Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd

1. [1977] 2 N.S.W.L.R. 177. 2. [1977] 2 N.S.W.L.R. 583.

Subject to this Act, a body corporate shall not carry on any banking business in Australia unless the body corporate is in possession of an authority under the next succeeding section to carry on banking business.

Penalty: Ten thousand dollars for each day during which the contravention continues.

There are four main ways in which the enforceability of a contract may be affected by a statutory provision which renders particular conduct unlawful: (1) The contract may be to do something which the statute forbids; (2) The contract may be one which the statute expressly or impliedly prohibits; (3) The contract, although lawful on its face, may be made in order to effect a purpose which the statute renders unlawful; or (4) The contract, although lawful according to its own terms, may be performed in a manner which the statute prohibits.

In the present case we are not concerned with the first of these possible situations. Clearly s. 8 does not render it unlawful to borrow or lend money or to give and take a mortgage, supported by guarantees, to secure its repayment. The contract sued upon was therefore not to do anything which s. 8 forbids. The principal question in the case is whether s. 8, on its proper construction, prohibited the making or performance of the contract. As will be seen, if that question is answered in the negative, it will not be possible to say that the contract cannot be enforced on the ground that it was made in order to effect an unlawful purpose or was performed in an unlawful manner.

It is often said that a contract expressly or impliedly prohibited by statute is void and unenforceable. That statement is true as a general rule, but for complete accuracy it needs qualification, because it is possible for a statute in terms to prohibit a contract and yet to provide, expressly or impliedly, that the contract will be valid and enforceable. However, cases are likely to be rare in which a statute prohibits a contract but nevertheless reveals an intention that it shall be valid and enforceable, and in most cases it is sufficient to say, as has been said in many cases of authority, that the test is whether the contract is prohibited by the statute. Where a statute imposes a penalty upon the making or performance of a contract, it is a question of construction whether the statute intends to prohibit the contract in this sense, that is, to render it void and unenforceable, or whether it intends only that the penalty for which it provides shall be inflicted if the contract is made or performed.

The question whether a statute, on its proper construction, intends to vitiate a contract made in breach of its provisions, is one which must be determined in accordance with the ordinary principles that govern the construction of statutes. "The determining factor is the true effect and meaning of the statute" (St. John Shipping Corporation v. Joseph Rank Ltd. [3] ). "One must have regard to the language used and to the scope and purpose of the statute" (Archbolds (Freightage) Ltd. v. S. Spanglett Ltd. [4] ). One consideration that has been regarded as important in a great many cases, of which Cope v. Rowlands [5] is a notable example, is whether the object of the statute - or one of its objects - is the protection of the public. An antithesis is commonly suggested between an intention to protect the public and an intention simply to secure the revenue, and it is said that when the former intention appears the contract must be taken to be prohibited, whereas if the intention is only to protect the revenue the statute will not be construed as imposing a prohibition on contracts. The question whether the statute was passed for the protection of the public is one test of whether it was intended to vitiate a contract made in breach of its provisions, but I am with respect in full agreement with the views expressed in St. John Shipping Corporation v. Joseph Rank Ltd. [6] and Shaw v. Groom [7] that it is not the only test. It would be contrary to reason and principle to allow one circumstance to override all other considerations in the interpretation of a statute. As Devlin J. said in St. John Shipping Corporation v. Joseph Rank Ltd. [8] : "The fundamental question is whether the statute means to prohibit the contract. The statute is to be construed in the ordinary way: one must have regard to all relevant considerations and no single consideration, however important, is conclusive." See also Shaw v. Groom [9] .

1. [1957] 1 Q.B. 267, at p. 286. 2. [1961] 1 Q.B. 374, at p. 390. 3. (1836) 2 M. & W. 149 [150 E.R. 707]. 4. [1957] 1 Q.B., at p. 287. 5. [1970] 2 Q.B. 504, at p. 518. 6. [1957] 1 Q.B., at p. 287. 7. [1970] 2 Q.B., at p. 523.

There is no doubt that Pt II of the Banking Act, in which s. 8 appears, was enacted partly at least for the protection of depositors, or that one object of s. 8 is the protection of the public. Section 8 of course does not expressly prohibit the making or performance of contracts, but the argument advanced on behalf of the appellants was that the prohibition which it imposes on an unauthorized body corporate from carrying on any banking business extends to all activities which go to make up the business of banking, except such as are merely collateral or peripheral. It was said that a contract to lend money on mortgage supported by guarantee is central to the business of banking and that such a contract, when made by a body corporate unlawfully carrying on the business of banking, and in the course of that business, is prohibited by s. 8 on its proper construction. However the receipt of money on deposit is equally central to the business of banking, and if the argument put on behalf of the appellants is correct, s. 8 would invalidate not only those contracts by which a body corporate carrying on an unauthorized banking business agreed to lend money, but also all contracts pursuant to which it agreed to receive money from depositors. The result of accepting this argument might be that persons who had deposited money with such a body corporate would be unable to seek the assistance of the courts to recover it. Moreover, if a body corporate were unable to recover money that it had lent, it would be disabled from performing its own obligations, including those owed to its depositors. In those circumstances "the avoidance of the contract would cause grave inconvenience and injury to innocent members of the public without furthering the object of the statute" (Archbolds (Freightage) Ltd. v. S. Spanglett Ltd. [10] ; Dalgety and New Zealand Loan Ltd. v. V. C. Imeson Pty. Ltd. [11] ).

1. [1961] 1 Q.B., at p. 390. 2. (1963) 63 S.R. (N.S.W.) 998, at p. 1004.

Another relevant consideration is the fact that the penalty which s. 8 imposes is a pecuniary sum for each day during which the contravention continues. It is immaterial whether, on any day, the body corporate makes one contract, or one hundred; the penalty is the same. This is an indication that the Parliament did not intend to prohibit each contract made in the course of the business, but only to penalize the carrying on of the business without authority - see Smith v. Mawhood [12] and Victorian Daylesford Syndicate Ltd. v. Dott [13] .

1. (1845) 14 M. & W. 452, at p. 464 [153 E.R. 552, at p. 557]. 2. [1905] 2 Ch. 624, at p. 630.

The language of s. 8 indicates that it is directed, not at the making or performance of particular contracts, but at the carrying on of any banking business. In the course of carrying on such a business a body corporate may make and perform contracts, many, if not all, of which might be made equally by a bank or by a company which is not carrying on banking business. A contract to lend money on mortgage is one example; a contract of employment is another. Although all of the contracts made by a body corporate in the course of carrying on a banking business are ex hypothesi things which it does in carrying on the business, that is, in doing what is unlawful, it is impossible to accept that the legislature intended to invalidate all such contracts with the result that contracts to pay its employees, or those who provided it with services, would be void. The appellants recognized this by making the submission to which I have already referred, that the effect of the section is that only those contracts are invalidated which are in their nature central to the business of banking. I have already said that even if that argument were accepted the effect of the section would still be gravely inconvenient. However there is not the slightest indication in the Act that the Parliament intended that the validity of contracts made by a body corporate carrying on business in breach of s. 8 should depend on whether or not they were central to the business of banking. Such a test would in any event be vague and unsatisfactory.

There have been many cases in which a statute which imposes a penalty on an unlicensed or unqualified person for acting in a particular capacity has been held to prohibit by implication all contracts express or implied made by such a person to act in that capacity. In those cases the unsuccessful plaintiff did the very thing which the statute forbade him to do unless he was authorized, for example, he acted as a broker (Cope v. Rowlands [14] ), drew and prepared a conveyance (Taylor v. The Crowland Gas and Coke Co. [15] ), did electrical work (Kocotis v. D'Angelo [16] ); or acted as a real estate agent (Commercial Life Assurance Co. v. Drever [17] ). Those cases are clearly distinguishable from the present, where in making and performing the contract the parties have not done or contracted to do anything which the Act expressly forbids. A case of a similar kind is Victorian Daylesford Syndicate Ltd. v. Dott [18] . In that case a statute provided that a money-lender should not enter into any agreement in the course of his business as a money-lender otherwise than in his registered name. It was held that a contract made by a money-lender in the course of his business, otherwise than in a registered name, was prohibited and illegal. There, again, the contract held to be invalid was of a kind which the statute expressly prohibited. The case on which the appellants most strongly relied was Cornelius v. Phillips [19] . In that case the statute provided that a money-lender "shall carry on the money-lending business at his registered address or addresses, and at no other address". A money-lender carried out a money-lending transaction at a hotel which was not his registered address. It was held that although only one money-lending transaction was conducted at the hotel, the carrying out of that transaction amounted to the carrying on of a money-lending business there, and that the effect of the statute was to avoid the transaction. In that case, as Lord Atkinson pointed out, "the very mischief against which the statute was directed was brought about" [20] . The object and scope of the statute there considered differed from those of the Banking Act. The former statute, in forbidding the business of money-lending to be carried on except under specified conditions, was intended to forbid a money-lender to effect a money-lending transaction except under those conditions. It by no means follows that a statute which prohibits the carrying on of any banking business except under certain conditions is intended to forbid the lending of money on mortgage by a body corporate which is carrying on such a business. In my opinion Cornelius v. Phillips [21] lays down no principle that compels us to impute to the Parliament an intention to prohibit contracts of this kind.

1. (1836) 2 M. & W. 149 [150 E.R. 707]. 2. (1854) 10 Ex. 293 [156 E.R. 455]. 3. (1957) 13 D.L.R. (2d) 69. 4. [1948] 2 D.L.R. 241. 5. [1905] 2 Ch. 624. 6. [1918] A.C. 199. 7. [1918] A.C., at p. 214. 8. [1918] A.C. 199.

Having regard to the language of s. 8, and to the matters to which I have referred, I conclude that s. 8, on its proper construction, does not vitiate contracts made by a body corporate in the course of carrying on a banking business in breach of the section. This conclusion also disposes of the question whether the contract in the present case was unlawfully performed by the respondent and is for that reason unenforceable. Of course s. 8 does not proscribe any particular mode of performance for contracts of this kind. It could only be said that the contract was performed in violation of s. 8 if that section forbids a body corporate which is carrying on a banking business in contravention of the section to perform such a contract if made in the course of its unauthorized banking business. The reasons that I have given for holding that s. 8 does not prohibit the making of contracts of this kind lead also to the conclusion that it does not prohibit their performance. As was pointed out in St. John Shipping Corporation v. Joseph Rank Ltd. [22] , the test is the same whether the contract itself, or the manner of its performance, is said to be illegal. The performance of a contract may turn it into the sort of contract that is prohibited by the statute, and the test is whether the contract, as made or as performed, is a contract that is prohibited by the statute.

Further it cannot be said that the contract was performed for any illegal purpose. There is of course no suggestion that the money was borrowed for an illegal purpose, and the fact that the contract was made in the course of the unlawful banking business does not mean that the contract was made in order that the unlawful purpose of carrying on a banking business without authority could be achieved or carried out. Once it is held that neither the making nor the performance of the contract was unlawful, the fact that the contract was made and performed in the course of the conduct of an unlawful business provides no ground for denying relief to the respondent. The illegality then is something merely casual or adventitious. The principle applicable is that stated in Wetherell v. Jones [23] by Lord Tenterden C.J.:

Where a contract which a plaintiff seeks to enforce is expressly, or by implication, forbidden by the statute or common law, no court will lend its assistance to give it effect; and there are numerous cases in the books where an action on the contract has failed, because either the consideration for the promise or the act to be done was illegal, as being against the express provisions of the law, or contrary to justice, morality and sound policy. But where the consideration and the matter to be performed are both legal, we are not aware that a plaintiff has ever been precluded from recovering by an infringement of the law, not contemplated by the contract, in the performance of something to be done on his part. This passage was cited and applied in St. John Shipping Corporation v. Joseph Rank Ltd. [24] and Shaw v. Groom [25] . The crucial question is whether s. 8 prohibited the making or performance of the contract, and if it did not the fact that the respondent infringed s. 8 does not affect his rights under the contract. The contract was not "nullified for disobedience to a statute", within the rule of public policy discussed by Lord Wright in Vita Food Products Inc. v. Unus Shipping Co. Ltd. [26] because the disobedience in the present case was not in the performance of the contract but was something quite collateral. 1. (1832) 3 B. & Ad. 221, at pp. 225-226 [110 E.R. 82, at p. 84]. 2. (1957) 1 Q.B., at p. 286. 3. [1970] 2 Q.B., at pp. 516-517, 520. 4. [1939] A.C. 277, at p. 293.

Judgment was rightly given for the respondent. I would dismiss the appeal.

This is an appeal by certain defendants ("the defendants") from an order made by the Court of Appeal in an action in the Supreme Court of New South Wales on a personal covenant to repay money lent by the plaintiff [27] . By the order the Court of Appeal dismissed with costs an appeal from an order made by Sheppard J. entering judgment for the plaintiff in the action in the sum of $132,600, that judgment being entered on a motion for summary judgment taken out by the plaintiff [28] .

1. [1977] 2 N.S.W.L.R. 583. 2. [1977] 2 N.S.W.L.R. 177.

The plaintiff sued the first defendant for $132,600, being the principal said to be due under a personal covenant contained in a memorandum of mortgage dated 3rd December 1973 over land under the Real Property Act, 1900 N.S.W., as amended. The other defendants were sued as guarantors of the first defendant's liability. By their defences the defendants pleaded that the plaintiff was at all material times carrying on banking business in Australia within the meaning of s. 8 of the Banking Act 1959, as amended ("the Act"). The defendants went on to allege that the plaintiff was not at any material time authorized by s. 9 of the Act to carry on banking business, that it was not exempted pursuant to s. 11 of the Act from compliance with any of its provisions, that as part of its banking business the plaintiff entered into the transaction in question, and alleged that the mortgage, the loan and the guarantees were illegal and unenforceable. The issues which arose on the pleadings included the following: (a) Whether the plaintiff at the relevant time was carrying on the business of banking within the meaning of s. 8 of the Act. (b) If so, whether the transaction was an illegal one, with the consequence that the court would not enforce it. (c) Whether, if (a) and (b) were answered in the affirmative, s. 8 was invalid as contravening s. 92 of the Constitution. (d) If so, whether it was nevertheless saved by the operation of s. 15A of the Acts Interpretation Act 1901 in so far as intra-state banking business was concerned. (e) If so, whether the instant transaction was entered into in the course of carrying on a business of inter-state or intra-state banking.

The plaintiff took out a motion for summary judgment before a master of the Supreme Court. This application was dismissed on 24th June 1977 upon the ground that the defences were reasonably arguable. The plaintiff appealed against this decision and sought to have the proceedings removed into this Court for the purpose of determining the constitutional questions in advance of the facts being found by the Supreme Court. After this application was refused, Sheppard J. in the interest of expedition, on the plaintiff's application, ordered that there should be an initial and separate determination of the following questions:

(a) Whether the provisions of s. 8 of the Banking Act 1959 (as amended) render illegal and void the mortgage granted by the first defendant to the plaintiff and the guarantees given by the remaining defendants in respect of the said mortgage and contained therein.

(b) Whether by reason of the provisions of s. 8 of the Banking Act 1959 (as amended) a court would not lend its assistance to the plaintiff to give effect to the transaction whereby the first defendant granted a mortgage to the plaintiff and the remaining defendants guaranteed the performance by the first defendant of the provisions of the said mortgage.

To enable these questions to be determined the parties, at the direction of Sheppard J., agreed on the following factual assumptions: (a) That the plaintiff was, at the time the transaction was entered into, carrying on the business of banking contrary to the provisions of s. 8 of the Act. (b) That it was not authorized pursuant to s. 9 of the Act to carry on such a business and had not been exempted from the provisions of the Act pursuant to s. 11 thereof. (c) That the transaction in question was entered into in the course of carrying on the banking business referred to in (a) above. The primary judge answered these questions in the negative, struck out the defences and entered judgment for the plaintiff, his decision being subsequently upheld by the Court of Appeal.

The defendants' case before Sheppard J., in the Court of Appeal and in this Court, has been that s. 8 expressly or impliedly prohibits the making of a loan in the course of the carrying on of banking business by a corporation not authorized under s. 9 and not exempted under s. 11, that a loan so made is made under an illegal and void contract and that the contract will not be enforced by the courts. The case primarily turns on s. 8 of the Act which is in these terms:

Subject to this Act, a body corporate shall not carry on any banking business in Australia unless the body corporate is in possession of an authority under the next succeeding section to carry on banking business.

Penalty: Ten thousand dollars for each day during which the contravention continues.

It is therefore an offence against the Act to contravene the section and the offence is punishable upon conviction by a penalty not exceeding the penalty mentioned (see s. 41 of the Acts Interpretation Act 1901, as amended).

The Act contains no definition of the expression "banking business". However, it does contain a series of provisions which, when considered as a whole, give some clue to the purpose which is sought to be achieved by the prohibition contained in s. 8. The operative provisions begin with s. 7 which, together with ss. 8 to 11, appear in Pt II, headed "Provisions Relating to the Carrying on of Banking Business". Section 7 makes it an offence for a person, not being a body corporate, to carry on any banking business in Australia. Section 9 makes provision for the grant to bodies corporate of authorities to carry on banking business in Australia. Applications for such authorities are made to the Treasurer and are granted by the Governor-General. An authority may be granted subject to conditions, and conditions may be revoked or varied. Section 11 empowers the Treasurer to exempt a person who desires to carry on banking business in Australia but does not desire to carry on the general business of banking from compliance with such provisions of the Act as the Treasurer may specify in his order and for so long as the order continues in force. When an order is made subject to conditions it is made an offence not to comply with these conditions, the penalty specified being not less than $2,000 for each day during which the contravention continues.

Division 2 of Pt II (ss. 12 to 16) is headed "Protection of Depositors". It is the duty of the Reserve Bank to exercise its powers and functions under the Division for the protection of the depositors of the several banks (s. 12). By s. 5 (1) "bank" is defined so as to mean a body corporate authorized under Pt II to carry on banking business in this country and it includes four named banks with which we are not presently concerned. The Reserve Bank is empowered to require a bank to supply information, verified by statutory declaration, relating to its financial stability and in the event of non-compliance with this requirement the Reserve Bank may appoint any officer to investigate the affairs of the bank (s. 13). The Reserve Bank is authorized to investigate the affairs of a bank and to assume control of, and to carry on, its business in certain circumstances where the bank is unable to meet its obligations (s. 14). The Australian assets of a bank which is unable to meet its obligations or which suspends payment of its debts are available to meet its deposit liabilities in Australia in priority to all other liabilities of the bank (s. 16 (1)). The assets of a bank in Australia are required to be of a value not less than the total amount of its deposit liabilities in Australia (s. 16 (2)).

Division 3 of Pt II (ss. 17 to 31) deals with the "Statutory Reserve Deposits" which the trading banks are required to maintain with the Reserve Bank pursuant to the determinations made by the Reserve Bank under s. 21. Though the statutory reserve deposits are assets of a bank which would become available to meet its liabilities, in particular to depositors in the event that a bank was unable to meet its obligations and the provisions may therefore be said to assist in the protection of depositors, the primary purpose of the provisions contained in Div. 3 is to enable the Government, through the Reserve Bank, to regulate the economy by limiting or decreasing the capacity of the trading banks to provide financial assistance and credit to their customers.

Division 4 of Pt II (ss. 32 to 35) empowers the Reserve Bank to mobilize foreign currency. It is directed to the control and regulation of the banks' receipts of foreign currency. Division 5 of Pt II (s. 36) empowers the Reserve Bank to determine the lending policy of all trading and savings banks. Again, it is a provision directed to enabling the Government, through the Reserve Bank, to regulate the economy.

Part III, dealing with "Foreign Exchange", Pt IV dealing with "Gold" and Pt V dealing with "Interest Rates" are directed to matters of financial policy and economic regulation. Part VI - "Statistics" contains provisions regulating the contents of balance sheets and statements which trading and savings banks are required to furnish to the Commonwealth Statistician, the Reserve Bank or the Secretary to the Treasury. Section 61 requires the Auditor-General to investigate periodically the books, accounts and transactions of each bank and to report to the Treasurer and the Reserve Bank.

Banks and persons carrying on banking business are required to furnish such information to the Reserve Bank in respect of their business as the Reserve Bank may direct (s. 62). A bank authorized under s. 9 or exempted under s. 11 shall not, without the prior consent of the Treasurer, enter into an arrangement or agreement for sale or disposal of its business or effect a reconstruction and any such transaction entered into without consent is void and of no effect (s. 63). Where a bank is convicted of an offence against the Act or regulations the High Court may order the bank to comply with the relevant provision in the Act or the regulations and in default the High Court may authorize the Reserve Bank to assume control of, and carry on, the business of the bank (s. 65). Proceedings for an offence against the Act or regulations shall not be instituted without the consent in writing of the Treasurer (s. 70).

The provisions of the Act, though indirectly providing some safeguard to depositors, are principally designed to ensure that the Government and its agencies are equipped with accurate and detailed information as to the financial position of the banks as important financial institutions in the community and with supervisory powers and powers to determine matters relevant to financial policy in the interests of regulating the Australian economy. The Act is not a statute whose primary object is to define and regulate the relationship which exists between banker and customer or to regulate the rights and liabilities of banker and customer inter se. The Act in regulating the carrying on of banking business in Australia does so, not only as a means of protecting the customers of, or the depositors with, banks, the provisions of Div. 2 of Pt III having this object in view, but as an element in regulating the Australian economy.

Viewed in this light the prohibition contained in s. 8 may not be solely directed to the exclusion from the conduct of banking business of bodies corporate which lack the requisite financial strength and stability to carry on banking business. It may also be directed to the exclusion from the field of banking of foreign banks of which only three currently possess authorities under s. 9. Whether those authorities are unconditional we do not know. As the interpretation of s. 8 may involve constitutional considerations to which reference has not been made in argument, it is better that I say no more about its interpretation in this respect save that there is no warrant for concluding that the prohibition which it contains is exclusively directed to the protection of customers of, or depositors with, banks.

The principle that a contract the making of which is expressly or impliedly prohibited by statute is illegal and void is one of long standing but it has always been recognized that the principle is necessarily subject to any contrary intention manifested by the statute. It is perhaps more accurate to say that the question whether a contract prohibited by statute is void is, like the associated question whether the statute prohibits the contract, a question of statutory construction and that the principle to which I have referred does no more than enunciate the ordinary rule which will be applied when the statute itself is silent upon the question. Primarily, then, it is a matter of construing the statute and in construing the statute the court will have regard not only to its language, which may or may not touch upon the question, but also to the scope and purpose of the statute from which inferences may be drawn as to the legislative intention regarding the extent and the effect of the prohibition which the statute contains.

The first question is: Does s. 8 expressly prohibit the making of a contract of loan? The question must, I think, be answered in the negative. The section makes no reference to contracts or transactions. Consequently, if it contains a prohibition against the making of contracts of loan, that prohibition must be ascertained or identified by a process of implication. The defendants seek to avoid this conclusion by saying that, because the lending of money on mortgage in the course of carrying on what is admittedly banking business itself amounts to the carrying on of banking business, as the lending of money on mortgage is central to that business, the making in the course of such a business of a loan and the taking of a mortgage by which the money is agreed to be repaid themselves fall within the prohibition. It is said that the express prohibition against the carrying on of any banking business is necessarily a prohibition against entry into the very transactions which constitute banking business, at least when they are central to that business. So it is argued that the lending of money on mortgage, though not distinctive of banking business, being one of the transactions central to that business is therefore prohibited. Although this argument provides some support for saying that the lending of money on mortgage falls within the prohibition, it does not in my view establish that the prohibition is express rather than implied. The prohibition against the making of contracts, if there be one, can only arise by way of necessary inference, there being no reference at all in the provisions of the section to contracts as such.

The next question is whether by implication, that is by way of necessary inference, such a prohibition can be discovered in the section. The defendants in support of their argument again rely on the admissions of fact, the contention that the lending of money on mortgage is central to banking business and the circumstance that the lending by a bank of money on mortgage in its banking business itself amounts to the carrying on of that business. They then point to cases in which implied prohibitions against the making of contracts of particular kinds have been discovered in some statutes. Of these cases two examples may be selected. The first is Cope v. Rowlands [29] where the statute 6 Anne c. 16 required brokers to be admitted by the court and the mayor of the City of London and upon admission to make prescribed payment with a proviso making it an offence for an unauthorized person to act as a broker, imposing a penalty of £25 for each such offence. It was held that the statute impliedly, though not expressly, prohibited a brokerage contract entered into by an unauthorized person and made it illegal and void. Parke B. said [30] :

And it may be safely laid down, notwithstanding some dicta apparently to the contrary, that if the contract be rendered illegal, it can make no difference, in point of law, whether the statute which makes it so has in view the protection of the revenue, or any other object. The sole question is, whether the statute means to prohibit the contract? He went on to say [31] : the question for us now to determine is, whether the enactment of the statute 6 Ann c. 16, (altered as to the amount of penalty by 57 Geo. 3 c. 60), is meant merely to secure a revenue to the city, and for that purpose to render the person acting as a broker liable to a penalty if he does not pay it? or whether one of its objects be the protection of the public, and the prevention of improper persons acting as brokers? On the former supposition, the contract with a broker for his brokerage is not prohibited by the statute; on the latter it is: for it cannot be permitted to a person to recover a compensation for an act which the law interdicts him from doing. As brokerage contracts are distinctive of broking business, the Court held that the statute prohibited the carrying on of the business and the making of the contracts. 1. (1836) 2 M. & W. 149 [150 E.R. 707]. 2. (1836) 2 M. & W., at p. 157 [150 E.R. at p. 710]. 3. (1836) 2 M. & W. at p. 158 [150 E.R. at p. 710].

The second case is Cornelius v. Phillips [32] . There a registered money-lender entered into a money-lending contract at an hotel some distance away from his registered address. This was held to be in contravention of s. 2 (1) (b) of the Money-lenders Act, 1900 U.K. which prohibited a money-lender from carrying on his money-lending business otherwise than at his registered address. It was also held that the statutory provision prohibited the contract and made it void, this because the prohibition amounted to a prohibition against a registered money-lender lending money except at his registered address. This conclusion might be thought to have been inescapable, subject to the existence of any contrary intention in the statute, so close is the relationship between the carrying on of a money-lending business and the making of a loan of money. Accordingly, Cornelius v. Phillips [33] does not provide illuminating guidance in the present case where the contracts entered into in the course of banking business are so varied and are not necessarily distinctive of the business. Lord Dunedin said [34] :

the question always comes to be put, as Parke B. put it in Cope v. Rowlands [35] , Does the statute seek to prohibit the contract? Sect. 2, sub-s. 1 (b), seems to me to prohibit the contract, though it is expressed in words which apply directly to the contractor rather than to the contract. Indeed, if one looks at the mischief sought to be remedied, the case seems to me a stronger one than that of Cope v. Rowlands [36] . 1. [1918] A.C. 199. 2. [1918] A.C. 199. 3. [1918] A.C., at pp. 212-213. 4. (1836) 2 M. & W., at p. 157 [150 E.R., at p. 710]. 5. (1836) 2 M. & W. 149 [150 E.R. 707].

These cases do no more than demonstrate that the question whether a statute prohibits contracts is always a question of construction turning on the particular provisions, the scope and purpose of the statute. They also indicate some of the considerations which will influence the court's decision on the question of construction. But the considerations to which they refer are by no means exhaustive or comprehensive and it can scarcely be suggested that the statutes on which the two cases were decided bear a close resemblance to the Banking Act. It is one thing to imply a prohibition against particular contracts which are distinctive of a business from a prohibition against the carrying on of that business. It is quite another thing to imply a prohibition against contracts of various kinds none of which are distinctive of the business which is the subject of the statutory prohibition. And the difficulty in implying the prohibition is not in my opinion overcome by seeking to limit it to those contracts which are said to be central to the business, though it is admitted that they are not distinctive of it.

Where, as here, a statute imposes a penalty for contravention of an express prohibition against carrying on a business without a licence or an authority and the business is carried on by entry into contracts, the question is whether the statute intends merely to penalize the person who contravenes the prohibition or whether it intends to go further and prohibit contracts the making of which constitute the carrying on of the business. In deciding this question the court will take into account the scope and purpose of the statute and the consequences of the suggested implication with a view to ascertaining whether it would conduce to, or frustrate, the object of the statute.

In In re Mahmoud and Ispahani [37] , Scrutton L.J. referred to Bloxsome v. Williams [38] in which the defendant, who was a horse-dealer, was prohibited by statute from trading on a Sunday, and pointed out that there was nothing illegal in another person making a contract with a horse-dealer on a Sunday except that if he knew that the person with whom he was dealing was a horse-dealer he might be aiding and abetting him to break the law. Atkin L.J. said [39] : "One may find that the statute imposes a penalty upon an individual, and yet does not prohibit the contract if it is made with a party who is innocent of the offence which is created by the statute."

1. [1921] 2 K.B. 716, at p. 730. 2. (1824) 3 B. & C. 232 [107 E.R. 720]. 3. [1921] 2 K.B., at p. 731.

The prohibition contained in s. 8 against carrying on any banking business without an authority is an integral element in the statutory regulation of banking business. As I have said, the object of that regulation is not only to protect depositors with authorized banks but to equip the Government, through its agencies, with current and detailed information as to banking operations in Australia and to arm the Government and its agencies with supervisory powers and powers to determine matters relevant to financial policy in the interests of regulating the Australian economy.

In this context there is little to be said for the view that the statute intends to prohibit contracts made by unauthorized banks in the course of carrying on banking business. To do so would be to prejudice depositors, not to protect them. The implication of such a prohibition would deny to innocent depositors the right to recover moneys deposited unlawfully with persons carrying on banking business because ex hypothesi the prohibited contract would be illegal and void. To place the defendants' interpretation upon the statute would confer an extraordinary advantage on the wrongdoer in enabling it to resist repayment of moneys deposited with it. In this respect the advantage given to the wrongdoer might conceivably go some distance towards outweighing the punishment imposed upon it by way of penalty under s. 8.

It is not rational to suppose that the Parliament intended to inflict such dire consequences on innocent depositors. Nor is it rational to suppose that the Parliament intended to advantage innocent borrowers whilst penalizing innocent depositors. Even less is it to be supposed that the Parliament intended to invalidate the wide range of commercial and other securities which are brought into existence in the course of carrying on a banking business and thereby to inflict loss on the many persons acquiring such securities. I therefore conclude that the purpose of the Act is adequately served by the imposition of the very heavy penalty which is prescribed for a contravention of s. 8 and that it does not prohibit and thereby invalidate contracts and transactions entered into in the course of carrying on banking business in breach of the section.

However, it is suggested that this conclusion does not dispose of the issues in the present case. Here the party seeking to enforce the contract is not the innocent party but the party in breach of a statutory prohibition, the contract being made in the course of the carrying on of a business which in the circumstances was prohibited, though the contract was not itself prohibited. The question therefore remains whether the court will allow the plaintiff to enforce the contract. The suggestion is that the court will not do so and that its refusal so to do is dictated by the principle ex turpi causa non oritur actio or by the more specific rule that the court will not enforce the contract at the suit of a party who has entered into a contract with the object of committing an illegal act.

The effect of the principle ex turpi causa non oritur actio was expressed by Fry L.J. in Cleaver v. Mutual Reserve Fund Life Association [40] :

no system of jurisprudence can with reason include amongst the rights which it enforces rights directly resulting to the person asserting them from the crime of that person. If no action can arise from fraud, it seems impossible to suppose that it can arise from felony or misdemeanour. Cleaver's Case [41] was cited with approval in Beresford v. Royal Insurance Co. Ltd. [42] where Lord Atkin said [43] : the principle is that a man is not to be allowed to have recourse to a Court of Justice to claim a benefit from his crime whether under a contract or a gift. No doubt the rule pays regard to the fact that to hold otherwise would in some cases offer an inducement to crime or remove a restraint to crime, and that its effect is to act as a deterrent to crime. But apart from these considerations the absolute rule is that the courts will not recognize a benefit accruing to a criminal from his crime. 1. [1892] 1 Q.B. 147, at p. 156. 2. [1892] 1 Q.B. 147. 3. [1938] A.C. 586. 4. [1938] A.C., at pp. 598-599.

The suggested application of the principle often involves a conflict between competing common law policies. In Beresford's Case [44] Lord Macmillan identified the conflict between the principle that no court ought to assist a criminal to derive benefit from his crime and the principle that contracts deliberately undertaken by persons of full age ought to be enforced. In Cleaver's Case [45] Lord Esher M.R. prefaced his remarks on the unenforceability of a life insurance contract where the beneficiary murdered the assured with the warning that "when people vouch that rule to excuse themselves from the performance of a contract, in respect of which they have received the full consideration, and when all that remains to be done under the contract is for them to pay money, the application of the rule ought to be narrowly watched, and ought not to be carried a step further than the protection of the public requires".

1. [1938] A.C., at p. 603. 2. [1892] 1 Q.B., at p. 181.

In the present case the effect of relieving the defendants from their contractual obligation to repay money to the plaintiff would not be confined to the substantial detriment resulting to the plaintiff. The ability of the plaintiff to meet its obligations to its investors and other creditors depends, in part if not entirely, on its ability to enforce the terms of repayment of its contracts of loan with persons such as the defendants. To hold the contract unenforceable at the suit of the plaintiff would be to provide a windfall gain to the defendants and other borrowers in a similar position, and, although indirectly, to impose substantial hardship on those who originally made funds available to the plaintiff.

The weighing of considerations of public policy in this case and the decision in favour of enforcing the contract is influenced by the form of the particular legislation. In this case the Act, as I have mentioned, is to a large extent directed to aiding the Government in executing its fiscal policy rather than regulating the relationship between banker and customer per se, a feature which lends support for the view that the provision of a large recurrent penalty for offences against s. 8 is Parliament's determination of the consequences of breach of the section and as the only legal consequences thereof. There is much to be said for the view that once a statutory penalty has been provided for an offence the rule of the common law in determining the legal consequences of commission of the offence is thereby diminished - see my judgment in Jackson v. Harrison [46] . See also the suggestions that the principle cannot apply to all statutory offences (Beresford v. Royal Insurance Co. Ltd. in the Court of Appeal [47] , per Lord Wright; Marles v. Philip Trant & Sons Ltd. [48] , per Denning L.J., and that it would be a curious thing if the offender is to be punished twice, civilly as well as criminally (St. John Shipping Corporation v. Joseph Rank Ltd. [49] , per Devlin J.). The main considerations from which the principle ex turpi causa arose can be seen in the reluctance of the courts to be instrumental in offering an inducement to crime or removing a restraint to crime: Beresford's Case [50] ; Amicable Society v. Bolland (Fauntleroy's Case [51] ).

1. (1978) 138 C.L.R. 438, at p. 452. 2. [1937] 2 K.B. 197, at p. 220. 3. [1954] 1 Q.B. 29, at p. 37. 4. [1957] 1 Q.B. 267, at p. 292. 5. [1938] A.C., at pp. 586, 599. 6. (1830) 4 Bligh (N.S.) 194, at p. 211 [5 E.R. 70, at p. 76].

However, in the present case Parliament has provided a penalty which is a measure of the deterrent which it intends to operate in respect of non-compliance with s. 8. In this case it is not for the court to hold that further consequences should flow, consequences which in financial terms could well far exceed the prescribed penalty and could even conceivably lead the plaintiff to insolvency with resultant loss to innocent lenders or investors. In saying this I am mindful that there could be a case where the facts disclose that the plaintiff stands to gain by enforcement of rights gained through an illegal activity far more than the prescribed penalty. This circumstance might provide a sufficient foundation for attributing a different intention to the legislature. It may be that the true basis of the principle is that the court will refuse to enforce a transaction with a fraudulent or immoral purpose: Beresford v. Royal Insurance Co. Ltd. [52] . On this basis the common law principle of ex turpi causa can be given an operation consistent with, though subordinate to, the statutory intention, denying relief in those cases where a plaintiff may otherwise evade the real consequences of a breach of a statutory prohibition.

Nevertheless, the principle that the court will not enforce a contract at the suit of a party who has entered into it with the object of committing an illegal act does not avail the appellant in this case. The considerations to which I have already referred serve to show that the legislative intention expressed by the Act is that a contract made by a corporation carrying on banking business in breach of s. 8 is not illegal and void, but rather that it is a valid contract and that the only penalty which the corporation suffers in consequence of its breach of the section is a liability to conviction and fine under the provisions of the section.

In my opinion the plaintiff is able to enforce the mortgage against the defendants in this case as the contract is not rendered void, either expressly or impliedly, by the Act and considerations of public policy operate, in the circumstances, so as to make inapplicable the maxim ex turpi causa non oritur actio.

When a statute expressly prohibits the making of a particular contract, a contract made in breach of the prohibition will be illegal, void and unenforceable, unless the statute otherwise provides either expressly or by implication from its language. The reported cases which support this principle are numerous. I need refer only to one cited in the course of the argument, In re Mahmoud and Ispahani [53] . An example of a case where the statute was held on its true construction to provide otherwise is Batu Pahat Bank Ltd. v. Official Assignee [54] .

Where a statute makes it an offence to make a particular contract or to make it in defined circumstances, that will be construed as an implied prohibition of the making of the contract unless the statutory provision is merely in aid of the revenue: Cope v. Rowlands [55] , where at p. 157 Parke B. stated:

It is perfectly settled, that where the contract which the plaintiff seeks to enforce, be it express or implied, is expressly or by implication forbidden by the common or statute law, no court will lend its assistance to give it effect. It is equally clear that a contract is void if prohibited by a statute, though the statute inflicts a penalty only, because such a penalty implies a prohibition: Lord Holt, Bartlett v. Vinor [56] . And it may be safely laid down, notwithstanding some dicta apparently to the contrary, that if the contract be rendered illegal, it can make no difference, in point of law, whether the statute which makes it so has in view the protection of the revenue, or any other object. The sole question is, whether the statute means to prohibit the contract? In Cope v. Rowlands [57] a statute made it an offence for a person not admitted to act as a broker so to act and it was held that the statute impliedly prohibited and rendered illegal a brokerage contract made by a broker not admitted to act as such. 1. (1836) 2 M. & W., at p. 157 [150 E.R., at p. 710]. 2. (1692) Carthew 252 [ 90 E.R. 750]. 3. (1836) 2 M. & W. 149 [150 E.R. 707].

If a statute imposes a positive obligation to make contracts in a certain way, a prohibition against making contracts in another way can be implied as a matter of construction and will be implied unless the purpose of the statutory requirement is merely to protect the revenue: Victorian Daylesford Syndicate Ltd. v. Dott [58] . There a statute required that a person being a money-lender should contract in the course of his business in a registered name. Buckley J. held that the statute impliedly prohibited a money-lender from contracting in the course of his business otherwise than in a registered name. He said [59] :

The next question is whether the Act is so expressed that the contract is prohibited so as to be rendered illegal. There is no question that a contract which is prohibited, whether expressly or by implication, by a statute is illegal and cannot be enforced. I have to see whether the contract is in this case prohibited expressly or by implication. For this purpose statutes may be grouped under two heads - those in which a penalty is imposed against doing an act for the purposes only of the protection of the revenue, and those in which a penalty is imposed upon an act not merely for revenue purposes, but also for the protection of the public. If I arrive at the conclusion that one of the objects is the protection of the public, then the act is impliedly prohibited by the statute, and is illegal. I desire to point out that the present case is one that is upon this point abundantly plain. There is no question of protection of the revenue here at all. The whole purpose is the protection of the public. The money-lender has to be registered, and has to trade in his registered name obviously and notoriously for the protection of those who deal with him. The purpose is a public purpose, and therefore upon all the authorities the act for the doing of which a penalty is imposed is an act which is impliedly prohibited by the statute, and is consequently illegal. 1. [1905] 2 Ch. 624. 2. [1905] 2 Ch., at pp. 629-630.

A prohibition, express, or implied in the manner which I have indicated above, against the carrying on of a business may, upon examination, be found to be a prohibition of the making of particular contracts, either generally, or where the contracts are made by a person who satisfies a particular description or in particular circumstances. Of this kind is the case particularly relied upon by the appellant, Cornelius v. Phillips [60] . It was there held that a statute making it an offence for a registered money-lender to carry on his business at an address other than his registered address made illegal and void a contract of loan made by such a money-lender at a place other than his registered address. Carrying on of business was held to be satisfied in the context by a single act of money-lending by a money-lender. The prohibition against carrying on a money-lending business in such circumstances was held to amount to a prohibition of money-lending in those circumstances.

In other cases the prohibition against carrying on a business may not be able to be construed as either an express or implied prohibition against the making of a particular contract. Nevertheless in such a case the courts may not enforce such a contract but, if they do not, it is not because the contract itself is directly contrary to the provisions of the statute by reason of an express or implied prohibition in the statute itself but because it is a contract associated with or in the furtherance of illegal purposes, for instance, the purposes of a business being carried on illegally: McCarthy Bros. Pty. Ltd. v. Dairy Farmers' Co-operative Milk Co. Ltd. [61] . One then enters the field of contracts not themselves unlawful but made for an illegal purpose. Of these the classic case is Pearce v. Brooks [62] . The refusal of the courts to regard such contracts as enforceable stems not from a legislative prohibition but from the policy of the law, commonly called public policy. It is of these contracts that Lord Wright said in Vita Food Products Inc. v. Unus Shipping Co. Ltd. [63] :

Nor must it be forgotten that the rule by which contracts not expressly forbidden by statute or declared to be void are in proper cases nullified for disobedience to a statute is a rule of public policy only, and public policy understood in a wider sense may at times be better served by refusing to nullify a bargain save on serious and sufficient grounds. I would take the reference to "expressly forbidden" to comprehend the case of a prohibition implied as a matter of construction of the statute itself. 1. (1945) 45 S.R. (N.S.W.) 266. 2. (1866) L.R. 1 Ex. 213. 3. [1939] A.C. 277, at p. 293.

In Archbolds (Freightage) Ltd. v. S. Spanglett Ltd. [64] the Court of Appeal approached the question before them in the manner which I have indicated. Pearce L.J. examined whether the contract was expressly forbidden by the statute, then whether it was impliedly forbidden by the statute and lastly whether, if the contract was neither expressly or impliedly forbidden, nevertheless on grounds of public policy the courts would not enforce it if it could only be performed in contravention of a statute or was intended to be performed illegally or for an illegal purpose. He concluded that the particular contract was not of this last kind. Devlin L.J. approached the matter along much the same lines but it may be that he took a wider view of the power of a court to hold a contract valid even if it was an offence for one party to enter into it, a wider view than that expressed, for instance, by Buckley J. in Victorian Daylesford Syndicate Ltd. v. Dott [65] . On the other hand it may be that he was dealing only with cases where as a matter of construction there was no express or implied prohibition in the statute and where the only question was whether the enforcement of the contractual rights would be contrary to public policy. In the context of this last question of public policy, but not in a context of construing the statute in order to determine whether it contained either an express or implied prohibition of the making of the contract, I respectfully accept his general enunciation of relevant factors which he expressed in relation to the statute in question as follows [66] :

I think that the purpose of this statute is sufficiently served by the penalties prescribed for the offender; the avoidance of the contract would cause grave inconvenience and injury to innocent members of the public without furthering the object of the statute. Moreover, the value of the relief given to the wrongdoer if he could escape what would otherwise have been his legal obligation might, as it would in this case, greatly outweight the punishment that could be imposed upon him, and thus undo the penal effect of the statute. 1. [1961] 1 Q.B. 374. 2. [1905] 2 Ch., at pp. 629-630. 3. [1961] 1 Q.B., at p. 390.

In the present case I am unable to construe s. 8 of the Banking Act 1959 as itself a prohibition of the making of the contract of loan from the first-named respondent to the first-named appellant. The section cannot be construed to provide that a body corporate carrying on banking business without authority shall not lend money. In this respect the case is different from Cornelius v. Phillips [67] , where the statute could be construed as a prohibition of the lending of money by a registered money-lender at the place where it was lent. The difference may be illustrated by comparing the necessary ingredients of a criminal charge alleging breach. In a statute construed as was the statute in Cornelius v. Phillips the charge would be particularized and proved by proof that the loan of money was made by the registered money-lender at the place which was not his registered address. In the case of a charge under s. 8 of the Banking Act the offence would not be proved by proof that the corporation had lent money on mortgage. That single act would not prove the carrying on of banking business, even though it might be able to be proved as part of a body of evidence going to establish that a banking business was being carried on.

Therefore the contract is only unenforceable if the courts should decline to enforce it because it is associated with the illegal purpose or activity of carrying on the banking business. This is where it is necessary to consider public policy. What public policy of the law would be served? In this connexion it is proper, as was done in Archbolds (Freightage) Ltd. v. S. Spanglett Ltd. [68] , to have regard primarily to the scope and purpose of the statutory provision, to consider whether the legislative purpose will be fulfilled without the courts regarding the contract as void and unenforceable. I cannot see that any legislative purpose of s. 8 of the Banking Act would be served by preventing a corporation in breach of its provisions from recovering moneys lent on mortgage. A primary purpose of the Banking Act is to protect against loss depositors of money with a corporation which by accepting that money and safeguarding it and lending it out again thereby carries on the business of banking. That purpose is defeated if the depositors' money, lent out by the corporation, is thereby irrevocably lost to the corporation and consequently to the depositors. The avoidance of the contract would cause grave injury to depositors, particularly those who had deposited their money without the knowledge that the corporation had no authority to carry on the banking business. Their right to recovery of their money would be of no avail to such depositors if the corporation could not recover the money which it had in turn lent. I find this a sufficient reason of public policy, based as it is on the scope and purpose of s. 8 itself, to decline to apply any rule of public policy that a contract made in association with an illegal purpose cannot be sued on.

The case was argued on the assumption that the plaintiff (the respondent in this Court) entered into a mortgage transaction in the course of carrying on banking business contrary to the provisions of s. 8 of the Banking Act 1959, as amended ("the Act"). It was not authorized pursuant to s. 9 of the Act to carry on banking business and had not been exempted from the provisions of the Act pursuant to s. 11. The defendant appellant can succeed only if the plaintiff's recovery of the moneys lent on mortgage is forbidden (by statute or common law).

Subject to this Act, a body corporate shall not carry on any banking business in Australia unless the body corporate is in possession of an authority under the next succeeding section to carry on banking business.

Penalty: Ten thousand dollars for each day during which the contravention continues.

The Act does not expressly or impliedly forbid the recovery of moneys lent in the course of carrying on banking business without authority. It does not expressly invalidate each transaction in the course of carrying on any banking business. The imposition of a daily penalty for carrying on any banking business (rather than a penalty for each act of carrying on any banking business) tells against an implication that it was intended to invalidate each transaction in the course of carrying on of banking business.

If each transaction were penalized, the assistance of the courts to enforce the transaction would directly undermine s. 8 and it would be appropriate to recognize, as part of the federal common law, a rule which forbids recovery of moneys loaned by the bank in such a transaction. Such a federal common law rule would complete the pattern enacted by the Federal Parliament and would be necessary (or at least desirable) for the effective operation of the federal Act. Although federal common law may incorporate State law where appropriate (see Clearfield Trust Co. v. United States [69] ), it would be inappropriate that State law should simply be adopted. The subject calls for national uniformity, yet State laws might (because of differing statutes) vary from State to State. I referred to a somewhat similar situation in Australian Broadcasting Commission v. Industrial Court of South Australia [70] . However, a federal common law rule would presumably be much the same as the general common law rule of unenforceability of prohibited transactions. That rule is not altogether satisfactory, because it can produce extravagant results, penalizing the offender directly (and others indirectly) to a much greater extent than the penalty provided for breach. But such a rule would be necessary to avoid frustration of the statutory prohibition.

1. (1943) 318 U.S. 363, at p. 367 [87 Law. Ed. 838, at p. 842]. 2. (1977) 138 C.L.R. 399, at p. 417.

As s. 8 stands, however, the assistance of the courts to a bank in enforcing the transaction would not directly defeat the object of the section, although it tends to do so. Should a federal common law rule be adopted to forbid recovery in these circumstances? Objections are the unmerited windfall to borrowers from the bank, with possible consequential insolvency of the bank and loss to innocent lenders and other creditors. These objections are not peculiar to these circumstances but apply whenever recovery is denied by a drastic rule. However, the dominant consideration is that adoption of such a rule is not required to ensure observance of the Act. The penalty in s. 8 is heavy (although inflation has reduced its severity) and sufficient to secure observance if this were desired by those responsible for its enforcement. My conclusion is that such a rule should not be adopted.

I am in agreement with the reasons for judgment of my brother Mason and would therefore dismiss this appeal.