Melbourne Corporation v Commonwealth

74 CLR 31
[1947] ALR 377

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(Judgment by: Starke J.)

Briginshaw v.
Briginshaw

Court:

Judges: Latham CJ
Rich J

Starke JDixon J
McTiernan J
Williams J

Judgment date: 15 and 16 July, 13 August 1947

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Judgment by:
Starke J.

Demurrer on the part of the defendants to the statement of claim of the plaintiff claiming a declaration that the Banking Act 1945 or alternatively s 48 thereof is beyond the powers of the Parliament of the Commonwealth and void, and also a declaration that s 48 is of no effect by reason of the inclusion in the Act of a law imposing taxation and ancillary relief.

The claim for a declaration that s 48 was of no effect by reason of the inclusion in the Act of a law imposing taxation was abandoned during the argument and in the end the attack upon the Act was confined to the provisions of s 48, which provides -- "(1) Except with the consent in writing of the Treasurer, a bank shall not conduct any banking business for a State or for any authority of a State, including a local governing authority. Penalty: One thousand pounds. " (2) Any consent of the Treasurer under this section may apply to all such business conducted by any particular bank or at a particular office of a bank, or to the business of any particular State or authority conducted by any particular bank or at a particular office of a bank. "(3) Until a date fixed by the Treasurer by notice published in the Gazette, this section shall apply only in relation to banking business conducted for a State or for an authority of a State, including a local governing authority, specified by the Treasurer by notice in writing, and, if an office of a bank is specified in the notice, at the office so specified."

The Treasurer has notified the City of Melbourne that he proposes to specify on or about 1st August 1947 that s 48 of the Banking Act shall apply to it.

The validity of the section depends upon the provisions of s 51(xiii) of the Constitution -- "The Parliament shall, subject to this Constitution, have power to make laws for the peace, order and good government of the Commonwealth with respect to . . . 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." A party whose rights or material interests are not adversely affected by an Act of the Parliament has no right to attack its constitutionality. The prohibition in s 48 of the Banking Act is directed to banks and not to their customers but the Act so operates, having regard to the Treasurer's notice, that the City of Melbourne will be deprived of its right or privilege of dealing with a banker of its own choice. That, I think, is an interest sufficient to support the present action and to make the city a competent plaintiff.

Banking, within the meaning of the Constitution, relates to the business of a banker and covers all those various functions which a banker undertakes. But his main functions appear to be the taking of deposits and current accounts, the issue and payment of bills and cheques drawn on him and the collection of bills and cheques for his customers. In Hart's Law of Banking, 4th ed (1931), Vol 1, pp 3-5, a banker's functions have been classified under seven heads (and see Paget on The Law of Banking, 3rd ed (1922), p 6). Plenary power is given to the Parliament subject to the Constitution and to the exception contained in s 51(xiii) itself to make laws with respect to the subject matter. Under this power the Parliament may prescribe the rules by which banking is governed. The power extends not only to those regulations which aid, foster and protect banking and the choice of persons engaging in it: it also embraces the making of rules which prohibit it (Australian Steamships Ltd v Malcolm (1914) 19 CLR 298; Huddart Parker Ltd v The Commonwealth (1931) 44 CLR 492; Victorian Stevedoring and General Contracting Co Pty Ltd v Dignan (1931) 46 CLR 73; Australian National Airways Pty Ltd v The Commonwealth (1945) 71 CLR 29; Attorney-General for Canada v Attorney-General for Quebec (1947) AC 33). So far, I should think that the provisions of s 48 may be described as a law with respect to banking. But it is another question whether the Parliament may prohibit a bank from conducting any banking business with a State or an authority of a State including a local governing authority. The Constitution itself excludes State banking which does not extend beyond the limits of the State concerned from the operation of the power. State banking, it was said, means banking with or by a State. It covers, as I understood the argument, not only banking with State banks, that is banks owned or managed by a State government, but also banking transactions or other facilities with banks, other than State banks, of which a State avails itself. At the time the Constitution was passed the only State banks in Australia were Government Savings Banks but since that date other State banks have been constituted. Savings banks do not perform many of the functions of bankers but they fall within the description of bankers in the Bills of Exchange Act (Commissioners of State Savings Bank of Victoria v Permewan, Wright & Co Ltd (1914) 19 CLR 457). Doubtless the limitation upon the banking power had reference to these banks (see Quick & Garran, The Annotated Constitution of the Australian Commonwealth, pp 756-758) but it also covers the State banks which have been subsequently created. The State banking excluded from the banking power relates, in my opinion, to banking operations conducted by banks owned or managed by State Governments or any authority of a State Government and does not extend to transactions or other facilities with banks, other than State banks, of which a State avails itself.

But this leads to the critical question in this case, namely, whether the banking power enables the Parliament to prohibit banks from conducting any banking business for a State or for any authority of a State including a local governing authority. The provision cannot be severed. Local governing authorities are included within the words "a State or any authority of a State." It is, therefore, unnecessary to consider whether the section would be valid if confined to local governing authorities. That question presents some difficulties of its own.

The federal character of the Australian Constitution carries implications of its own. As I have said before, "the government of Australia is a dual system based upon a separation of organs and of powers. The maintenance of the States and their powers is as much the object of the Constitution as the maintenance of the Commonwealth and its powers. Therefore it is beyond the power of either to abolish or destroy the other" (South Australia v The Commonwealth (1942) 65 CLR 373, at p 442; R v Commonwealth Court of Conciliation and Arbitration; Ex parte Victoria (1942) 66 CLR 488, at p 515). The same principle was applied to the dual system of government under the Constitution of the United States of America. "Neither Government may destroy the other nor curtail in any substantial manner the exercise of its powers" (Metcalf v Mitchell (1926) 269 US 514, at p 523 (70 Law Ed 384, at p 392)). But it is interesting to observe the application of this principle both in America and in Australia. It was said by the Supreme Court of the United States to be "an established principle of our constitutional system of dual government that the instrumentalities, means and operations whereby the United States exercises its governmental powers are exempt from taxation by the states, and that the instrumentalities, means and operations whereby the states exert the governmental powers belonging to them are equally exempt from taxation by the United States. This principle is implied from the independence of the National and State Governments within their respective spheres and from the provisions of the Constitution which look to the maintenance of the dual system" (Indian Motocycle Co v United States (1931) 283 US 570, at p 575 (75 Law Ed 1277, at p 1281), cited by Butler J in his dissenting opinion in Helvering v Gerhardt (1938) 304 US 405, at p 428 (82 Law Ed 1427, at p 1441).

In Australia the principle was applied in like manner (D'Emden v Pedder (1904) 1 CLR 91; Federated Amalgamated Government Railway & Tramway Service Association v NSW Railway Traffic Employees Association (1906) 4 CLR 488). But in a series of cases in the United States this wide application of the principle has been restricted as may be gathered from such cases as Helvering v Gerhardt (1938) 304 US 405 (82 Law Ed 1427); Graves v New York; Ex rel. O'Keefe (1939) 306 US 466 (83 Law Ed 927); New York v United States (1946) 326 US 572 (90 Law Ed 326). And likewise in Australia the same wide application of the principle was finally rejected (Federated Engine-Drivers' and Firemen's Association of Australasia v Adelaide Chemical and Fertilizer Co Ltd (1920) 28 CLR 1).

The applications in America of the basic proposition do not, however, present "a completely logical pattern." "But they disclose," said Stone J (subsequently the Chief Justice of the Supreme Court) in Helvering v Gerhardt (1938) 304 US, at p 419 (82 Law Ed, at pp 1436, 1437), "no purposeful departure from, and indeed, definitely establish, two guiding principles of limitation for holding the tax immunity of State instrumentalities to its proper function. The one, dependent upon the nature of the function being performed by the State or in its behalf, excludes from the immunity activities thought not to be essential to the preservation of State governments even though the tax be collected from the state Treasury" (See South Carolina v United States (1905) 199 US 437 (50 Law Ed 261); Graves v New York; Ex rel. O'Keefe (1939) 306 US 466 (83 Law Ed 927); New York v United States (1946) 326 US 572 (90 Law Ed 326)). "The other principle, exemplified by those cases where the tax laid upon individuals affects the state only as the burden is passed on to it by the taxpayer, forbids recognition of the immunity when the burden on the state is so speculative and uncertain that if allowed it would restrict the Federal taxing power without affording any corresponding tangible protection to the state government; even though the function be thought important enough to demand immunity from a tax upon the state itself, it is not necessarily protected from a tax which well may be substantially or entirely absorbed by private persons (Metcalf v Mitchell (1926) 269 US 514 (70 Law Ed 384); Willcuts v Bunn (1931) 282 US 216 (75 Law Ed 304))" (1938) 304 US, at p 419 (82 Law Ed, at p 1437).

These are practical considerations rather than juristic principles. But the Supreme Court still recognizes that there are State activities and functions of government that are nevertheless immune. "There are, of course," said Frankfurter J in New York v United States (1946) 326 US, at p 582 (90 Law Ed, at p 333), "State activities and State-owned property that partake of uniqueness from the point of view of intergovernmental relations. These inherently constitute a class by themselves. Only a State can own a Statehouse; only a State can get income by taxing. These could not be included for purposes of Federal taxation in any abstract category of taxpayers without taxing the State as a State. But so long as Congress generally taps a source of revenue by whomsoever earned and not uniquely capable of being earned only by a State, the Constitution of the United States does not forbid it merely because its incidence falls also on a State." The Court however has "edged away from reliance on a sharp distinction between the 'governmental' and the 'trading' activities of a State" (1946) 326 US, at p 580 (90 Law Ed, at p 332). And at least some of the learned justices of the Supreme Court of the United States "are not prepared to say that the national government may constitutionally lay a non-discriminatory tax on every class of property and activities of States and individuals alike" (1946) 326 US, at p 586 (90 Law Ed, at p 336). For "a Federal tax which is not discriminatory as to the subject matter may nevertheless so affect the State, merely because it is a State that is being taxed, as to interfere unduly with the State's performance of its sovereign functions of government" (1946) 326 US, at p 587 (90 Law Ed, at p 336). A non-discriminatory tax in this sense refers "to a tax laid on a like subject matter, without regard to the personality of the taxpayer, whether a State, a corporation or a private individual" (see per Stone CJ, Reed, Murphy and Burton JJ (1946) 326 US, at p 587 (90 Law Ed, at p 336)). And the same considerations apply, I apprehend, to interference with federal activities by the States. Immunity, therefore, appears to depend upon practical considerations though the fact that an activity is a trading activity or that legislation is non-discriminatory are relevant though not necessarily decisive considerations.

In Australia the problem has been considered in relation to the importation of goods by the States and immunity of the States from the provisions of the federal customs legislation and duties has been denied. The Constitution gives the exclusive control of duties and customs and excise to the Commonwealth (see ss 86, 90 and 52) and these provisions control the decisions upon the importation of goods by the States (R v Sutton (Wire Netting Case) (1908) 5 CLR 789; Attorney-General (NSW) v Collector of Customs (NSW) (Steel Rails Case) (1908) 5 CLR 818).

The problem has also been considered in relation to the arbitration power in the Constitution and immunity of the States from the provisions of legislation made pursuant to that power has also been denied (Engineers' Case (1920) 28 CLR 129). "The doctrine of 'implied prohibition,'" it was said, "finds no place where the ordinary principles of construction are applied so as to discover in the actual terms of the instrument their expressed or necessarily implied meaning. The principle we apply to the Commonwealth we apply also to the States, leaving their respective acts of legislation in full operation within their respective areas and subject matters, but, in case of conflict, giving to valid Commonwealth legislation the supremacy expressly declared by the Constitution measuring that supremacy according to the very words of s 109" (1920) 28 CLR, at p 155. But "the Court did not say that in interpreting the Constitution no implications of any sort should be made." "Some implications are necessary from the structure of the Constitution itself" (South Australia v The Commonwealth (1942) 65 CLR, at p 447; Essendon Corporation v Criterion Theatres Ltd (above), p 1, at p 22 et seq, per Dixon J).

The actual decision in the Engineers' Case (1920) 28 CLR 129 rests upon the terms of the arbitration power which "necessarily and by reason of the subject matter" extended to all parties, States as well as persons, engaged in industrial disputes extending beyond the limits of any one State (see R v Commonwealth Court of Conciliation and Arbitration; Ex parte Victoria (1942) 66 CLR, at p 515).

And again in relation to the defence power the problem has also been considered. The decisions of this Court have so magnified the defence power that it seems almost unlimited (South Australia v The Commonwealth (Uniform Tax Case) (1942) 65 CLR 373; Pidoto v Victoria (1943) 68 CLR 87; Australian Woollen Mills Ltd v The Commonwealth (1944) 69 CLR 476). The former decision enabled the Commonwealth to take over the State Income Tax Departments and to make itself, in practice, the sole taxing authority in respect of incomes. It thus, as I think, in abuse of its taxing power, raises considerable sums of money not for the purposes of the Commonwealth (see Constitution, s 81) but for compensating the States for the loss of their revenues from income tax. The latter decisions enable the Commonwealth, in time of war, to exercise control over the States in relation to all industrial disputes and unrest whatever and to prescribe the conditions of employment and the wages of State employees accordingly.

Still it is said that "the most complete recognition of the power and responsibility of Parliament and of the Government in relation to defence does not involve the conclusion that the defence power is without any limits whatever. The existence of the defence power in the Commonwealth Parliament and the exercise of that power do not mean that all governmental power in Australia may, by the action of the Commonwealth Parliament, be concentrated in Commonwealth authorities. The Constitution cannot be made to disappear because a particular power conferred by the Constitution upon the Commonwealth Parliament is exercised by that Parliament. Indeed, the grant of the power to legislate with respect to defence is made expressly 'subject to this Constitution' -- see opening words of s 51. If, under the defence power, the Commonwealth can control the pay, hours and duties of all State public servants, it is obvious that the Commonwealth can take complete control of all governmental administration within Australia. The result would be the abolition, in all but name, of the Federal system of government which it is the object of the Constitution to establish -- preamble and cl 3 of the covering clauses of the Constitution" (R v Commonwealth Court of Conciliation and Arbitration; Ex parte Victoria (1942) 66 CLR 488, at pp 506-507; Pidoto v Victoria (1943) 68 CLR, at p 106; South Australia v The Commonwealth (Uniform Tax Case) (1942) 65 CLR, at p 469).

But all this is based upon implications derived from the federal structure of the government established by the Constitution. So we may start from the proposition that neither federal nor State governments may destroy the other nor curtail in any substantial manner the exercise of its powers or "obviously interfere with one another's operations" (see Graves v New York; Ex rel. O'Keefe (1939) 306 US 466 (83 Law Ed 927)). The American authorities are not controlling nor in many cases safe guides to the interpretation of the Australian Constitution. But I do agree that a distinction between "governmental" or "the primary and inalienable functions of a constitutional Government" (see Coomber v Justices of Berks (1883) 9 App Cas 61, at p 74) and the "'trading' activities of a State" is "too shifting a basis for determining constitutional power and too entangled in expediency to serve as a dependable legal criterion" (New York v United States (1946) 326 US, at p 580 (90 Law Ed 332, 333)). When a government acts under its constitutional power then its activities are governmental functions (see Graves v New York; Ex rel. O'Keefe (1939) 306 US, at p 477 (83 Law Ed, at p 931); Helvering v Gerhardt (1938) 304 US, at pp 426, 427 (82 Law Ed, at pp 1440, 1441), per Black J; New York v United States (1946) 326 US, at p 590 (90 Law Ed 338), Douglas J, Pt 1, in his dissenting opinion). And I cannot agree that the presence or absence of discrimination affords a decisive test or legal criterion of constitutional power. As was pointed out in New York v United States (1946) 326 US, at p 587 (90 Law Ed, at p 336) by Stone CJ, Reed, Murphy and Burton JJ, a tax which is not discriminatory "may nevertheless so affect the State, merely because it is a State that is being taxed, as to interfere unduly with the State's performance of its sovereign functions of government." It is a practical question, whether legislation or executive action thereunder on the part of a Commonwealth or of a State destroys, curtails or interferes with the operations of the other, depending upon the character and operation of the legislation and executive action thereunder. No doubt the nature and extent of the activity affected must be considered and also whether the interference is or is not discriminatory but in the end the question must be whether the legislation or the executive action curtails or interferes in a substantial manner with the exercise of constitutional power by the other. The management and control by the States and by local governing authorities of their revenues and funds is a constitutional power of vital importance to them. Their operations depend upon the control of those revenues and funds. And to curtail or interfere with the management of them interferes with their constitutional power. Yet the Commonwealth by its legislation prescribes that, except with the consent in writing of the Treasurer, no bank shall conduct any banking business for a State, including any local governing authority. It operates to prevent the States and local governing authorities from dealing with their old and tried bankers except with the consent in writing of the Treasurer. The object is, of course, to compel the States and the local governing authorities to bank with the Commonwealth Bank, which is a Central Bank. And it was said that the handling of public funds is the appropriate function of a central bank. But that does not establish any constitutional power in the Commonwealth to compel the States so to bank. The States and the local governing authorities, and not the Commonwealth, have the power and the duty of administering, controlling and banking their revenues and funds.

Reliance was placed by the State of South Australia upon the Audit Acts of the States. But I do not think they show more than that the administration of the revenues and funds of the States is a matter of great constitutional importance to them and is carefully guarded. Again the Financial Agreement scheduled to the Financial Agreement Validation Act 1929, No 4 of 1929, and authorized by Constitution, s 105A, has no bearing, I think, upon the critical question in this case though Pt I, s 5, "Borrowing by States," contemplates borrowings from authorities, bodies, funds or institutions (including Savings Banks) constituted or established under Commonwealth or State law or practice. The provisions of s 48 of the Banking Act 1945 are beyond the constitutional power of the Commonwealth and therefore void.

The demurrer is too large and should therefore be overruled.