Opinion Number. 1499

Subject

commonwealth bank whether commonwealth bank is commonwealth government instrumentality: application of state Interest Reduction and Moratorium legislation: immunity of instrumentalities: inconsistency

Key Legislation

INTEREST REDUCTION ACT 1931 (NSW): MORATORIUM ACT 1930

Date
Client
The Secretary to the Treasury

The Secretary, Department of the Treasury, has forwarded the following for advice:

I append for your information a copy of a letter of 7th October, addressed by the Chairman of the Commonwealth Bank Board to the Treasurer, and have to ask that you will kindly favour the Treasury with your early advice on this matter:

In the past the Board has not been concerned with the effect of State legislation as it has been tacitly accepted in almost all quarters that the Commonwealth Bank is a Government Instrumentality and hence not affected.

Latterly, certain doubts having arisen, the status of the Bank has been referred to leading Counsel who have advised–with particular reference to the recent New South Wales State Interest Reduction and Moratorium Acts–that the Bank is not a Government Instrumentality and is subject to the provisions of these Acts. Counsel advised further that if the Commonwealth should pass the necessary legislation under section 51, sub-section 13 of the Constitution, the State Legislation would not be effective.

The Board is of the opinion that the State legislation above referred to is inimical to the interests of the Bank. In view of this the Board feels it is under obligation to call the attention of your Government to the matter so that if it be deemed advisable the necessary Commonwealth legislation can be enacted to meet the position.

The question whether the Commonwealth Bank is a Government instrumentality was considered in the case of Heiner v. Scott (19 C.L.R. 381) and the following extracts indicate the views of the members of the court as then constituted:

Griffith C.J., (at p. 393–4)

It may be conceded that it is a function of government to raise money by way of loan for governmental purposes and to make provision for the custody and management of the public funds, whether raised by taxation or loan, but it does not follow that it is a function of government to carry on a trade for the purpose of raising revenue. In my opinion the carrying on of ordinary banking business is not a function of the executive Government of the Commonwealth conferred by the Constitution …

For these reasons I am of opinion that the operations of the Commonwealth Bank, as between itself and its customers, are not the discharge of a function of the executive Government of the Commonwealth, and that no privileges can be claimed in respect of them.

Isaacs, Gavan Duffy and Rich J.J. (p. 400):

We do not think the Act constitutes the Bank universally the agent of the Commonwealth in the sense necessary to make all its acts the acts of the Commonwealth itself–in other words sovereign acts. In respect of sub-section (c) of section 7, its personality is kept distinct from that of the Commonwealth. In respect of some of its functions and obligations, it may or may not be identified with the Commonwealth–a matter for possible future consideration.

Powers, J. (p. 402):

The Bank is, in my opinion, constituted by the Act a Commonwealth instrumentality to carry out savings bank business–a governmental function in Australia–and possibly other government business, but under section 7(c) of the Act the power to receive deposits on current account in its trading banking business is only given to it as a trading bank, and not to carry out any governmental functions.

The case was not decided by the majority of the court upon the grounds set out above, but it is clear from the above extracts that the court favoured the view that in respect of its functions as a trading bank the Commonwealth Bank is not carrying out governmental functions, and is not, therefore, a government instrumentality.

The application of State legislation to the Commonwealth Bank was again considered by the High Court in the case of Butterworth v. Commonwealth Bank of Australia (22 C.L.R. 206), but this case was decided on the ground that the bank did not come within the words of the section of the State Act.

In the case of the Amalgamated Society of Engineers v. Adelaide Steamship Co. Ltd. (28 C.L.R. 129) the High Court carefully considered the doctrine of the immunity of instrumentalities, as stated in the case of D’Emden v. Pedder. The court rejected the doctrine of ‘implied prohibition’ or ‘political necessity’, which had been applied in some previous cases, and decided that the true foundation of the rule laid down in the case of D’Emden v. Pedder is section 109 of the Constitution. This view is set out in the combined judgement of Knox, C.J., Isaacs, Rich and Starke, J.J., as follows (p. 154):

The effect of State legislation, though fully within the powers preserved by section 107, may in a given case depend on section 109. However valid and binding on the people of the State where no relevant Commonwealth legislation exists, the moment it encounters repugnant Commonwealth legislation operating on the same field the State legislation must give way. This is the true foundation of the doctrine stated in D’Emden v. Pedder in the so called rule quoted, which is after all only a paraphrase of section 109 of the Constitution.

In the case of Pirrie v. McFarlane (36 C.L.R. 170) the court again considered the decision in D’Emden v. Pedder. This was an appeal from the decision of a Police magistrate, which was stated in the following terms:

I consider that the principle laid down in D’Emden v. Pedder, as interpreted by subsequent cases, applies to this case. Section 6 of the Motor Car Act 1915 (Victoria), which requires drivers of motor cars on public highways to hold licences would, in my opinion, if it were held to apply to the men carrying out their duties as servants of the Defence Department, be a fettering or interference with the executive powers of that Department.

The majority of the High Court refused to accept this statement of the effect of the decision in D’Emden v. Pedder. Knox, C.J., stated his opinion as follows (at p. 181):

It follows from the opinion expressed by the majority of the Court in the Engineers’ Case that in the present case the defendant can derive no assistance from the doctrine of implied immunity of Federal instrumentalities nor can he rely on the decision in D’Emden v. Pedder unless he can establish that section 6 of the Victorian Motor Car Act is, if applied to him, inconsistent with a law of the Commonwealth.

Similar views were expressed by Higgins. J. and Starke. J. For instance, Higgins. J., says (at p. 218):

The Act is passed by the State legislature within its powers, for the regulation of motor traffic in the highways; and all the traffic is bound unless the Federal Parliament … enact within its powers some Act, or regulation under an Act, to the contrary effect, for servants of Federal Departments.

The decision raises a further obstacle to the contention that the Commonwealth Bank is not bound by the New South Wales Moratorium and Interest Reduction Acts, because it indicates that, even if the court accepted the view that the bank should be regarded as a Commonwealth instrumentality, it might still reject the contention that the State legislation does not apply to the bank on the ground that it cannot be established that the application of the State legislation is inconsistent with a law of the Commonwealth.

Express provision is included in the State Acts mentioned for the exemption of the Crown and of certain State Authorities, but the Commonwealth Bank is not included in this exemption.

In my opinion, therefore, if it is desired that the State legislation should not apply to the Commonwealth Bank, it would be advisable to pass Commonwealth legislation exempting the bank from the application of such legislation or authorising the making of regulations for the purpose.

[Vol. 25, p. 307]