COMMONWEALTH BANK COMMONWEALTH BANK: EFFECT OF STATE COMPANIES ACT REGULATING PRIORITIES OF DEBTS AND PURPORTING TO BIND CROWN: WHETHER BANK ENTITLED TO PRIORITY OF CROWN IN RESPECT OF DEBTS OWING TO BANK: INCONSISTENCY: ‘LAW OF THE COMMONWEALTH’: WHETHER THERE IS A COMMON LAW OF THE COMMONWEALTH
commonwealth baNk act 1911 s 34A: Companies act 1933 (nsw) ss 199(3), 297(1)(d): constitution ss 51(xxxix), 52, 109: Moratorium Act 1930 (NSW): Companies Act 1899 (NSW): Bankruptcy Act 1927
The Secretary to the Treasury has forwarded the following letter from the Secretary, Commonwealth Bank, to me for advice:
We refer to your letter No. 5446/34/4976 of the 2nd January 1935 and to your letter of the 6th November, 1931 under cover of which Solicitor-General’s opinion No. 160 of 1931(1) was forwarded.
So that we may be fully informed concerning our probable position under section 34A of the Bank Act, it is desired that you should request the Solicitor-General to advise whether our position in the State of New South Wales has been weakened by the Companies Act 1936 New South Wales.
The salient point of the Solicitor-General’s former opinion was that section 34A of the Commonwealth Bank Act was effective because no State Company Act purported to bind the Crown.
The new Companies Act in this State does, however, purport to bind the Crown. Sub-section 3 of section 199 (which deals with the winding up of a company) reads:
The provision of this Part of this Act relating to the remedies against the property of a company, the priorities of debts and the effect of an arrangement with creditors shall bind the Crown.
When the Act was in Bill form we obtained an opinion from Messrs. Allen Allen & Hemsley on this point. The view given by these Solicitors was that the Common Law rights given the Commonwealth by section 109 of the Constitution provided the necessary ‘inconsistency’ with this new State enactment to ensure that the effect of section 34A of our Act would be unimpaired.
A copy of the letter from Allen Allen & Hemsley of the 8th October last is enclosed for the information of the Solicitor-General, with an extra copy attached for your files.
The point taken by Messrs. Allen Allen & Hemsley is not mentioned in the Solicitor-General’s previous advices and we shall be interested to learn whether he considers that it is satisfactory so far as New South Wales is concerned, for us to place the same reliance in section 34A of the Bank Act as has been done in the past.
The letter from Messrs. Allen, Allen & Hemsley referred to in the penultimate paragraph of the letter from the Secretary, Commonwealth Bank is as follows:
We have, as requested by your Mr. Egan, considered the question raised by him namely:
Whether the provisions of section 297(1)(d) of the Bill would on the authority of Food Controller v. Cork (1923) Appeal Cases page 647,(2) deprive the Bank of any priority over other creditors in the winding up of a company?
and, as the Bill will shortly come before Parliament for consideration, we beg to advise as follows:
On the principles enunciated in Food Controller v. Cork (1923) A.C. page 647, the combined effect of sections 199, 282 and 297 (1)(d) of the Companies Bill, would be that State Crown debts would have no priority in the winding up of a company other than such priority as is given by section 297.
Would these same principles apply to the Commonwealth Bank?
In an Opinion, given in 1931, on the question whether the Moratorium Act of 1930 applies to the Commonwealth Bank, Mr. E. M. Mitchell, K.C., and Mr. F. R. Jordan (now Mr. Justice Jordan) expressed the view that by reason of the important governmental functions which have been added to the duties of the Commonwealth Bank, and for various other reasons, the Commonwealth Bank may now be rightly described as the Crown.(3)
If this view is correct, the Commonwealth Bank is entitled to priority in the winding up of the Company, on the ground of the ‘incontrovertible rule of law’ cited in Cork’s case, that:
when the King’s and the subject’s title concur, the King’s shall be preferred;
and this priority would, prima facie, be cut down by section 297 of the Companies Bill, if enacted in its present form.
In re Keep, McPherson Ltd., 48 W.N., page 180,(4) it was held that the right of the Commonwealth to priority in the winding up of a Company is not affected by Companies Act 1899, because, although it adopts the Federal Bankruptcy Act as the law applicable to the winding up of a company, and the Bankruptcy Act binds the Crown and only gives the Crown limited priority, yet the Companies Act does not itself bind the Crown, and therefore does not cut down the Crown’s priority.
The position is different however, with regard to the Companies Bill 1934, Part X of which, relating to winding up, is expressed in section 199 to bind the Crown.
The question for decision is, whether the State Legislature has power thus to limit the priority of the Commonwealth Crown.
Until the decision of the High Court in the Engineers case, 28 C.L.R. page 129, questions similar to that on which we now have to advise the Commonwealth Bank, were decided on the assumption that the American doctrine of ‘implied prohibition’ or of the immunity of Federal and State instrumentalities, applied as between the Commonwealth and States. This assumption, however, was exploded by the Engineers case, which decided that Commonwealth and State instrumentalities are not immune, but that the whole question rests on section 109 of the Constitution.
The rule of D’Emden v. Pedder (C.L.R. page 91)(5) was affirmed, but only in so far as it was based on section 109. It would therefore appear that a State has power to bind the Commonwealth, so long as such binding is not inconsistent with a Commonwealth law.
Is section 297(1)(d) of the Companies Bill 1934 inconsistent with any Commonwealth law within the meaning of section 109 of the Constitution?
The right of the Commonwealth Crown to priority is based on the common law, and the question now resolves itself into a consideration of whether ‘law’ in section 109 includes ‘common law’. A case which has a very important bearing on this question is King v. Kidman (20 C.L.R. page 425)(6) where it was held that there is a common law of the Commonwealth applicable to the execution of its powers under which it is an offence to conspire to defraud the Commonwealth.
Griffith C.J. said, on page 436 of that case:
When the several Australian Colonies were erected, the common law continued in force as the law of the respective Colonies applicable to the Sovereign as their head … When in 1901, the Australian Commonwealth was formed, this law continued to be the law applicable to the rights and prerogative of the Sovereign as head of the States as before, subject to any local repeal. But so far as regards the Sovereign as head of the Commonwealth, the current which had been temporarily diverted into six parallel streams coalesced, and in that capacity he succeeded, as head of the Commonwealth, to the rights which he had had as head of the colonies.
He also considered that the power conferred by section 51(xxxix) of the Constitution, extends to the enacting in the form of a statute of the unwritten law of the Commonwealth applicable to the execution of its powers and that such a law would in effect, be declaratory only.
It seems clear that the right of the Commonwealth Crown to priority in respect of the debts owing to it, is part of the common law of the Commonwealth, and that the Commonwealth Government could enact this priority in the form of a statute, which, being inconsistent with section 297(1)(d) of the Companies Bill 1934, would clearly override that provision of the Companies Bill, and in view of the fact that such a statute would be declaratory only, we think that section 297(1)(d) of the Companies Bill would, as against the Crown as represented by the Commonwealth, be invalid under section 109 of the Constitution, by reason of the Commonwealth Crown’s common law right to priority.
There seems no reason why ‘law’ in section 109 should be limited to statute law. It is true that covering section v of the Constitution refers only to ‘laws made by the Parliament of the Commonwealth under the Constitution’ — and there is a dictum of Isaacs J. in Cowburn’s case (37 C.L.R. on page 497)(7) that ‘law’ in section 109, means a law as described in section V, but he states that the ‘Laws of England’ included the common law (citing Cooper v. Stuart 1889 A.C. pages 291 and 292)(8) and he appears, in stating the above dictum, to have overlooked Kidman’s case, which was not relevant to the decision in Cowburn’s case.
To sum up, we think that by reason of the decisions in the Engineers’ case and Kidman’s case, the State Legislature in section 297(1)(d) of the Companies Bill 1934 is purporting to enact a law which is inconsistent with the law of the Commonwealth, and which is therefore invalid to the extent of the inconsistency (under section 109 of the Constitution).
In particular, it seems that assuming that the Commonwealth Bank is the Crown, the right of the Commonwealth Bank to priority in respect of debts owing to it would not be limited by a State Act, but for the following reason, we are of opinion that the Bank will only be entitled to priority in respect of debts due to it by other Banks.
Section 34A of the Commonwealth Bank Act provides as follows:
Notwithstanding anything contained in any Act or State Act relating to bankruptcy or insolvency or the winding up of Companies, debts due to the Bank by any corporation carrying on the business of banking shall have the same priority as debts due to the Commonwealth.
This section is by section 52 incorporated in the provisions of the Act which deals with the Commonwealth Savings Bank of Australia.
You will see from the above that the section expressly gives priority to the Bank and to the Savings Bank in respect of debts due by any corporation carrying on the business of banking. To that extent section 297 of the New South Wales Companies Bill would not be binding upon the Bank, but applying the principles laid down by the House of Lords in the case of Food Controller v. Cork already mentioned, we are of opinion that if section 297 becomes law in its present form, the Bank would be deprived of all right to priority for any debts due to it other than debts due to it by another banking corporation.
When the Solicitor-General gave his opinion (No. 160 of 1931), the law of the State of New South Wales provided that the rights of creditors in a winding-up were those declared by the law for the time being relating to bankruptcy. For the reasons set out in that opinion, the Solicitor-General expressed the view that in the winding-up of a company under the law of New South Wales, debts due to the Commonwealth have priority and that, under section 34A of the Commonwealth Bank Act, in the winding-up of a banking company, debts due to the Commonwealth Bank have the same priority.
Since then, the Companies Act 1936 of the State of New South Wales has been passed and sub-section (3) of section 199 of that Act provides that the provisions of Part X of the Act relating to the remedies against the property of a company, the priorities of debts and the effect of an arrangement with creditors shall bind the Crown.
The priority accorded to the Bank under section 34A is the same priority as exists in respect of debts due to the Commonwealth. The Commonwealth’s priority arises, in respect of some debts, under Commonwealth Statute and the basis of the Bank’s priority would in each case be determinable by the nature of the debt due to it.
Presumably the debts due to the Bank would not be such as are analogous to any statutory debt due to the Commonwealth and it is necessary to consider what priority the Commonwealth has in respect of debts in respect of which it has no priority arising under statute.
In the advice given by Messrs. Allen, Allen and Hemsley reliance is placed upon the contention that ‘a law of the Commonwealth’ (Constitution, s. 109) includes the common law of the Commonwealth and consequently also the prerogative right of the Crown in the Commonwealth to priority in payment of debts.
The doctrine of ‘a common law of the Commonwealth’ has only been imperfectly worked out. The leading case on the subject is R v. Kidman (20 C.L.R. 425) in which Griffith C.J. thought (at p. 436) that the common law as to the offence of conspiring against the Sovereign was applicable in respect of the Sovereign as head of the Commonwealth. He thought it unnecessary, however, ‘to speculate as to what would have been the effect of a positive law passed in any of the Colonies making it lawful … to conspire to defraud the Colony, for no such law was passed’.
The conception of a special common law of the Commonwealth was negatived by Isaacs J. at p. 445 where he said:
So here, there is a peace of the Commonwealth not because there is a special common law of the Commonwealth, but because the common law of Australia recognises the King in relation to his Commonwealth.
Higgins J. said, at p. 454, that he did not ‘like to commit himself prematurely to any dogma with regard to what is called “the common law of the Commonwealth”’.
The majority of the Court in R v. Kidman did not found their decision on the existence of any such common law, and, as the matter has not been the subject of any subsequent judicial consideration, I am not prepared to advise that such a law exists. Even if there were such a law, it is by no means clear that it would be ‘a law of the Commonwealth’ within the meaning of section 109 of the Constitution.
The operation of the Companies Act 1936 of the State of New South Wales in respect of the order of priority of debts in the winding-up of a company is affected only by such Commonwealth legislation as accords priority to the Commonwealth.
In view of the probable nature, as mentioned above, of the debts which may be due to the Bank by banking corporations in liquidation, I take the view that section 34A of the Commonwealth Bank Act does not ensure to the Bank any priority in the payment of debts due to it by such corporations in course of winding-up.
[Vol. 30, p. 183]
(1) Opinion [Vol. 25, p. 312] not published.
(2) See also Re HJ Webb & Co (1922) 2 CLD 369.
(3) This opinion was apparently provided to the Commonwealth Bank by members of the private Bar and accordingly does not appear in the Opinion Book.
(4) (1931) 48 WN (NSW) 180; (1931) 1 ATD 230.
(5) (1904) 1 CLR 91.
(6) R v Kidman (1915) 20 CLR 425.
(7) Clyde Engineering Co Ltd v Cowburn (1926) 37 CLR 466.
(8) (1889) LR 14 App Cas 286.