Melbourne v Commonwealth [1947] HCA 26

Melbourne v Commonwealth [1947] HCA 26 | Case summary | Zoe

shall apply only in relation to banking business conducted for a H.C. or A. State, or for any authority of a State specified by the Treasurer ee, by notice in writing. A date has not yet been so fixed and I yry. nouese propose to specify, on or about 1st August 1947, certain author- Corrora- ities of a State or local-governing authorities, including the City = 0% of Melbourne, to be authorities in relation to which section 48 THE of the Banking Act 1945 shall apply. In effect this will mean CO™mox- that as from the date on which this specification was made a = = - - private bank will not be able legally to conduct business on behalf of any local-governing authority specified in the notice. This information is furnished for the purpose of enabling your authority to make such preliminary arrangements as are con- sidered necessary." 9. On 13th May 1947 a letter was forwarded on behalf of the plain- tiff by the Town Clerk of the City of Melbourne to the defendant the Right Honourable Joseph Benedict Chifley in the following terms : - " Referring to your letter of the Ist instant regarding the provisions of the Commonwealth Banking Act 1945, I have to inform you that your communication was submitted to the last meeting of the City Council, when the council by resolution recorded its objection to the application of the provisions of the Act to the City of Melbourne, and authorized the finance com- mittee of the council to make representations to the Honourable the Treasurer for the exemption of the council from such pro- visions, and to take all other steps which the committee may consider necessary with the object of enabling the council to continue its existing banking arrangements. In accordance with the decision of the council, formal application is hereby made for the exemption of the council from the provisions of the Act." 10. By a letter dated 23rd May 1947 from the said defendant to the plaintiff received by the plaintiff on or about 24th May 1947 the said defendant informed the plaintiff as follows : - "T acknowledge receipt of your letter of the 13th May 1947, protesting against, and requesting the exemption of your council from, the operation of section 48 of the Banking Act. Full consideration was given to this matter before it was decided to specify your council as an authority to which section 48 of the Banking Act shall apply. Iam satisfied that the Common- wealth Bank is in a position to provide full banking facilities to your council and I cannot see my way clear to exempt the council from compliance with the terms of the order which I propose to issue on Ist August 1947, under that section."

banking is, therefore, a power to regulate both parties to the banking transaction. It follows that the exclusion of "State banking" means the exclusion of the power to regulate a State, in relation to banking, whether in the capacity of banker or customer. In form s. 48 is a prohibition directed to the banker, but in substance - and it is the substance to which one must look to see if the section is within power - it is directed as well to the customer. A customer engaging with a banker in a prohibited transaction would be liable as a principal offender (Crimes Act 1914-1941, s. 5). In effect s. 48 purports to prohibit a State from engaging as a customer in banking transactions except such as may be permitted under the section, the object being, as is admitted on the pleadings, to force the States and their authorities to bank with the Commonwealth Bank. [He referred to the Commonwealth Bank Act 1945, ss. 5, 7, 28; the Con- stitution, s. 105a.] The section, therefore, assumes a power which is excluded by pl. (xiii.). The section must stand or fall according to the extent of the power to regulate States and State authorities : As the section expressly includes local-governing authorities under the head of State authorities, there can be no question of severance. The section was drafted on the assumption that State banking meant only banking by a State as banker, as appears from s. 5 (1) of the Act, which provides that nothing in (among other provisions) s. 48 shall apply to State banking. That provision cannot avail to give s. 48 any validity, if the present argument is correct. The plaintiff's next contention assumes that the first argument is not correct, that "State banking " means only banking by a State as banker. The contention is that s. 48 is not a law " with respect to" banking, at all, within the meaning of s. 51 (xiii.) of the Constitution, because it discriminates against (in the sense that it is " aimed at "') the States and State authorities and provides no discrimen having relation to the subject matter of banking. It singles out the States simply because they are States, not for a purpose that has to do with any particular function of banking ; it is rather a law " with respect to" the States and their domestic activities. It is a general prohibition of the transaction of banking business by the States with banks not approved by the Commonwealth Treasurer. That it is directed to the "' banking business " (as a whole) of a State, and does not discrim- inate between the various functions of banking or classes of banking transaction or seek to regulate any such function or class, is shown by sub-s. (3), which empowers the Treasurer to specify a State (or an authority of a State) in relation to its banking business as a whole or as at a particular office of a bank. It is not a law enabling the Treasurer to say that because of the banking nature of some particular

"aimed at " people whose affairs it touches. The Banking Act sets up a system of licences for banks: See ss. 7, 8. It says in effect that no bank shall carry on business without a licence, and, in s. 48 that a second licence or permit must be obtained by a bank that wants to be a banker for a State Government. That such legislation is within the subject matter of banking follows from the decision in Australian National Airways Pty. Ltd vy. The Commonwealth (1). So far as s. 51 (xiii.) is concerned, legislation, for instance, which gave the Commonwealth Bank a monopoly of all banking business other than such as was within the exception of " State banking " would be within the subject matter, just as the attempt to create an airlines monopoly was within the subject matter of pl. (i.); it failed, not because it was not within pl. (i.) but because of s. 92 of the Constitution. Whether s. 92 would affect a banking monopoly need not be con- sidered here. It may, however, be observed that the Commonwealth has already taken unto itself certain monopolies which have not been challenged. [He referred to the Post and Telegraph Act 1901-1934, ss. 80,91 ; Lighthouses Act 1911-1942, s. 10; Wireless Telegraphy Act 1905-1936, s. 4.] No question of s. 92 has been raised in this case, and it seems unlikely that the question could arise. The proper construction of s. 48 of the Banking Act would seem to be that it is limited to intra-State banking; in any event, the section could be so read down if necessary. If a wine and spirit merchant who had carried on business under a licence was deprived by the law of that licence, his customers might be inconvenienced, but no right would be taken away from them. Under State law the question of subject matter could not arise, but, if it could, the law which took away the licence would not be a law " with respect to" the customers. Section 48 is directed to what may be described as the "trading banks." Tf s. 48 had not been enacted, none of those banks would have been bound to accept the business of a State or a State authority. A State has power to set up its own bank and impose on it such duties as it thinks fit ; but the trading banks owed the State no duty the correlative of which would be a right in the State on which s. 48 could operate so as to prejudice the State. Apart from State banks, the Commonwealth could, without infringing any legal rights of the customers, close all the banks and leave the people without any banking facilities except such as might be provided by State banks. _A law to that effect would be a law with respect to banking ; s. 48 is none the less a law with respect to banking because it stops short of that. The plaintiff's contention was that the section was really a law with respect to the States because it singled them

out and discriminated against them; in effect, that the discrimen was arbitrary is that the States were selected simply because they were States, and not for a reason related to banking. It can be conceded for present purposes that, if the section was discriminatory in that sense, it would not be a law with respect to banking; but it is submitted that the section is not lacking, as the plaintiff contended, in a sufficient nexus with banking. It can be assumed that the object of, or desire embodied in, s. 48 is to produce the result that all government authorities shall conduct their banking business with publicly owned and controlled banks, either State or Commonwealth ; it can even be assumed that the object of the section is to "force" the States and their authorities, so far as it can be done, to bank with the Commonwealth Bank. There is a real nexus between such an object and the subject of banking because the Commonwealth Bank is established as the central bank for the Commonwealth and it is a recognized function of a central bank to act as government banker: See De Kock on Central Banking, pp. 47 et seq. The extension of this recognized function of a central bank to the accounts of States and authorities of States is within the general theory of central banking because Commonwealth and States may now be regarded as one government for monetary and public credit purposi [He referred to the Constitution, ss. 96, 105a ; South Australia v. The Commonwealth (1); R. v. Brislan; Ex parte Williams (2); Huddart Parker Ltd. vy. The Commonwealth (3).] These considerations supply the answer to both the second and third contentions of the plaintiff, which in substance are one argument put in two aspects. In the ultimate result the argument resolves itself into a complaint that the States and their authorities are affected by a law with respect to banking. The plaintiff says, in substance : " We like dealing with such and such a bank; you are preventing us from doing so; we do not like it." It is unreal and without significance in law to suggest that the legislation has some sinister purpose or operation, to say that it seeks to "force" the States into something, to control them through their finances and to hamper their functioning. The States and their authorities, as well as private individuals, must, of necessity, be affected by the legit- imate exercise of some, at least, of the legislative powers of the Commonwealth. Laws usually " affect " someone, and the States are not above the law. There is nothing unreasonable or incon- sistent with the Federal structure in the proposition that in their

the implication. That is to say, the placitum must be read as if it contained an expression of the incompetence unless you find in the placitum something to exclude it. That being so, the defendants get no assistance from the suggestion that the exception of State banking shows that no other exception or limitation was intended. Moreover, on the assumption the defendants make that " State banking" means banking by the State as banker, the exception relates only to a trading function of a State, and there is no reserva- tion of " governmental" functions (in the narrow sense, in which those functions are distinguished from trading functions). It would be odd if the framers of the Constitution saved State trading functions from Federal interference and left State governmental functions at the mercy of the Federal Parliament. The defendants' argument as to central banking defeats itself. What is called central banking involves holding the funds of the Government which created the central bank, but not those of another Government. The logical outcome of the argument is that the central bank for a State must be a State bank. Assuming (but not conceding) that the defendants are right in regarding central banking as a function of " banking," in the strict sense, it follows that, so far as a State is concerned, central banking is within the exception of "State banking." The plaintiff submits, however, that central banking is not a nexus, at all, between s. 48 and the subject matter of banking in pl. (xiii.). That a government uses a central bank as a medium for carrying into effect a policy of financial or monetary control or protection of public credit does not show that what the bank does as such a medium is within the subject matter of " banking." To say that " Common- wealth and States may be regarded as one government for monetary and public credit purposes " does not solve the problem here. What- ever that expression may mean, it clearly cannot mean that Common- wealth and States are to be regarded as one Government for the purposes of pl. (xiii.).

There are many instances of special relations between governments and banks discharging central banking functions and to a large extent managing governmental financial operations. The Bank of England has been a financial agent of the Government of Great Britain for many years. So also in the United States of America. banks have been established as instrumentalities of governments - per Griffith C.J. in Heiner y. Scott (1), referring to M'Culloch v. Maryland (2) and Osborn v. Bank of United States (3). But while the contention of the defendants accurately states the position in the case of a unitary constitution where it is not necessary to con- sider the relation in which States stand to a Commonwealth or Provinces to a Dominion or other federal organism, it cannot be accepted and applied without limitation in the case of a constitution where the States or Provinces are not subordinate to the federal power except in respect of particular matters. It is one thing for a Government to establish a bank for the purpose of doing the banking business of that Government. It is quite a different thing for the Parliament and Government of a Commonwealth to establish a bank and to require the States to do all their business with that bank. The giving of a monopoly of governmental banking business to a particular bank selected by a Government is a not abnormal feature of legislation with respect to banking, but this statement does not. cover the case of one Government seeking to select a bank to do all the banking business of another Government, both governments being subject to a federal constitution. Thus, in my opinion, though the argument that s. 48 is not legislation with respect to banking should not be accepted, the rejection of this argument still leaves open for consideration the question of the validity of such a provision under a constitution establishing not only a federal Government with specified and limited powers, but also State Governments which, in respect of such powers as they possess under the Constitution, are not subordinate to the federal Parliament or Government. State constitutional powers are, subject to the Commonwealth Constitution, expressly preserved by the Commonwealth Constitution - ss. 106, 107-

It is conceded for the plaintiff that the Commonwealth Parliament may pass general legislation with respect to banking, and that it may specify conditions (relevant to the subject of banking) which must be complied with by banks and by customers of banks. But s. 48 is specifically directed to and limited to States as customers of banks. It has the effect of submitting their banking operations to the control of the Commonwealth Bank, which is in turn subject to the control of the Commonwealth Treasurer (Commonwealth Bank Act, ss. 8 and 9). If s. 48 is valid, a State and a State authority can, in the absence of any available State bank, be compelled to do all its banking business with the Commonwealth Bank. This is stated by the Treasurer to be the object (as it is plainly the consequence) of the notification proposed to be made under s. 48. As the Commonwealth Bank is under no legal obligation to accept the business of any State - either upon any particular terms or at all - the result is that the operations of a State in paying money into a bank, in drawing out money, and in obtaining advances from a bank, will be subject to Commonwealth control. Such operations are included within banking business as generally conducted: See Commissioners of State Savings Bank of Victoria v. Permewan, Wright & Co. Ltd. (1). Thus the Common- wealth Bank, acting under direction of the Commonwealth Treasurer, could, so far as legal obligation goes, decline to accept moneys or to allow cheques to be drawn for particular purposes or at all, and could refuse to make advances for particular purposes - even though the Parliament of the State had appropriated moneys for those purposes. It is contended that legislation which is specifically directed towards - or, as it is put, against - a State and State author- ities in relation to the custody, control and management of public revenue and loan moneys is legislation which is forbidden by the Constitution as dealing, and especially as dealing in a discriminatory manner, with an essential State governmental power, capacity, and function.

would do violence to the presuppositions derived from the fact that we are a Nation composed of States" (1). (This statement may be compared with those which I have quoted from Australian cases distinguishing between general legislation which includes States and State agencies and legislation described as discriminating against States and their agencies.) The limitation upon federal legislative power in relation to the States is expressed by these learned justices in the following words : - ' There are, of course, State activities and State-owned property that partake of uniqueness from the point of view of intergovernmental relations. These inherently constitute a class by themselves. Only a State can own a Statehouse ; only a State can get income by taxing. These could not be included for purposes of federal taxation in any abstract category of taxpayers without taxing the State asaState. But so long as Congress generally taps a source of revenue by whomsoever earned and not uniquely capable of being earned only by a State, the Constitution of the United States does not forbid it merely because its incidence falls also on a State. If Congress desires, it may of course leave untaxed enterprises pursued by States for the public good while it taxes like enterprises organized for private ends. Cf. Springfield Gas and Electric Co. v. City of Springfield (2) ; University of Illinois v. United States (3); Puget Sound Power and Light Co. v. City of Seattle (4). If Congress makes no such differentiation and, as in this case, taxes all vendors of mineral water alike, whether State vendors or private vendors, it simply says, in effect, to a State: 'You may carry out your own notions of social policy in engaging in what is called business, but you must pay your share in having a nation which enables you to pursue your policy'" (5). The federal law' was upheld because it was not specifically directed against the States, but levied a tax "exacted equally from private persons upon the same subject matter " (6).

very common and convenient, and even prominent, as if they were indispensable attributes. The essential characteristics of the business of banking are, however, all that are necessary to bring the appellants within the scope of the enactments " (s. 83 of the Victorian Instruments Act 1890 and s. 88 of the Bills of Exchange Act 1909) "' and these may be described as the collection of money by receiving deposits upon loan, repayable when and as expressly or impliedly agreed upon, and the utilization of the money so collected by lending it again in such sums as are required. These are the essential functions of a bank as an instrument of society." And see Thomson's Dictionary of Banking, 9th ed. (1939), p. 55. In my opinion s. 51 (xiii.) must be construed in the light of what I consider to be the ordinary and normal meaning of the word " banking " and if this be so, the words " Banking other than State banking" should be construed as meaning the business of banking other than the business of banking carried on by a State. This view is, I think, confirmed by the remaining words of pl. (xiii.) "also State banking extending beyond the limits of the State concerned, the incorporation of banks and the issue of paper money." It is difficult to believe that the words " also State banking extending beyond the limits of the State concerned " were intended to mean the use by the State as a customer of banking facilities in more than one State and the other words " the incorporation of banks and the issue of paper money " clearly support the view I have expressed. I may add that in the Banking Act itself the Commonwealth Parliament appears to have regarded State banking as the business of banking carried on by a State. This appears to be the obvious meaning of "State banking" in s. 5 of the Act. But whatever may be the meaning of "banking" the proper interpretation of the words " other than State banking " is, that the Commonwealth Parliament, while empowered to make laws with respect to banking, is not empowered to make laws with respect to State banking, unless it extends beyond the limits of the State concerned.

wealth and States, the Commonwealth having conferred upon it only certain limited and defined legislative powers, and the States, within the limits of their own Constitutions, retaining exclusive powers in the field which remains after all Commonwealth powers have been exercised to the full extent of their widest scope. It is unnecessary to trace in detail the authorities by which the relation- ship of Commonwealth and State powers have been defined. The view once prevailed that any legislative or executive act of the Commonwealth which would, if valid, interfere with the free exercise by a State or its instrumentalities of their legislative or executive powers was pro tanto invalid. At a very early stage, however, there were decisions inconsistent with this view, and it was finally exploded by the Engineers' Case (1). There is no general implication in the framework of the Commonwealth Constitution that the Common- wealth is restricted from exercising its defined constitutional powers to their fullest extent by a supposed reservation to the States of an undefined field of reserved powers beyond the scope of Commonwealth interference. But this is always subject to the provisions of the Commonwealth Constitution itself. That Constitution expressly provides for the continued existence of the States. Any action on the part of the Commonwealth, in purported exercise of its con- stitutional powers, which would prevent a State from continuing to exist and function as such is necessarily invalid because inconsistent with the express provisions of the Constitution, and it is to be noted that all the powers conferred by s. 51 are conferred " subject to this Constitution." Such action on the part of the Commonwealth may be invalid in two classes of case, one, where the Commonwealth singles out the States or agencies to which they have delegated some of the normal and essential functions of government, and imposes on them restrictions which prevent them from performing those functions or impede them in doing so ; another, where, although the States or their essential agencies are not singled out, they are subjected to some provision of general application, which, in its application to them, would so prevent or impede them. Action of the former type would be invalid because there is nothing in the Commonwealth Constitution to authorize such action by the Commonwealth. A general income tax Act which purported to include within its scope the general revenues of the States derived from State taxation would be an instance of the latter. -

Banking, within the meaning of the Constitution, relates to the business of a banker and covers all those various functions which a banker undertakes. But his main functions appear to be the taking of deposits and current accounts, the issue and payment of bills and cheques drawn on him and the collection of bills and cheques for his customers. In Hart's Law of Banking, 4th ed. (1931), vol. 1, pp. 3-5, a banker's functions have been classified under seven heads (and see Paget on The Law of Banking, 3rd ed. (1922), p. 6). Plenary power is given to the Parliament subject to the Constitution and to the excep- tion contained in s. 51 (xiii.) itself to make laws with respect to the subject matter. Under this power the Parliament may prescribe the tules by which banking is governed. The power extends not only to those regulations which aid, foster and protect banking and the choice of persons engaging in it : it also embraces the making of rules which prohibit it (Australian Steamships Ltd. v. Malcolm (1); Huddart Parker Ltd. vy. The Commonwealth (2); Victorian Stevedoring and General Contracting Co. Pty. Ltd. v. Dignan (3) ; Australian National Airways Pty. Ltd. v. The Commonwealth (4); Attorney-General for Canada vy. Attorney-General for Quebec (5)). So far, I should think that the provisions of s. 48 may be described as a law with respect to banking. But it is another question whether the Parliament may prohibit a bank from conducting any banking business with a State or an authority of a State including a local governing authority. The Constitution itself excludes State banking which does not extend beyond the limits of the State concerned from the operation of the power. State banking, it was said, means banking with or by a State. It covers, as I understood the argument, not only banking with State banks, that is banks owned or managed by a State government, but also banking transactions or other facilities with banks, other than State banks, of which a State avails itself. At the time the Constitution was passed the only State banks in Australia were Government Savings Banks but since that date other State banks have been constituted. Savings banks do not perform many of the functions of bankers but they fall within the description of bankers in the Bills of Exchange Act (Commissioners of State Savings Bank of Victoria v. Permewan, Wright & Co. Lid. (6) ). Doubtless the limitation upon the banking power had reference to these banks (see Quick & Garran, The Annotated Con- stitution of the Australian Commonwealth, pp. 756-758) but it also covers the State banks which have been subsequently created. The

Association (2)). But in a series of cases in the United States this wide application of the principle has been restricted as may be gathered from such cases as Helvering v. Gerhardt (3); Graves v. New York; Ex rel. O'Keefe (4); New York v. United States (5). And likewise in Australia the same wide application of the principle was finally rejected (Federated Engine-Drivers' and Firemen's Associa- tion of Australasia v. Adelaide Chemical and Fertilizer Co. Ltd. (6) ). The applications in America of the basic proposition do not, however, present "a completely logical pattern." "But they disclose," said Stone J. (subsequently the Chief Justice of the Supreme Court) in Helvering v. Gerhardt (7), " no purposeful departure from, and indeed, definitely establish, two guiding principles of limitation for holding the tax immunity of State instrumentalities to its proper function. The one, dependent upon the nature of the function being performed by the State or in its behalf, excludes from the immunity activities thought not to be essential to the preservation of State governments even though the tax be collected from the state Treasury " (See South Carolina v. United States (8); Graves v. New York; Ex rel. O'Keefe (4); New York v. United States (5)). "The other principle, exemplified by those cases where the tax laid upon individuals affects the state only as the burden is passed on to it by the taxpayer, forbids recognition of the immunity when the burden on the state is so speculative and uncertain that if allowed it would restrict the Federal taxing power without affording any corresponding tangible protection to the state government ; even though the func- tion be thought important enough to demand immunity from a tax upon the state itself, it is not necessarily protected from a tax which well may be substantially or entirely absorbed by private persons (Metcalf v. Mitchell (9); Willeuts v. Bunn (10) )" (11). These are practical considerations rather than juristic principles. But the Supreme Court still recognizes that there are State activities and functions of government that are nevertheless immune. "There

agree that the presence or absence of discrimination affords a decisive test or legal criterion of constitutional power. As was pointed out in New York v. United States (1) by Stone C.J., Reed, Murphy and Burton JJ., a tax which is not discriminatory " may nevertheless so affect the State, merely because it is a State that is being taxed, as to interfere unduly with the State's performance of its sovereign functions of government." It is a practical question, whether legislation or executive action thereunder on the part of a Commonwealth or of a State destroys, curtails or interferes with the operations of the other, depending upon the character and operation of the legislation and executive action thereunder. No doubt the nature and extent of the activity affected must be considered and also whether the interference is or is not discriminatory but in the end the question must be whether the legislation or the executive action curtails or interferes in a substantial manner with the exercise of constitutional power by the other. The management and control by the States and by local governing authorities of their revenues and funds is a constitutional power of vital importance to them. Their operations depend upon the control of those revenues and funds. And to curtail or interfere with the management of them interferes with their constitutional power. Yet the Commonwealth by its legislation prescribes that, except with the consent in writing of the Treasurer, no bank shall conduct any banking business for a State, including any local governing authority. It operates to prevent the States and local governing authorities from dealing with their old and tried bankers except with the consent in writing of the Treasurer. The object is, of course, to compel the States and the local governing authorities to bank with the Commonwealth Bank, which is a Central Bank. And it was said that the handling of public funds is the appropriate function of a central bank. But that does not establish any constitutional power in the Commonwealth to compel the States so to bank. The States and the local governing authorities, and not the Commonwealth, have the power and the duty of administering, controlling and banking their revenues and funds.

Dixon J. In questions of validity we now usually find it necessary to consider with some care whether the provision impugned is capable of restriction or severance and, if so, whether there is not some severable or restricted part of it which falls within a legislative power and, notwithstanding the invalidity of the rest of the pro- vision, will yet operate to produce some of the intended objects of the whole. But ins. 48 of the Banking Act 1945 I do not think there is any difficulty of this kind. Sub-section (1) clearly enough is a single provision which hangs altogether upon its application to the conduct of banking business for a State. Sub-section (3) depends in its turn upon sub-s. (1), and so of course does sub-s. (2). Indeed I did not understand the contrary to be contended. In strictness, however, the issue is with respect to the efficacy of sub-s. (3); for sub-s. (1) does not come into full operation unless and until the Treasurer fixes a date for the purpose, a thing he has not yet done. In the meantime sub-s. (3) gives to sub-s. (1) such partial application as the Treasurer may specify. Sub-section (1) lays upon banks a general prohibition against conducting any banking business for a State, except with the consent in writing of the Treasurer. It does not apply to State banks (s. 5 (1)). It is not clear whether the Commonwealth Bank is or is not comprehended in the prohibition. Upon this point you are left in doubt by the words used in the sub- section and in the definition of " bank " given by s. 4 (1) and in s. 7, upon which the definition turns. On the whole, I think that we should treat s. 48 as inapplicable to the Commonwealth Bank. The Commonwealth Bank Act 1945 was passed at the same time and was assented to on the same day as the Banking Act. Inss. 49 to 53 and s. 56 of the latter Act the word " bank " is used in contradistinction from the Commonwealth Bank and it seems proper to conclude that the former Act was regarded as the place in which the authority of the Commonwealth Bank to carry on banking business had been completely stated, to the exclusion of s. 7, and therefore of s. 48, of the Banking Act.

ency " - s. 51 (xvii.): " Patents " - s. 51 (xviii.). Corvora- For example in Attorney-General (N.S.W.) v. Collector of Customs "0% A(N.S.W.) (1), it was held that the States were bound by the grant of THe the " Trade and Commerce " power. Griffith C.J. said that this power Senior: "necessarily involves the power to interfere with the operations - s - - of the State Governments so far as to make effectual any condition =e or prohibition imposed by the Commonwealth upon importation " (2). The conclusion reached in that case was approved in the Engineers' Case (3); and it called forth this comment, which was made in the reasons for judgment: "A more drastic interference than that case sanctions can hardly be imagined. It was an insistence on money being applied from the State Treasury for the purposes of the Commonwealth Treasury as a condition of the State being allowed to import steel rails from abroad for use on its railways. Some difference of opinion occurred as to the nature of the duty, but none as to the primary validity of the interference." (4). Referring to the power conferred by s. 51 (xvii.), Higgins J. said in the Engineers' Case (5): "Suppose that under the common law - . or under express State legislation - the Crown has priority over all other creditors, it is argued that a federal law as to bankruptcy, enacting that Crown debts are to be paid pari passu with other debts, would not bind the State!" His Honour refuted the limit- ation of power involved in the supposition. The States are not even totally exempt from laws made under the " Taxation " power, s. 51 (ii.). In South Australia v. The Common- wealth (6), it was decided by four justices that the Commonwealth Parliament was authorized by that power to pass s. 31 of the Income Tax Assessment Act 1942. That is the crucial enactment in the plan for uniform taxation. The section says that a taxpayer shall not pay any tax imposed by State law on the income of any year in respect of which tax is imposed by federal law until the taxpayer has paid the federal tax or has received from the Commonwealth Commissioner of Taxation a certificate notifying him that the tax is no longer payable. These are instances of Commonwealth Acts which interfered with the States. I cannot think that it is a graver interference with the States to prohibit a bank from conducting any banking business for

bind both Crown and subject " (1). But the Parliament of the Com- monwealth is only authorized by s. 51 to make laws with respect to the enumerated subjects (1) for the peace, order and good government of the Commonwealth, and (2) subject to the Constitution, and there arises from the very nature of the federal compact, which contem- plates two independent political organisms, each supreme within its own sphere, existing side by side and exerting divided authority over the same persons and in the same territory, a necessary implic- ation that neither the Commonwealth nor the States may exercise their respective constitutional powers for the purpose of affecting the capacity of the other to perform its essential governmental functions. Therefore a federal law which purports to bind the States must be examined to ascertain whether it is really a law for the peace, order and good government of the Commonwealth with respect to one of the enumerated subjects, or a law which, under colour of such a purpose, is really a law the purpose of which is to interfere with such functions. As the Privy Council has pointed out in relation to the Canadian Constitution in Attorney-General for Alberta v. Attorney-General for Canada (2), each case must be deter- mined as it arises for "no general test applicable to all cases can safely be laid down." Dixon J. has pointed out in West's Case (3) that there are two reservations to the principle laid down in the Engineers' Case (4) that the powers of the Parliament of the Common- wealth under s. 51 must be construed as extending to the States. "The first reservation is that in the Engineers' Case (4) the question was left open whether the principle would warrant legislation affecting the exercise of a prerogative of the Crown in right of the States. The second is that the decision does not appear to deal with or affect the question whether the Parliament is authorized to enact legislation discriminating against the States or their agencies."

Three recent cases in this Court relating to the exercise of the defence power during hostilities illustrate the operation of the principle. In the Uniform Tax Case (1), the Income Tax (War- time Arrangements) Act 1942 was held to be valid by the majority of the Court. That Act in form discriminated against the States because it conscripted into the service of the Commonwealth the taxation staffs of the States and acquired for the Commonwealth the offices in which the State Income Tax Departments were' carried on. The purpose of the Act was to create a Common- wealth Income Tax Department to collect taxation levied by the Commonwealth, a large part of which 'was required to prosecute the war. The loss of the services of these staffs and possession of these premises by the States was likely to hinder the carrying on of the governmental functions of the States, but this hindrance was of the same character as the disturbance which was being caused to all sorts of businesses from the Commonwealth having to conscript employees holding important positions in such businesses and to take possession of convenient premises in which they were being carried on in order to prosecute the war. There was nothing in the Act which attempted to prevent the States from utilizing the services of other officers less experienced, and securing other premises less convenient to carry on the same governmental functions. The convenience of the States, like that of individuals, had to give way: to the overriding necessity of the prosecution of the war. In Victoria v. The Commonwealth (2), and Victoria v. Foster (3), on the other hand, where the Commonwealth sought to direct the States as to the remuneration, holidays and hours of work of public servants who were not conscripted by the Commonwealth, but continued to be employed by the States upon work relating to the essential governmental functions of the States, the legislation was held to be beyond the ambit of the defence power and therefore invalid.

At a glance

Court

Decision date

Before

Source

Judgment (344 paragraphs)

Cited By (15)