business in Australia has been taken over by another private bank (e.g. as in the case of the Queensland National Bank, the business of which has been taken over by the National Bank) or after that business has been taken over by the Commonwealth Bank (e.g.-under ss. 19, 22, or 24).
Sub-section (4) enables the Treasurer to prohibit the carrying on of banking business by any of the plaintiff banks from a date selected by him. Sub-section (4) is in the following terms:"The Treasurer may, by notice published in the Gazette and given in writing to a private bank, require that private bank to cease, upon a date specified in the notice, carrying on banking business in Australia." Sub-sections (5), (6), and (7) refer to the specification of a date and the amendment of a notice. Sub-section (8) provides that upon and after the date specified in a notice (original or amended) the private bank to which the notice was given "shall not carry on banking business in Australia." The effect of this provision is that the private bank (that is, the company) shall not, after the specified date, do any act in Australia which falls within the definition of banking business. If it does any such act, then the bank is liable to a penalty of PD10,000 for each day on which a contravention occurs. Apparently, therefore, after the specified notice had been given, no banking transaction could take place by or on behalf of the private bank to which the notice was given. A direction by the Treasurer that the private bank should use its own name in a transaction so as actually to conduct that transaction would not be a defence in a prosecution under the section. When the specified date arrives the banking business of the private bank is completely stopped, and whatever is done thereafter in relation to current and outstanding transactions cannot be done by the bank or by any person on behalf of the bank if it can be brought within the description of "carrying on banking business in Australia." A bank to which s. 24 (8) became applicable would be tempted to act upon the view that the only prudent course would be to do nothing about anything. But it will be seen that s. 60 requires certain action-also under a penalty of PD10,000 a day.
Sections 46 (4) and (8) apply whether or not the business of a bank has been taken over by the Commonwealth Bank, and whether or not any of the shares in a bank have been acquired by the Commonwealth Bank. If the Treasurer should elect to give a notice under s. 46 (4) at any time without exercising any of the other powers of the Act (and as to whether he would do so would depend entirely upon his own discretion) the business of the private bank would stop, and it is difficult to see that there would be any provision for carrying on current transactions. The bank would still have its assets and all its liabilities, but would be unable to do anything which fell within the description of banking business, e.g., it would be unable to repay a deposit except at the risk of a penalty of PD10,000.
Part VIII.-Protection of Rights of Persons Employed by Private Banks.
This Part provides for the transfer of the staff of the private banks to the service of the Commonwealth Bank unless those persons elect within a specified time not to be employed by the Commonwealth Bank: s. 49. The part contains provisions for the preservation of rights and also for preventing alterations in terms and conditions of employment which it is presumably thought might impose unreasonable obligations upon the Commonwealth Bank in the case of transferred employees. Superannuation rights are also preserved.
Part IX.-General.
Section 56 contains a provision relating to instruments very widely defined so as to include contracts, bonds, guarantees, mortgages, etc to which a private bank, the business of which in Australia has been taken over by the Commonwealth Bank, is a party, under which any money is or may become payable or any other property is to be or may become liable to be transferred to the bank or by the bank. The provision applies to such instruments which are subsisting upon the date upon which the business of the bank is taken over or which comes into existence later, but before a prescribed date, with the exception of agreements between a bank and a director or employee. They are to continue in full force and effect and the Commonwealth Bank is, by force of the Act, substituted for the private bank as a party thereto. This provision would apply to agreements for overdrafts, to bills of exchange, including cheques, and to all agreements to which the private bank was a party. Under this provision, if the bank had made a contract, for example, for the erection of a building, and the business of the bank were taken over, the contract would then become a contract between the builder and the Commonwealth Bank for the erection of the building.
Section 58 provides that: "Nothing in this Act shall require a State or person, being a customer of a private bank the business of which in Australia has been taken over under this Act, to continue as a customer of the Commonwealth Bank."
Section 59 provides that "So far as is necessary for the purposes of assisting the operation of any of the provisions of this Act," a private bank, and every director or person employed by a private bank, shall permit an authorized person to inspect the property of the private bank and the books etc of the bank. Penalty: ten thousand pounds per day in the case of a bank: in other cases one thousand pounds per day.
Section 60 provides that a private bank and every director of and person employed by a private bank shall do or join in doing "all acts or things which it is necessary or convenient to do for or in relation to the operation of any of the provisions of this Act and, in particular, for or in relation to:(a) the taking over by the Commonwealth Bank under this Act of any of the business of that private bank; (b) the acquisition by, or the transfer to, the Commonwealth Bank by force of or under this Act of any shares in, or assets of, that private bank; and (c) the assumption by the Commonwealth Bank by force of or under this Act of any liabilities of that private bank." If a private bank or a person employed by such a bank fails to do or "join in doing" something which it is "convenient" to do "in relation to the operation" of any of the provisions of the Act as required by the introductory words of this section, the penalty is ten thousand pounds per day for the bank and one thousand pounds per day for the defaulting director or person employed by a private bank. As already suggested, if s. 46 (4) had been applied to a private bank, its directors and staff would need to be careful in order to comply with s. 60 without aiding or abetting an infringement of s. 46 (8).
Section 61 provides that "The Commonwealth guarantees the payment of all compensation payable by the Commonwealth Bank under this Act."
The Commonwealth Bank Act 1945.
The Banking Act 1947 should be considered in conjunction with the Commonwealth Bank Act 1945 and the Banking Act 1945.
Section 7 of the former Act provides that the corporate entity of the Commonwealth Bank shall not be affected by the repeal of certain statutes and that the bank shall be preserved and continue in existence under and subject to the Act. This is an explicit provision for the continuance in existence of the Commonwealth Bank as a corporation.
The Commonwealth Bank Act 1945, s. 25, provides that the bank shall be managed by the Governor, but (s. 9) that the Treasurer shall be informed from time to time by the bank of its monetary and banking policy and that in the event of any difference of opinion between the bank and the Government with respect to such policy, the Treasurer and the bank shall endeavour to agree, and that in the event of failure to agree the bank shall adopt and give effect to the policy approved by the Government.
Section 11 provides that the bank shall act as a central bank and (s. 12) that it shall, in so far as the Commonwealth requires it to do so, act as banker and financial agent of the Commonwealth. Section 13 confers power to regulate the note issue, to receive money on deposit, to borrow and lend money, to deal in bills of exchange etc, and to buy and sell securities issued by the Government of the Commonwealth and other securities.
Section 17 provides that the Commonwealth Bank shall carry on general banking business, and s. 18 imposes upon the bank a duty to develop and expand that business.
Thus the Constitution must be read as a whole, and each power conferred upon the Federal Parliament must be read in the context of the words prescribing the other legislative powers of the Parliament.
The Constitution assigns only specific legislative powers to the Commonwealth Parliament. It is a Federal Constitution, not a unitary Constitution. This has been emphasised again and again in the judgments of this Court, and in no case more clearly than in the Amalgamated Society of Engineers v Adelaide Steamship Co Ltd [[20]] , at p. 150 where reference is made to the conclusion "as to which this court has never faltered, that the Commonwealth is a government of enumerated or selected legislative powers": see also [[21]] : "It is undoubted that those who maintain the authority of the Commonwealth Parliament to pass a certain law should be able to point to some enumerated power containing the requisite authority." Accordingly, no single power should be construed in such a way as to give to the Commonwealth Parliament a universal power of legislation which would render absurd the assignment of particular carefully defined powers to that Parliament. Each provision of the Constitution should be regarded, not as operating independently, but as intended to be construed and applied in the light of other provisions of the Constitution. Thus an endeavour should be made to "reconcile the respective powers ... and give effect to all": Citizens Insurance Co of Canada v Parsons [[22]] , at p. 109. A recent application of this principle is to be found in Melbourne Corporation v The Commonwealth [[23]] . If the fact that a statute "touched and concerned" a matter within the power of the Commonwealth Parliament were held to be sufficient to establish its validity, there would be no distribution of powers between Commonwealth and States-the Commonwealth would have complete power of controlling by law all persons and things in Australia, subject only to such prohibitions as the Constitution contains. For the reasons which I have stated, I am of opinion that the Commonwealth Constitution should not be construed upon the basis that any legislation is valid if it can be said to "touch and concern" one of the subject matters assigned to the Commonwealth Parliament.
Nor, on the other hand, am I of opinion that the phrase "pith and substance," in spite of its frequent use by high authorities, solves any difficulties. It lends itself to emphatic asseveration, but it provides but little illumination. It is a metaphorical phrase possibly derived from "pith and marrow" in patent law. Wills J. in Incandescent Gas Light Co v De Mare Incandescent Gas Light System Ltd [[24]] , at p. 332, said of the latter phrase:" `Pith' is a great deal less than the substance of the vegetable structure of which it is part, and `marrow' a great deal less than the substance of the animal structure of which it is part. Metaphors are very apt to mislead, as they are seldom close enough to the things to which they are applied." The difference, if any, between "pith" and "substance" is not explained.
The distinction marked by the phrase is a distinction between "pith and substance" as representing "primary object and effect" and incidental application to other matter: Attorney-General for Canada v Attorney-General for Quebec [[25]] , at p. 44. The case of Prafulla Kumar Mukherjee v Bank of Commerce [[26]] shows that there is no difference between asking: "What is the pith and substance of a statute?" and asking: "What is its true nature and character?" [[27]] . In Great West Saddlery Co Ltd v The King [[28]] , at p. 117 it was said with respect to the construction of statutes for the purpose of determining constitutional validity: "The only principle that can be laid down for such cases is that legislation the validity of which has to be tested must be scrutinized in its entirety in order to determine its true character." But there is no rule which will settle all cases. A question of ultra vires "must be determined in each case as it arises, for no general test applicable to all cases can safely be laid down": Attorney-General for Alberta v Attorney-General for Canada [[29]] , at p. 129.
A power to make laws "with respect to" a specific subject is as wide a legislative power as can be created. No form of words has been suggested which would give a wider power. The power conferred upon a Parliament by such words in an Imperial statute is plenary-as wide as that of the Imperial Parliament itself: R. v Burah [[30]] ; Hodge v The Queen [[31]] . But the power is plenary only with respect to the specified subject. In determining the validity of a law it is in the first place obviously necessary to construe the law and to determine its operation and effect (that is, to decide what the Act actually does), and in the second place to determine the relation of that which the Act does to a subject matter in respect of which it is contended that the relevant Parliament has power to make laws. A power to make laws with respect to a subject matter is a power to make laws which in reality and substance are laws upon the subject matter. It is not enough that a law should refer to the subject matter or apply to the subject matter: for example, income tax laws apply to clergymen and to hotel-keepers as members of the public; but no-one would describe an income tax law as being, for that reason, a law with respect to clergymen or hotelkeepers. Building regulations apply to buildings erected for or by banks; but such regulations could not properly be described as laws with respect to banks or to banking.
It has often been decided that the motives of Parliament, and, as a general rule, the objects which a Parliament seeks to achieve, are not relevant to questions of constitutional validity: see cases cited in South Australia v The Commonwealth (Uniform Tax Case) [[32]] , at pp. 424-426. The operation and effect of a customs duty on certain goods is to make the importation of those goods subject to the duty imposed. That is what the law does. The motive of Parliament may have been to assist a particular industry or business. When validity is in question, that fact is irrelevant. An indirect consequence of the law may be to ruin some other industry or business. That fact also is irrelevant.
Thus when a question arises as to the validity of legislation it is the duty of the Court to determine what is the actual operation of the law in question in creating, changing, regulating or abolishing rights, duties, powers or privileges, and then to consider whether that which the enactment does falls in substance within the relevant authorized subject matter, or whether it touches it only incidentally, or whether it is really an endeavour, by purporting to use one power, to make a law upon a subject which is beyond power.
Commonwealth Power as to Banking.
In the first place, it is necessary to ascertain the meaning of the word "banking" as used in s. 51 (xiii.).
The plaintiffs emphasised the fact that the word is "banking," not "banks." Banking, it is said, means the performance of a function, which means that which is done in the actual conduct of banking business. If there are no banker-customer transactions, then there is no banking. The power authorizes laws, it is said, which really and substantially bear upon transactions or operations between and characteristic of banker and customer, and no other laws.
A separate power is given with respect to "the incorporation of banks." It is argued that the separate mention of this subject shows that the word "banking" in pl. (xiii.) does not itself include the subject of the incorporation of banks, although otherwise it might have been construed so as to include that subject. This is a circumstance which is relied upon to support the argument that "banking" is used in rather a narrow than a wide sense in s. 51 (xiii.).
Attention is called to the word "also" in pl. (xiii.) which, it is said, emphasizes the point that the incorporation of banks and the issue of paper money are not included within the word "banking" as used in the placitum.
The plaintiffs based an argument as to the meaning of "banking" in s. 51 (xiii.) upon the power to make laws with respect to "State banking extending beyond the limits of the State concerned." This power must be a power which is limited to the power of making laws dealing with banking transactions which take place in more than one State. "Banking" can only be said to "extend," it is argued, where there is an actual transaction which takes place in more than one State. If the power to make laws with respect to "State banking extending" etc were construed to authorize in relation to State banking so extending such a statute as the Banking Act 1947 then it would be possible for the Commonwealth Parliament to authorize the Commonwealth Bank to acquire all the assets of any State bank whose operations extended beyond a single State, to put in new managers of its whole business (intra-State as well as inter-State), and to prohibit it carrying on any banking business. It is contended that such an intention cannot rationally be derived from the words used. Thus "banking" in the phrase "State banking extending," must mean "banking transactions"-and not the acquisition of banks, the management of banks or the prohibition of banking. It is argued that the word "banking" should be given the same meaning when it appears as the initial word of pl. (xiii.).
Accordingly, it is contended that the power to make laws with respect to "banking" is a power to make laws with respect to the relations between a banker and his customer, and not with respect to the management of banks, the acquisition of shares in a banking company, the acquisition of assets by or from banks, or the prohibition of banking. Upon this view of the meaning of the word "banking" the following propositions are submitted by the plaintiffs:(a) Acquisition of shares in a bank, whether by another bank or a private person, is not itself a "banking" operation, and a law with respect to such acquisition cannot be supported as being itself legislation with respect to banking. (b) Acquisition of assets by a bank (e.g. the Commonwealth Bank) may be necessary in order to establish and carry on a bank, but the acquisition of assets whether from a bank or not, is not itself "banking," and cannot be made a subject of legislation under the banking power. (c) Similarly, the taking over by a bank of the banking business or other business of another bank is not itself a "banking" operation.
The defendants conceded that there could be no "banking" without banking transactions. If an establishment which was called a bank never did any banking business it would be impossible to say that it was engaged in banking. But banking, it was argued, was essentially a business. It included, it was contended, not only "over-the-counter" transactions with customers, but also the selection of persons who should be allowed to conduct banks. It was under this power that the Banking Act 1945 was enacted to exclude individuals from banking, and to limit the carrying on of the business of banking to corporations and to licensed corporations. The plaintiffs had not ventured to challenge the validity of these provisions. It was pointed out that in Huddart Parker Ltd v The Commonwealth [[33]] where this Court considered the trade and commerce power, it was definitely held that under a power to make laws with respect to trade and commerce it was competent to the Commonwealth Parliament to select the persons who should be permitted to engage in such trade and commerce. These cases were impliedly approved by the reference of the Privy Council to them in James v The Commonwealth [[34]] , at pp. 55-57 where the Transport Workers' Act, in relation to which they were decided, was plainly held to be valid. The essence of this Act was that only licensed persons were allowed to engage in particular operations in inter-State trade and commerce. Selection of individuals means inclusion of some and exclusion of others. The reasoning which justified such selection in the case of transport workers applied equally to banking and therefore authorized the enactment of legislation which permitted some banks to operate and prevented others from operating.
It was also argued for the defendants that the subject of "banking" should be held to include the determination of the powers of banking corporations, including the Commonwealth Bank, the subject of the management and control of banks, and the determination of the policy to be pursued by banks.
Reference was made to English legislation with reference to the Bank of England, Canadian banking legislation and United States banking legislation, all of which deal with some or all of the subjects last mentioned as belonging to the same category of subject matter, namely laws with respect to banking.
The Attorney-General relied strongly upon the Canadian cases dealing with legislation of the Province of Alberta which was declared to be invalid because it dealt with banking, which was a subject of exclusive Dominion power: see British North America Act, s. 91 (15), whereby it is declared that the exclusive legislative authority of the Parliament of Canada extends to "banking, incorporation of banks and the issue of paper money." The Canadian decisions show, it was contended, that the control of the creation of credit through a banking system was an important part of banking: see In the matter of Three Bills passed by the Legislative Assembly of the Province of Alberta 1937 [[35]] . In that case it was held that a system of credit control, using the same kind of methods of dealing with credit as were used by ordinary banks in dealing with credit, was a financial system which amounted to banking within the meaning of s. 91 (15) of the British North America Act. It was suggested in reply to the argument of the Attorney-General upon this point that the decision of the Supreme Court of Canada was only a decision upon the residual power of the Dominion Parliament. That, however, was not the case. It was held [[36]] that the "system of administration, management and circulation of credit ... constitutes in our view a system of `banking' within the intendment of section 91." It was therefore legislation upon a subject, viz., banking, which fell exclusively within Dominion power and it was for that reason that the legislation was held to be invalid.
The defendants further pointed out that the plaintiffs had not contended that the central banking provisions contained in the Banking Act 1945 were not within Federal legislative power. Such provisions were plainly valid, and this fact showed that a meaning must be given to the word "banking" which was wider than that which would confine it to particular banker and customer transactions. The subject of banking included a determination of general banking and credit policy.
The 1947 Act does not deal with central banking at all. The subject of central banking is greatly emphasised in the evidence and arguments submitted for the defendant, but considerations relating to central banking are of significance in the present cases only because they support the last-mentioned argument, viz., that if "central banking," including determination of banking policy, control of credit etc, is included within "banking," it is impossible to accept the plaintiffs' identification of "banking" with "banking transactions between banks and customers."
The plaintiffs sought to avoid this inclusion by denying that s. 51 (xiii.) was the source of the power which was exercised in creating the Commonwealth Bank and in endowing it with powers. (The Commonwealth Bank was created as a corporation without corporators-Heiner v Scott [[37]] : Butterworth v Commonwealth Bank [[38]] . This is impossible at common law, but I do not see why it should be beyond statutory power to make a new kind of corporation.) The plaintiffs contended that the existence of the Commonwealth Bank depended upon s. 51 (xxxix.) of the Constitution (the incidental power) and not upon s. 51 (xiii.) (the banking power). It was argued that the incorporation of the Commonwealth Bank and the assignment of powers to it was to be justified only by the reasoning in M'Culloch v Maryland [[39]] that is, that the bank was created as the financial agent of the Government and as part of the governmental system and that it could therefore be given powers and functions which were not limited to the subject of "banking."
The Commonwealth Bank might have been constituted and established as the financial agent of the Commonwealth Government and as a government instrumentality, but in fact this is not what was done when the bank was created in 1911. The bank was established under the Commonwealth Bank Act 1911, and there is nothing in that Act about the bank acting for or as agent for the Commonwealth. The bank was constituted with ordinary banking functions. The 1911 Act contained no provisions such as ss. 8, 9, 11 and 12 of the Commonwealth Bank Act 1945 or any provisions such as those of the Banking Act 1945 conferring powers upon the Commonwealth Bank in relation to the control of credit and banking policy and the other matters, such as exchange control, foreign exchange, special accounts, with which that Act deals. There is, in my opinion, no reason for regarding the legislative powers conferred by s. 51 (xiii.) as inapplicable to the Commonwealth Bank and applicable only in the case of banking conducted by other banks. The validity of the Commonwealth Bank Act 1945 is not in question in these cases, but I can see no reason why it should not be supported, if it were alleged to be invalid, more effectively under s. 51 (xiii.) than under s. 51 (xxxix.). But the question whether the legislation with respect to the Commonwealth Bank depends upon s. 51 (xiii.) or upon s. 51 (xxxix.) does not appear to me to have any direct relevance to the questions which have to be decided in this case.
The 1947 Act contains no provisions with respect to central banking, and if it were put completely into operation it would result merely in there being no central bank as distinguished from other banks, but only the Commonwealth Bank and State banks. The State bank would be beyond Federal control. Therefore there would be no central bank determining the policy of other banks because there would be no other banks for it to control.
In my opinion considerations as to central banking and all the evidence and argument as to credit control are irrelevant in the present cases. Central banking is not a matter in issue in the present cases. It is true that expansion or contraction of credit is the consequence of many banking transactions. But expansion and contraction of credit is brought about also by other agencies than the activities of banks, and the legislative power of the Commonwealth Parliament is not a power to make laws with respect to the control of credit. In so far as Parliament can make laws with respect to banking it can affect the volume of credit in the community. It can do the same thing by laws with respect to taxation, borrowing, imports and exports, and (under the defence power) price control; but the Commonwealth Parliament has not been given any power to make laws with respect to the control of credit as a subject in itself. But I agree with the argument of the defendants that "banking" includes central banking. If this be so "banking" cannot be given the limited sense of banking transactions between banks and customers for which the plaintiffs contend. Determination of banking policy and of systems of management are as essential to the existence of banking as are transactions with depositors and borrowers.
Both plaintiffs and defendants made reference to cases decided in the United States which had some reference to the subject of banking, but in none of these cases was it necessary to formulate a precise definition of banking in order to apply any constitutional provision upon that subject. The power of Congress to make laws with respect to banking has been founded in the United States upon the incidental power: M'Culloch v Maryland [[40]] . There is no constitutional provision dealing with the subject of banking and the American authorities cited are of little assistance in these cases.
The provisions of the Canadian Constitution (s. 91 (15)) which have already been quoted, are, it would appear, the basis of the provisions in the Commonwealth Constitution. The controversies which followed the decision in M'Culloch v Maryland [[41]] may well have been the reason why, in the Canadian Constitution, and subsequently in the Commonwealth Constitution, a specific power as to incorporation of banks was added to the power to make laws with respect to banking. Similarly the special mention of the issue of paper money is probably explained by the history of the paper money controversy in the United States: see Quick & Garran, Annotated Constitution of the Australian Commonwealth p. 579.
At this point it is convenient to notice the argument of the plaintiffs that the word "banking" must be given a narrow construction because in pl. (xiii.) it is used in a sense which excludes incorporation of banks. In my opinion little weight should be attached to such an argument. The historical antecedents of the placitum to which reference has been made almost certainly explain its form. But, it must be recognized, words are sometimes added in constitutions for the (generally unsuccessful) purpose of preventing argument by making a definite provision with respect to a particular subject, even though some overlapping may result. The words conferring legislative power upon the Commonwealth Parliament should not be construed upon the basis of a hard and fast mechanical rule that there is no overlapping between any of them. See, for example, Constitution, s. 51 (xii.)-"Currency, coinage, and legal tender"-a very clear case of overlapping. It was said concerning the Indian Constitution in Prufulla Kumar Mukherjee v Bank of Commerce [[42]] , at p. 42: "It is not possible to make so clean a cut between the powers of the various legislations: they are bound to overlap from time to time": and see Attorney-General for Canada v Attorney-General for Quebec [[43]] , at p. 43.
It was strongly contended for the defendants that the essential characteristic of banking is the creation of credit. See Punjab Co-operative Bank Ltd v Income Tax Commissioner [[44]] , at p. 1072. The defendants contention was put in the following words: "The primary function of a bank is granting and recalling credit." Undoubtedly a bank does deal in credit. Depositors have credit by reason of their deposits and a bank, when it grants an overdraft, creates a credit in favour of a customer, and when it lends money in any way it creates credit. Similarly, it affects the volume of credit in the community by buying and selling securities and by other operations. But this means no more than that, as Lord Simon said in Attorney-General for Alberta v Attorney-General for Canada [[45]] , at p. 517: "The concept of banking certainly includes the granting of credit by banks." The actual or potential creation of credit is a feature of all transactions which involve a pecuniary element where the transaction is not conducted upon a cash basis. Any transaction which creates an outstanding liability involves a creation of credit. The ordinary sale of goods on credit creates a credit which did not previously exist. It cannot be said that wherever credit is granted or recalled there is a transaction which is essentially a banking transaction. Creation of credit is not the distinctive feature of banking as compared with other activities.
In my opinion the contention of the defendants that banking is essentially a business is well founded. A single transaction by an individual person who receives a deposit of money and promises to repay it is not a banking transaction. Banking is a business. See the cases cited in Paget, The Law of Banking, 4th ed., (1930) p. 5. In order to be a banker a man must "hold himself out as a banker and the public take him as such": Stafford v Henry [[46]] . If a man carries on other businesses besides that of banking, and if the banking is only subsidiary to the other businesses, he cannot be regarded as a banker: Re Shields Estate [[47]] , at p. 199.
Banking began with the receipt of money subject to an obligation to make money available to or according to the directions of the depositor. An establishment which does not deal in money (using the term "money" to include legal tender and all forms of generally acceptable credit) as a regular business and as its principal business would not be called a bank. An establishment which did not deal with money belonging to other persons would not be called a bank.
The essential nature of the relations between banker and customer was most clearly defined in Foley v Hill [[48]] where it was held that a bank which receives the money of a depositor becomes the debtor of a depositor "with a superadded obligation arising out of the custom of bankers to honour the customer's drafts": see Attorney-General for Canada v Attorney-General for Quebec [[49]] . The conduct of business upon this basis is the central and distinctive feature of banking. Without it, in my opinion, there can be no banking. Banking also includes the lending of money upon or without security if such lending is associated with the business which I have specified. Money lending not so associated is not banking: see Halsbury, Laws of England, 2nd ed., vol. 1, p. 782:"A `banker is an individual, partnership, or corporation, whose sole or predominating business is banking, that is the receipt of money on current or deposit account and the payment and collection of cheques, drawn by or paid in by a customer." It also includes "the business of making of advances or the granting of overdrafts to customers." See Commissioners of The State Savings Bank of Victoria v Permewan Wright & Co Ltd [[50]] to the same effect.
Accordingly, I do not agree with the contention of the defendant that the creation, expansion and contraction of credit (though resulting in large measure from banking operations) constitute the essence of banking.
Banks which are corporations must have an internal organization as corporations and there must be some definition of their powers. The Commonwealth Parliament may legislate upon these subjects under s. 51 (xiii.)-banking and the incorporation of banks.
A bank, in order to carry on business successfully, must have a policy with respect to deposits, overdrafts etc It must have managers and a system of management, a staff and offices. Further, in order to carry on successfully, it must be able to invest its funds. All these subjects, in my opinion, fall within the concept of banking as a business. They are naturally, and necessarily, involved in the existence and legitimate activity of any banking business. A bank which omitted to deal with these matters would soon find itself in difficulties. They are, in my opinion, all part of the every-day business of banking.
I agree with the argument of the plaintiffs that the acquisition of a share in a bank by any person (whether a bank or not) is not itself a banking operation, and similarly that the purchase by any person, whether a bank or not, of assets from a bank is not itself a banking operation and that the taking over of the business of another bank probably would not be described as a banking "transaction." But a law which controls such matters is a law dealing with the business of banking, because such matters affect the conduct and control of the business and are things which may be done from time to time in the course of the business of banking, although they are not banking transactions between a banker and a customer. It is easy to give examples of laws which are laws having a most immediate relation to banking and which are therefore laws with respect to banking, though they do not deal with banker-customer relations as such. Among such laws would be a law requiring a bank to have a certain minimum capital or to maintain a percentage of uncalled capital, or a law prescribing the persons who may be allowed to hold bank shares, e.g. excluding bankrupts, or a law preventing banks in certain circumstances from disposing of their assets, or a law prescribing permissible forms of investment by banks. A law dealing with the management and staffing of banks would be a law relating to essential elements in the business of banking though not dealing with any transactions between any bank and any customer.
The argument for the plaintiffs devoted a great deal of attention to the case of Tennant v Union Bank of Canada [[51]] where the Privy Council considered a Dominion Bank Act which provided that a bank should have certain rights under and in respect of warehouse receipts taken as securities in the course of its business-in effect that they should be negotiable instruments. The Provincial Parliaments had exclusive power to legislate with respect to warehouse receipts under the heading "property and civil rights in the Province." Under provincial law the warehouse receipts were not negotiable instruments. It was held that the Dominion law was a law with respect to banking (as to which the Dominion Parliament had exclusive power) and that it was valid. In the reasons for judgment it was said that "banking" was "an expression ... wide enough to embrace every transaction coming within the legitimate business of a banker." [[52]] The plaintiffs used this statement as if it meant: "Banking consists entirely of `transactions'." But the sentence quoted only states what is obvious-that the business of banking includes banking transactions. No-one has ever disputed that proposition. It serves only to put one upon enquiry as to what is the "legitimate business of a banker" and makes it clear that banking is a business.
Under s. 51 (xiii.) the Commonwealth Parliament has (as the plaintiffs contend) power to make laws with respect to transactions between banker and customer. But the power is, in my opinion, not limited to such matters. This provision also covers power to make laws with respect to the powers, and the limitation of the powers, to be exercised by persons or corporations engaging in the business of banking, the management of banks, the acquisition of assets by banks, the "taking over" of one bank by another bank, the disposition of assets by banks, the management of banks and what persons shall be allowed to hold or retain shares in banks.
I come now to the argument of the plaintiffs that the word "banking" in the phrase, "State banking extending beyond the limits of the State concerned," cannot be fairly construed in the wide sense just stated. I agree with the reasoning that such a construction would have the effect of destroying the exception of State banking from Federal power. In my opinion, the power to make laws with respect to "State banking extending" etc must be given a limited construction so as not to destroy that exception. The Federal power, in this case, must be limited by reason of the fact that other State banking is beyond Federal power, and that the wide construction of "banking" in "banking extending" would have the actual result of subjecting that other State banking to Federal legislative power. Thus the Commonwealth power should not be held to include a power to prohibit State banking extending etc-for the reason that such a construction would defeat the reasonably plain intention of the provisions with respect to State banking. The intention of these provisions is that the States shall be free to set up State banks and that the Commonwealth Parliament may remove obstacles to the operation of such banks in other States. Such a view gives, in my opinion, a sensible and practical interpretation to the provisions with respect to State banking. But none of these considerations appear to me to reflect back upon the interpretation of the general power to make laws with respect to "banking." They are all associated with and dependent upon the nature of State banking as being banking under State control, management and direction as distinct from Commonwealth control, management and direction. These considerations have, in my opinion, no relation to the interpretation of the general power to make laws with respect to "banking."
Section 46.
This section enables the Treasurer to prohibit the carrying on of banking business in Australia by a private bank. The power may be exercised at any time, in respect of any one or more of the banks, together or separately, and for any reason that may commend itself to the Treasurer-the section does not require him to act upon any specified ground. The prohibition provisions of the section (sub-ss. (4) to (8)) can be used quite independently of any other provisions of the Act-i.e. independently of whether shares or assets have been acquired or whether the management of a bank has been taken over under Part IV., Division 3. These provisions were attacked upon various grounds as not justified by s. 51 (xiii.). (Separate arguments were based upon s. 51 (xx.) and s. 92.).
In the first place, the plaintiffs argued that the power to make laws with respect to banking is really a power to regulate banking, and that the grant of such a power assumes the continuance, and not the destruction, of the subject matter.
The latter proposition was supported by reference to Toronto Corporation v Virgo [[53]] , at p. 93. The principle stated in Toronto Corporation v Virgo [[54]] , at p. 93 that a power to regulate "seems to imply the continued existence of that which is to be regulated," was applied for the purpose of interpreting the Canadian Constitution in Attorney-General for Ontario v Attorney-General for the Dominion [[55]] , at p. 363. This principle has frequently been applied to municipal by-laws: see e.g. Melbourne Corporation v Barry [[56]] and Swan Hill Corporation v Bradbury [[57]] . But, the legislative power is not a power to "regulate" banking. It is a power to make laws with respect to banking, and this is the most general form in which power can be given in relation to any subject matter.
Next, under a plenary power with respect to a particular subject the legislature can prima facie allow the subject to be uncontrolled or may control it to such extent as it thinks proper. "The plenary power of legislation is not merely a power to regulate: it ranges from creation to destruction; it may establish as well as prohibit": Harrison Moore, Constitution of the Commonwealth of Australia, 2nd ed., (1910) p. 280. In the United States the power of Congress to "regulate commerce with foreign nations and among the several States" has on very many occasions been held to extend "not only to those regulations which aid, foster and protect the commerce, but [[it]] embraces those which prohibit it": United States v Darby [[58]] , at p. 616] and the long list of cases there cited. So also in Australia this Court has held that power to make laws with respect to trade and commerce among the States enables the Parliament to prohibit persons from engaging in such trade and commerce: Huddart Parker Ltd v The Commonwealth [[59]] ; Meakes v Dignan [[60]] ; Australian National Airways Pty Ltd v The Commonwealth [[61]] , at pp. 72, 77, 81; Melbourne Corporation v The Commonwealth [[62]] where a particular prohibition of certain banking was held to be a law with respect to banking.
A further argument of the plaintiffs with respect to s. 46 was based upon the submission that the power to prohibit banking conferred by s. 46 was an arbitrary power and that any power of prohibition, if it existed at all, must be a power to prohibit only by reason of what were described as "banking considerations"-considerations which could be said to be "relevant" or "germane" to banking. Political considerations such as a policy of substituting public control of banking for private control of banking were said to be irrelevant. In some cases, more particularly in the case of subordinate legislative authorities, it may be proper, having regard to the character of the authority and the nature of the subject matter, to construe a statute as not intended to confer a power to prohibit: Toronto Corporation v Virgo [[63]] ; Shire of Swan Hill v Bradbury [[64]] . In some cases the character of the statute under which an authority acts is such that the authority is limited to action on grounds which are relevant to a particular object or purpose: Victorian Railways Commissioners v McCartney [[65]] and cases cited in Arthur Yates & Co Pty Ltd v Vegetable Seeds Committee [[66]] , at p. 66. In others an exercise of power is validly authorized only where it is exercised upon grounds which are relevant to a subject upon a connection with which the validity of the statute depends-as in Shrimpton v The Commonwealth [[67]] . In the last-mentioned case it was held that under a particular National Security regulation a purely arbitrary discretion could not be vested in a Minister or a public officer, and that it must appear that the exercise of the discretion was based upon considerations relevant to the subject matter which was relied upon for the purpose of supporting the law-in the case in question the subject matter of defence. In that case the position was that the Commonwealth Parliament had no power to deal with sales of land as such (which was the subject matter of the regulations) unless there was sufficient connection between that subject and the subject of defence. It was for this reason, and this reason only, that it was held that the discretion conferred upon the Treasurer had to be exercised in relation to considerations of defence. If there had been a general power in the Commonwealth Parliament to make laws with respect to land sales no question as to the grounds upon which a discretion could be exercised would have arisen.
If a discretion given by a law is exercised fraudulently or dishonestly, then there is no true exercise of the discretion: Arthur Yates & Co Pty Ltd v Vegetable Seeds Committee [[68]] . But a legislature with plenary power over a subject can provide-and frequently does provide-for the operation of specific provisions in particular cases to depend upon an exercise of discretion by a particular person. In Australian Commonwealth Shipping Board v Federated Seamen's Union of Australasia [[69]] , at p. 453 it was said that it was a "well established parliamentary practice ... to legislate conditionally on the exercise of discretion by a person in whom the Legislature places confidence." In the 1947 Act the legislature has expressed confidence in all Treasurers of the Commonwealth. The Parliament cannot be held to have authorized a fraudulent or dishonest act, but I am of opinion that Parliament has placed no other limitations upon a Treasurer's exercise of discretion in acting under the many provisions of the 1947 Act where action depends merely upon his own volition-or when his approval is required e.g. ss. 12, 13, 18, 19 (2), 22, 24, 43 (2) and 46. If the power under s. 46 can be exercised only for what is called "a banking reason," what is to be said of the various discretions conferred by the other sections mentioned? In my opinion the argument of the plaintiffs that s. 46 is invalid by reason of the power to prohibit being simply vested in the Treasurer without any provision as to the grounds upon which he may act is not applicable in the case of a legislature making a law upon a subject as to which it has plenary power. The legislature takes an obvious risk in enacting such provisions but that is a matter for the judgment of the legislature itself.
Public Control of Banking.
There are other considerations more general in character which are, in my opinion, relevant to the subject of banking in relation to the four sets of provisions attacked by the plaintiffs-
- (a)
- the acquisition by the Commonwealth Bank of shares in other banks;
- (b)
- the acquisition by the Commonwealth Bank of assets of other banks and the transfer to the Commonwealth Bank of liabilities of other banks;
- (c)
- the control of the management of banks;
- (d)
- prohibition of the carrying on of banking business by particular banks.
I propose to consider generally whether legislation dealing with these subjects is included within the power to make laws with respect to banking, reserving some of the details of the provisions contained in the 1947 Act for later consideration.
Under a power to make laws with respect to banking a legislature may determine the type of banking which should be allowed and encouraged. The legislature can prefer one bank to other banks and give one bank advantages which it denies to other banks. It can determine a policy with respect to the conduct of the business of banking.
The Commonwealth Parliament has chosen the Commonwealth Bank as its instrument for establishing a system of public control of banking as distinguished from private control of banking. The Parliament finds a field of banking occupied by the Commonwealth Bank, some State banks and private banks. The State banks are beyond Federal power. But the Commonwealth Parliament may make laws specifying the kind or kinds of other banks which are to be allowed to carry on banking business. In the exercise of this power the Commonwealth Parliament provided in the Banking Act 1945 means for determining how many banks there should be (ss. 6, 7 and 8) and for the control in large measure of the business of private banks by the Commonwealth Bank, which is under public control.
In the 1947 Act there is a further development of this policy. In that Act Parliament has expressed its decision that the Commonwealth Treasurer shall be given the power of getting rid of the private banks so as to leave an open field for the Commonwealth Bank. The means adopted is to enable the Commonwealth Bank to acquire either partial or complete control of the business of private banks to such extent as is thought desirable from time to time. One of the well-known methods of acquiring control of a business carried on by a company is the purchase of shares in the company-if possible, ownership of all the shares in the company. This is one method adopted in the 1947 Act. (s. 12, acquisition of shares by purchase). But the Commonwealth Parliament has a power to make laws for the acquisition of property by compulsion. This is another method adopted in the Act (s. 13, compulsory acquisition of shares). A company which wishes to get rid of competition and to extend its business may acquire the business and assets and take over the liabilities of another company by agreement with that company. This method is made available by s. 19 and by s. 22. But the Commonwealth Parliament has powers of legislation and can make statutory provision for acquiring property for any purpose, such as banking, in respect of which the Parliament has power to make laws. This method of extending the area of operations and the influence of the Commonwealth Bank is applied in s. 24. Few means of dealing with a company which is a business competitor could be more effective than taking control of its management, if this is possible. Private individuals cannot do this, but the Commonwealth Parliament has chosen this also as one of the means of securing its objective, namely obtaining increased and possibly complete control of banking other than State banking by the Commonwealth Bank: ss. 17, 18 and 19. Another method of excluding competition is to stop by some lawful means the business of competing enterprises. Under a power to make laws with respect to banking the Commonwealth Parliament can determine whether and to what extent and by whom the business of banking shall be carried on. The Parliament has exercised this power in s. 46, going further than had been done in the Banking Act 1945, ss. 6, 7 and 8.
All these provisions (whether used together or piecemeal and whether applied to all or only to some of the private banks) have a direct relation to the substitution of public for private control of banking and, in my opinion, are laws with respect to the conduct of the business of banking and therefore are laws with respect to banking within the meaning of s. 51 (xiii.) of the Constitution.
Constitution, s. 51 (xx.)-Financial Corporations.
Before proceeding to examine some of the details of these provisions which may not be justified under the general propositions which I have stated, or which may be invalidated by reason of failure to comply with other constitutional provisions, it is convenient to refer to another source of legislative power upon which the defendants rely, namely s. 51 (xx.) of the Constitution. This placitum confers power upon the Commonwealth Parliament to make laws with respect to "Foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth."
Banking corporations are financial corporations. It is therefore argued for the defendants that laws can be made with respect to banking corporations (and all the plaintiff banks are corporations) under s. 51 (xx.). The contention of the defendants was that s. 51 (xx.) gave full power to make any law upon any subject so long as it was a law which applied to and controlled the conduct of the corporations mentioned in this paragraph of the Constitution.
The judgments in Huddart, Parker & Co Pty Ltd v Moorehead [[70]] provide several alternative interpretations of this difficult provision. The one thing that is clear about it is that the provision assumes the existence of corporations either under foreign law or under some law which is in force in the Commonwealth. If the corporation is already formed it derives its existence and its capacity from the law which provided for its formation: see the quotation from Dartmouth College v Woodward [[71]] in the judgment of Isaacs J. in Huddart, Parker & Co Pty Ltd v Moorehead [[72]] : "Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly, or as incidental to its very existence." Thus the existence and the powers and capacities of any corporation to which s. 51 (xx.) applies depend upon some law other than a law made under that provision.
If the proposition submitted for the defendants were accepted, then the Commonwealth could make any law at all for the control of the corporations mentioned. The position would then be that the Commonwealth Parliament would have complete powers of legislation by way of direction or prohibition with respect to anything that such corporations might do. As to all individual persons and as to all other corporations (e.g. charitable, literary, scientific) the Commonwealth Parliament would have powers only in relation to the particular subject matters included within the specific provisions of s. 51 and other sections of the Constitution. But as to the corporations described in pl. (xx.), the Parliament would be able to make any kind of law on any subject. Higgins J. in Huddart, Parker & Co Pty Ltd v Moorehead [[73]] gave some illustrations of the consequences of such a view. He said that if the view stated was right:"the Federal Parliament is in a position to frame a new system of libel laws applicable to newspapers owned by corporations, while the State law of libel would have to remain applicable to newspapers owned by individuals. If it is right, the Federal Parliament is competent to enact licensing Acts, creating a new scheme of administration and of offences applicable only to hotels belonging to corporations. If it is right, the Federal Parliament may enact that no foreign or trading or financial corporation shall pay its employees less than 10s. per day, or charge more than 6 per cent interest, whereas other corporations and persons would be free from such restrictions. If it is right, the Federal Parliament can enact that no officer of a corporation shall be an Atheist or a Baptist, or that all must be teetotallers. If it is right, the Federal Parliament can repeal the Statute of Frauds for contracts of a corporation, or may make some new Statute of Limitations applicable only to corporations. Taking the analogous power to make laws with regard to lighthouses, if the respondent's argument is right, the Federal Parliament can license a lighthouse for the sale of beer and spirits, or may establish schools in lighthouses with distinctive doctrinal teaching, although the licensing laws and the education laws are, for ordinary purposes, left to the State legislatures." But, as his Honour said, these arguments from inconvenience are not conclusive.
In the present cases, however, it is not necessary to deal with all the questions which arise as to the meaning of pl. (xx.). In these cases the Court is concerned with the subject of banking. Placitum (xiii.) confers an express power with respect to banking including, of course, banking conducted by corporations, and a further express power with respect to the incorporation of banks. Under pl. (xiii.), therefore, a power (incorporation) exists in relation to banking corporations which does not exist in relation to corporations mentioned in pl. (xx.). A banking corporation created under a law passed under the powers conferred by s. 51 (xiii.) would be a financial corporation formed within the limits of the Commonwealth.
Any banking corporation carrying on business in Australia must be either a foreign corporation or a corporation formed within the limits of the Commonwealth. If under pl. (xx.) there is therefore complete power to pass any law of any description in so far as it is made applicable to banking corporations, pl. (xiii.) in relation to "banking" would be required only for the purpose of giving power to make laws with respect to individual persons carrying on banking business-which would be a rather surprising result.
There is, in my opinion, a decisive argument against the suggested interpretation of s. 51 (xx.). It is, in my opinion, impossible to reconcile that interpretation with the provisions in pl. (xiii.) relating to State banking. Upon that interpretation, if State banking were carried on by a corporation, that corporation, being a financial corporation formed within the limits of the Commonwealth, would be completely subject to any Federal law made under pl. (xx.). The result would be that the exclusion of State banking from the banking power would be entirely deprived of effect in all such cases. The Constitution should not be construed so as to bring about a result so unreasonable if another construction is reasonably open. In my opinion such a construction is reasonably open. The difficulties to which I have referred disappear if s. 51 (xiii.) is interpreted as a special provision which provides for the whole legislative power of the Commonwealth Parliament so far as laws with respect to banking corporations and banking are concerned. This is a proper occasion for interpreting a provision "as excluding cases expressly dealt with elsewhere ... notwithstanding the generality of the words": John Deere Plow Co Ltd v Wharton [[74]] , at p. 340. Upon this view pl. (xx.) should be regarded as not applying to corporations so far as they are engaged in banking. Accordingly, in my opinion s. 51 (xx.) is irrelevant for the purposes of determining the validity of any of the provisions of the 1947 Act.
Constitution, s. 51 (xxxi.)-Acquisition.
Section 51 (xxxi.) of the Constitution provides that the Commonwealth Parliament may make laws for "The acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws." In the 1947 Act the Parliament has purported to exercise this power in relation to shares in the plaintiff banks and to assets of the plaintiff banks. The Act also makes provision for transfer of liabilities from the plaintiff banks to the Commonwealth Bank and discharge of the plaintiff banks from their liabilities in cases where either s. 22 or s. 24 is put into operation.
I propose to deal first with the subject of "acquisition" (that is, the question of what can be acquired) and, secondly, with the subject of "just terms."
The plaintiff banks have, by their memoranda of association, power to buy shares in other banks and companies, to sell their businesses and to amalgamate with other banks. The defendants argued that the provisions of the Act as to acquisition of shares and assets merely adopt provisions of this type for the Commonwealth Bank, and that such provisions in the memoranda of association of the plaintiff banks show a quite common and well-recognized feature of banking law. But this argument ignores the compulsory elements in the Act. It may be within the power of the Federal Parliament to give to the Commonwealth Bank the powers which the plaintiff banks, in common with many other banks in other countries, may possess. But it is quite a different thing to arm the Commonwealth Bank with powers of compulsory acquisition. A power of compulsory acquisition as such is not itself a banking power.
The power to make laws with respect to the acquisition of property is separated in the Constitution from the other powers and such laws must be laws for the acquisition of property for a purpose in respect of which the Parliament has power to make laws, and they must provide for acquisition on just terms: Johnston, Fear & Kingham and The Offset Printing Co Pty Ltd v The Commonwealth [[75]] .
The power of acquisition of particular property does not depend in any way upon the purpose for which that property is being used at the time of acquisition: for example, a factory might be acquired in order to be used as public offices. I therefore cannot accept the arguments presented to the court attacking the acquisition of assets because, it is said, they may not be in use for banking purposes at the time of acquisition.
I notice here an argument based on the powers conferred by the Act to purchase and to take over by compulsion any business carried on by the plaintiff companies in Australia. The plaintiff companies are at present engaged only in banking business, but they might enter into other forms of business which are authorized by their memoranda of association. Under ss. 19, 22 or 24 such a non-banking business could be acquired by the Commonwealth Bank either at the present time or at any time in the future. Such provisions, it is submitted, have no relation to the subject of banking. I have already referred to the fact that "taking over a business" is not a technical legal conception. If the Commonwealth Bank takes over a business under the compulsory provisions of the Act, all it gets are certain assets and certain liabilities, as specified in s. 24. The power to acquire the assets is not affected by the nature of the business in which they are used when they are acquired. The transfer of liabilities requires separate consideration. Similar considerations apply to the special kind of agreement for which s. 22 provides. If a business is sold under the power conferred by s. 19 (2) (b) or (c) the vendor decides what will be sold and upon what terms-the Act makes no provision on these matters.
It was also argued that the Commonwealth Bank would not need to use a great deal of the property which it would acquire from the plaintiffs if the acquisition provisions of the Act were applied. It has already been stated that the only business which the plaintiff companies in fact now carry on is the business of banking and the property which the plaintiffs own, whether in the form of land and buildings or chattels or investments, is property which has all been acquired by them in the course of carrying on the business of banking. In my opinion there is no satisfactory ground upon which it can be said that any particular part of that property could not possibly be used by the Commonwealth Bank in the same way as it has been used by the plaintiff banks. Similar considerations apply to property which may be acquired by the Bank in the future. It has not yet been held that an acquisition of property by the Commonwealth will be invalid unless it can be shown to a court that the property will certainly be used by the Commonwealth for some particular purpose. The Commonwealth might validly acquire property for the purpose of destroying it-e.g. land with buildings on it for the purpose of a rifle range, dangerous explosives in the possession of persons of dubious loyalty.
The Commonwealth may acquire property for the purpose of giving effect to a law with respect to banking. I have already given reasons for my opinion that the legislative substitution of public for private control of banking is a law with respect to banking and, accordingly, in my opinion, the Commonwealth may make provision for the acquisition of property by the Commonwealth Bank from the plaintiff banks or from a State or any other person in order to give effect to the provisions of the 1947 Act.
Acquisition of Shares.
There are, however, some details of the provisions relating to acquisition as to which particular objections are made. These objections must be considered in the light of the fact that the Commonwealth Constitution, s. 51 (xxxi.), confers power on the Commonwealth Parliament to make laws for the acquisition of property from persons or States. When the Commonwealth Parliament validly exercises this power the Commonwealth law prevails over any inconsistent State law (Constitution, s. 109). Therefore a State law cannot prevent the Commonwealth acquiring property; for example, a State law could not, by making property completely inalienable, prevent the Commonwealth acquiring that property. Similarly, a State law could not exclude the application of a Commonwealth law for the acquisition of property by providing that that particular property should never become the property of the Commonwealth or of an agency of the Commonwealth authorized by Commonwealth law to acquire it.
But the Commonwealth Parliament can provide under this constitutional provision for the acquisition only of that which is property; that is, it must take "property" as it finds it. The Commonwealth, by acquiring property or providing for the acquisition of property, does not and cannot change the nature and character of the property acquired. It can acquire from an owner of property only the property which that person owned.
The foregoing considerations are relevant to ss. 10, 13, 14 and 21 of the Act.
It has already been stated that s. 10 makes no real change in the law so far as State laws are concerned. It accomplishes in this respect no more than would be accomplished by s. 109 without the separate enactment of the provisions of s. 10. Three of the plaintiff banks are established under English law. The Commonwealth Parliament cannot affect the provisions of that law. But the question as to the limiting effect (if any) of other laws upon the operation of a Commonwealth law for the compulsory acquisition of property arises only in relation to the compulsory acquisition of shares, and there is no provision for such acquisition in the case of shares in the English banks.
Section 13 provides for compulsory acquisition of Australian shares in Australian private banks. It provides that, upon the Treasurer giving a notice, such shares shall become vested in the Commonwealth Bank: s. 13 (1) and (3). The Companies Acts and articles of association under which the plaintiff companies operate provide for the method of transfer of shares. The provisions in all cases are to the effect that an instrument of transfer duly executed by a shareholder must be produced to the directors. The Acts and articles of association do not contain any provision for the transfer and vesting of shares by virtue of the Commonwealth statute. Accordingly, the provisions of s. 13 to the effect that shares in the plaintiff companies shall become vested in the Commonwealth Bank upon the happening of a certain event, namely the giving of a notice by the Treasurer, are provisions with which the provisions of the State Act and articles of association are inconsistent. But the latter provisions cannot take effect so as to prevent the operation of the Commonwealth law. Accordingly, in my opinion, s. 13 contains provisions which are effective to vest in the Commonwealth Bank shares in the plaintiff banks, even though the relevant Companies Acts and articles of association contain what is intended to be an exhaustive statement of the means of transferring shares so as to vest them in a transferee.
Section 14 (1) of the Act provides that the Commonwealth Bank shall, for all purposes, be the holder of the shares in an Australian bank which have been purchased or otherwise acquired by the Commonwealth Bank under Division 2 of Part IV, of the Act and shall be a member of that Australian private bank in respect of those shares. This provision applies both to shares purchased by agreement under s. 12 and to shares acquired compulsorily under s. 13. In my opinion such a provision is incidental to the acquisition of the shares. It makes the Commonwealth Bank the holder of the shares and a member of the company without the necessity of registration under the State Act, which registration might, in the case of several of the private banks, be refused at the will of the directors. In The Commonwealth v New South Wales [[76]] the Court considered the acquisition of land under the Real Property Act (1900) (N.S.W.). It was held that the Commonwealth could compulsorily acquire land (without any transfer as required by that Act) and that the Commonwealth became the owner of the land without registration in pursuance of the Act. It was the basis of the Act that the legal title to land depended upon registration, but, notwithstanding the provisions of the Act which secured this result, the Commonwealth obtained full rights of ownership in the land after compulsory acquisition. This reasoning, in my opinion, establishes the validity of s. 14 (1) in relation to shares acquired by the Commonwealth Bank under the Act.
In the case of the Bank of New South Wales there is a provision which prevents the holding of shares in the bank by any corporation. This provision must, for the reasons stated, yield to a Commonwealth law providing for the acquisition of shares by the Commonwealth Bank, which is a corporation.
There are provisions in the case of several of the plaintiff companies which limit the number of shares which can be held by a shareholder. These provisions cannot, in my opinion, prevent the Commonwealth Bank acquiring under the Act any number of shares in any of the plaintiff banks. They are provisions which, viewed in the light of the Commonwealth law, would have the effect of preventing the operation of the Commonwealth law. Therefore the Commonwealth law prevails over them. If State law or provisions in the memorandum or articles of association of a company could make the Commonwealth or any Commonwealth instrumentality incapable of being a shareholder the effect would be that it would be impossible for the Commonwealth to acquire shares in the company under the power of legislation conferred by s. 51 (xxxi.) of the Constitution. No such State legislation or memorandum or articles of association can prevent the application of a Commonwealth law for acquisition of shares.
A share in a company is described as a share in the capital of a company. The capital of a company is expressed by a sum of money, but a shareholder does not become a part owner of property owned by the company or of a balance of assets over liabilities. A share in a company, regarded as property, consists of the rights to which the shareholder is entitled by reason of the provisions of the articles and memorandum of association and any relevant statute: Borland's Trustee v Steel Bros. & Co Ltd [[77]] , at p. 288.
When the Commonwealth Bank acquires a share, that which it acquires is a share in a particular company with a particular memorandum and articles of association to which effect is given by a statute or charter to which the company and the shareholders are subject. The bank must take the share, if at all, with the rights which it confers, and the obligations to which its holder is subject, according to the relevant provisions of the articles etc A power to acquire a share does not give a power to alter the nature of those rights. It is true, as already stated, that no provisions in the articles or memoranda of association or State law can prevent the Commonwealth acquiring shares and becoming the owner of them and exercising all the rights which belong to the owner. But those rights cannot be altered so as to give to the Commonwealth Bank, once it has become the owner, rights which would not belong to it as a shareholder under the articles of association etc
It is now necessary to consider the effect of this conclusion in relation to various provisions contained in the memoranda or articles of association of the plaintiff companies.
There are provisions in the articles of association of the plaintiff companies which are of a quite different character from those just mentioned. These are provisions which specify the rights which belong to a person when he has become a shareholder in a company by virtue of his shareholding and membership of the company. In some cases the voting power of shareholders is limited. In, for example, the case of the Bank of New South Wales, shareholders have one vote for every five shares which have been held for three months before the meeting at which it is proposed to exercise the vote, and no voting is allowed in respect of any shares over the number of 1,000. There are provisions of a similar nature in the case of several others of the plaintiffs, in some cases, however, applying only where a poll is held. When the Commonwealth Bank acquires shares in a bank in which the voting power of members is limited in the manner stated, the Commonwealth Bank will, in my opinion, be subject to the same limitation of voting power as applied in the case of other shareholders. The Bank will have only the same rights as any other shareholder holding the same number of shares.
In the articles of association of eleven of the plaintiff companies there are provisions to the effect that the directors may decline to register a transfer of shares, in some cases, to any person of whom they do not approve, while in other cases the power of the directors to decline to register transfers is limited to cases in which the shares sought to be transferred are not fully paid or the company has a lien upon them. Such provisions as these, for the reasons which I have stated, do not prevent the Commonwealth Bank from becoming the owner of shares and a member of the company. But it must still be the case that the Commonwealth Bank only becomes the owner of the shares as they exist, and not of shares with rights different from those which attach to the other shares in the company.
Section 14 (2) of the Act provides that the Commonwealth Bank may transfer shares which it has acquired "to any person" and that that person shall, for all purposes, be the holder of those shares and be a member of the Australian bank in respect of those shares. This section was defended not as giving a permission to the Commonwealth Bank to transfer shares as it thought proper (subject to the articles of association of the company) but as giving a right to the bank to transfer to any person, notwithstanding the articles. Section 14 (2) relates to transfer by the Commonwealth Bank, and not to acquisition by the Commonwealth Bank. Where there are such restrictions on transfers as those mentioned, this provision would give to the Commonwealth Bank rights of transfer which would not attach to shares of the company owned by any other shareholder. Section 14 (2) is, in my opinion, not effective for that purpose. If the rights of transfer are prescribed by State law or the memoranda or articles of association those are the only rights of transfer that exist in the case of the Commonwealth Bank or of any other shareholder. Thus, if the Commonwealth Bank becomes the owner of shares in the plaintiff companies, it is subject to the provisions of articles of association to the effect that, for example, no transfer of shares can be made to a corporation, or to a person not approved by the directors, or so that the transferee would hold a number of shares beyond those permitted by the articles of association. Section 14 (2) cannot override such provisions as these. Section 14 (2) is not legislation with respect to the acquisition of shares and, in my opinion, there is no other power under which it can be supported. In my opinion s. 14 (2) is invalid.
The Commonwealth cannot, in acquiring property from one person A, make a law which deprives another person B of rights in respect of property owned by B. The Commonwealth might, if B were subject to the legislative power of the Commonwealth Parliament, acquire proprietary rights from B, but a law which, for example, takes shares from A, cannot deprive another shareholder B of his rights in respect of shares which he, B, continues to own. If the Treasurer gives a notice under s. 13 (1) the directors of a bank elected by the shareholders are displaced under s. 17 and, for the future, the directors will be persons appointed by the Commonwealth Bank with the approval of the Treasurer: s. 18. Only Australian shares become vested in the Commonwealth Bank under s. 13. Shares which are not Australian shares remain vested in other shareholders. Those other shareholders have a right to join in electing directors by virtue of the articles of association of the companies, and a right to have the companies managed by directors so elected. Sections 17 to 20, if they are valid, abolish those rights. But, as I have said, a power to acquire property which is exercised in respect of the property of a person A, does not include any power to destroy the rights of B in respect of other property. In my opinion, therefore, ss. 17 to 20 would be invalid if they were dependent upon s. 51 (xxxi.). But I have already given reasons for my opinion that a power to make laws with respect to banking enables a Parliament to legislate upon the subject of the management and internal regulation of and shareholdings in banks. Accordingly, the provisions with respect to this subject are not, in my opinion, invalid by reason of the fact that they alter the rights of shareholders whose shares are not acquired by the Commonwealth Bank. This reasoning applies also to s. 19 (3), which provides that the exercise of the powers of the nominee directors of an Australian private bank shall (subject to one exception specified in s. 19 (2)) be in their sole discretion and shall not be subject to any qualification, restriction or condition provided by or under any law, charter or other instrument relating to the exercise of the powers of the directors of that bank. The directors must doubtless act honestly, but they are not compellable to pay any attention to the wishes of the shareholders. They can manage the bank (s. 19 (1)) at their sole discretion (s. 19 (3)). This is a most far-reaching provision in very unusual terms, but it does provide a method of controlling banking business, and, in my opinion, is not outside the power to make laws with respect to banking.
Section 21 of the Act provides that: "Where the number of members of an Australian private bank has, by reason of the purchase or other acquisition by the Commonwealth Bank ... of shares in that bank, fallen below the number specified in any law" etc then that law etc shall have no effect. The laws referred to in this section are laws such as the Companies Act (Vict.) 1928, s. 124, which provides that where the number of shareholders in a company falls below five the shareholders who carry on the business of the company shall be liable for certain debts of the company.
If the Act were put into operation in the case of three of the plaintiffs (as the shareholdings stand at present) the Commonwealth Bank would become the owner of all the shares in the companies and, accordingly, these State Acts would operate. In the case of the other Australian private banks the Commonwealth Bank might acquire so many shares that the number of shareholders would be reduced below the minimum number required by State law.
The provisions of s. 21 cannot be regarded as incidental to the acquisition of shares. They are provisions relating to the creditors of a bank and the responsibilities of shareholders. The Commonwealth Parliament might have allowed them to continue to operate unchanged, but the Commonwealth Parliament has determined in s. 21 that such provisions shall not apply in the case of the plaintiff banking companies. In my opinion this provision is a law relating to the organization and control of banking business by defining the relations of a bank and of the shareholders of a bank to the creditors of the bank, though it is not legislation with respect to acquisition of shares. It is, in my opinion, legislation with respect to the conduct of the business of banking and should therefore be held to be valid under s. 51 (xiii.) of the Constitution.
Acquisition of Assets and Business.
The scheme contained in the Act for acquiring assets of banks as distinct from shares in banking companies provides in s. 22 for such acquisition by agreement and in s. 24 for compulsory acquisition. Under an ordinary agreement the effect of the transaction in creating rights or duties is limited to the parties to the agreement and depends upon the terms of the agreement. But s. 22 provides that a particular effect shall be given to an agreement made under the section for the taking over by the Commonwealth Bank of the business in Australia of that bank.
The procedure of making an agreement under the section is carefully defined. It begins by an invitation in writing given to the bank by the Treasurer inviting the bank to make an agreement not later than a specified date for the taking over by the Commonwealth Bank of the business in Australia of the bank. The date specified in the notice may be amended from time to time. Section 22 (5) provides that the Commonwealth Bank may, subject to the approval of the Treasurer, make an agreement with a private bank for the taking over by the Commonwealth Bank of its business in Australia. Section 22 (6) provides that an agreement under the section may be made with a private bank whether or not a notice under sub-s. (1) has been given, but that if such a notice has been given an agreement with that bank shall not be made after the date specified in an original or amended notice. Sub-section (7) provides that an agreement under the section may include provisions for the taking over by the Commonwealth Bank of any of the business, assets and liabilities outside Australia of the private bank.
It has already been stated that the "taking over of a business" involves acquisition of assets of the business and generally some provisions as to the business liabilities of the person who has been conducting the business. But an agreement for taking over a business made between private persons cannot deprive of their rights the creditors of the former owner of the business.
Section 22 (8) states what is to be the effect of an agreement "made under the section." Paragraphs (a) and (c) of sub-s. (8) relate to assets, and no difficulty is created by a provision that a bank owning assets may dispose of them by agreement. Paragraphs (b) and (d), however, relate to liabilities, present and future. They provide that the effect of making an agreement under the section shall be that the liabilities of the private bank become liabilities of the Commonwealth Bank and that the private bank shall be discharged from its obligations in respect of those liabilities. Section 56 carries out this idea in detail. If the Commonwealth Parliament chooses to declare that the Commonwealth Bank, which is the creature of the Parliament, shall become subject to certain liabilities, it is difficult to see why it should not so provide. It is quite a different thing, however, to provide that a private bank shall be discharged from its obligations in respect of its liabilities to creditors. No agreement between such a bank and the Commonwealth Bank could bring about such a result. The discharge of the private bank from liability means that the statute effects a compulsory novation, with the result that the creditor of a private bank would find that, instead of having a claim against a private bank, he would have no claim whatever against a private bank, but would have a claim against the Commonwealth Bank.
A law which makes such a provision is not a law for the acquisition of property. The acquisition of property is a subject which is completely different from that of the transfer of liabilities. The Commonwealth can acquire, for example, a factory or machinery, but the Commonwealth has no power, because it acquires a man's factory or machinery, to provide that he shall be released from his trade or other debts. A power to acquire property from one person does not include a power to abolish the rights of creditors of that person. If the rights which the creditors of such a person has are themselves property, those rights could be acquired (upon just terms) but the Act contains no such provision in relation to creditors of the private banks.
Accordingly, in my opinion the provisions for the discharge of the private banks from liabilities which are contained in s. 22 (8) (b) and (d) (and repeated in s. 24 (5) and (7)) cannot be supported as laws made under the power to make laws for the acquisition of property: s. 51 (xxxi.) of the Constitution.
But the provisions for discharge of the private banks from liabilities must be considered not only in relation to the power to make laws with respect to acquisition, but also in relation to the power to make laws with respect to banking. Is it a law with respect to banking to provide that the customer of a bank shall no longer continue to have a claim against that bank for his deposit, but that he shall have some different rights?
Legislation of this character has been passed from time to time in emergencies. After the banking crisis in Victoria in 1893 Acts were passed which varied the rights of creditors of banks as well as the rights of shareholders. Depositors were compelled by this legislation to accept rights which were different from the rights which they originally had. That legislation was passed because of the insolvency or financial embarrassment of some of the banks. It would be difficult to deny to it the character of legislation with respect to banking. In the case of the present Act the reason why the rights of creditors of banks are altered is entirely different. The reason is that it is thought desirable to put the Commonwealth Bank in possession of the business of the private banks, and accordingly to take over, not only the assets of those banks, but also their liabilities, and thus compel the customers of those banks to deal, at least at the beginning, with the Commonwealth Bank. The general character of the legislation, however, in altering the rights of creditors of banks remains the same, whatever the reason for passing it. In my opinion the provision for discharging the private banks from liabilities upon a taking over of the business by agreement under s. 22 (or by compulsion under s. 24) is valid, as being legislation with respect to banking under s. 51 (xiii.) of the Constitution, though not as being legislation with respect to the acquisition of property under s. 51 (xxxi.).
These provisions, it may be added, really provide for what amounts to an amalgamation of the businesses of a private bank and the Commonwealth Bank, though they do not affect the continued juristic existence of a private bank as a corporation. Legislative control of the amalgamation of banks is a common feature of banking legislation in many countries. Amalgamation normally involves some transfer of liabilities-by indemnity or otherwise. Such legislation contains provisions requiring official permission before such amalgamation takes place, and provisions for compulsory amalgamation in circumstances of emergency are not unknown. It is purely a question of policy as to whether such amalgamation is desirable. Provisions for the amalgamation of banking businesses by acquisition of assets (or of shares) with or without transfer of liabilities are in my opinion within the power to make laws with respect to banking.
The cases have been argued upon the basis that the amount of compensation payable for assets acquired would be their total value less the liabilities of the bank from which they were acquired. I see no provision in the Act which provides for a deduction of liabilities. If there were such a provision it would be difficult to justify it under s. 51 (xxxi.) of the Constitution. If the Commonwealth acquires property it must pay full value for it. The amount of the debts owed by the owner of the property has nothing to do with the value of his property. The value of property is the same whether the owner of the property is rich or poor, prosperous or insolvent. If, however, the Act upon its true construction means that liabilities are to be deducted in assessing compensation but if the provision for discharge from liabilities is held to be invalid, the result would be that the private bank would still be subject to its liabilities. Then there would be no ground for deduction of liabilities in assessing compensation, and the Commonwealth Bank would have to pay compensation for all the assets of a private bank without any deduction for liabilities. The Court was informed that the result would be that the compensation payable to all the private banks on this basis would (on present figures) be about PD800,000,000 instead of about PD100,000,000. Independently, however, of the position as to assets and liabilities as it happens to exist today, it is plain that there is such a great difference between (1) the taking over of assets and paying in full for them without any deduction for liabilities, and (2) paying for them with such a deduction, that if the provision for taking over liabilities, including as it does the provision for discharge of the private banks from liabilities, is invalid, all the provisions for acquisition of assets should be held to be invalid because the result would be so completely different from any intention which could reasonably be attributed to the Parliament.
But, for the reasons which I have stated, my conclusion is that the provisions with respect to the acquisition of shares and assets and the transfer of liabilities should not be held to be invalid as not being legislation either with respect to the acquisition of property or with respect to banking.
Just Terms.
Section 15 and 25 of the Act provide for fair and reasonable compensation for shares and assets respectively, and the compensation is to be assessed by a court. Such provisions taken by themselves prima facie comply with the requirement of just terms imposed by s. 51 (xxxi.) of the Constitution as a condition to be satisfied by laws providing for the acquisition of property.
But there are positive provisions in the Act and certain suggested deficiencies in the Act which, it is argued for the plaintiffs, will or may prevent the plaintiffs or their shareholders from in fact receiving compensation which is fair and reasonable in all the circumstances.
The Management Provisions in relation to Just Terms. When the provisions of ss. 17-20 have been put into operation the Australian private bank will be under the control of nominee directors with full power to manage, direct and control the business and affairs of the bank of which they are directors and, in particular, with power (s. 19 (1) (b) and (c)) to dispose of the business in Australia of the private bank to the Commonwealth Bank and to dispose of all or any of the other business of the Australian private bank. Section 19 (2) provides that the exercise of either of these powers shall be subject to the approval of the Treasurer after the Treasurer has obtained a recommendation from the Governor of the Commonwealth Bank.
Under s. 19 (3) the exercise of any power by directors appointed under s. 18 shall be in their sole discretion "and shall not be subject to any qualification, restriction or condition provided by or under any law, charter or other instrument relating to the exercise of the powers of the directors of that bank."
- (a)
- The nominee directors can sell any of the assets of the bank; they can sell the whole business of the bank-in each case for such price as they may think proper.
- (b)
- Under s. 22 the nominee directors could respond to an invitation of the Treasurer by making an agreement with the Treasurer for the taking over of the business of a private bank for a sum determined by the Treasurer and themselves.
- (c)
- Under s. 24 the Treasurer could take action which would result in the Commonwealth Bank taking over the assets of the bank and the liabilities of the bank without the consent of either the original or the nominee directors, and, when this action had been taken, the directors (original or nominee) could make an agreement with the Treasurer as to the compensation to be paid to the bank in respect of the acquisition of those assets: s. 43.
Thus nominee directors chosen by the Commonwealth Bank and the Treasurer could agree with the bank and the Treasurer upon the price to be paid to the private bank for its property and business and could also, after a compulsory acquisition, agree with the Commonwealth Bank and the Treasurer upon the amount of compensation to be paid to the bank.
It was argued for the plaintiffs that s. 19 (3) of the Act discharges nominee directors from all obligations to shareholders, including their fiduciary obligations. I have given reasons for my opinion that s. 19 (3) is valid, but that it does not authorize any fraudulent or dishonest conduct. It was argued for the defendants that this provision referred only to some specific law etc applying only to a particular private bank: cf. Barry v Heider [[78]] , at p. 205 where it was held by Griffith C.J. that a provision relating to "laws, rules and practice" did not include the body of law recognized and administered by courts of equity. But the question whether or not the nominee directors are effectively discharged by s. 19 (3) from their fiduciary and statutory obligations to shareholders (including, it may be observed, shareholders other than the Commonwealth Bank) is not very important in relation to the questions which arise in these cases. Whatever view may be taken on that question, nominee directors would have at best a divided duty. It is obvious that they would have been placed in their position in order to promote and protect the interests and policy of the Commonwealth Bank. They take office as nominees of the Commonwealth Bank and are put in office with an express power to dispose of the business to the Commonwealth Bank. They might honestly regard themselves as doing their duty if, without being dishonest, they made a good bargain with the Commonwealth Bank. Even if such directors acted with the utmost honesty, they would be in an impossible position. They could not represent the interests of both the Commonwealth Bank and of the private bank or its shareholders, who would look for the return of their capital, and hope for a dividend, out of either the price to be paid if the directors sold the assets, or the compensation to be paid to the bank if the Treasurer resorted to the compulsory procedure of s. 24.
The provisions with respect to management of the bank provide, by reason of s. 19, a means of acquiring property. That being so, they must provide for just terms of acquisition. It cannot, in my opinion, be said to be just that an authority with powers of compulsory purchase should appoint managers of the property to be acquired with power to sell the property to the authority for a price fixed by those managers and the authority. It is equally unjust that such managers should have the power to bind the owner of the property as to the amount of compensation to be paid and to do this by an agreement made between themselves and the acquiring authority.
Accordingly, in my opinion, the provisions of Division 3 of Part IV., which bring about this result, that is ss. 17-20, should be held to be invalid.
In my opinion this conclusion does not affect the validity of any other part of the Act. In the first place, it has no relation to any of the provisions, with respect to the acquisition of shares. The management provisions, it is true, come into operation upon the giving of a notice under s. 13 which declares that shares shall be vested in the Commonwealth Bank, but s. 17 merely utilizes that notice for the purpose of specifying a date. Accordingly, the management provisions can be applied whether or not any shares are actually acquired in pursuance of the notice and independently of whether or not a majority of the shares is acquired.
As far as assets are concerned, the provisions of s. 22 and s. 24 are not affected by the invalidity of ss. 17-20. The only result would be that the actual, and not the nominee, directors would be in office and they would be able to make agreements or not as they thought fit. As the Treasurer need not acquire shares and therefore need not give the notice which would under s. 17 bring the management provisions into operation, the Act contemplates that action under s. 22 by way of making an agreement could be taken by the original directors. Section 24 can operate according to its terms even though the provisions of Division 3 as to management are invalid.
There is, however, another provision affecting the acquisition of assets which requires special attention. Section 23 of the Act provides for a special taxation concession in cases of acquisition of assets by agreement under s. 22.
- (a)
- That concession does not apply where an agreement is made otherwise than "under" s. 22; for example, it would not apply if nominee directors disposed of the business of the bank in Australia or outside Australia under s. 19. Such an agreement would not be an agreement under s. 22 and it would not have the effect given to an agreement under s. 22 by sub-s. (8) of that section. Accordingly, the taxation concession is allowed in the case of some agreements for sale of the business of a bank and not in the case of other agreements for such sale.
- (b)
- If the Treasurer gave an invitation under s. 22 and the directors (original or nominee) did not agree upon the sale of the business and the Treasurer exercised the power conferred by s. 24, no taxation concession would be allowable; that is to say, no taxation concession would ever be given in a case of compulsory acquisition.
- (c)
- Again, nominee directors might, by declaring dividends out of one fund rather than another, affect the amount of, or perhaps destroy, the benefit of s. 23 at their own discretion.
If the provisions as to nominee directors are invalid, objections (a) and (c) would disappear and also objection (b), so far as nominee directors were concerned. But it would still be the case that a private bank which made an agreement acceptable to the Treasurer under s. 22 would get the benefit for its shareholders of s. 23; but that a bank which stood out and did not make an agreement, but exercised its rights under the Act to obtain an assessment of compensation by the Court of Claims, would not receive the benefit of s. 23. Thus a bank which agreed would be in a better position than a bank which did not agree. Section 23 is part of the terms on which the assets are taken over in the case of a bank that makes an agreement under s. 22. In my opinion it is not just that in the case of other banks they should be excluded from such benefit simply because they are not willing to accede to an agreement which is acceptable to the Treasurer and because they exercise their rights under the Act of having compensation determined by a court. The result is that in my opinion the provisions for compulsory acquisition of assets (s. 24) are rendered invalid.
There were other objections to the provisions for compulsory acquisition of shares and assets which, in my opinion, are not well-founded.
- (a)
- It was argued for the plaintiffs that if the nominee directors made an agreement for the sale of the business of a bank the price paid would represent the assets of a bank. If they sold at a low price, it was argued that this would diminish the amount of compensation payable to shareholders whose shares had been acquired, and that it would also depreciate the value of shares which were not Australian shares which had not been acquired, but which might subsequently be acquired. For this reason, it was contended that if the provisions relating to the appointment of nominee directors were invalid, the provisions for compulsory acquisition of shares must also be held to be invalid. But the Court of Claims would not be bound by any agreement made by nominee directors when it was determining the value of shares at the time when they were acquired. The court would be under a duty to make up its own mind as to their value, independently of any agreement made by nominee directors.
- (b)
- There were various criticisms as to the taking over of assets which became Australian assets after an original taking over, based upon the contention that no provision was made for compensation in such cases. The acquisition provisions plainly contemplate acquisitions at different times in the case of any bank: as to shares see s. 13 (4) and as to assets s. 24 (6), (7) and (8). Shareholders are dealt with severally under ss. 37, 39 and 40 in respect of their claims. A claim for compensation for assets is a claim in respect of particular specified assets-s. 43 (4): and the compensation awarded would be payable only in respect of a particular claim as made: s. 45. These provisions enable claims for compensation to be made and compensation to be assessed whenever shares or assets are taken over. There is, in my opinion, nothing in the compensation provisions which limits a shareholder who owns both Australian and ex-Australian shares or a bank to a single proceeding for compensation.
- (c)
- Section 46 (4) and (8) enable the Treasurer at will to close up a bank before and independently of any acquisition of shares in the bank. It is argued that the Treasurer would, by taking such action, affect very greatly the value of the assets of the bank because they would become assets held by a condemned institution, and not assets in a going concern. If the prohibition power (s. 46) were exercised, the banking business of the bank, it is true, would cease and there would be no such business to be acquired under s. 24, but the value of the assets, it is argued, would be affected by the prohibition, so that if the shares were subsequently acquired the shareholders would not get full value. In my opinion this argument is not a good objection to the justice of the terms of acquisition of either shares or assets. If s. 46 were applied against a bank, the bank could immediately dispose of its property as it thought proper and obtain such a price for it as the market was prepared to give.
- (d)
- It is further argued that the provisions of s. 46 enable the Treasurer to threaten a bank with closure unless its policy conforms to his desires and, accordingly, to force a bank to adopt a particular line of policy. This comment is well-founded, but it is an argument to be considered by Parliament and the electors, and not by a court.
- (e)
- It was similarly argued that the threat of closing a bank altogether could be used for the purpose of forcing a bank to accept a proposed price for its business in preference to being put right out of business under s. 46 without any acquisition of assets and therefore without any compensation therefor. This, like the last objection, is an objection that the Act confers an arbitrary power on the Treasurer which may be used for the purpose of enabling him to force banks into a course of action desired by him. This is the case if Parliament is prepared, in relation to a matter as to which it has plenary power of legislation, to entrust arbitrary powers to an individual. The responsibility is with Parliament and the legislation cannot, simply because it contains such provisions, be set aside by a court.
- (f)
- It is further argued for the plaintiffs that the payment of compensation to the private banks (particularly if shares in all of them or the assets of all of them were acquired at about the same time) would involve the payment of so large a sum of money that the value of money in the community would diminish, with the result that the compensation would not be just. In my opinion any court must assume that payment in money which is legal tender is sufficient to discharge any pecuniary obligation. It would be a most difficult problem to determine how much inflation and associated depreciation of the value of currency which might be apparent at one date as compared with some other prior date was due to the payment of a large sum of money by way of compensation to a particular bank or banks. But, apart from the practical difficulties of applying the principle suggested, there is no authority for introducing any exception to the well-established principle that a money obligation can always be satisfied by payment in legal tender.
Section 24 (8) however, is open to an objection which, in my opinion, has more weight than those which I have just considered. The assets of a bank in Australia might be acquired under s. 22 or s. 24. The whole business of the bank in Australia would then necessarily come to an end because it and all the Australian assets would be taken over by the Commonwealth Bank: and see s. 46 (1), (2), and (3). But the bank would still exist as a company. (Incidentally it may be observed that the bank could still carry on some non-banking business in Australia with new assets). Some of the banks have extensive businesses in New Zealand. After s. 24 had been put into operation in the case of such a bank it could still carry on in New Zealand not only the business of banking, but also some other business authorized by its present memorandum of association or by an amended memorandum of association. But under s. 24 (8) the Commonwealth Bank might at any time require the Australian bank to vest its New Zealand assets, whether they were associated with banking or not, in the Commonwealth Bank, and the private bank would incur a penalty of PD10,000 for each day on which it failed to take the necessary action to vest the desired property in the Commonwealth Bank. This power of compulsory acquisition would be applicable in such a case to a company doing no banking business and possibly no business at all in Australia just because, at some time-it may have been many years previously-that company had carried on the business of banking in Australia. In such a case the relation of the acquisition of the property to a purpose with respect to which the Commonwealth Parliament has power to make laws-viz., banking in Australia-is too tenuous and remote to support the law. In my opinion, therefore, s. 24 (8) is invalid.
But the invalidity of this provision does not, in my opinion, affect the validity of any other provisions of the Act, because they will all work and operate according to their terms in exactly the same way if s. 24 (8) is struck out of the Act. The question of the validity of s. 24 (8) may not be of great importance to the banks because, in the case which I have put, the Australian private bank could readily cease to be an Australian company by winding up here and another company could be incorporated in New Zealand. Then s. 24 (8) would have no field of operation in relation to the assets in New Zealand of the new company. But such a re-organization would take time, and the possibility of making it does not affect the objection to the legislation.
I summarize my opinion on this part of the case by saying that the provisions for the acquisition of shares contained in Division 2 of Part IV, are not invalid by reason of any of the objections to them which have been considered; that ss. 17-20 in Division 3 of Part IV, are invalid; that s. 24 is invalid for reasons connected with s. 23; that, for another reason, s. 24 (8) is invalid; but that the invalidity of these provisions does not make any other provisions of the Act invalid; but s. 25 is deprived of any operation.
Court of Claims.
It was not contended that the court was not validly constituted.
Compensation is to be determined by the Court of Claims "and not in any other manner." This provision is to be found in s. 40 (2), (4) and (5) with respect to shares, and in s. 40 (2) with respect to assets. Section 40 (5) provides that the amount of compensation "determined by the court" (that is, the Court of Claims) shall be payable by the Commonwealth Bank to the private bank in full satisfaction of the claim to which the determination relates. There is a similar provision with respect to compensation for shares in s. 40 (8). The result is that any jurisdiction of the High Court is excluded in claims for compensation made against the Commonwealth Bank. Such claims are to be determined by the Court of Claims in accordance with the Act, and not in any other manner.
The plaintiffs contended that these provisions were invalid because they excluded the jurisdiction of the High Court in claims for compensation. The Constitution, s. 75 (iii.), gives to the High Court original jurisdiction in all matters in which the Commonwealth or a person being sued on behalf of the Commonwealth is a party. No statute can deprive the Court of this constitutional jurisdiction. The plaintiffs argued that, in a claim for compensation against the Commonwealth Bank, either the Bank was a person being sued on behalf of the Commonwealth, or the Commonwealth itself was a party. If the provisions which had the effect of excluding the jurisdiction of the High Court were invalid, then all the provisions relating to the Court of Claims were invalid, there were therefore no provisions for compensation, and the whole Act was invalid.
The defendants in the first place sought to meet this argument by contending that the jurisdiction of the High Court had not been really excluded by the Act because a writ against the Commonwealth Bank for compensation could be issued in the High Court without the private bank making any claim in writing to the Commonwealth Bank for compensation (s. 43 (3)) with the result that a claim for compensation would never come before the Court of Claims (s. 44) so that the action would simply proceed in the High Court. To this contention it was replied, and in my opinion rightly, by the plaintiffs that such a claim would be demurrable because s. 42 provides that compensation for assets is to be ascertained in accordance with Division 2 "and not in any other manner." Thus it would immediately appear that the Act provides that no court other than the Court of Claims should entertain a claim for compensation under the Act against the Commonwealth Bank. Further, this argument for the defendants has no relevance to the case of shares, where the procedure (s. 40) is quite different from that under s. 43, which deals with assets.
If any person were to sue the Commonwealth itself as a defendant for compensation in the High Court, the Court would have jurisdiction, because s. 75 (iii.) of the Constitution gives jurisdiction in any matter in which the Commonwealth is a party. No difficulty as to jurisdiction would arise in such a case, but as ss. 15 and 25 of the Act place the obligation to pay compensation most specifically only upon the Commonwealth Bank and not upon the Commonwealth, any action against the Commonwealth itself for compensation would fail.
Under s. 61 of the Act the Commonwealth guarantees the payment of all compensation payable by the Commonwealth Bank under the Act. It is a matter for argument whether, in view of the provisions of the Act placing liability for compensation expressly upon the Commonwealth Bank, this section gives any right to any private bank or any shareholder to make any claim against the Commonwealth. But if it does and such a claim were made the position would be that the private bank or shareholder would sue the Commonwealth itself on its guarantee. The action would be an action on the guarantee, and not a proceeding for assessment of compensation. Because the Commonwealth was an actual party to the action the High Court would have jurisdiction in such an action under s. 75 (iii.). Further, it may be pointed out that the Commonwealth, if it were held that under s. 61 it guaranteed as between itself and a bank or a shareholder the assessed compensation payable by the Commonwealth Bank, would not be subject to any liability under such a guarantee until the amount of compensation had been ascertained in proceedings against the Commonwealth Bank.
The question, therefore, as to the effect of provisions which prevent proceedings for assessment of compensation in the High Court could arise only if an action for compensation were brought in the High Court against the Commonwealth Bank, and the Commonwealth was not a defendant in the action. I deal first with the question whether the Bank in such a case would be "a person being sued on behalf of the Commonwealth."
In Quick and Garran, Annotated Constitution of the Australian Commonwealth, p. 773, the view is expressed that s. 75 (iii.) in the relevant provision is limited to cases in which the Commonwealth is the real defendant (in interest) but is represented in legal proceedings by the Attorney-General, or some other Minister, or a nominal defendant, or a person such as the Commissioner of Taxation: see Income Tax Assessment Act 1936-1947, s. 209.
In the United States of America the Supreme Court has jurisdiction in all "controversies to which the United States shall be a party"-Constitution of the United States, Art. III., s. 2. But this jurisdiction can be exercised only if the United States consents: see Willoughby, Constitutional Law of the United States, 2nd ed. (1929) vol. 3, pp. 1381, 1422. Judicial opinion as to the meaning of the words "controversies to which the United States shall be a party" has varied. In the leading case of Osborn v Bank of the United States [[79]] , at p. 232] it was said with reference to this provision:"The jurisdiction of the court depends not upon interest, but upon the actual party on the record. ... In all cases where jurisdiction depends on the party it is the party named in the record": see also United States v Lee [[80]] . On the other hand, later cases have adopted a different point of view. In Louisiana v McAdoo [[81]] the point is said to be not who is the party on the record, but "the effect of the judgment or decree which can here be rendered." But this test has not been uniformly applied in still later cases; see Sloan Shipyards Corporation v United States Shipping Board Emergency Fleet Corporation [[82]] . In that case the evidence showed that the Government owned all the stock in a very large corporation which exercised extensive powers of requisition and control of shipping etc The Government was the only person which could be interested in a judgment for or against the corporation (except, of course, the opposite party). There was no consent on behalf of the United States to be sued. The court, however, acted simply upon the facts disclosed upon the record, namely that the Shipping Board was the party to the proceedings and that the controversy was not one to which the United States was a party. The court accordingly assumed jurisdiction.
In the Commonwealth Constitution the words used are not "a party to a controversy," but "being sued on behalf of the Commonwealth." In the case of the United States Constitution there is much to be said for the proposition that the court should look at the controversy, whatever it may be, and ascertain who are the real parties to it, whoever or whatever may be the agents through whom they act. But in the case of the Commonwealth Constitution the reference to the record is much more direct. It is necessary only to find out who is actually being sued and then to ask whether that person is being sued on behalf of the Commonwealth. In the case of the Attorney-General or a Minister or a nominal defendant it would be easy to answer the question. He would be sued, not in respect of any alleged personal liability, but in order to enforce a claim against a Government. But in proceedings for compensation under the Act the basis of the claim is the liability of the Commonwealth Bank itself, specifically imposed upon the Bank, and only upon the Bank, by the statute. Any allegation with respect to any alleged liability of the Commonwealth would be irrelevant in such an action and should be struck out of any statement of claim. Accordingly, in my opinion, in such an action the corporation which was the defendant (the Commonwealth Bank) would be shown by the record not to be a person being sued on behalf of the Commonwealth and the action would not come within the provisions of s. 75 (iii.).
The contrary view submitted for the plaintiffs is based on the contention that the Commonwealth is financially interested in the question of compensation by reason of its guarantee, and that therefore the Commonwealth Bank should be regarded as in some manner representing the Government when action is brought against it for compensation. If then it "represents" the Government, it should be held, it is argued, that the Bank is being sued on behalf of the Government. This contention was supported by a further argument that when a principal debtor is sued he is sued on behalf of his surety. I am not aware of any authority whatever for such a proposition.
The other argument for the plaintiffs was that the Commonwealth Bank is really a department of the Commonwealth Government. This contention was supported by reference to a dictum of Griffith C.J. in Heiner v Scott [[83]] , at p. 393. But the Commonwealth Bank (which is a creation of statute) has never been so treated. Its receipts do not go into consolidated revenue (see s. 81 of the Constitution), the administration of the bank has never been entrusted to a Minister, the officers of the bank are not civil servants, and the accounts of the bank are not part of the Commonwealth Budget. The bank may act as the agent of the Commonwealth, but it can so act only when express authority has been given to it by the Commonwealth. What the Commonwealth Bank does is not done by the Commonwealth, but by the bank; for example, surely the Commonwealth could not be sued if the bank wrongly dishonoured a cheque or if one of the bank's motor-cars injured a person by negligent driving.
The Commonwealth Parliament has declared that the bank is a corporation and the Court must on this, as on many previous occasions, accept that the bank (though it has no corporators) exists as a new kind of juristic person. The Parliament has gone out of its way to declare the continued existence of the bank as a corporation: Commonwealth Bank Act 1945, s. 7. The Governor, and not any Minister, manages the bank: s. 25. The bank is treated as a separate person not subject to ministerial control in the daily conduct of its business. Section 9 provides for consultation between the bank and the Treasurer on policy in terms which, in my opinion, are inconsistent with the bank having the characteristics of a Government department. Section 10 provides that the bank is guaranteed by the Commonwealth. It is in the following terms:"The Commonwealth shall be responsible for the payment of all moneys due by the Bank but nothing in this section shall authorize any creditor or other person claiming against the Bank to sue the Commonwealth in respect of his claim." Here again the separation of the bank from the Commonwealth is emphasized. I have difficulty in understanding how the Commonwealth can give anything like a guarantee to itself.
For these reasons it should not be held that the Commonwealth Bank is a department of the Commonwealth doing banking business. In my opinion the objection of the plaintiffs based on s. 75 (iii.) of the Constitution fails.
If, however, this objection is held to be good, it will result in striking out the words "and not in any other manner" from ss. 40 and 43 of the Act. The result would be to make an important and far-reaching change in the whole Act. Where Parliament provides that compensation is to be assessed in a particular way and in no other way it appears to me that even such a provision as s. 6 cannot entitle a court to uphold the law after striking out the limiting words. The result would be that the enactment as left surviving would contradict the express original provision by allowing compensation to be assessed by other tribunals than that specified. Such tribunals would include the High Court, and also State courts. Accordingly, if it is held that the words "and not in any other manner" should be eliminated as enacting an invalid provision, the whole of the provisions relating to the assessment of compensation for both shares and assets should be held to be invalid-including ss. 15 and 25, which provide only for compensation as assessed by the Court of Claims. There would then be no valid provision for compensation and all the provisions for compulsory acquisition would be invalid.
Interest.
It was argued for the plaintiffs that the compensation provisions of the Act with respect to both shares and assets are not just because the court is not given express power to award interest on compensation, the general power to give fair and reasonable compensation not empowering the court to give interest. The defendants, on the other hand, argued that the court had power to award interest if the payment of interest were necessary to make compensation fair and reasonable. In the alternative, the defendants argued that the principle of the common law that fair compensation does not include interest cannot be held not to amount to just terms.
This question has been before the Court recently on several occasions and in different circumstances. The decisions are conveniently referred to in Grace Bros. Pty Ltd v The Commonwealth [[84]] . All the decisions mentioned were given in relation to particular cases which varied in circumstances, and no general rule has been authoritatively determined by the Court. I do not repeat what I have said in several of these cases to the effect that the conception of compensation does not in itself include any provision for interest. Interest, in my opinion, is not part of compensation, but is interest on compensation. It is recompense for delay in the payment of the compensation which represents the fair value of the property acquired and so cannot itself be compensation. Thus in my opinion the Act does not, in providing for fair and reasonable compensation, provide for payment of interest.
The requirement of s. 51 (xxxi.) of the Constitution is that a law for the acquisition of property must provide for just terms for such acquisition. The payment of compensation which fairly and reasonably represents the value of the property satisfies this requirement. A complaint that compensation has not been paid promptly is not a complaint that the amount of compensation is inadequate. Payment for delay in payment of compensation would not be payment for the property, but would be compensation for something other than the property or the loss of the property-namely, for the loss of the use of the compensation moneys during the period from the time of acquisition to the time of payment of the compensation.
It would be a fair and reasonable thing for Parliament to make provision for such further compensation-especially in the present cases, where the assessment of compensation would occupy months in the case of a single bank, and possibly years in the case of all the banks. But the Constitution does not, in my opinion, require as a condition of the validity of a law for acquisition of property that compensation-in the form of interest or damages-should be paid to make up for delay in paying compensation. Thus in my opinion the Act does not give jurisdiction to the Court of Claims to award interest, but this fact does not invalidate the provisions for assessing compensation for the property taken.
Costs.
It was further contended by the plaintiff that the compensation provisions were unjust because the Court of Claims has no power to give costs. The defendants, on the other hand, argued that the Court of Claims had inherent power to give costs. But in many cases it has been held that, as it was put in London County Council v Overseers of West Ham [[85]] , at p. 176 there is no "inherent or original jurisdiction in the Courts to deal with costs." The power of the Court of Claims is a power to award fair and reasonable compensation-ss. 15, 25 - and such a power does not authorize the creation by the court of a duty to pay any sum, by way of costs or otherwise, in addition to the fair and reasonable compensation assessed by the court. Legislatures appear from time to time to find great satisfaction in providing that particular tribunals shall have no power to award costs, with the result that a man whose rights have been infringed may be deprived of any real remedy because the expense of effectively litigating his claim may exceed what he can recover. Similarly, a man may have to defend his rights against a completely false and unjustifiable claim, and yet have no remedy for his expenses against a claimant who is without any merits whatever. But, in spite of these considerations, it is difficult to hold that the absence of a power to award costs (to either side) necessarily makes provisions for compensation unjust.
Section 92 - Freedom of Trade and Commerce
The plaintiffs contend that the whole of the Act is invalid because it offends against s. 92 of the Constitution, which provides that "trade, commerce and intercourse among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free."
The attack is directed against all the provisions for acquisition and against s. 46, which provides for the prohibition at the will of the Commonwealth Treasurer of the carrying on of banking business by any one or more of the plaintiff banks.
It is argued that the object of the acquisition provisions is to put the banks out of business. The business of the banks includes inter-State elements in arranging in State A to make funds available in State B and in financing inter-State trade and commerce. Further, the business of the banks involves a great deal of inter-State communication. Banking documents are transmitted between the States and the facilities of posts and telegraphs are widely used.
Section 46 purports to authorize a straight-out prohibition of banking business.
There is no doubt that the provisions mentioned are directed towards putting the plaintiff banks out of business or that, if put into operation, they will achieve that result. The question is whether the Act is therefore invalid as infringing s. 92.
I make some preliminary observations.
- (1)
- Section 92 does not prevent legislation with respect to inter-State trade and commerce. Section 51 (i) confers upon the Federal Parliament express power to make laws with respect to trade and commerce among the States. The State Parliaments have a concurrent power to make such laws, though the legislation of any one State cannot operate outside its borders. But, within its limits, the power of the State is as plenary as that of the Commonwealth: James v The Commonwealth [[86]] , at p. 41. Section 92 cannot therefore be construed as meaning that inter-State trade and commerce is to be free from all legal control.
- (2)
- Section 92 binds the Commonwealth and the States: James v The Commonwealth [[87]] . Precisely the same rule applies to both Commonwealth and States. If a State law is invalid as infringing s. 92, a law in the same terms would equally infringe s. 92 if it were passed by the Commonwealth Parliament, and, vice versa. The validity of a law in relation to s. 92 cannot depend upon whether it is a Commonwealth law or a State law. Thus, if any of the provisions of the Banking Act 1947 are invalid because they conflict with s. 92, then no State Parliament could enact such provisions. They would be outside all legislative power existing in Australia.
- (3)
- Section 92 is directed to laws made by the Commonwealth or States, and not to actions of individuals. If a plaintiff complains of an act done by a defendant, he must show some infringement of a right which he, the plaintiff, possesses. He may show an interference with his goods which is prima facie a trespass because unauthorized by him. The defendant may contend that what he did was authorized by a statute. But if the statute is invalid because it purports to authorize acts which wrongly interfere with the freedom of inter-State trade and commerce, then the defence fails, the plaintiff succeeds, and obtains damages for a breach of his common law right-not for an infringement of s. 92. Section 92 operates to protect individuals, but does not give a cause of action to individuals. No plaintiff would have a good cause of action merely upon an allegation that the defendant had committed a breach of s. 92: see James v The Commonwealth [[88]] , at p. 362: see also Riverina Transport Pty Ltd v Victoria [[89]] , at pp. 341, 342.
- (4)
- Whenever a law authorizes a Government to acquire by compulsion property which is used or which may be used for the purposes of a business which includes inter-State elements, the operation of the law will or may obstruct and interfere with, and possibly put an end to, inter-State business of the person from whom the property is acquired. An acquisition of his land may put an inter-State trader out of business. Any acquisition of chattels whatever necessarily prevents the owner of these chattels from selling them inter-State. But it has never been held that therefore s. 92 makes all acquisition of property impossible. Section 51 (xxxi.) shows that such a proposition cannot possibly be accepted, for if it were accepted the Commonwealth Parliament could not make any law for the acquisition of property. Some other element than the mere acquisition of property must be found before a legislative provision can be held to infringe s. 92.
I do not propose to review the whole course of decisions upon the difficult provision contained in s. 92. The consideration of s. 92 must now begin with James v The Commonwealth [[90]] . I do not repeat the analysis of James v The Commonwealth [[91]] which I made in Milk Board (N.S.W.) v Metropolitan Cream Pty Ltd [[92]] , at pp. 121, 127 - an analysis which is stated in summary form in Gratwick v Johnson [[93]] , at pp. 13, 14. The proposition submitted for the plaintiffs was stated in the following terms: "s. 92 is infringed whenever an individual or corporation is engaged in inter-State trade, commerce or intercourse, and either by direction, prohibition or acquisition, with the object, purpose or motive of effecting such a prohibition, the carrying on of such business by him or it is forbidden." There is no doubt that, if s. 46 (4) is applied to a bank, it will stop the carrying on of the banking business of that bank. The provisions as to acquisition of property are also plainly directed towards this end: see s. 3 (c).
The ownership of property does not itself constitute inter-State trade and commerce, and it would seem to follow that a change in ownership of property by reason of compulsory acquisition is not an interference with trade and commerce, though, as already stated, any acquisition of any property from any person necessarily prevents him from using it for any purpose of trade and commerce, including inter-State trade and commerce. This was the view taken in New South Wales v The Commonwealth (The Wheat Case) [[94]] . No definite opinion as to this particular case was stated in James v The Commonwealth [[95]] . It is mentioned in an historical survey with the comment that it "has never been expressly overruled" [[96]] . James v The Commonwealth [[97]] does not over rule the Wheat Case [[98]] . The reasoning in James v The Commonwealth [[99]] does not condemn any and every expropriation of owners because it prevents the expropriated owner using property in inter-State trade. Expropriation is held to involve a breach of s. 92 only when it "is directed wholly or partially against inter-State trade in the goods, that is, against selling them out of the State" [[100]] . This view is in accordance with James v Cowan [[101]] where it was held that if it appeared from the terms of a statute that the acquisition of property was authorized by the statute for a "real object" of restricting inter-State trade, then there was an infringement of s. 92. See passages quoted from this case in James v The Commonwealth [[102]] . It was also held in James v The Commonwealth [[103]] that a mere prohibition of inter-State trade and commerce was an infringement of s. 92: see James v The Commonwealth [[104]] where the Act in question was held to be invalid for the reason that it prohibited such trade either entirely or partially.
Section 46 (4) and (8) can be used independently of any other provisions of the Act.
The question of s. 92 may therefore be approached in relation to both acquisition of property and prohibition of banking by considering two questions: (1) Is banking trade or commerce and, if so, do the challenged provisions restrict the freedom of inter-State trade or commerce as explained in James v The Commonwealth [[105]] ? (2) If banking is not itself trade or commerce, but is an instrument of trade or commerce, does the Act place such restrictions upon the use of the instrument in inter-State trade or commerce as to impose a restriction upon inter-State trade or commerce which is inconsistent with s. 92?
Is Banking Trade or Commerce?
The plaintiffs' argument on this question depends very largely upon the development of statements to be found in various books on banking and in judgments as, for example, in the last Alberta Case [[106]] , at p. 517 that bankers are "dealers in credit." Statements to this effect made by leading authorities are to be found in In reference re Alberta Statutes [[107]] , at p. 124.
The authorities in other courts to which reference was made do not give much assistance in the endeavour to answer the question whether banking is itself "trade or commerce" as used in the Commonwealth Constitution. The reference to this subject in English cases (apart from the decisions on Canadian statutes) are incidental to the consideration of other questions in bankruptcy law and the like, and can hardly be relied upon for the purpose of interpreting the Commonwealth Constitution.
The cases in the United States in which reference is made to banking do not include any considered decision of the question whether banking is trade or commerce. In United States v South-Eastern Underwriters Association [[108]] the Supreme Court overruled Paul v Virginia [[109]] which was a decision of long standing to the effect that insurance was not trade or commerce. The South-Eastern Underwriters' Case [[110]] exhibited great differences of opinion and accordingly provided both sides in these present cases with arguments by way of more or less distant analogy. See the comment upon this case by Thomas Reed Powell in (1944) 57 Harvard Law Review, p. 937, to which reference was made in argument.
The provision with respect to banking in the Canadian Constitution which has already been quoted is much the same as that contained in the Australian Constitution. The decision In reference re Alberta Statutes [[111]] , which was relied upon by both sides, does not contain any clear decision that banking is trade or commerce: see for example [[112]] the statement of the Chief Justice that the machinery provided by the Act in its essential components and features came under the head of "banks and banking" but, if not, then its subject matter was embraced within trade and commerce. What was held was that it was banking, and therefore presumably was not trade and commerce. That it was banking was the ground of the decision. The decision was not based on any proposition about the nature of trade and commerce.
The argument of the plaintiffs is that a banker buys and sells credit and that for this reason banking is trade and commerce. But a banker does not buy or sell credit in the same way as a trader buys or sells goods. When it is said that a banker deals in credit the fact is that he receives deposits which he engages to repay or that he lends or agrees to lend money. A loan transaction is a business transaction, but is not therefore itself trade or commerce-unless all business transactions, from building a house to pulling out a tooth, are to be described as trade or commerce simply because they are business transactions. The fact that a business is carried on for profit or that an occupation is pursued for profit does show that it is trade or commerce.
The word "sale" is used in various metaphorical senses. When a man enters into a contract of employment he is sometimes said to "sell his labour," but really there is no transaction of sale; the contract is a contract of employment, not a contract of sale. Similarly, when a banker "deals in credit" he makes loan contracts and does not sell anything. If he agrees in Victoria to make available money by way of overdraft in New South Wales, he does not sell anything which passes across the border between the States. The word "trade" is used in several senses. A carpenter is "a carpenter by trade." But no-one would say that the craft of carpentry-as distinct from the sale and purchase of its products-is trade or commerce. The trade and commerce to which s. 92 relates is "trade and commerce among the States, whether by means of internal carriage or ocean navigation." The reference is to something which can be carried by land or by sea. Inter-State trade and commerce is concerned with movement of something from one State to another State. In the business of a bank there are no "goods passing into or out of the State"-there is no passage across the border of anything-which, it was decided in James v The Commonwealth [[113]] is what s. 92 protects.
I notice, for the purpose of rejecting it, an argument for the plaintiffs that banking is inter-State trade and commerce because inter-State banking transactions involve large use of the postal and telegraph systems. If the use of correspondence inter-State gives a dealing between persons the character of inter-State trade and commerce then the sphere of trade and commerce will be extended so as to include advice by a mother to her daughter and lovers' greetings-if sent by inter-State post. At this point a further argument for the plaintiffs may be noticed. In the case of Trinidad Lake Asphalt Operating Co Ltd v Commissioners of Income Tax for Trinidad and Tobago [[114]] it was necessary to interpret an income tax statute which provided that any resident person "who transmits rent interest or income ... to a non-resident person" should be deemed to be the agent of the latter person. In pursuance of an agreement a New Jersey company declared a dividend payable by cancellation of a claim against the company by a Trinidad company in an equivalent amount. Both companies made entries in their books which recorded the transaction of set-off. It was held that the transaction was a payment by the Trinidad company to the other company and that it involved a transmission of revenue within the meaning of the statute. There is little difficulty in arriving at the conclusion that the terms of the statute were intended to include such a case, but the decision has no bearing whatever upon the question whether such a transaction is trade or commerce or whether banking is trade or commerce.
I therefore answer the question "Is banking itself trade or commerce?" in the negative. Accordingly, in my opinion, the prohibition of banking authorized by s. 46 is not a prohibition of any trade or commerce and therefore is not, for that suggested reason, rendered invalid by s. 92 of the Constitution.
Banking as an Instrument of Trade or Commerce.
The next contention of the plaintiffs is that banking is an instrument of trade and commerce and that the acquisition and prohibition provisions of the Act constitute an interference with it which is an infringement of s. 92. I have already said that these provisions are intended to put an end to banking by the private banks and that, so far as they are put into operation, they will accomplish this object.
I agree that banking facilities are, in these days, necessary for trade and commerce generally as actually carried on, and for inter-State trade and commerce. Banking may be described as an instrument which is used in inter-State trade and commerce. But the business of a banker, consisting in receiving deposits, paying out deposits, lending money and associated transactions, provides service of a financial character which is used in relation to all forms of human activity. A banker's business serves the purposes not only of trade and commerce, but also of all kinds of financial transactions which have nothing whatever to do with trade or commerce. A law which was directed against the use of such facilities in inter-State trade and commerce, which had the "real object" of restricting such trade and commerce, would be obnoxious to s. 92 for the reasons stated in James v Cowan [[115]] and James v The Commonwealth [[116]] . But the Banking Act 1947 is a general law dealing with the persons who conduct financial transactions in a banking system, with no reference to the inter-State character of any transaction. Such a law cannot be said to be "directed against" the use of banking in inter-State transactions. The Act makes no reference whatever to inter-State transactions. The choice of the banks to be prohibited from carrying on banking business "has no relation to ... passage across the border"-to use the words of Williams J. in Australian National Airways Pty Ltd v The Commonwealth [[117]] , at p. 109. The Act does not prevent the transportation of anything across State borders. It is true that it is intended to control the businesses of private banks and, if thought proper, to put them out of business. This, however, is to be done without reference to any inter-State element in the business.
The plaintiffs argue, however, that this fact is immaterial and that s. 92 prevents the closing by legislative action of any business which is auxiliary to inter-State trade and commerce. I restate the carefully-framed proposition which was submitted on behalf of the plaintiffs:"Section 92 is infringed whenever an individual or corporation is engaged in inter-State trade, commerce or intercourse, and, either by a direction, prohibition or acquisition, with the object or purpose of effecting such a prohibition, the carrying on of such a business by him or it is forbidden."
In my opinion the plaintiffs did, as the defendants contended, really seek to set up again the principle of W. & A. McArthur Ltd v Queensland [[118]] . In McArthur's Case [[119]] it was said: "Once determine what is comprised in `trade, commerce, and intercourse,' then, as the `absolute freedom' extends to the whole of it, many of the suggested difficulties vanish on the instant." It was then held that all the commercial arrangements of which transportation is the direct and necessary result form part of trade and commerce-all the mutual communings, negotiations, verbal and by correspondence, the bargain, the transport and the delivery. (There was no dissent from this proposition in James v The Commonwealth [[120]] . It was held in McArthur's Case [[121]] that s. 92 protected all of these elements from all governmental control by every governmental authority to whom the command contained in the section was addressed. The proposition of McArthur's Case [[122]] was so stated in James v The Commonwealth [[123]] : "Then there is the conception enunciated in McArthur's Case (1) that `free' means free from every sort of impediment or control by any organ of Government, legislature or executive to which s. 92 is addressed with respect to trade, commerce or intercourse, considered as trade, commerce and intercourse" [[124]] . Lord Wright M.R. proceeds [[125]] : "Every step in the series of operations which constitute the particular transaction, is an act of trade; and control under the State law of any of these steps must be an interference with its freedom as trade." If s. 92 binds the Commonwealth, then it is equally true that control under any Federal law must be such an interference. It is now settled that s. 92 does bind the Commonwealth. Accordingly the adoption now of the doctrine of McArthur's Case [[126]] would mean that inter-State trading and commercial dealings would be immune from both Federal and State law: see James v The Commonwealth [[127]] .
The Privy Council very clearly rejected the doctrine of McArthur's Case [[128]] . Under that doctrine an infringement of s. 92 would take place in the case of any law which controlled a business containing inter-State elements because if the law were not observed the business would be interfered with, or possibly stopped altogether, or a penalty would be incurred. Since James v The Commonwealth [[129]] it cannot be maintained that the fact that a law which necessarily involves some control of inter-State business and possibly, in the course of such control, an exclusion of some persons from such business, is an infringement of s. 92.
It is the duty of this Court to apply James v The Commonwealth [[130]] and to follow the decisions which were approved in James v The Commonwealth [[131]] and which have subsequently been given by this Court. In my opinion it would be wrong, after James v The Commonwealth [[132]] to hold that a law controlling a business, even though that business is directly related to and is even part of inter-State trade and commerce, is necessarily an infringement of s. 92, and even though the application of the law may render the carrying on of business by a particular individual impossible. I refer to the statutes which were held in James v The Commonwealth [[133]] to be valid. All of these statutes involve a control under law which [[134]] "must be an interference with ... freedom" in "trade." Among the statutes to which reference was made are general price-fixing Acts [[135]] : State marketing and transport regulations [[136]] : State laws of health and sanitation [[137]] : the Post and Telegraph Act 1901-1923 [[138]] : the Secret Commission Act 1905 [[139]] : the Commerce (Trade Descriptions) Act 1905-1933 [[140]] : the Australian Industries Preservation Act 1906-1930 [[141]] : the Sea Carriage of Goods Act 1924 [[142]] : the Transport Workers' Act 1928-1929 [[143]] : Sale of Goods Acts [[144]] : Bills of Exchange Acts [[145]] : Acts relating to sea, roadway or motor carriage [[146]] and State or Commonwealth Acts dealing with wharves or warehouses or transport workers [[147]] : cf. judgment of Evatt J. in R. v Vizzard; Ex parte Hill [[148]] , at pp. 81, 82. All these statutes prevent some transactions taking place in inter-State trade and commerce or deprive them of effect if they do take place, and in some cases subject the participants to penalties. Although they all operate to impose some degree of control and restraint upon inter-State businesses, they were held to be valid. They are all either general Acts which apply to but have no differential reference to inter-State transactions, or, if limited to such transactions, cannot be said to be "directed against" them. I have difficulty in seeing how the proposition submitted for the plaintiffs would allow the enactment of a general statute imposing penalties upon persons who sold uninspected meat, or diseased meat, or other goods dangerous to health-or upon unqualified persons who carried on the business of chemists and druggists. A business cannot exempt itself from control by law by introducing inter-State elements into its transactions, and a law is not rendered invalid by s. 92 because it applies to such transactions. If it is "directed against" such transactions it is an entirely different matter. The Banking Act 1947 is not directed against inter-State banking. It is a general law dealing with financial business as carried on by bankers.
If it were now held that, because the Banking Act can be applied so as to prevent one or more, or possibly all, of the plaintiff banks from carrying on banking business (banking being an instrument used in inter-State trade and commerce), therefore the Act was invalid, it would be necessary to overrule several decisions given by this Court. In each of these cases statutes subjected the inter-State business of particular persons to restrictions and limitations and were such as possibly to put them out of business. The statutes nevertheless were held to be valid. The cases decided before James v The Commonwealth [[149]] and approved in James v The Commonwealth [[150]] which were of this character were: Willard v Rawson [[151]] ; R. v Vizzard; Ex parte Hill [[152]] ; O. Gilpin Ltd v Commissioner of Road Transport and Tramways (N.S.W.) [[153]] . After James v The Commonwealth [[154]] cases in which legislation was upheld which either restricted or put a stop to the inter-State business of some persons were: Riverina Transport Pty Ltd v Victoria [[155]] ; Hartley v Walsh [[156]] ; Home Benefits Pty Ltd v Crafter [[157]] ; Milk Board (N.S.W.) v Metropolitan Cream Pty Ltd [[158]] ; Andrews v Howell [[159]] .
In my opinion all these cases would have to be overruled if the contention of the plaintiffs that s. 92 prohibited interference by law with a business which contained inter-State elements or which was an instrument used in inter-State trade and commerce were accepted.
The plaintiffs naturally relied strongly upon the degree of approval given in James v The Commonwealth [[160]] to Peanut Board v Rockhampton Harbour Board [[161]] . Such approval as was given was expressed to be upon the basis only of a particular view of the Act which was accepted without further examination by the Privy Council. It was said that "on the basis of that view [[that is, a particular construction of the Act as representing its true character]] the principles laid down by this Board (in James v Cowan [[162]] were applied by the Court," that is, by the High Court. Such a statement is a very cautious and limited approval if, indeed, it is an approval at all. The other reference to the Peanut Board Case [[163]] is [[164]] where, with reference to burdens and hindrances upon inter-State trade which might assume various forms, it is said that "One form may be a compulsory acquisition of goods, as in James v Cowan [[165]] or the Peanut Case [[166]] if in truth the expropriation is directed wholly or partially against inter-State trade in the goods, that is, against selling them out of the State." If the statute dealt with in the Peanut Case [[167]] did provide for an expropriation which was "directed" wholly or partially against inter-State trade in the goods, then the Peanut Case [[168]] falls completely into line with the reasoning in James v The Commonwealth [[169]] . The question whether the statute which was under consideration in the Peanut Case [[170]] could properly be construed as providing for expropriation "directed" against inter-State trade is not a question with which the Privy Council itself dealt. Finally, as to the Peanut Case [[171]] Andrews v Howell [[172]] is a decision directly to the contrary effect and is in my opinion completely in accord with the decision in James v The Commonwealth [[173]] . In Andrews v Howell [[174]] the Court considered a general marketing scheme which, so far as expropriation of goods was concerned, was not distinguished, and, in my opinion, cannot be distinguished, from that which was the subject of decision in the Peanut Case [[175]] . But in Andrews v Howell [[176]] the scheme was not described as a marketing scheme which was "entirely restrictive of any freedom of action by the producers." It was described as not being directed wholly or partially against inter-State trade, but to the better disposal of the commodities in local and other markets. The regulations establishing the scheme were held not to be obnoxious to s. 92.
For these reasons I am of opinion that the provisions of the Banking Act 1947 do not infringe s. 92 of the Commonwealth Constitution. In my opinion banking is not itself trade or commerce. It is an instrument used by trade and commerce. The legislative control introduced by the Act is a control which is not directed against any inter-State element in banking. It is a general provision for the control of banking and is as valid as a general moneylending law. In my opinion the objections based on s. 92 fail.
The Act in relation to State Governments.
The Act is attacked as unduly interfering with and impairing the powers and functions of State Governments and excluding them from necessary facilities for the conduct of governmental business. The receipt, custody, management and control, and expenditure of the public moneys of the States is a governmental function and an essential governmental function; that is, it is a function the performance of which is necessary to the existence of the States as political organisms. This proposition has been established by Melbourne Corporation v The Commonwealth [[177]] where it was held that s. 48 of the Banking Act 1945 was invalid. This section provided that, except with the consent in writing of the Commonwealth Treasurer, a bank should not conduct any banking business for a State or for any authority of a State, including a local government authority.
The States may create State banks, but it is argued for the plaintiffs that State banks cannot meet all government requirements. Such banks would not have the resources which are at the command of the plaintiff banks and, further, it is argued that a State should not be compelled to establish a State bank in order to maintain its independence of the Commonwealth. The effect of the Act, the plaintiffs argue, is that in the case of States which have no State bank, the Government will be compelled to do all its banking through a bank which is really controlled as to policy by the Government of the Commonwealth: see Commonwealth Bank Act 1945, s. 9: Banking Act 1945, s. 27.
It is contended that it is inconsistent with the maintenance of a Federal system of government consisting of Commonwealth and States that the Governments of the States should be compelled to conduct their financial operations through a Commonwealth bank.
The Commonwealth Bank Act 1945, s. 25, places the day to day business of the bank under the management of the Governor of the bank, and not under the management of the Government. The Banking Act 1947, s. 11, provides that it shall be the duty of the Commonwealth Bank to provide adequate banking facilities for any State to conduct its business without improper discrimination, to observe obligations of secrecy etc But in the case of a bank established under Commonwealth law, all these provisions exist only at the will of the Commonwealth Parliament and can be altered by that Parliament. Thus, in principle, the objection of the States which is now under consideration is an objection, not merely to the particular provisions of the 1947 Act, but to any practical compulsion upon the States to use an institution under the control of the Commonwealth for their financial operations.
The control of finance may be used in modern society so as to control nearly anything and everything. If the States are to be subject to Commonwealth control in their daily finance, then, it is argued, they lose all their independence as political organisms. Long term borrowing by the States is controlled by the Loan Council under the Financial Agreement: see Financial Agreement as set out in the Schedule to the Financial Agreement Act 1944. cl. 3 (8) and (9) and cl. 4. Short term borrowing, however, is not so controlled, except in relation to certain maximum limits as to discount, interest etc: Financial Agreement, cl. 5 (1) and (9). (Similar provisions apply in the case of the Commonwealth: see cl. 6 of the Agreement.) It is argued that the effect of the 1947 Act is to place all short term financing of the States under the actual or possible control of the Commonwealth Treasurer, and therefore to place State Governments themselves under the control of the Commonwealth Treasurer.
The defendants' reply to this argument is that if the Commonwealth Parliament has power to create what may amount to a practical banking monopoly, the States must put up with it, just as they must put up with many other things in respect of which power is given to the Commonwealth Parliament. There are many subjects in respect of which the Commonwealth can use its powers so as to create a monopoly in the form of exclusive Commonwealth control; e.g. bounties on the production and export of goods, quarantine, currency, coinage, legal tender, certain industrial disputes. The Commonwealth has exclusive powers with respect to customs and excise duties. Legislation upon any of these matters may provide for control to be completely in Commonwealth hands. In relation to all matters where the Commonwealth Parliament has power, the States are in general bound by the laws of the Commonwealth. This was the decision in the Engineers' Case [[178]] and the defendants contend that there is no reason why that decision should be whittled down in the case of banking.
The defendants further emphasize the exception of "State banking" from the Commonwealth legislative power. This is an express exception in favour of the States which enables the States to establish their own banks and to be completely free of any Commonwealth control in banking. This express exception, it is argued, excludes any further implied exception in relation to this subject matter. In reply to the arguments founded upon the Melbourne Corporation Case [[179]] the defendants point out that s. 48 of the Banking Act 1945 dealt specifically and particularly with the States and State authorities.
In the Melbourne Corporation Case [[180]] it was held that a system of Federal government, involving the co-existence of Commonwealth and States, involved the continuance of the existence of the States as political entities not subject to any form of Commonwealth control in respect of the discharge of their own lawful functions. The States may be bound by some Commonwealth laws (Engineers' Case [[181]] ) but, as governments, the States are independent of the Commonwealth and are not subjects of the Commonwealth; and in respect of the functions which are left to the States the Commonwealth has no power by means of legislation of restricting the States in the performance of the normal and essential functions of government: per Rich J. [[182]] . Thus the Commonwealth Parliament cannot destroy, curtail or interfere with the exercise of constitutional power by a State, and the management and control by the States of their revenues and funds is a constitutional power of vital importance to them: per Starke J. [[183]] . The Constitution should not be understood as authorizing the Commonwealth to make a law "aimed at the restriction or control of a State in the exercise of its executive authority": per Dixon J. [[184]] . Williams J. [[185]] held that s. 48 of the Banking Act 1945 was a law which discriminated against the States and their agencies and was in substance a law which sought to give direction to the States as to the manner in which they should exercise their executive, legislative, judicial or governmental functions and that it was therefore invalid.
The plaintiffs rely upon all these propositions in their challenge to the 1947 Act.
The 1947 Act is general in its terms. It is quite different from s. 48 of the Banking Act 1945, which dealt specifically and in a special manner, and in a discriminatory manner, with States and State agencies. The 1947 Act cannot be said to be aimed at or directed against the States in this manner.
Further, the States are at liberty to use the Commonwealth Bank and, if they prefer not to do so, they can establish their own banks. The intention of s. 51 (xiii.) is, I suggest, to give to the States independence of the Commonwealth in respect of banking if they desire to have and to exercise such independence. State banking is removed from Commonwealth control except in so far as it extends beyond the limits of the State concerned. The Commonwealth legislative power in relation to "State banking extending" should (as I have already said) be construed in the light of the prior exception of State banking from Commonwealth control, and should be read as authorizing Federal laws under which a State bank may extend its business from one State into another, even though the other State might itself object to such extension. If the Commonwealth power of legislation with respect to "State banking extending" etc were held to include a power to prohibit "State banking extending" etc then, as a State bank of any magnitude could not carry on if it were limited in all its transactions to transactions within the State, the result would be that the Commonwealth Parliament, by exercising its legislative powers, could actually in practice abolish State banking upon any substantial scale, notwithstanding the exclusion of "State banking" from Commonwealth legislative power. I am therefore of opinion that the Commonwealth Parliament cannot, under the power to make laws with respect to "State banking extending," either prohibit or substantially impede such banking. To hold that such legislation is valid would, in my opinion, be inconsistent with the only reason that can be suggested for excepting State banking from the power conferred by s. 51 (xiii.).
Thus I am of opinion that, by reason of this exception, the provisions with respect to State banking contained in s. 51 (xiii.) make provision, of which the States are at liberty to avail themselves, for independence of the States from Commonwealth control in respect of banking, and that the principles stated in the Melbourne Corporation Case [[186]] do not invalidate the Banking Act 1947.
Financial Agreement.
It is contended for the plaintiffs that the Act is invalid because it is inconsistent with the Financial Agreement between the Commonwealth and the States: see Schedule to Financial Agreement Act 1944. Section 105A of the Constitution provides that an agreement made in pursuance of the section shall be binding upon the Commonwealth and the States parties thereto, notwithstanding anything contained in the Constitution of the Commonwealth or the Constitution of the several States or in any law of the Parliament of the Commonwealth or of any State. Thus, if a Commonwealth Act contains provisions inconsistent with a term of an agreement made in pursuance of s. 105A of the Constitution, the Commonwealth Act is necessarily invalid.
The Financial Agreement is an agreement made pursuant to s. 105A. Clause 5 (1) provides that the States may, for any purpose, subject to any maximum limits decided upon by the Loan Council for interest, brokerage etc, borrow moneys within the States from authorities, bodies, funds or institutions (including Savings Banks) constituted or established under Commonwealth or State law or practice. Clause 5 (9) has a more direct reference to the present case, because it deals more specially with borrowings from banks. Clause 5 (9) is as follows:"Notwithstanding anything contained in this Agreement, any State may use for temporary purposes any public moneys of the State which are available under the laws of the State, or may, subject to maximum limits (if any) decided upon by the Loan Council from time to time for interest, brokerage, discount and other charges, borrow money for temporary purposes by way of overdraft or fixed, special or other deposit, and the provisions of this Agreement other than this sub-clause shall not apply to such moneys."
These clauses confer a right upon a State Government, subject only to the conditions mentioned, to borrow money upon overdraft from banks.
The plaintiffs contend that the principle stated in Stirling v Maitland [[187]] , at p. 1047] in the following words is applicable:"If a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative." A recent case in which this principle was applied is Southern Foundries (1926) Ltd v Shirlaw [[188]] .
The plaintiffs contend that it is an implied term of the Agreement that the Commonwealth will not do anything to render the right given by the quoted clause nugatory or to diminish or prejudicially affect it. At the present time the States are able to go to a certain number of private banks "in a private banking system" and make agreements for overdrafts. The Banking Act 1947 contains provisions which, so far as they are applied, will bring about the abolition of some or all of the private banks. This, it is contended, is inconsistent with the implied term of the Financial Agreement.
The 1947 Act may be used and is plainly intended to be used for the purpose of diminishing the number of banks. There is no express prohibition in the Financial Agreement against such legislation. The plaintiffs disclaim any contention that the Agreement produces the result that no Parliament, Commonwealth or State, could terminate the existence of a bank, but they found a difficulty in stating with any precision any principle short of that proposition upon which they were prepared to stand. The plaintiffs, in my opinion, have not shown how their argument on this point can be accepted without conferring on existing banks a permanent guarantee that their existence will never be terminated by any Commonwealth or State legislative action. Even a statutory amalgamation would be impossible. But these propositions the plaintiffs disclaim.
In my opinion the Financial Agreement does not contain any implication that the number of banks is never to be decreased by legislative action. It provides only that the States (and the Commonwealth) shall be entitled to obtain overdrafts from banks, that is, from such banks as there are, from time to time. If the 1947 Act is put into full operation there will still be the Commonwealth Bank and such State banks as now exist and as the States may decide to establish hereafter. Accordingly, the States will still have the right to obtain by agreement overdrafts from all such banks as exist.
In the Melbourne Corporation Case [[189]] my brother Williams and I expressed our opinion that s. 48 of the Banking Act 1945 was inconsistent with the Financial Agreement, cl. 5 (9). That section prevented any State obtaining an overdraft from any bank without the consent in writing of the Federal Treasurer. The Financial Agreement gives a right to a State to arrange with banks for over-drafts subject only to the conditions specified in the Agreement. Section 48 was therefore in our opinion invalid because it imposed a condition upon the exercise of a right which had been given to the States independently of any such condition. The 1947 Act, however, does not affect this right in respect of any banks which may be in existence from time to time.
In my opinion, the objections of the plaintiffs based upon the Financial Agreement have not been establised as good objections to the validity of the Act.
Part VIII.
Part VIII. of the Act provides for the protection of the rights of the staff of a private bank when shares in the bank are acquired by the Commonwealth Bank and new directors assume office, and for the transfer to the Commonwealth Bank of the staff of a private bank when the Commonwealth Bank takes over the business of the bank. If the provisions for displacement of directors and introduction of nominee directors are invalid, and the provisions for taking over the business of a bank by compulsion are also invalid, the provisions of Part VIII. will not come into operation.
Conclusion.
For the reasons which I have stated I am of opinion that the following sections of the Act are invalid:s. 14 (2) relating to transfer by the Commonwealth Bank of shares, ss. 17 to 20 relating to taking over control of the management of Australian banks, and ss. 23 and 24 relating to the acquisition of the assets of banks. Section 14 (2) is not a law with respect to acquisition of property, and the other sections are laws with respect to such acquisition but in my opinion do not provide just terms of acquisition. Declarations of invalidity should be made accordingly and appropriate injunctions should be granted. The defendants should pay the costs of the plaintiffs. The parties will be given an opportunity of being heard with respect to the terms of the judgments in the several actions.