Bourke v State Bank of New South Wales

On 2 September 1988 the appellants filed a statement of claim against the Bank alleging, amongst other matters, breaches of ss. 52 and 52A of the Act. The Bank filed a notice of motion seeking orders striking out the paragraphs in the statement of claim which related to those allegations, on the ground that they disclosed no reasonable cause of action. The basis of the Bank's argument is that, to the extent that they purport to apply to the Bank, ss. 52 and 52A of the Act exceed the legislative power of the Commonwealth and are constitutionally invalid.

The Bank is a body corporate established pursuant to the State Bank Act 1981 N.S.W.. Its principal business is that of banking. The matter has proceeded upon the basis that this business is conducted principally but not solely within the State of New South Wales. Moreover, it has also been assumed that the transactions the subject of the present proceedings took place wholly within New South Wales.

The substantive sub-sections of ss. 52 and 52A are expressed in these terms:

21.(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

21a.(1) A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services to a person, engage in conduct that is, in all the circumstances, unconscionable.

The definition of corporation in s. 4(1) relevantly includes "a trading corporation formed within the limits of Australia or a financial corporation so formed". The sub-section goes on to define "financial corporation" as follows: "financial corporation" means a financial corporation within the meaning of paragraph 51(xx) of the Constitution and includes a body corporate that carries on as its sole or principal business the business of banking (other than State banking not extending beyond the limits of the State concerned)

Wilcox J. identified two alternative constructions of the second limb of the definition. The first construction requires examination of the nature of the corporation's banking business. If that business is its sole or principal business, then it is necessary to ask whether the business is in fact "State banking not extending beyond the limits of the State concerned". If the business does extend beyond State limits, then the answer to that question is in the negative and the corporation is subject to the Act, even in relation to an act constituting intrastate State banking.

A second approach involves the question whether the sole or principal business of the corporation is State banking not extending beyond the limits of the State concerned. On this view, interstate State banking activities will not bring a corporation within the definition so long as intrastate State banking activities remain the principal business of the corporation.

Wilcox J. preferred the former construction, which examined the nature of the corporation's banking business rather than the nature of its sole or principal business. His Honour preferred this approach as reflecting the natural meaning of the words used, although he acknowledged that it gave the parenthetical words a very limited operation and that Parliament might as a matter of subjective intention have meant to enact a definition which reflected the other interpretation since it was more likely to have accorded with the received interpretation of s. 51(xiii) of the Constitution at the time when the definition was enacted.

As a result, Wilcox J. held that the Bank was a financial corporation within the meaning of s. 4(1). However, his Honour went on to hold that, "insofar as it purports to regulate a transaction of a State bank taking place wholly within the limits of the State concerned", the Act exceeds the legislative power of the Commonwealth. Accordingly, the Act had no valid application to the complaints made by the appellants against the Bank.

It may be argued that Wilcox J. adopted an unduly restrictive view of the natural meaning of the parenthetical words in the definition of "financial corporation" and that, either approach being fairly open as a matter of construction of the natural meaning of the language used, it would have been more appropriate to have accorded the words a meaning which would have resulted in constitutional validity. But if it is correct to say that the legislative power of the Commonwealth does not extend to regulate a State banking transaction taking place wholly within the limits of the State concerned, then on either view the Act exceeds legislative power and is inapplicable to the Bank in the present case. The central issue in the case is therefore whether or not Commonwealth legislative power does so extend.

Section 51(xiii) of the Constitution gives 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, the incorporation of banks, and the issue of paper money. For the purposes of s. 51(xiii), "State banking" is the business of banking conducted by a bank owned or controlled by a State: see Melbourne Corporation v. The Commonwealth [1] . Clearly the banking operations of the Bank amount to State banking. 1. (1947) 74 C.L.R. 31, at pp. 52, 65, 70, 78, 86, 97.

It is, of course, well settled that the various paragraphs of s. 51 are not to be construed in a narrow or pedantic manner, but are plenary grants of legislative power to be construed with all the generality which the words used will admit: see, for example, Reg. v. Public Vehicles Licensing Appeal Tribunal (Tas.); Ex parte Australian National Airways Pty. Ltd. [2] . That principle is naturally subject to such express limitations upon Commonwealth legislative power as the Constitution contains, as well as to certain implied restrictions which have been recognized by this Court: see, e.g., Melbourne Corporation; Queensland Electricity Commission v. The Commonwealth [3] ; State Chamber of Commerce and Industry v. The Commonwealth ( "theSecond Fringe Benefits Tax Case" ) [4] . It is the extent of any restriction in relation to State banking with which this case is concerned.

1. (1964) 113 C.L.R. 207, at p. 225. 2. (1985) 159 C.L.R. 192. 3. (1987) 163 C.L.R. 329.

In this context, some qualification must be made to the general principle that a law with respect to a subject-matter within Commonwealth power does not cease to be valid because it affects a subject outside power or can be characterized as a law with respect to a subject-matter outside power: Actors and Announcers Equity Association v. Fontana Films Pty. Ltd. [5] ; The Commonwealth v. Tasmania (the Tasmanian Dam Case ) [6] The principle cannot apply when the second subject-matter with respect to which the law can be characterized is not only outside power but is the subject of a positive prohibition or restriction. If a limitation is found to be of general application, then the fact that it is contained within one of the paragraphs of s. 51 does not deny it a wider operation; the remaining paragraphs are then to be construed as being subject to the limitation: Attorney-General (Cth) v. Schmidt [7] ; Strickland v. Rocla Concrete Pipes Ltd. [8] .

1. (1982) 150 C.L.R. 169, at pp. 192, 221-222. 2. (1983) 158 C.L.R. 1, at pp. 150-152, 179-180, 200, 215, 270. 3. (1961) 105 C.L.R. 361, at pp. 371-372. 4. (1971) 124 C.L.R. 468, at p. 507.

It is therefore necessary in the first instance to determine whether the words "other than State banking" in s. 51(xiii) impose a general limitation upon Commonwealth legislative power or are merely intended to confine the ambit of the banking power itself. The immediate difficulty with the second of these alternatives is that s. 51(xx) confers power with respect to financial corporations formed within the limits of the Commonwealth. If the words "other than State banking" do not restrict the scope of s. 51(xx), then the State banks themselves are subject to Commonwealth power and their activities are in the same position as those of other financial corporations over which the Commonwealth has power. That would be an extraordinary result, notwithstanding that at the time of Federation some State banks may not have been incorporated. Moreover, members of this Court have expressed the view that s. 51(xx) does not extend to financial corporations to the extent that they are engaged in banking: Bank of N.S.W. v. The Commonwealth [9] . There is no reason to regard s. 51(xx) as standing in any special position in this respect. The general principle applicable in a case such as the present is that enunciated by Dixon C.J. in Attorney-General v. Schmidt [7] , in these terms:

It is hardly necessary to say that when you have an express power, subject to a safeguard, restriction or qualification, to legislate on a particular subject or to a particular effect, it is in accordance with the soundest principles of interpretation to treat that as inconsistent with any construction of other powers conferred in the context which would mean that they included the same subject or produced the same effect and so authorized the same kind of legislation but without the safeguard, restriction or qualification. 1. (1948) 76 C.L.R. 1, at pp. 203-204, 256, 304. 2. (1961) 105 C.L.R. 361, at pp. 371-372.

But the conclusion that the words "other than State banking" impose a restriction upon Commonwealth legislative power generally rather than only a limitation upon the ambit of s. 51(xiii) does not of itself identify the nature of that general restriction. Two broad alternatives are possible. First, it may be that the Commonwealth is positively prohibited from making laws with respect to State banking. In that event it would be necessary to determine what might be the proper test for deciding whether to characterize a law as one with respect to State banking. Alternatively, Commonwealth legislative power might simply not extend to the enactment of laws which can be characterized as laws with respect to banking (whether or not they can also be characterized as laws with respect to other subject-matters of legislative power) to the extent that those laws touch or concern State banking.

The first of these alternatives involves the implication of an exclusive State legislative power. If there is such a power, then the ordinary tests of characterization are not adequate to determine whether or not a law of the Commonwealth intrudes into the forbidden territory. For example, to interpret words amounting to an exclusive grant of State power with all the generality which their terms admit would correspondingly reduce the generality of the inclusive grants of Commonwealth power. Further, it would not be possible to characterize a law as one with respect to an exclusive as well as an inclusive power.

This last consideration might suggest that notions of sole or dominant characterization such as are employed in relation to the mutually exclusive distribution of legislative powers in Canada would be appropriate when an Australian court is called upon to decide whether a law is or is not one with respect to State banking. This may be what Barwick C.J. had in mind in Victoria v. The Commonwealth [10] ("the Pay-roll Tax Case"), when he stated:

[W]hen a law may possibly be regarded as having either of two subjects as its substance, one of which is within Commonwealth power and the other is not, a decision must be made as to that which is in truth the subject matter of the law. Although usually not an appropriate course in determining whether a law is a law on an enumerated topic, in such a case, the decision of what is the subject matter of the law may be approached somewhat in the manner the validity of a law claimed to be within one of the two mutually exclusive lists in the Canadian Constitution is determined. The law must be upon one or other of the subjects. It cannot be on both. To the extent that the Chief Justice might be taken to have been suggesting that a law upon a subject within Commonwealth power may cease to be valid because it affects a subject outside power, these remarks have been disapproved: see the Tasmanian Dam Case [11] ; Queensland Electricity Commission [12] . On the other hand, if the relevant law has as its substance two subjects, one of which is exclusively within State legislative power, the observations of Barwick C.J. have greater force, as was recognized by Stephen J. in Actors and Announcers Equity v. Fontana Films [13] ; see also the Tasmanian Dam Case [14] . Indeed, that is the context in which his Honour's remarks were made. 1. (1971) 122 C.L.R. 353, at pp. 372-373. 2. (1983) 158 C.L.R., at pp. 150-152, 215. 3. (1985) 159 C.L.R., at pp. 260-261. 4. (1982) 150 C.L.R., at p. 194. 5. (1983) 158 C.L.R., at p. 152.

The difficulty with employing such a sole characterization test in connexion with s. 51(xiii) lies in the formulation of the extent of Commonwealth power. It is inadequate to say that State power extends to the making of laws with respect to State banking while Commonwealth power extends to the making of laws with respect to banking other than State banking. This would advance the matter no further than does a reading of s. 51(xiii) itself. The question would remain, what is "banking other than State banking"? Moreover, if a given law was properly characterized as being "in substance" a law on the subject of "banking other than State banking" rather than a law on the subject of "State banking", then it could validly reach within the area of the restriction in that, while not being in substance or predominantly a law on the subject of State banking, it could be a law "with respect to" State banking within the settled meaning of the phrase "with respect to" as used in s. 51. That would involve both a novel approach to characterization, limited to only one of the paragraphs in s. 51, and an anomalous acknowledgment that the Commonwealth power with respect to banking other than State banking in fact extends to State banking so long as the relevant law is not in substance or predominantly a law on the subject of State banking.

Nor is it sensible to draw a distinction between banking on the one hand and State banking on the other. On the sole characterization test, such an approach would, presumably, allow the Commonwealth to enact a law with respect to banking, including State banking, so long as it is not in substance a law with respect to State banking. Not only does such an idea fly in the face of the words of the conferral of Commonwealth power, but there must be formidable difficulties in attempting to decide whether or not a law which is made with respect to banking generally is nonetheless a law with respect to State banking.

The same problems arise if the test is thought to be, not whether a law is one with respect to State banking, but, as the appellants submit, whether it is one "aimed at" or "singling out" State banking. A test of that kind is appropriate in the context of laws alleged to discriminate impermissibly against a State: Queensland Electricity Commission [15] . But a law may have a substantial connexion with State banking without being "aimed at" or "singling out" State banking. To adopt such a test would expose State banking to Commonwealth regulation in the same manner as banking generally, and thereby render the words "other than State banking" virtually meaningless. That is especially so given that the principle in the Melbourne Corporation and Queensland Electricity Commission cases extends to State instrumentalities anyway.

1. (1985) 159 C.L.R., at pp. 208, 212-215, 229, 235, 248, 261.

At the other extreme, there might be a suggestion that the protection of State banking amounts to an exclusive State power preventing Commonwealth law from touching or affecting State banking in any way. While affording a measure of certainty, such an approach finds no support in the express words of the Constitution and has strong overtones of the discredited reserved powers doctrine. More importantly, it would conflict with the intended generality of other grants of legislative power contained in s. 51. The general grants of legislative power with respect to "Currency, coinage, and legal tender" (s. 51(xii)) and "Bills of exchange and promissory notes" (s. 51(xvi)) provide obvious examples.

The only satisfactory solution to this problem is to accept that there is no exclusive State power to make laws with respect to State banking. But the words of s. 51(xiii) still require that, when the Commonwealth enacts a law which can be characterized as a law with respect to banking, that law does not touch or concern State banking, except to the extent that any interference with State banking is so incidental as not to affect the character of the law as one with respect to banking other than State banking: see Fairfax v. Federal Commissioner of Taxation [16] . Put another way, the connexion with State banking must be "so insubstantial, tenuous or distant" that the law cannot be regarded as one with respect to State banking: Melbourne Corporation [17] . Of course, these are the tests used in the familiar process of characterization. But they are employed in the context of an embracing Commonwealth power expressed as one to make laws with respect to banking other than State banking. They are not employed in the context of an exclusive State legislative power with respect to State banking. So, if a law is not one with respect to banking, it is not subject to a restriction that it must not touch or concern State banking.

1. (1965) 114 C.L.R. 1, at p. 7. 2. (1947) 74 C.L.R., at p. 79.

This conclusion is in accordance with an observation made by Dixon C.J. in Attorney-General v. Schmidt [18] after enunciating the statement of general principle concerning restrictions contained in paragraphs of s. 51, which statement is set out above. Speaking in relation to the power in s. 51(xxxi) to make laws with respect to the acquisition of property on just terms, with which the case was concerned, his Honour said of the general principle that it

does not apply except with respect to the ground actually covered by par. (xxxi) of s. 51. For example, no one would doubt that, under the power to make laws with respect to bankruptcy, property of the bankrupt may be sequestrated and property of others which has been left in his order and disposition may be vested in the Official Receiver and that s. 51(xxxi) has no bearing on the matter. At the same time, if a law was made under which a piece of land was acquired for a Bankruptcy Office, s. 51(xxxi) would govern the legislation and not s. 51(xvii). It must be borne in mind that s. 51(xxxi) confers a legislative power and it is that power only which is subject to the condition that the acquisitions provided for must be on just terms. The example which his Honour gave in relation to the Bankruptcy Office is explicable on the ground that the paragraphs of s. 51 other than par. (xxxi) are not to be interpreted as conferring power to make laws for the acquisition of property for use in carrying out or giving effect to legislation under such paragraphs: Johnston Fear & Kingham & Offset Printing Co. Pty. Ltd. v. The Commonwealth [19] ; Attorney-General v. Schmidt [20] ; Trade Practices Commission v. Tooth & Co. Ltd. [21] . That is because of the words "for any purpose in respect of which the Parliament has power to make laws" which appear in s. 51(xxxi). There is no corresponding expression in s. 51(xiii), so the other paragraphs of s. 51 will justify laws which impact upon State banking so long as they are not laws with respect to banking. 1. (1961) 105 C.L.R., at p. 372. 2. (1943) 67 C.L.R. 314, at pp. 317-318. 3. (1961) 105 C.L.R., at p. 371. 4. (1979) 142 C.L.R. 397, at pp. 403, 407, 427, 445-448.

Just as the words "other than State banking" amount to a limitation upon the power with respect to banking, the words "also State banking extending beyond the limits of the State concerned" constitute an enlargement of Commonwealth power. The result is that the limitation upon Commonwealth power could be expressed by the words "other than State banking not extending beyond the limits of the State concerned". It is only State banking of that kind with respect to which the Commonwealth may not pass laws with respect to banking with more than an incidental connexion.

We turn now to consider the constitutional validity of the impugned provisions of the Act. Any invalidity of ss. 52 and 52A is a result of and can be measured by the extent to which the definition of financial corporation in s. 4(1) purports impermissibly to expand the operation of the Act beyond the limitation upon power just mentioned. In so far as the Act affects the actions of banks in their banking business, as ss. 52 and 52A relevantly do, it is a law with respect to banking. Within that field of operation, the Act also has a substantial connexion with State banking except to the extent that s. 4(1) restricts its scope.

On the wider view of the interpretation of the definition of "financial corporation", rejected by Wilcox J., State banking not extending beyond the limits of the State concerned is excluded from the ambit of the Act only if the financial corporation which carries on such banking does so as its sole or principal business. It is clearly impermissible for the Act to operate to the full extent which such an interpretation may suggest. The Act's impact upon State banking carried on by a financial corporation is not necessarily "insubstantial, tenuous or distant" when State banking is not the corporation's sole or principal business. The exclusion in s. 51(xiii) is expressed by reference to an activity, not a person; the degree to which a given person carries out an activity has only an indirect relation to the question whether the Act is a law with respect to that activity.

The interpretation of the definition favoured by Wilcox J. leads to the same result. By construing the definition so as to include banks whose State banking extends, however minimally, beyond the limits of the State concerned, the Act clearly intrudes into the field of State banking in a significant way. Accordingly, on either approach, the Act is invalid in its application to banking to the extent that it is not a law with respect to banking other than State banking not extending beyond the limits of the State concerned.

The second limb of the definition of "financial corporation" relating to banking is not capable of being read down so as to give it any valid operation. It is not possible to read the definition so as to extend to State banks only in so far as they engage in banking other than State banking not extending beyond the limits of the State concerned. That would involve a substantive change in the operation of the Act. Section 4(1) clearly proceeds upon the basis that, for the purposes of the Act, a corporation is either a financial corporation or not. A corporation cannot be regarded as falling within the definition of "financial corporation" with respect to part only of its business. The result is that the second limb of the definition purports to give the Act an operation which is not supported by s. 51(xiii) and is therefore invalid.

However, although the second limb is invalid by reason of the insufficient exclusion of State banking, the first limb is so general that no such difficulty is present. The first limb is supported by s. 51(xx); it is too wide to be supported by s. 51(xiii). On its face "financial corporation" within the meaning of s. 51(xx) includes a State bank which is a corporation. Section 51(xiii) has no bearing upon that meaning, because the limitation upon s. 51(xx) which is implied by s. 51(xiii) is a limitation upon power, not upon the meaning of "financial corporation". Nor can it be objected that the valid first limb of the definition might thus be construed so as to include a class of banks larger than that described in the invalid second limb, because the second limb in any event described only corporations which already fell within the first limb. Once a State bank is seen to fall within the Act's definition of "corporation", the substantive provisions of the Act, including ss. 52 and 52A, may be read as having no application to the conduct of such corporations to the extent that they are engaged in State banking not extending beyond the limits of the State concerned. The Act is clearly intended to operate upon as large a range of corporations as possible to the greatest extent constitutionally permissible. Its general terms are accordingly capable of being read down so as to give them validity within the constitutionally supported field of operation: Pidoto v. Victoria [22] . No substantive rewriting of the Act is involved in that reading down; like s. 51(xiii), and unlike the definition of financial corporation, ss. 52 and 52A relate to activities and their scope can be restricted in accordance with the constitutional limitation defined by reference to activities.

The result is that ss. 52 and 52A are invalid to the extent that they purport to apply to a State bank in the conduct of its banking business not extending beyond the limits of the State concerned. The appeal must be dismissed.