Marcus Clark & Co Ltd v Commonwealth [1952] HCA 50 | Case summary

Marcus Clark & Co Ltd v Commonwealth [1952] HCA 50 | Case summary | Zoe

[10]

The regulations deal separately with the raising by companies of money by issuing or calling up share capital or by borrowing on deposit without security and with the borrowing by all persons, including companies, upon security. Part II. which is headed "Companies" deals with the former topic. Part III., headed "Securities", deals with the latter. By reg. 6 a company may not without the written consent of the Treasurer make an issue of authorized capital over a certain limit. When the issue made is added to (a) the amount of capital issued within the last two years (b) the amount borrowed upon security within the same period and not repaid and (c) the amount borrowed upon deposit within the same period and not repaid, the total must not exceed £10,000. By reg. 8 a company may not without the written consent of the Treasurer accept or receive a deposit over a certain limit or pay interest on a deposit accepted or received after the commencement of the regulations over 10/- per cent per annum. From the operation of this regulation banks and declared pastoral companies, building societies and co-operative societies are excepted, and the prohibition against paying more than 10/- per cent interest does not apply to "deposits", i.e. unsecured loans, made by banks and pastoral companies. A declared pastoral company is a company or body which the Treasurer by order declares to be a pastoral company. A co-operative society may exist as such under State law, but the Treasurer may similarly declare a body to be a co-operative society for the purposes of the regulations. The limit of amount is an alternative one. When the amount to be borrowed under deposits or to be received is added to the amount so borrowed or received by the company during the last year and not repaid the total must not exceed £5,000. When the amount to be borrowed under deposit or received is added to (a) the amount so borrowed or received by the company during the last two years and not repaid (b) the amount of authorized capital issued by the company during the same period and (c) the amount borrowed under a security during the same period and not repaid, the total must not exceed £10,000. Regulation 8 has no direct application to the present case because the company does not propose to borrow under a deposit, that is to obtain an unsecured loan; the loan it sought is upon security. But it may be remarked that the restriction to 10/- per cent per annum interest evidently means that every deposit, unless made at nominal interest, must have the Treasurer's consent. The plan of Part III. which deals with the borrowing of money on security is somewhat more complicated. Security means for this purpose bonds, debentures, debenture stock, inscribed stock, mortgages or charges. It is not necessary to state more than the main outlines of the plan. The plan is to prohibit without the written consent of the Treasurer the issue or giving of a security by anyone, company or not, if it involves the raising of money beyond a certain limit or the reservation of a rate of interest over 4½ per cent per annum upon a first mortgage of land or upon a further charge in favour of a first mortgagee of land. There is an exception in favour of securities issued or given to the Commonwealth, a State, an authority of the Commonwealth or of a State, a bank, a declared pastoral company, a building society or a co-operative society; and there is an exception in favour of securities issued by a local authority with the approval of the Treasurer of the State concerned.

[12]

It will be seen from the foregoing description of the regulations requiring consent that they are directed to restraining the raising of substantial amounts of capital except in what might be called the ordinary course of business through banks pastoral companies or building societies, governmental and local governmental lending being excluded. But the question on what grounds the Treasurer may withhold his consent is not left at large. His discretion is not left uncontrolled. Regulations 16 and 17, though they are placed in Part IV. under the heading "Miscellaneous", make elaborate provisions upon the subject. Regulation 16 is concerned only with the grant of consent subject to conditions and the period over which the consent is to be effective, a period limited to six months. The regulation empowers the Treasurer to impose conditions. Regulation 17 restricts the reasons for which consent may be refused or conditions imposed. Consent may not be refused or conditions imposed "except for purposes of or in relation to defence preparations": sub-regs. (1) and (2). What appears to be an attempt to provide means of obtaining the Treasurer's reasons in aid of proceedings in which they are examinable is made by sub-regs. (3) to (7). Under these provisions "a person taking proceedings in a court for relief, whether by way of declaration or otherwise on the ground that", stated briefly, consent has been refused or conditions have been imposed contrary to the regulation may, by an application to the Court upon notice to the Treasurer, obtain an order, if the Court thinks fit to make it, directing the Treasurer to state in writing the facts and matters by reason of which the refusal of consent or the condition was for purposes of or in relation to defence preparations. The expression "proceedings for relief whether by way of a declaration or otherwise" doubtless would cover an application for a writ of mandamus. A declaration could at best declare that the purported refusal of consent or imposition of conditions was void. A mandamus might involve the further step of directing a reconsideration of the application for consent or, if the Treasurer's statement showed that consent would have been granted but for a reason outside the scope of his discretion, perhaps a direction to grant the application. Sub-regulation (6) requires the filing of the Treasurer's statement and makes it thereupon prima-facie evidence of the matters it contains subject to any objection as to relevancy. Apparently it is evidence for either side, so that the Treasurer obtains the benefit of his own statement, though he cannot make one unless the person attacking his determination obtains an order directing him to do so. But the all important thing is the restriction imposed upon the grounds upon which the Treasurer may refuse his consent or qualify it by a condition or conditions; he cannot do so except for purposes of or in relation to defence preparations. The phrase "defence preparations" comes from the Act. It is not expressly defined; but the Act contains a long preamble consisting of eight recitals. The second of these deals with the necessity of "preparations for defence to an extent, and with a degree of urgency, not hitherto necessary except in time of war". The third fourth and fifth recital of the preamble proceed to state matters which "the defence preparations will include". They will include, "in the first place, the raising, equipping and provisioning of the armed forces of Australia in increasing numbers and the equipping and provisioning of armed forces of other members of the British Commonwealth of Nations and of the United Nations". Then they will include "also measures to secure the maintenance and sustenance of the people of Australia in the event of war and to contribute towards the maintenance and sustenance of the people of countries associated with Australia in defence preparations". I take the whole of this description to be governed by the words "in the event of war". In the third place defence preparations will include "also the expansion of the capacity of Australia to produce and manufacture goods, and to provide services, for the purposes of the defence preparations mentioned in the last two preceding paragraphs and generally for the purpose of enabling the economy of Australia to meet the probable demands upon it in the event of war".

[15]

In considering the question whether they ought to be so characterised it is important to notice that, unlike the law held invalid in Australian Communist Party v. The Commonwealth [1] , this case does afford objective tests by which its connection, or want of connection, with the defence power may be seen or ascertained; its provisions do specify a course to be pursued and considerations and purposes to be effectuated the operation and practical consequences of which will show whether the measure does tend or might reasonably be considered to conduce to or to promote or to advance the defence of the Commonwealth. On its face it is directed against the raising of money in a way which the Treasurer judges to be prejudicial to purposes that are described as purposes for or in relation to defence preparations, the scope and meaning of the term "defence preparations" being made sufficiently clear. The judicial remedies available to ensure that the judgment or discretion of the Treasurer does not go beyond what is the true scope and meaning of "defence preparations" may or may not prove adequate to the purpose but at all events it is the intention of the regulations that his determination of that question should not be conclusive. Now the assumption which underlies the direction contained in reg. 17 (1) that the Treasurer shall not refuse consent except for purposes of or in relation to defence preparations is that the issue of share capital or of securities (in the defined sense) may be, or tend to be, prejudicial to defence preparations. Why this assumption is made is indicated in the sixth and seventh recitals of the preamble to the Act. They recite that in present circumstances the defence preparations mentioned in the preceding paragraphs of the preamble, to which reference has already been made in this judgment, cannot be carried out without the diversion of certain of the resources of Australia (including money, materials and facilities) for use in, or in connection with, defence preparations, and that they cannot be carried out to the necessary extent, and, in particular, the resources of Australia cannot be diverted to the extent necessary to fulfil the requirements of defence, unless at the same time measures are undertaken for adjusting the economy of Australia to meet the threat of war and for avoiding or reducing economic dislocation or instability caused by or impeding defence preparations.

[17]

In the United States, after that country entered the war on 6th April 1917, a similar course was followed. The course taken appears from this passage from Volume 32 of the 12th Edition of the Encyclopaedia Britannica (1922) p. 897: - "In order that available capital might be turned into channels contributing to the successful prosecution of the war, two agencies were devised. In January 1918, the Secretary of the Treasury asked the Federal Reserve Board to pass upon all proposed issues of securities that should be referred to it. The Board formed a Capital Issues Committee for this purpose, and all banking institutions were asked to refrain from assisting in the floating of new securities until passed upon by the Committee. In general, approval was given only to such issues as contributed to the winning of the war or to the promoting of national welfare. This committee, however, had no legal status. Accordingly by Act of Congress, 5th April 1918, there was created a Capital Issues Committee of the same nature, with authority to investigate and pass upon all issues, with certain specified exceptions, of securities of $100,000 or more. However, it was not empowered to require the submission of such securities to its investigation or to impose acceptance of its decision. The production of non-essentials was discouraged and many doubtful enterprises were repressed". In Australia in the war of 1939-1945 the National Security (Capital Issues) Regulations (S.R. 1939 No. 117) were promulgated on 13th October 1939. They were soon superseded by stricter and more extensive regulations under the same title (S.R. 1939 No. 149). In the United Kingdom the control of capital issues was introduced by reg. 6 of the Defence (Finance) Regulations 1939 (S. R. & O. 1939 No. 1620) made under the Emergency Powers (Defence) Act 1939 (2 & 3 Geo. 6 c. 62) on 23rd November 1939. The borrowing of money and the raising of money by the issue of shares or securities by companies is now controlled by the Borrowing (Control and Guarantees) Act 1946 (9 & 10 Geo. 6 c. 58). In the United States the Securities and Exchange Commission had come into existence and in 1941 before 7th December that body began to use its powers to ensure that the proceeds of issues of stock and the like would not be employed inconsistently with the interests of national defence.

[18]

The purpose of referring to these measures adopted in the three countries when confronted with the necessity of a heavy diversion of their resources in men and materials to the armed services and to the production of arms and the instruments of war is to show that the control of capital issues and of the raising of money by the issue of debentures and other forms of security is a recognized means of facilitating the diversion and protecting the economy of the country in some degree from its inflationary consequences. It is true that they were measures taken after the outbreak of war. But it is not because hostilities had actually begun that they were considered necessary. In considering the application or operation of the defence power the distinction between a period of actual hostilities and a period of apprehended danger short of war can never be disregarded. In relation to practical measures of some descriptions it may prove decisive. Many restrictions upon civilian life may spring from the existence of an actual state of war or of actual hostilities, as for instance restrictions upon trading with the enemy, the use of radio transmitters or the display of lights. But the restrictions upon raising money by the issue of share capital or debentures or other securities are auxiliary to and consequential upon the diversion of tangible and intangible resources to warlike purposes, and such a diversion a country may feel constrained to make under a threat of war as much as when actually engaged in hostilities. According to the received view of such measures, the operation of a restriction upon the raising of money by the issue of share capital or debentures or other securities has in this respect a clearly understood purpose. That purpose is to close up or control one important channel through which the excessive supply of money which expenditure on warlike needs is apt to create would otherwise run, a supply of money excessive as compared with the volume of civilian consumer goods. And the reason is that the excessive supply of money may be applied in raising rival demands for men and material, for the production and supply of things and for the providing of services, things and services which not only may contribute nothing to strengthen or equip the country for the actual or potential conflict but may tend to weaken its economy and to distract its people from the essentials of national defence. With reference to the fact that hitherto this form of control had not been adopted in the United Kingdom in the United States or here until after the outbreak of war, the contrast must not be forgotten between the traditional conception of military and economic preparation for war which then prevailed with us and that which prevailed with the enemy. It may be significant that in Germany a law containing a developing programme of credit supervision and control went into effect at the end of 1934. The application or operation of the constitutional power over defence is flexible enough to embrace either of the two conceptions or anything between the extreme courses they may be thought to represent. Indeed, as it seems to me, there is little or no question concerning the nature and scope of the power or the principles governing its application. It is not denied that the power authorizes legislation with respect to measures in preparation for the defence of the Commonwealth taken in anticipation of war and with respect to matters incidental thereto. It does not appear to be denied that measures that tend or might reasonably be thought conducive to such an end are within the power, provided that the tendency to the end or capacity to conduce to the end is not tenuous speculative or remote. Nor does it seem to be disputed that in deciding whether an enactment or statutory regulation or order is within the power the actual effect it does or will produce in advancing the preparations for the defence of the Commonwealth is not the subject of inquiry any more than the expediency or policy of the measures. These are for the Parliament or the subordinate legislating body to judge.

[23]

In the same way we have figures as to the availability and use of manpower and the unfulfilled demands made upon it as at or about the date of the regulations. We are similarly informed too of what we are allowed judicially to know and do know, namely the existence as at that time of a condition of the national economy of excessive inflation marked by progressively rising prices and other indications of the pressure of a disproportionately high purchasing power creating a demand in excess of the available supply, at stable prices, of consumption goods. To embark, in these circumstances upon any defence programme involving substantial increases in the numbers of the armed services and in the volume of arms equipment and other warlike supplies and calling for the diversion of men and material to defence projects, would be regarded as not only adding new and rival demands to those already existing but as involving new government expenditure increasing the pressure of purchasing power. The defence demands so set up must compete not only with the existing demands for goods and services but with all additional demands involved in the establishment of new enterprises or in the extension of old enterprises or in other private capital expenditure which has no defence purpose. In this there might reasonably have been seen an economic incongruity which might present an ever mounting difficulty and involve a progressively increasing cost in carrying out the defence programme. The validity of the regulations does not depend upon our judgment of the actual operation of these considerations. That is not for us to decide. What we have to decide is whether the situation was one to which such an exercise of the legislative power with respect to defence as the regulations contain could be legitimately addressed because the restriction imposed by the regulations might reasonably be considered conducive to the main purpose, namely direct preparation for the defence of the Commonwealth at a time when fears of war exist, and be considered to tend to promote that purpose in a manner that is not tenuous or speculative or remote.

[44]

Defence, the subject matter of the legislative power, which is in question, includes preparations for war and carrying on hostilities, when war breaks out. It is a complex subject matter and is not defined by a legal term. The limits of the subject matter are, of course, a question for judicial determination. The Parliament is not limited by the extent and nature of the measures regarded as appropriate defence preparation when the Constitution commenced, as if defence was a purely legal concept. Now such measures are obviously obsolete. The Constitution created the power for the safety of the Commonwealth in the first decade of its existence and in the future. The Parliament is authorised by the defence power to make such preparations for war as are appropriate in the circumstances when Parliament or the Executive deems that it is expedient to make Australia ready for war. The defence power authorises the Parliament to take such measures as are proportionate to the end for which the Constitution created the defence power. The end is the protection of Australia against invasion and the dangers of war. Defence preparations, as the term implies, are necessarily relative to a possible war. Against that it is clearly competent for the Parliament and the Government to provide effectively. The defence power warrants the making of defence preparations with any degree of urgency and upon any scale which the Executive thinks expedient. When it is said that defence preparations are relative to a possible war, it should also be observed that it might reasonably be expected that the enemy would have prepared for it by utilising without stint all his resources of men, money and materials. Further, it could be supposed that he would strike suddenly and have the will to inflict injury and damage without limit in order to conquer; and his means of destruction would be machines and weapons with such range and speed that the geographical remoteness of Australia would not afford it the same amount of security as it formerly did. If such considerations are left out of account, the nature and extent of the defence preparations warranted, in this decade, by the defence power may not be truly determined. As already said, the defence power is plenary as regards its subject matter. The power is not subject to any restriction which is not expressly imposed by the Constitution. Griffith C.J. in Farey v. Burvett [1] applied the well-known passage from the judgment of Marshall C.J. in the case of M'Culloch v. Maryland [2] in order to explain the scope and strength of the defence power in war time. This criterion is no less applicable to the defence power in time of peace. While there is peace the laws which the Parliament may make in pursuance of the power are not as multifarious as those which may be made when war is seen to be imminent or has commenced. However, the test of the validity of any law purporting to be made in preparation for war is its connection with the purpose of defence. The Court may decide that the law is within the legislative power, if upon facts which the Court may judicially notice, or facts proved to the Court's satisfaction, or upon any rational considerations, the Court is of the opinion that the law may conduce to making the country ready for war, if it should come. By this test it seems to me that the Defence Preparations Act 1951 is valid. The preamble of the Act declares that a number of measures are included in the defence preparations which Parliament contemplates.

[61]

These demurrers which have been heard together raise the question whether the Treasurer of the Commonwealth was entitled to refuse permission to the plaintiff companies to raise further capital. The plaintiff Marcus Clark & Co. Ltd., hereinafter called the first plaintiff, proposes to borrow £100,000 from the Mutual Life & Citizens Assurance Ltd. and to increase its nominal capital and to issue from its unissued capital 401,114 ordinary shares of 10/- each. This plaintiff carries on an extensive business of selling goods by retail and owns real estate on which are erected large and valuable buildings. It wishes to raise this capital to provide funds wherewith to repair and remodel its buildings so as to increase the volume of its business. The plaintiff R. B. Davies Industries Ltd., hereinafter called the second plaintiff, is the holder of all the issued ordinary shares in R. B. Davies Pty. Ltd., a large scale manufacturer of hardware and particularly of types of hardware goods used in housing construction and building generally. It desires to issue 173,789 ordinary shares of £1 each to enable it to carry into effect an agreement with a manufacturing company incorporated in England for the establishment jointly by it and that company of a new industry to use a patented process in the manufacture of non-ferrous tubes. The agreement provides for the formation of a new company to be called Yorkshire Fittings (Aust.) Pty. Ltd. with an issued capital of 300,000 shares of £1 each to be applied for in cash as to 51 per cent by the English company and 49 per cent by the second plaintiff. The English company has already remitted to Australia the funds necessary to enable it to apply for its portion of the shares. The Treasurer has refused consent to both capital issues. He contends that his refusal is justified by regs. 16 and 17 of the Defence Preparations (Capital Issues) Regulations which were notified in the Gazette of 2nd August 1951, S.R. 1951 No. 84. Regulation 17 (3) of these regulations authorises a person taking proceedings in a Court for relief, whether by way of declaration or otherwise, upon the ground that an application for the consent of the Treasurer under the regulations has been refused contrary to the regulations, to apply to the Court for an order directing the Treasurer to state in writing the facts and matters by reason of which the refusal of consent was for the purposes of or in relation to defence preparations. Regulation 17 (6) provides that the statement shall, subject to relevancy, be prima-facie evidence of the matters it contains. In the case of the first plaintiff such an order was made and the Treasurer's statement has been incorporated in the statement of defence and one ground of demurrer is that these facts and matters do not justify the Treasurer's refusal. The second plaintiff did not apply for such an order but par. 3 of the statement of defence states that by reason of the facts and matters referred to in pars. 4 and 5 thereof the Defence Preparations (Capital Issues) Regulations were made and were at all material times for and in relation to defence preparations. Paragraphs 4 and 5 contain a great deal of the same material as that contained in the Treasurer's statement.

[63]

The Act itself consists of eight recitals and thirteen sections. It received the Royal assent on 19th July 1951, and came into force on the same day. Section 13 provides that the Act shall continue in operation until 31st December 1953 or until such earlier date as is fixed by proclamation and no longer. The second recital states that in the opinion of the Parliament and of the Government of the Commonwealth there exists a state of international emergency in which it is essential that preparations for defence should be immediately made to an extent, and with a degree of urgency, not hitherto necessary except in time of war. Recitals follow enumerating the defence preparations necessary to meet such an emergency. They include raising, equipping and provisioning the armed forces of Australia in increasing numbers, measures to secure the maintenance and sustenance of the people of Australia in the event of war, the expansion of the capacity of Australia to produce and manufacture goods and to provide services for the purpose of such defence preparations and generally for the purpose of enabling the economy of Australia to meet the probable demands upon it in the event of war. Then follow two recitals, the first of which states that these defence preparations cannot be carried out without the diversion of certain of the resources of Australia (including money, materials and facilities) for use in, or in connection with, defence preparations: and the second of which states that these defence preparations cannot be carried out to the necessary extent, and, in particular, the resources of Australia cannot be developed to the extent necessary to fulfil the requirements of defence unless at the same time measures are undertaken for adjusting the economy of Australia to meet the threat of war and for avoiding or reducing economic dislocation or instability caused by, or impeding, defence preparations. Finally there is a recital that the military and economic strength necessary for the defence of Australia cannot in the opinion of Parliament and the Government be built up and maintained unless the Government has authority to take such measures as are from time to time required in relation to any or all of the matters mentioned in the preceding paragraphs. It would seem to be clear from these recitals that Parliament intended to delegate to the Governor-General in Council powers of legislation which, if exercised to the full, could only be supported by the defence power if that power is as wide as it is when Australia is at war.

[69]

The Capital Issues Regulations are, however, the only regulations so far made under the Act and it has not been contended that they can be justified as a delegation of any other power than the defence power. The nature and operation of this power and its capacity to expand and contract as the danger to the Commonwealth grows more acute or diminishes has been fully discussed in the judgments of this Court in the last twelve years. The power has a flexibility that does not exist in the case of any other constitutional power because its purpose is to clothe the Commonwealth Parliament with full authority to take all such steps as are reasonably necessary to ensure the national safety under all circumstances. I have never considered that there is a clear line of demarcation between the extent of the power in peace time and during hostilities. But it is obvious that the outbreak and course of hostilities, particularly a war of the recent dimensions, and their proximity to Australia, can rapidly extend the power beyond any limits that it is capable of reaching in peace time until it suffices to authorise the Commonwealth Parliament to assume almost complete control of the whole life and resources of the nation. But even at the height of hostilities certain regulations made under the National Security Act were held to be beyond the power: R. v. Commonwealth Court of Conciliation and Arbitration; Ex parte State of Victoria [1] (Parts of reg. 29 of the National Security (Supplementary) Regulations); R. v. University of Sydney [2] (reg. 16 of the National Security (Universities Commission) Regulations); Adelaide Company of Jehovah's Witnesses Inc. v. The Commonwealth [3] (certain of the National Security (Subversive Associations) Regulations); Victorian Chamber of Manufactures v. The Commonwealth [4] (National Security (Industrial Lighting) Regulations); R. v. Commonwealth Court of Conciliation and Arbitration; Ex parte State of Victoria; Victoria v. Foster [5] (Women's Employment Regulations in relation to State employees employed on purely governmental activities).

[72]

It is necessary to examine their provisions to see what they really do. Broadly stated they forbid any further issue of capital by a company without the consent of the Treasurer if the amount of authorized capital issued by the company during the two preceding years together with the amount borrowed and not repaid by the company under a security issued or given by the company during that period and not repaid under a deposit accepted by the company exceeds £10,000. They forbid a company (other than a bank, a declared pastoral company, a building society or a co-operative society) without the consent of the Treasurer receiving a deposit if the amount borrowed and not repaid under deposits received (including the deposit then received) during the preceding year exceeds £5,000 or if the amount borrowed during the preceding two years together with the amount of authorized capital issued by the company during that period exceeds £10,000 or to pay interest on a deposit (other than a deposit made by a bank or a declared pastoral company) at a rate higher than 10/- per centum per annum. They also forbid a person without the consent of the Treasurer issuing or giving a security except where the securities issued or given (including the security then issued or given) by that person during the preceding year do not exceed £5,000. But a person cannot give a first mortgage over land not exceeding £5,000 if the rate of interest exceeds 4½ per cent without obtaining the consent of the Treasurer. Security is defined to mean any bond, debenture, debenture stock, inscribed stock, mortgage or charge. There are a number of excepted transactions. A local authority can give a security to the Government of its State or with the approval of the Treasurer of that State, or a Minister of State for that State acting on his behalf, to a person other than the Government of that State. A security can be given to the Commonwealth, a State, an authority of the Commonwealth or of a State, a bank, a declared pastoral company, a building society or a co-operative society. The regulations provide that the Treasurer shall not refuse his consent except for the purpose of or in relation to defence preparations.

[74]

The statement of the Treasurer in the first case and pars. 4 and 5 of the statement of defence in the second case allege facts, which must be assumed to be true for the purposes of the demurrers, relating to the defence programme contemplated by the Government of the Commonwealth during the next two years and the extent to which it will be necessary to divert persons and materials into industries essential to equipping the armed forces. They also contain opinions of the extent of the economic disturbance, particularly the stimulus to inflation, that is likely to occur in the process. The regulations are therefore evidently intended, in the words of the recitals, to be a law for the purpose of diverting certain of the resources of Australia (including money, materials and facilities) for use in or in connection with defence preparations, and for the purpose of adjusting the economy so as to avoid or reduce dislocations caused by or impeding such preparations. They appear to be an exercise of the legislative powers purported to be delegated to the Governor-General by s. 4, sub-s. 2 (b) and (c) of the Defence Preparations Act. In his statement the Treasurer admits that this diversion could be achieved by direct methods. But he states that another method is to limit and reduce various economic activities of the nation, particularly those related to the provision and sale of civilian goods, so that manpower and resources will be released, and, in particular, so that existing materials and manpower may be more effectively and easily diverted to defence preparations. The Commonwealth Parliament has a number of specific powers under which it can exercise extensive control over the Australian economy. It is only necessary to mention as instances the trade and commerce power (s. 51 (i.) of the Constitution), taxation (s. 51 (ii.)), borrowing (s. 51 (iv.)), banking (s. 51 (xiii.)), conciliation and arbitration (s. 51 (xxxv.)) and s. 105A agreements with respect to State debts.

[75]

But the Capital Issues Regulations cannot find support in any of these powers. They seek to control the raising of money by companies and individuals and the rates of interest that may be charged on loans. Legislation on these subjects is legislation which in times of peace has hitherto been considered to be beyond Commonwealth power. In R. v. Foster; Ex parte Rural Bank of New South Wales [1] , it was said that, apart from the defence power, control of industry in general, food, clothing and housing, and financial, economic and social conditions, is in most respects outside Commonwealth legislative power and within State legislative power. "Such matters come within Federal power because legislation with respect to them is legislation upon "incidents in the exercise of" the power with respect to defence". It was said that "this Court has never subscribed to the view that the continued existence of a formal state of war is enough in itself, after the enemy has surrendered, to bring or retain within the legislative power over defence the same wide field of civil regulation and control as fell within it while the country was engaged in a conflict with powerful enemies" [1] . The distinction between the reach and operation of the power in times of peace and during hostilities has been pointed out in this Court on many occasions. In Farey v. Burvett [2] , Griffith C.J. said "It is obvious, however, that the question whether a particular legislative act is within it" (that is within the defence power) "may fall to be determined upon very different considerations in time of war and time of peace." Barton J. said: "If an activity belongs solely to a State in time of peace it does not follow that it is not a means of defence for Commonwealth hands in time of war" [3] . Isaacs J. said: "While peace prevails, the normal facts of national life take their respective places in the general alignment, and are subject to the normal action of constitutional powers" [4] . In the Australian Communist Party v. The Commonwealth [5] , the present Chief Justice said: "A war of any magnitude now imposes upon the Government the necessity of organizing the resources of the nation in men and materials, of controlling the economy of the country, of employing the full strength of the nation and co-ordinating its use, of raising, equipping and maintaining forces on a scale formerly unknown and of exercising the ultimate authority in all that the conduct of hostilities implies. These necessities make it imperative that the defence power should provide a source whence the Government may draw authority over an immense field and a most ample discretion. But they are necessities that cannot exist in the same form in a period of ostensible peace. Whatever dangers are experienced in such a period and however well-founded apprehensions of danger may prove, it is difficult to see how they could give rise to the same kind of necessities. The Federal nature of the Constitution is not lost during a perilous war. If it is obscured, the Federal form of government must come into full view when the war ends and is wound up. The factors which give such a wide scope to the defence power in a desperate conflict are for the most part wanting."

[77]

In my opinion the factors that could give the defence power sufficient reach and operation to support the Capital Issues Regulations were wanting in August 1951. All that was then certain was that there was severe international tension and danger of a third world war and that the threat of war was so grave that preparations on a large scale to defend the Commonwealth were urgent. That was a state of tension that might last for years and might require continued preparation for war on a similar scale for an indefinite period. If the defence power is wide enough in such a situation to support the Capital Issues Regulations, it must be wide enough to support the regulation of almost any aspect of the national economy, and all the economic regulations passed under the National Security Act at the height of hostilities would, if made under the Defence Preparations Act, be equally valid. The defence power could, as in the period of actual hostilities, throw an almost complete shadow over State constitutional powers. The Treasurer admits, as I have said, that the diversion of money, men and materials required to prepare the nation for war could be achieved by direct methods. Immense powers for raising and equipping the necessary armed forces are conferred by Acts which are in the very centre of the defence power, such as the Defence Act 1903-1951, the National Service Act 1951, the Naval Defence Act 1910-1949 and the Air Force Act 1923-1950. Equally immense powers of raising the necessary funds for these purposes are contained in the powers of taxation, borrowing, &c. already mentioned. Under the acquisition power, s. 51 (xxxi.) of the Constitution, the Commonwealth can acquire on just terms all the property it requires for purposes of defence. The Capital Issues Regulations are an example of legislation under what Fullagar J. in the Communist Case [1] called "the secondary aspect of the defence power". As he said this aspect "has hitherto I think, been treated in the cases as coming into existence upon the commencement or immediate apprehension of war and continuing during war and the period necessary for post-war readjustment" [2] . By "immediate apprehension of war", I understand him to mean a threat of war of sufficient immediate gravity to justify the mobilization of the armed forces and the placing of the nation on a war footing. It could not be said in August 1951 that there was "an immediate apprehension of war". The danger of war was no greater than the danger which existed in October 1950 when the Communist Party Dissolution Act 1950 came into force. In the Communist Case [1] the present Chief Justice said. "I think that the matter must be considered substantially upon the same basis as if a state of peace ostensibly existed." McTiernan J. said: "The state of affairs was peace not war. Indeed the constitutional position was that the defence power had declined from the zenith to which it had risen in the crisis of the last war practically to the level proper to it in time of peace. The Court has frequently declared, since the end of hostilities in the last war, that the defence power stands in that position" [2] . In my opinion the Court should be slow, at any time prior to the stage at which it is necessary to place the nation upon a war footing, to hold that the defence power is wide enough to authorise Commonwealth legislation on economic subjects normally exclusively within State legislative power. In the Communist Case [3] the present Chief Justice summarised the tests applied by the Court to determine the constitutional validity of legislation passed under the defence power during hostilities as follows: "In all the cases concerning the validity of statutory regulations made for the war of 1914-1918 and for the war of 1939-1945 the principle was acknowledged or assumed that it was for the Executive Government to decide what was necessary or expedient for the purpose of the war and in doing so to act upon its opinion of the circumstances and conditions that existed and of the policy or course of action that should be followed. Variously formulated as the tests have been for deciding whether regulations made under the war powers were within the power to make laws with respect to defence, they have uniformly been based upon the principle that there is to be no inquiry into the actual effect the regulation would have or be calculated to have in conducing to an end likely to advance the prosecution of the war and that it was at least enough if it tended or might reasonably be thought conducive or relevant to such an end". But I cannot think that these tests are appropriate to times of peace, even peace gravely endangered by the threat of war. In times of peace the legislative powers normally exclusively vested in the States should not lightly be encroached upon by an extended application of the defence power. There is no need to encroach upon these powers where the constitutional powers of the Commonwealth Parliament taken as a whole, including the defence power in its peace-time operation, are amply sufficient to enable the Executive to prepare the nation for war. I adhere to the statement in the Communist Case [1] that "The defence power can only invade subjects which are in most respects within the domain of State legislation to the extent to which it is reasonably necessary to do so for the purposes of defence. It is therefore largely a matter of degree". The capacity of the legislation in a real and substantial sense effectively to promote the particular purpose of defence should at least be established, to use the expression in R. v. Foster [2] "with reasonable clearness". The Capital Issues Regulations are not legislation of this nature. Their operation is purely negative, they do not directly divert any money, men or materials into defence preparations. They do not, and it is impossible to see how they could, provide that the money intended for investment in capital issues which the Treasurer refuses to sanction will be diverted to defence. They simply prevent the proposed investment leaving the investor free to invest his money in some other form of investment which does not require consent whether connected with defence or not. Nor do they provide, and again it is impossible to see how they could provide, that the materials which would be bought with the new capital if it was raised or the persons who might lose their employment if consent was refused should be diverted to defence. The success of the purpose of the regulations is therefore problematical and in this respect they suffer from the same kind of defect which destroyed reg. 16 of the National Security (Universities Commission) Regulations in R. v. University of Sydney [3] , passed at the height of hostilities. That regulation provided that the Director-General of Manpower might, on the recommendation of the commission, determine the total number of students who might be enrolled in any faculty or course of study in the Universities of Australia. Starke J. summed up the position when he said that "the vital defect, however, in the Regulations is that, though the total number of students who may be enrolled in any faculty or course of study may be determined, yet the remainder are not diverted to the armed forces or to any purpose of defence or used for the safety of the Commonwealth" [4] . Of this case the present Chief Justice in the Communist Case [5] , after pointing out that in the complexities governing the life of a community some connection may be traced between the defence of the country and the greater number of factors which go to make up or influence any part of its economy or of its thought, said: "But even at a time when war placed the greatest strain upon the national life a regulation for determining the number of students who might be enrolled in a faculty in a university and giving no directions what the rest should do was held to be too remote for the purposes of the power" [1] .

[84]

During the two world wars many regulations were held to be valid the operation of which depended upon the opinion of a Minister that certain action was necessary or expedient in the interests of defence or the prosecution of the war. But that was because the regulations related to a subject which fell within the defence power during hostilities. The effect of the regulations was therefore to confer upon the Executive authority to decide whether it was necessary or expedient that certain action should be taken upon a subject within constitutional power. For example in Shrimpton v. The Commonwealth [2] , and Dawson v. The Commonwealth [3] , questions arose as to the validity of the National Security (Economic Organization) Regulations. These provided that a person should not, without the consent of the Treasurer, purchase any land and that where an application was made for the consent of the Treasurer he might, in his absolute discretion, grant the consent either unconditionally or subject to such conditions as he thought fit, or refuse to grant the consent. As I understand the decision of the majority of the Court, the operation of the regulations was limited by construction to economic purposes falling within the defence power during hostilities so as to bring the subject matter within power, and the power of the Treasurer to consent or to consent subject to conditions or to refuse consent was held to be valid because it was limited to a consideration of these purposes. In Adelaide Company of Jehovah's Witnesses Inc. v. The Commonwealth [4] it was held that even during hostilities the opinion of Parliament or a Minister that a corporation or individual is carrying on activities which are prejudicial to the defence of the Commonwealth does not supply a sufficient connection with the defence power to authorise a law to forfeit the property of such corporation or body to the Crown and thereby to destroy the rights of individuals and corporators and creditors in that property under State laws.

[86]

The Communist Case [1] is a clear authority that Parliament cannot leave it to the Executive to decide what constitutes a sufficient connection with defence. It necessarily follows from this case that the provisions of the Capital Issues Regulations which require that the Treasurer shall not refuse to consent or shall not refuse to grant his consent subject to a condition except for purposes of or in relation to defence preparations are not by themselves sufficient to bring the regulations within the defence power. Regulation 17 (3) contemplates a person taking proceedings in a court for relief, whether by way of a declaration or otherwise (presumably proceedings for a mandamus), where the Treasurer has refused his consent contrary to the regulations. But such a person could only obtain relief by way of mandamus where it was shown that the opinion of the Treasurer was not a real performance of the duty imposed upon him by the regulations because he had not properly applied his mind to the real question or because in purporting to decide it he had been actuated by extraneous considerations or in some other respect had so proceeded that his determination was nugatory or void: see the authorities collected in R. v. Blakeley; Ex parte Association of Architects, Engineers, Surveyors and Draughtsmen of Australia [2] . Provided the Treasurer in forming his opinion proceeded according to law his discretion could not be interfered with, and that would mean that his opinion and not the opinion of the Court would be decisive upon the crucial question whether his refusal to consent or his granting of consent subject to a condition was based upon a ground that had a sufficient connection with defence preparations. But, as I understand the decisions of this Court, it is the invariable rule that, if legislation under the defence power is challenged, it is the function of the Court and not of the Executive to determine whether the necessary facts exist to bring the legislation within the reach of the power. It is sufficient to cite a passage from the joint judgment of the former Chief Justice and McTiernan J. in Reid v. Sinderberry [3] : "When the powers of a legislative authority are limited by law the opinion of the authority that a particular exercise of its powers is within the law cannot be decisive of the question of the validity of a provision enacted by the authority, unless, indeed, the power was conferred by the law creating the power (in this case the Constitution of the Commonwealth) in terms which provided that the opinion of the authority should be so decisive. But there is no such provision relating to defence in the Constitution. The power of the Commonwealth Parliament is a power to make laws with respect to naval and military defence - see Constitution s. 51 (vi.) - not a power to make laws with respect to any matter which, in the opinion of the Parliament, or of an authority to which Parliament may confide a power of subordinate legislation, is naval or military defence".

[90]

The decision in Australian Communist Party v. The Commonwealth [1] throws no light on these questions. Nothing could be judicially noticed as to the conduct or objectives of the individuals who constituted the Australian Communist Party; and so ordinary evidence was required to show that their conduct or objectives, in peace and in war, were such as to bring them within the defence power and the power to protect the Constitution, and thus establish the validity of the Communist Party Dissolution Act 1950 which purported to dissolve the Party and forfeit its property. But no such evidence was forthcoming. Here, however, at the time of the enactment of the Defence Preparations Act in July 1951, it was notorious, and a matter to be judicially noticed, that there was, and had been for some time, considerable international tension, a distinct possibility of war among the Great Powers in the near future, and the probability that if war occurred it would be world-wide and release forces of destruction of a kind and to an extent not previously employed. That international situation warranted, I think, preparation for war on the scale authorised by the Act, involving the employment by the Commonwealth Parliament and Executive of the defence powers to their fullest extent, both in their primary and secondary aspects, i.e. by enacting measures ex facie defence measures, and measures exercising powers ordinarily reserved to the States, including measures for the adjustment of the economy of the Commonwealth to ensure effective rearmament, priority among preparations for defence being given to such adjustment if necessary. I am unable to hold that while the defence powers in their secondary aspect can be employed in times of peace, whether real or ostensible, to rebuild a city bombed during war, as this Court of six justices unanimously held in R. v. Foster; Ex parte Rural Bank of New South Wales [1] , yet they can never be employed to meet an international situation short of war, even when there is a distinct possibility of war with powerful enemies using weapons unprecedented in range and destructiveness. But during the year that has elapsed since the Defence Preparations Act was enacted no regulations have been made under it, except the Capital Issues Regulations, and these are of a very limited character, so much so that it is arguable that they have no real connection with defence, because, like the regulations declared invalid in R. v. The University of Sydney; Ex parte Drummond [2] , they do not necessarily effect any diversion to defence activities. Moreover, Mr. Phillips of counsel for the defendants in his reply made it clear that the Commonwealth is not relying on any international situation, but contends that Appropriation Acts passed by the Commonwealth Parliament reveal that Parliament has resolved on an expenditure of money on raising and equipping armed forces so vast that the existing inflationary tendency would be increased to such an extent as to defeat the defence measures contemplated, unless checked by the Capital Issues Regulations. Now it is true that facts as to the international situation which can be judicially noticed are not necessarily determined by the assertions or denials or action or inaction of the Parliament or Executive. However, it is one thing to deny a claim by the Commonwealth that an international situation exists warranting legislation encroaching on the States' powers and attacked as unconstitutional for that reason, and another thing to concede a claim by the Commonwealth that there is no international situation on which it might rely to support the validity of its legislation. The distinction is like that between a self-serving statement and an admission.

[108]

The Defence Preparations Act 1951, which commenced on 19th July 1951, contains a preamble, which consists of eight recitals. The first refers to the obligation of Australia, as a member of the British Commonwealth of Nations and of the United Nations, "to support collective action for resisting international aggression". The second declares that "in the opinion of the Parliament and of the Government of the Commonwealth, there exists a state of international emergency in which it is essential that preparations for defence should be immediately made to an extent, and with a degree of urgency, not hitherto necessary except in time of war". The third refers to the necessity of providing for the raising, equipping and provisioning of armed forces. The fourth recites that the defence preparations of Australia will include also measures to secure the maintenance and sustenance of the people of Australia and of the people of countries associated with Australia in the event of war. The fifth recites that the defence preparations of Australia will include also the expansion of the capacity of Australia to produce and manufacture goods, and to provide services, for the purposes already mentioned and generally for the purpose of enabling the economy of Australia to meet the probable demands upon it in the event of war. The sixth recites that in present circumstances the defence preparations contemplated cannot be carried out without the diversion of certain of the resources of Australia (including money, materials and facilities) for use in, or in connection with, defence preparations. The seventh recites that the defence preparations contemplated and the necessary diversion of resources cannot be effectively achieved unless at the same time measures are taken "for adjusting the economy of Australia to meet the threat of war and for avoiding or reducing economic dislocation or instability caused by, or impeding, defence preparations". The eighth and last recital declares the opinion of the Parliament and of the Government that it is necessary that the Government should have "authority to take such measures as are from time to time required in relation to any or all of the matters mentioned in the preceding paragraphs".

[115]

The plaintiff is a company having an issued capital of more than £1,000,000, which carries on in New South Wales a very large business of selling goods by retail. It desires to borrow, and has arranged to borrow, a sum of £100,000 on mortgage of real estate owned by it, and it desires also to increase its nominal capital and to issue about 400,000 new shares of 10/- each. The regulations prohibit the company from doing either of these things without the consent of the Treasurer, and the company accordingly applied for consent. The Treasurer refused to consent to either of the company's proposals. The company thereupon commenced an action against the Commonwealth and the Treasurer and Attorney-General of the Commonwealth, in which it claimed a declaration that the Act, in so far as it purports to authorise the regulations, is invalid, and a declaration that the regulations are invalid. Alternatively it claimed a declaration that the refusals of consent were contrary to the regulations, and in particular to reg. 17, and either an order that the Treasurer grant his consent, or an order that he determine each of the company's applications according to law. To a defence setting up the validity of the Act and regulations and alleging that the refusals were "for the purposes of or in relation to defence preparations", the plaintiff company demurred and it is this demurrer which is now before the Court. The plaintiff company, after the commencement of the action, applied for and obtained an order under reg. 17 that the Treasurer should state in writing the facts and matters by reason of which his refusals of consent were for purposes of or in relation to defence preparations. This order has been complied with, and the Treasurer's statement is part of the material before the Court, being in fact referred to in the defence to which the plaintiff demurs. No objection was taken to the determination on the demurrer of all the questions which arise, and no inconvenience, so far as I can see, attaches to determining them all on the demurrer.

[116]

I would observe at the outset that there is, in my opinion, nothing in any of the judgments of any of the majority in the Australian Communist Party v. The Commonwealth [1] which affords the slightest assistance to the plaintiff in the present case. That case, as I understand it, turned wholly on the nature of the law in question, and not at all upon the subject matter of that law. I should have thought it indisputable that the matters mentioned in the preamble to the Communist Party Dissolution Act 1950 were matters upon which the Parliament could legislate under the defence power in peace or in war. But the provisions of the law actually enacted were of an altogether exceptional and peculiar character. The statute did not merely prescribe rules of conduct or create duties or impose prohibitions. In the first place it imposed, of its own mere force and without the possibility of judicial intervention, what were really penalties upon a particular specified organisation. And, in the second place, it attached, of its own mere force, what were really penal consequences to the formation of an opinion of the Executive, not judicially examinable, that a person or a body of persons was engaged, or likely to become engaged, in activities prejudicial to defence. Laws having such a character had been held valid under the defence power in Lloyd v. Wallach [2] ; Ex parte Walsh [3] and Little v. The Commonwealth [4] , but only when the actual engagement of the Commonwealth in a great war could be said to have expanded the scope of the defence power to an extent approaching its maximum. In the Communist Party Case [1] I was prepared to take judicial notice of a disturbed international situation affecting Australia and of certain matters which were forcibly put by Mr. Barwick, but those matters did not appear to me to justify a decision that laws of so exceptional a character fell in October 1950 within the defence power. I do not think that the view taken by four of the five other justices who formed the majority differed substantially from mine. The Act and the regulations which are in question in the present case do not possess the exceptional character which belonged to ss. 4, 5 and 9 of the Communist Party Dissolution Act.

[128]

In the present case we have a full statement, obtained and filed in pursuance of reg. 17, of the "facts and matters by reason of which" each refusal was "for purposes of or in relation to defence preparations". The statement is long and elaborate, and I do not think it necessary to set it out in any detail. It is divided into six parts. Part I. sets out the view taken by the Government of the international situation and the requirements of the defence programme on which the Government has embarked. It declares, and on its face shows, that this programme "involves a progressive absorption of resources" over a period in preparations for defence. It goes into some detail, and gives figures and estimates. Part II. examines, against the background sketched by Part I., the purposes for which the plaintiff requires the capital which it seeks to raise by way of loan and by an issue of new shares. The plaintiff's business is "primarily concerned with the retail sale of household and residential furniture, furnishings and fittings, and also male and female clothing. The view is expressed that the capital expenditure contemplated by the company is not shown to be "of essential importance or urgent in character" ". Part III. sets out to show how the defence programme of the Government necessitates a diversion from other avenues of the resources of the country in labour and materials. Three courses of governmental action, which could achieve or conduce to such a diversion, are set out. The third of these, which is considered in present conditions to be the most practicable and the least disturbing, is "by limiting and reducing various economic activities, particularly those relating to the provision and sale of civilian goods". Part IV. expresses and explains the Treasurer's opinion that the capital expenditure contemplated by the plaintiff would involve an attraction of manpower and resources in the opposite direction to that required for defence preparations. Part V. deals with certain economic factors which at the present time accentuate the difficulties attending the desired diversion of resources. Part VI. emphasises the urgencies of the general situation. Parts V. and VI., while by no means without importance, do not, I think, so far as reasons for a particular refusal are concerned, carry the matter much further than what has gone before.

[135]

The question upon which the validity of the regulations depends is whether it is right to say that a law which does what these regulations do, "in the way of changing or creating or destroying duties rights or powers" (South Australia v. The Commonwealth [1] ), can fairly be said, in the situation of recognizable danger which confronts Australia in these days, to possess the character of a law with respect to defence. What, then, is the legal effect of these regulations? Briefly, they prohibit a variety of transactions except with the consent of the Treasurer of the Commonwealth, and they place a restriction upon his power to refuse consent or to grant it upon conditions. The transactions, shortly described, are: (i) the issue by a company of authorized capital so as to bring the total issued within two years, plus the amounts within that period borrowed and not repaid under certain kinds of securities and under unsecured loans, to more than £10,000 (reg. 6); (ii) the making by a company of any call upon certain classes of shares unless stated conditions are fulfilled (reg. 7); (iii) the accepting or receiving of a deposit (an unsecured loan) by a company (other than a bank, a declared pastoral company, a building society or a co-operative society) if the amount borrowed and not repaid during the preceding two years (including the deposit), plus the amount of authorized capital issued during that period and the amount borrowed and not repaid under a security given during that period, exceeds £10,000 (reg. 8 (a)); (iv) the payment of interest by such a company as in (iii), on certain deposits, at a rate higher than ten shillings per centum per annum (reg. 8 (b)); (v) the issue or giving by a person, of a security, which means bond, debenture, debenture stock, inscribed stock, mortgage or charge (except to the Commonwealth or State, an authority of the Commonwealth or of a State, a bank, a declared pastoral company, a building society or a co-operative society), unless the amount is limited in a manner similar to (iii) and the security is not a first mortgage or charge over land at a rate of interest exceeding £4 10s. 0d. per centum per annum (regs. 10, 12, 13); and (vi) the paying or charging by a person of interest on certain securities at a rate higher than the rate payable under the security, or the repayment or receipt of an amount of capital in excess of the amount borrowed under a security (reg. 11). The consent of the Treasurer may be granted unconditionally or subject to such conditions as he thinks fit, or refused (reg. 16). It is not to be refused, nor is it to be granted subject to a condition "except for purposes of or in relation to defence preparations" (reg. 17 (1), (2)). The substantial effect is that the Treasurer is empowered, provided that he acts "for purposes of or in relation to defence preparations", to restrict, in the case of companies, the issue of share capital, the making of calls, the borrowing of money, and the rate of interest which may be paid; and to restrict, in the case of individuals, the giving of securities and the rate of interest payable.

[136]

Financial controls of this general description have become familiar as devices appropriate to situations of actual or potential inflationary tendencies. They provide a means of assisting a selected category of purposes in the economic life of a community, by precluding access for other purposes to some of the chief sources of finance. By thus controlling the flow of purchasing power, they have the practical effect of diverting goods and services away from those purposes which are not within the favoured class and (since they are unlikely to be allowed to lie idle if there is a demand for them in another direction) towards the purposes which the controls are designed to help. Their value in an inflationary situation is twofold, for the flow of goods and services is then disproportionately small in relation to the flow of purchasing power in the community. In the first place the control of capital issues may be used to divert purchasing power from those purposes which have the greatest tendency to accelerate the inflationary process. In the second place, and it is here that its usefulness mainly lies, the control enables the limited flow of goods and services to be left available for such purposes of government or of private enterprise as are considered of greatest national importance. When this method is employed, the purposes not favoured are denied the purchasing power which commands goods and services; and thus some of the competition for the inadequate flow of goods and services is eliminated, and as a consequence the purposes for the advancement of which the control is imposed are more likely to be satisfied, and are likely to be satisfied more cheaply. It is true that the desired diversion of goods and services to the favoured purposes is achieved by a negative or indirect means. It is also true that a diversion away from some purposes is not necessarily the same thing as a diversion to other purposes. But reason and experience combine to teach that in a practical world a system which closes one channel to the flow of purchasing power is nothing less than a system which increases the flow into those which are left. Conscription and direction of labour, and the compulsory acquisition and rationing of goods, are direct and obvious means of satisfying the requirements of governmental and private purposes from a volume of goods and services which is insufficient for the demand; but it is not always expedient, and it may not always be practicable, to resort to such courses to meet the difficulty. Capital issues control, operating as it does to limit the purposes for which would-be consumers may get purchasing power into their hands, is an indirect but effective means of achieving the same ends. It produces less disruption of the life of the community and less interference with personal liberty; but its true nature, if for these reasons it is less apparent, is not different.

[140]

It may well be that at the present time we are not far from war, and for my part I take the situation to be so fraught with danger that it is indeed essential, as the Defence Preparations Act recites, that preparations for defence should be immediately made to an extent, and with a degree of urgency, not hitherto necessary except in time of war. But the fact remains that, since it is the danger of war and not war itself which is upon us, the facet of defence which presents itself as a subject for legislative and executive attention is preparation for war and not the immediate conduct of war. It is not possible to affirm that the incidents in the exercise of the defence power are identical in these two departments of activity. The difference may be described as only one of degree; and a pre-war situation may be such as to merge very gradually into a war situation. But it remains true that before hostilities break out it must be seldom that the range of the incidents of defence is at its maximum. Because of this, there seems to me to be room for error in reasoning which starts from the postulate that a given measure would be within the defence power as it exists during a great war, and relies upon symptoms of the times suggestive of impending war as a sufficient warrant for giving the power a more or less similar application. It is true that even when the nation is not at war the limits of the power are not constant; they may indeed vary with changing situations; but it does not follow that in a situation which, while dangerous, is still definitely short of war, it is proper to decide the ambit of the power by reference to its ambit during hostilities. Each situation must, I think, be considered, not for the purposes of assimilation to any other, but for the sake of the light which its own features provide for the ascertainment of the presence or absence of such a relevance in challenged legislation to purposes of or incidental to defence as suffices to give it the character of legislation with respect to that subject.

[142]

Now, in the international situation which faces Australia at present, it is obvious that preparations against the contingency of war, if made on a scale which pays any regard to the character of modern warfare, must be expected to absorb a considerable proportion of the goods and services from time to time available in the community. A law is clearly, I should think, within the defence power if its operation is to reduce the opposition which defence purposes have to meet in the endeavour to secure an adequate supply of goods and services. To disqualify competitors with defence purposes is necessarily to assist defence; and capital issues regulations, if their character may fairly be described by saying that their operation is to do that, must, I think, be within the defence power, whether the time at which the question arises is one of war or not. On the other hand, capital issues legislation has no claim to be supported under the defence power in such a situation as the present, if one cannot say more by way of describing its character than that it operates to disqualify competitors with general governmental purposes, or with purposes less likely to accentuate inflationary pressure upon the national economy, or with any other kind of purposes not distinctively related to defence. I do not overlook the fact that the continuing soundness of the financial system is essential if the nation is to put itself in any shape to meet the eventuality of war. So it is if the nation is to maintain or improve its position in any other direction. The truth is, I think, that the financial stability of the country cannot fairly be regarded as a specifically defence matter when the country is not engaged in war, because the view is not then justified, as it may be during war, that the end to which the economy is for the time being predominantly directed is the defeat of the nation's enemies. And even the probability that the inflationary conditions already existing in Australia will both impede and be aggravated by extensive preparations for war provides no justification for characterizing capital issues control legislation as legislation upon an incident of defence by reason of any aptitude the legislation may have for dealing with inflationary tendencies generally. The legislation would need to reveal some special capacity to assist in counteracting the tendency of the inflationary situation to hamper the defence programme, or some special capacity to prevent the acceleration of inflationary tendencies by the carrying out of that programme.

[144]

The first reason lies in the great width of the expression "purposes of or in relation to defence preparations". The regulations themselves do not define "defence preparations". The Act, by its recitals and by the provisions of s. 4, refers to a number of matters which the expression as used in the regulations must, I think, be taken to include; but nothing in the nature of an exclusive definition is to be found. In some contexts the expression might doubtless be used in a narrow sense, as comprising only the raising, equipping, training and maintaining of armed forces. Even so, "purposes of or in relation to" defence preparations would cover a field to which different minds might well set different limits. But in the regulations it is impossible to doubt that "defence preparations" is used in the far wider sense which is indicated by the recitals and s. 4 of the Act, with the result that "purposes of or in relation to defence preparations" must include, to take two examples only, any purpose which has a relation to "the expansion of the capacity of Australia to produce or manufacture goods, or to provide services, for the purpose of enabling the economy of Australia to meet the probable demands upon it in the event of war", and any purpose which as a relation to "the avoidance or reduction of economic dislocation or instability caused by, or impeding, defence preparations". It seems to me that the briefest consideration of the enormous sweep of these completely vague abstract conceptions should suffice to make it plain that, although there is ample proof in the language used that the legislature in passing the Act was looking at national problems from a defence point of view, the regulations have been so drafted that their operation (and it is their operation that matters) is to empower the Treasurer to assist by his veto a multitude of purposes which cannot be said to have any greater significance for defence than for the general advancement of the country. Purposes connected, directly or indirectly, with public works, or with any aspect of the production or distribution of primary produce, from wool to asparagus, or with any aspect of a great variety of secondary industries from the manufacture of steel to the production of shaving cream, all these and more lie open to a Treasurer, acting in good faith and in accordance with reg. 17, as purposes for which he may exercise the power reposed in him. Indeed the limits to which the regulation purports to subject the power of veto defy specification. This being so, the regulations in my opinion cannot be held to have a specifically defence character unless we are to say that in these days it is primarily for defence that the national economy exists. In the midst of open war, it may well be far from extravagant to say precisely that; but it cannot be said in the present situation, despite its dangers.

[145]

The second reason which leads me to the conclusion I have stated is this. Suppose that the purposes to which reg. 17 refers are all purposes within the present reach of the defence power notwithstanding the great uncertainty of the language used to describe them. Even so, the limit which reg. 17 places upon the Treasurer's power of absolute or conditional veto is that he shall not use it "except for" purposes within the description. That is to say, it is a limit by reference, not to the purposes which are really apt to be served by a refusal of the Treasurer's consent, but to the purposes which the Treasurer aims to serve by his refusal. It is a subjective and not an objective test which the regulation lays down. When the country is in the throes of a great struggle such a test may suffice to give the requisite connection with the subject of legislative power; indeed the National Security (Capital Issues) Regulations which were in force during the last war did not contain any express provision circumscribing the Treasurer's authority by reference to purposes, and their validity doubtless depended upon an implication that the consent might not be refused except for purposes having a real connection with the prosecution of the war: cf. Shrimpton v. The Commonwealth [1] ; Dawson v. The Commonwealth [2] . In the midst of hostilities it may not be difficult to regard legislation which depends for its application upon an executive judgment concerning a matter material to the prosecution of the war as legislation upon an incident of defence: cf. Australian Communist Party v. The Commonwealth [3] . But when no major war is in progress it is not possible, I think, to concede a defence character to legislation conferring upon the Executive a power to interfere with rights existing under State law, unless there is to be found in the legislation some more substantial connection with defence than is supplied by making the exercise of the power conditional upon an intention thereby to assist some purpose of defence.

Marcus Clark & Co Ltd v Commonwealth

At a glance

Court

Decision date

Before

Source

Judgment (149 paragraphs)

Parties

Cited By (1)