Melbourne Corporation v Commonwealth

74 CLR 31
[1947] ALR 377

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(Judgment by: McTiernan J.)

Briginshaw v.
Briginshaw

Court:

Judges: Latham CJ
Rich J
Starke J
Dixon J

McTiernan JWilliams J

Judgment date: 15 and 16 July, 13 August 1947

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Judgment by:
McTiernan J.

It is necessary to decide the question whether s 48 of the Banking Act 1945, an Act of the Commonwealth Parliament, is within any of its specific powers, which are enumerated in s 51 of the Constitution. I am of opinion that the submission made by counsel for the Commonwealth and the Treasurer that s 48 is within s 51(xiii), one of those powers, is correct.

S 48 is in these terms -- "(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 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."

S 51(xiii) provides that the Parliament shall, subject to the 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." S 48 is addressed to banks: but its effect is to deprive the States of their power under State law to select banks with which to conduct their banking business. Although the section has this effect it is a valid law if it is within the power and is not contrary to any provision of the Commonwealth Constitution.

The only words in the Constitution which cut down the meaning of "banking" are the words of the exception in s 51(xiii), "other than State banking."

The expression "State banking" does not include "banking business conducted for a State," which is the subject of s 48. The expression means banking conducted by a State. The word "State" signifies the State as banker, not as customer. This is the ordinary meaning of the expression "State banking." The words "also State banking extending beyond the limits of the State concerned" refer to the ramifications of a State bank's business beyond the borders of the State to which the bank belongs: those words show that State banking means banking carried on as an enterprise of a State of the Commonwealth. In the Engineers' Case (1920) 28 CLR 129, Higgins J gave this meaning to the expression "State banking" (1920) 28 CLR, at p 162.

The word "banking" in its ordinary and natural meaning covers banking business conducted by a bank either for a government or private customers. As the banking transactions conducted by a bank for a State are not within the exception, "other than State banking," they are included in the subject "Banking," with respect to which the Parliament is authorized to make laws.

It would be contrary to ordinary rules of construction, and it would not be a legal interpretation of the Constitution, to imply an exception of those transactions in addition to the express exception of State banking, from the legislative power. It is evident from the language of s 51(xiii) that it includes power to make laws binding on the States, except to the extent that the power is negatived by the words "other than State banking." This view was taken in the Engineers' Case (1920) 28 CLR 129, where observations were made about s 51(xiii): See the report (1920) 28 CLR, at pp 158, 162, 166.

The nature of the legislative power provides no reason for excluding the States from it. In this connection, there is no discrimen which enables the Court to distinguish this legislative power from others which obviously include power to make laws binding the States and affecting their activities. Examples are "Trade and Commerce" -- s 51(i): "Currency, Coinage and legal tender" -- s 51(xii): "Weights and Measures" -- s 51(xv): "Bankruptcy and Insolvency" -- s 51(xvii): "Patents" -- s 51(xviii).

For example in Attorney-General (NSW) v Collector of Customs (NSW) (1908) 5 CLR 818, it was held that the States were bound by the grant of the "Trade and Commerce" power. Griffith CJ said that this power "necessarily involves the power to interfere with the operations of the State Governments so far as to make effectual any condition or prohibition imposed by the Commonwealth upon importation" (1908) 5 CLR, at p 833. The conclusion reached in that case was approved in the Engineers' Case (1920) 28 CLR 129; and it called forth this comment, which was made in the reasons for judgment: "A more drastic interference than that case sanctions can hardly be imagined. It was an insistence on money being applied from the State Treasury for the purposes of the Commonwealth Treasury as a condition of the State being allowed to import steel rails from abroad for use on its railways. Some difference of opinion occurred as to the nature of the duty, but none as to the primary validity of the interference." (1920) 28 CLR, at pp 158-159.

Referring to the power conferred by s 51(xvii), Higgins J said in the Engineers' Case (1920) 28 CLR at p 164: "Suppose that under the common law -- or under express State legislation -- the Crown has priority over all other creditors, it is argued that a federal law as to bankruptcy, enacting that Crown debts are to be paid pari passu with other debts, would not bind the State". His Honour refuted the limitation of power involved in the supposition.

The States are not even totally exempt from laws made under the "Taxation" power, s 51(ii). In South Australia v The Commonwealth (1942) 65 CLR 373, it was decided by four justices that the Commonwealth Parliament was authorized by that power to pass s 31 of the Income Tax Assessment Act 1942. That is the crucial enactment in the plan for uniform taxation. The section says that a taxpayer shall not pay any tax imposed by State law on the income of any year in respect of which tax is imposed by federal law until the taxpayer has paid the federal tax or has received from the Commonwealth Commissioner of Taxation a certificate notifying him that the tax is no longer payable.

These are instances of Commonwealth Acts which interfered with the States. I cannot think that it is a graver interference with the States to prohibit a bank from conducting any banking business for a State unless the bank has the consent of the Commonwealth Treasurer to do so.

S 48 does not apply to the Commonwealth Bank, or to any State bank. The Commonwealth Bank is the central bank or central reserve bank of Australia. It is also authorized to conduct general banking business. None of the banks to which s 48 applies is a central bank. The banks to which it applies are private trading banks.

S 12 of the Commonwealth Bank Act 1945 provides -- "The Commonwealth Bank shall, in so far as the Commonwealth requires it to do so, act as banker and financial agent of the Commonwealth."

The effect of s 48 is that the Treasurer of the Commonwealth is able, by declining to give any consent under the section, to tie the States and the authorities mentioned in it, to the Commonwealth Bank if they are unwilling to make their banking arrangements with a State bank.

It was sought to show by reference to ss 8 and 9 of the Commonwealth Bank Act 1945 that the result of placing the States in that position might be Commonwealth control of State expenditure. Whatever the bank, the limits of a State's accommodation would not be always fixed by its own desires. But the vice attributed to s 48 is that it is an interference by the Commonwealth with the States, and that the interference is inconsistent with the federal structure of the Constitution.

No implication of a restriction upon the exercise of Commonwealth legislative power is permissible if it is "formed on a vague, individual conception of the spirit of the compact" and is "not the result of interpreting any specific language to be quoted, nor referable to any recognised principle of the common law of the Constitution"- Engineers' Case (1920) 28 CLR, at p 145. If s 48 is within s 51(xiii) and is not contrary to any express provision of the Constitution, it is valid even if it interferes with the freedom of the States to select bankers and arrange loans or overdrafts, and it could be used as a fulcrum to compel a State to adjust its financial programme to Commonwealth financial policy. There is no implied prohibition against the exercise of the power granted by s 51(xiii), to its fullest extent, that being ascertained by ordinary rules of construction.

In the Engineers' Case (1920) 28 CLR, at p 151, there is this statement -- "But possible abuse of powers is no reason in British law for limiting the natural force of the language creating them. It may be taken into account by the parties when creating the powers, and they, by omission of suggested powers or by safeguards introduced by them into the compact, may delimit the powers created. But, once the parties have by the terms they employ defined the permitted limits, no Court has any right to narrow those limits by reason of any fear that the powers as actually circumscribed by the language naturally understood may be abused."

It is obvious from the language of s 51(xiii) that it includes power to make laws affecting the States.

S 48 compels a bank to which it applies to have the Treasurer's consent before it may transact banking business for a State or certain other public bodies. S 7 compels the bank to be in possession of an authority granted by the Governor-General before it may transact banking business in Australia for any body at all. The bank is compelled to be in possession of the latter authority and the Treasurer's consent before it may conduct any banking business for the States and the other public bodies. There is no attack upon s 7: this section interferes with the freedom which a State has under its own law to select its banker. It limits the range of choice to banks which are licensed. If the right of the States to make arrangements for the conduct of their banking business without interference by Commonwealth law is saved by the Constitution, then s 7 is open to much of the criticism directed against s 48. S 7 affects all bank customers, including States: s 48 is limited to States and State authorities and local government authorities. If s 48 is bad but s 7 is good, the invalidating circumstances must be, not merely that s 48 is an interference with the States, but that it makes the conduct of banking business for States and local government authorities subject to a condition that does not apply to the conduct of banking business for other customers. It would be an illusory protection of State rights to ascertain the permitted limits of Commonwealth legislative power by a rule which would not authorize a law which applies only to the States but would authorize the law if it bound the States and everybody else indiscriminately.

S 31 of the Income Tax Assessment Act 1942 is in form addressed to a taxpayer: but notwithstanding the form, the section interferes with the States, just as s 48, although in form addressed to a bank, interferes with the States. Leaving aside the State authorities and local government authorities, the States only are affected by the command which s 48 addresses to the banks, just as the States only are affected by the command which s 31 addresses to the taxpayers. The latter section virtually destroys the power of the States to collect revenue by imposing income tax. The section was held to be valid because it is within an enumerated or specific power, as the Court held, and is not contrary to any express provision of the Constitution. S 48 interferes with the exercise of the power which each State had under its own State law to make such banking arrangements, as it thinks fit, for State purposes. The decision of the question whether s 48 is valid, although it is limited to banking business conducted for States and State authorities and local government bodies, is governed by the same principles.

The American decisions are not authorities where the question is whether the Commonwealth Parliament is competent to pass a law touching the activities of the States. In the Engineers' Case (1920) 28 CLR, at p 148 there is a warning against using the American decisions to decide a question of that nature. The warning is in these terms -- "But it is plain that, in view of the two features of common and indivisible sovereignty and responsible government, no more profound error could be made than to endeavour to find our way through our own Constitution by the borrowed light of the decisions, and sometimes the dicta, that American institutions and circumstances have drawn from the distinguished tribunals of that country."

In that case the Court departed from the principles in those decisions and enunciated a principle for the interpretation of the Commonwealth Constitution. The principle is stated in these terms: "The Act 63 & 64 Vic c 12, establishing the Federal Constitution of Australia, being passed by the Imperial Parliament for the express purpose of regulating the royal exercise of legislative, executive and judicial power throughout Australia, is by its own inherent force binding on the Crown to the extent of its operation. It may be that even if s v of the Act 63 & 64 Vic c 12 had not been enacted, the force of s 51 of the Constitution itself would have bound the Crown in right of a State so far as any law validly made under it purported to affect the Crown in that right; but, however that may be, it is clear to us that in presence of both s v of the Act and s 51 of the Constitution that result must follow. The Commonwealth Constitution as it exists for the time being, dealing expressly with sovereign functions of the Crown in its relation to Commonwealth and to States, necessarily so far binds the Crown, and laws validly made by authority of the Constitution, bind, so far as they purport to do so, the people of every State considered as individuals or as political organisms called States -- in other words, bind both Crown and subjects.

The grant of legislative power to the Commonwealth is, under the doctrine of Hodge v R (1883) 9 App Cas 117, at p 132, and within the prescribed limits of area and subject matter, the grant of an 'authority as plenary and as ample . . . as the Imperial Parliament in the plenitude of its power possessed and could bestow,' a doctrine affirmed and applied in a remarkable degree in Attorney-General for Canada v Cain (1906) AC 542, at p 547. 'The nature and principles of legislation' (to employ the words of Lord Selborne in R v Burah (1878) 3 App Cas 889, at p 904), the nature of dominion self-government and the decisions just cited entirely preclude, in our opinion, an a priori contention that the grant of legislative power to the Commonwealth Parliament as representing the will of the whole of the people of all the States of Australia should not bind within the geographical area of the Commonwealth and within the limits of the enumerated powers, ascertained by the ordinary process of construction, the States and their agencies as representing separate sections of the territory. These considerations establish that the extent to which the Crown, considered in relation to the Empire or to the Commonwealth or to the States, is bound by any law within the granted authority of the Parliament, depends on the indication which the law gives of intention to bind the Crown. 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. But we also hold that, where the affirmative terms of a stated power would justify an enactment, it rests upon those who rely on some limitation or restriction upon the power, to indicate it in the Constitution" (1920) 28 CLR, at pp 152-154.

It has been said that the banks to which s 48 applies are private trading banks: and that the Commonwealth Bank is given the functions of a central bank. A central banking system is set up by the Commonwealth Bank Act 1945 and the Banking Act 1945: See Pts III and VII of the former Act and Pt II, Div 3, of the latter Act. In a central banking system, the central bank regulates the volume of credit "and the trading banks are responsible for distributing that credit amongst different industries": s 166, Report of the Australian Royal Commission on Banking (1937).

This specialization of functions may make it necessary to limit the powers of the trading banks. It is, I apprehend, a reason for the control which s 48 places upon the trading banks. "But the efficient operation of a central banking system requires some limitation upon the powers of the trading banks in the general interest of the community. It may be in the interest of any trading bank, influenced by considerations of profit and liquidity, to expand or contract credit at a time when the general interest requires different action": s 532 of the above-mentioned Report. The expansion or contraction of government credit by the trading banks could more than anything else upset any regulation of credit made by the central bank.

In s 164 of the Report it is said that the volume of credit would be affected "by the trading banks allowing their ratios to vary within wide limits." Other factors affecting the volume of credit are also mentioned. The relation between the central bank and "the governments" is stressed in s 581 of the report as a very important factor in determining whether the central bank has adequate power to change the policy of the trading banks in the matter of the expansion or contraction of credit.

In s 143 of the Report it is stated: "From 1912 the Commonwealth Bank held the Commonwealth Government account, and by 1920 those of most of the States. By doing so the Bank was better able to avoid the dislocations which might be associated with large government operations in the money markets and with any lag of revenue behind expenditure."

Sir Ernest Musgrave Harvey, Deputy Governor of the Bank of England, said in the course of the evidence which he gave to the Committee on Finance and Industry: "Then another function which I think it is essential should be performed by the Central Bank is that it should conduct the main banking business of the State." He proceeded to point out that the State collects and distributes vast sums and that "the incidence of the receipts and the payments of the State is necessarily unevenly distributed." He also said that unless the central bank was the banker for the "State" there could be "violent oscillations of credit which would create great disturbances in the value of money from day to day." The advantage of the "State" having the central bank as its banker was summed up by Sir Ernest Harvey in these words: "If, however, the" (banking) "arrangements" (of the State) "are entrusted to the Central Bank, the Central Bank has notice beforehand exactly as to the amounts which have to be provided. It can lay its plans to ensure that the State shall have the funds it requires, and moreover, that when those funds have been distributed they may be re-absorbed in an orderly and gradual manner without causing undue disturbance, and without leaving a flood of suddenly manufactured credit to disturb the value of money and possibly the value of the monetary unit measured internationally." The word "State" in this evidence applies to a State in the general sense of the term. Sir Ernest Harvey's evidence, in principle, applies both to Commonwealth and State financial operations.

The report of the Committee is in accordance with the evidence which Sir Ernest Harvey gave on the relation of a central bank to the government and the necessity of its being the government's banker: "In practice the tasks which have been imposed upon the Central Bank make it imperative that it should hold the account of the Government, for the financial operations of Government are conducted on a scale so great as seriously to derange the money market unless special measures are taken to counteract the inconveniences which result from the inflow of revenue or the temporary easiness which results from interest and dividend payments. This task ought to devolve upon the Central Bank in virtue of its general function as guardian of the money market, and does in fact devolve upon it when it carries the Government account."

In Central Banking, a work by M H De Kock, Deputy Governor of the South African Reserve Bank, it is said at p 64: "Central banks everywhere operate as bankers to the State, not only because it may be more convenient and economical to the State, but also because of the intimate connection between public finance and monetary affairs. The State is the largest receiver of revenue and the biggest disburser of expenditure in any country, while the central bank is charged with the duty and responsibility of controlling or adjusting credit in the national economic interest. As the manifold financial activities of the State can easily interfere with money-market conditions and exchange rates and with the credit policy of the central bank, the banking operations of the State can best be centralised in the central bank." This author said at p 63: "In many countries the central bank keeps the accounts not only of the Central or Federal Government, but also of the Provinces or States."

It is a reasonable conclusion to draw from the views of these authorities about public finance and government banking business and their possible effects on the stability of credit and the value of money, that the transactions which a Government needs to have with a bank in order to carry on its financial operations, is a special branch of banking business, and that a trading bank is not a suitable bank to conduct those operations in a country where there is a central bank. All the reasons given by these authorities why the central bank should conduct the main banking business of the government apply to the banking business of the Australian States and of State authorities and local government authorities in Australia. The finances of all these bodies are public finances: their financial operations may be all classed as government financial operations. They receive and expend vast revenues and expend very large amounts of borrowed money. The receipts and expenditure of the States and the bodies mentioned in s 48 constitute a very large proportion of the public finance of this country.

It follows from the view that the banking transactions of a government are a particular branch of banking, suitable to be conducted by a central bank, rather than a trading bank, that s 48 is a law for regulating the conduct of particular banking transactions and that the substance of the law is not a regulation of the States or the other authorities mentioned in the section. The subject of the section is the banking business which it describes.

The contention is made that s 48 discriminates against the States or is aimed at the States.

If discrimination is fatal to a federal law, it would be necessary to define its meaning and to examine the limits of the power under which it would be claimed that the law was passed.

The contention misses the principle upon which the section is founded. S 48 contains a complete category of banking business which is proper to a central bank, rather than a trading bank. S 48 gives power to the Treasurer, if recourse is not had to State Banks, to secure that the banking business included in the category will be diverted to the central bank when it is expedient to do so. The selection of the banks and the banking business to which the section applies is founded upon banking considerations which are in accordance with views widely, if not universally, held as to the proper division of business between the central bank of a country and its trading banks. S 48 introduces a control over the trading banks' acceptance of government banking business which has the object of enabling the central bank to exercise its functions effectively. I am of opinion that s 48 is in substance a law with respect to the subject of banking and is within the legislative power contained in s 51(xiii) of the Constitution.

S 48 does not infringe upon any right reserved to the States by any provision of the Constitution.

In regard to s 107 of the Constitution, it is said in the Engineers' Case (1920) 28 CLR, at p 154: "But it is a fundamental and fatal error to read s 107 as reserving any power from the Commonwealth that falls fairly within the explicit terms of an express grant in s 51, as that grant is reasonably construed, unless that reservation is as explicitly stated."

S 5 of Pt I of the Financial Agreement provides in the last paragraph: "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 paragraph shall not apply to such moneys."

Subs (5) of s 105A of the Constitution, which authorizes the making of the Financial Agreement, says that every agreement made under the section shall be binding upon the Commonwealth and the States who are parties to it "notwithstanding anything contained in this Constitution." The rest of the subsection is not material at present. The provisions of s 5 of Pt I of the Financial Agreement are therefore binding on the Commonwealth, notwithstanding anything contained in the Constitution. The borrowing of money by overdraft signifies a transaction between a State and a bank: and a State may borrow from a bank by any of the other means mentioned in the provision of the agreement. It stipulates the means whereby a State may borrow: but it does not give the State a constitutional right to approach any banker from whom a State might have got an overdraft when the agreement was made. The provision prescribes the means by which a State may borrow: it has nothing to say about the bank from which the State is given leave to borrow. S 48 does not eliminate all banks: it does not defeat or impair the right which is given by the provision of the Financial Agreement to borrow for temporary purposes.

In s 133 of the Report of the Australian Royal Commission to which I have referred, this statement is made about borrowing by the States by means of overdraft, for temporary purposes: "In October, 1929, treasury-bills were issued in Australia instead of a public loan, but at the end of the year a total of 2.5 m£ was outstanding. In December, 1930, this sum had increased to 9 m pounds. At a conference between the Commonwealth Bank and the trading banks in that month it was decided that future banking accommodation to the Governments should be provided only by treasury-bills issued under the authority of the Loan Council. Both Commonwealth and State Governments had previously borrowed money for temporary purposes by means of overdrafts either from the Commonwealth Bank or from trading banks. To the banks which held them, treasury-bills at this time were merely short-term government securities, but in June, 1931, a step was taken which altered their significance for the trading banks. In accordance with the Premiers' Plan, government deficits continued to be financed by treasury-bills . . . At this date, (30th June 1931) the balance outstanding amounted to 20.6 m pounds."

The emphasis which was laid in argument on the right of a State to put its revenue in any bank it pleases, overlooks the substantial matter that a government has recourse to a bank to finance its operations because revenue lags behind expenditure and there is a need to borrow money on a large scale for public works. A State could look after its cash without the assistance of a bank. When the nature and incidence of the financial operations of a government are considered the examples of hypothetical federal laws which were given in argument in order to impugn s 48 appear to be irrelevant. One example was a law forbidding a bank to conduct banking business for a brewery without the licence of the Treasurer. I do not know of any expression of an opinion that it is a function of a central bank to conduct not only the banking business of governments but also of breweries. There is no point in the example. The reasons which justify s 48 have no application to the banking business of a brewery. The other example of a hypothetical law was a law forbidding banks to transact any banking business for the members of a prescribed religious denomination without the Treasurer's consent. Membership of the religious denomination does not place the banking transactions of persons who belong to the denomination in any sensible category of banking. The law might well be regarded as a law for the persecution of the members of the denomination because of their religious belief rather than a law for the regulation of a branch of banking.

For these reasons, I am of opinion that the demurrer should be allowed.