Opinion Number. 1749



Key Legislation


  1. In order to maintain price stability and to avoid both chaotic inflation and chaotic deflation during the transition from war to peace, power is needed to regulate prices on an Australia-wide basis during this transitional period.
  2. Four questions arise:
    1. Under the Constitution as it stands, could the Commonwealth exercise the necessary price-fixing powers during this period?
    2. What price-fixing powers can be exercised by the States?
    3. Would a ‘reference’ by the States under section 51(xxxvii) meet the situation?
    4. How far would section 92 or section 99 fetter the exercise of price-fixing powers?
  3. For present purposes it is not necessary to come to any conclusion on the fourth point, about the operation of sections 92 and 99. In so far as either of these sections would fetter the exercise of price-fixing powers, their operation could not be affected by any agreement between the Commonwealth and States. To alter their operation would require a constitutional amendment.
  4. During the war, the Commonwealth has derived from the defence power full authority to fix prices for the sale of all goods and the supply of all services: Victorian Chamber of Manufactures v. Commonwealth (Prices Regulations) (1943) 67 C.L.R. 335; Vardon v. Commonwealth, ibid. 434.
  5. There is an impression in some quarters that the Commonwealth’s war powers (which are the only powers enabling it to regulate prices generally) will expire finally and automatically at the end of six months after the cessation of hostilities. This impression is altogether inaccurate. It fails to distinguish between the powers which the Constitution gives to the Commonwealth Parliament and the powers which the Parliament has–by the National Security Act and other war-time measures–given to the Government. But it is not accurate even in respect of the National Security Act.
  6. The position is this. Paragraph (vi) of section 51 of the Constitution gives the Commonwealth Parliament power to make laws with respect to the defence of the Commonwealth and the States. This power is in permanent operation, alike in peace and war. Our Constitution does not use the expression ‘war powers’ at all. The defence power is all-comprehensive. It authorises the Commonwealth, at all times, to make whatever laws are necessary for defence.
  7. Exercising this defence power, the Commonwealth Parliament in 1939 passed the National Security Act, which authorised the Executive to make any regulations and orders necessary for the defence of the Commonwealth and the States. This Act, according to its own terms, will expire, unless an earlier date is fixed by proclamation, at the end of six months after His Majesty, in respect of Australia, ‘ceases to be engaged in war’: section 19. This does not mean the same thing as ‘after the cessation of hostilities’–i.e. the end of the actual fighting. ‘War’ is a technical term. It may be for Parliament itself to fix the end of ‘the war’, as it did after World War I by the Termination of the Present War (Definition) Act 1919. In the absence of a statutory definition, the courts would probably hold that what is technically called a ‘state of war’ would continue to exist until the conclusion of formal treaties of peace, or at any rate until the issue of a proclamation declaring that the state of war is at an end. This is the view taken in the courts of the United States.
  8. So long as the National Security Act lasts, the Government will be able to make any regulations that are necessary for defence. But this does not mean that so long as the National Security Act lasts the Government will be able to keep in operation, after the cessation of hostilities, all the regulations that it could validly make while actual hostilities were still in progress. A regulation which was plainly necessary for defence during hostilities may become as plainly unnecessary for defence after the fighting is over–black-out regulations, for instance, or some forms of censorship. The effect of the cessation of hostilities upon the Government’s power to make a regulation will naturally differ according to the subject-matter with which the regulation deals. In principle, however, the test is always the same. In every case, it is necessary to show that what the Commonwealth does–whether by Act or by regulation–is within the defence power conferred by the Constitution.
  9. In short, the National Security Act must for present purposes be left out of account altogether. The question is not what that Act authorises, or for how long, but what the defence power in the Constitution authorises.
  10. It is certain that the Commonwealth’s power to control prices is not one of those elements in the defence power which would come to an end immediately upon the cessation of hostilities. The defence power of the Commonwealth may be compared with the war powers of the United States. In the leading case of Hamilton v. Kentucky Distilleries (1919) 251 U.S. 146, 158–163, the Supreme Court upheld a statute, passed after the Armistice in 1918, which prolonged the war-time prohibition of the liquor traffic. The Supreme Court said:
  11. Assuming that the implied power to enact such a prohibition must depend not upon the existence of a technical state of war, terminable only with the ratification of a treaty of peace or a proclamation of peace, but upon some actual emergency or necessity arising out of the war or incident to it, still, as was said in Stewart v. Kahn,(2) ‘The power is not limited to victories in the field and the dispersion of the insurgent forces. It carries with it inherently the power to guard against the immediate renewal of the conflict and to remedy the evils which have arisen from its rise and progress’.

  12. The necessary nexus with the requirements of defence may be established by any relevant considerations. In the Kentucky Distilleries case it was found in the facts that demobilisation was still far from complete, that a number of industries were still on a war footing, and that prohibition of the liquor traffic could be regarded as improving the discipline of the Forces and the efficiency of production. In the Canadian case of Fort Frances Pulp Co. v. Manitoba Free Press (1923) A.C. 695, a similar nexus was found in the fact that in substance the legislation impugned provided for the winding up, during a period of disturbed economic conditions, of transactions commenced under the system of controlled supplies and prices for paper pulp which had been necessary during the war because of shortages. In the case of Stewart v. Kahn, cited by the Supreme Court of the United States in the Kentucky Distilleries case, the nexus was more direct still: for, in effect, the legislation established a war-time moratorium overriding State statutes of limitation.
  13. In the case of price control during the transition from war to peace, the necessary nexus with defence may be found partly in the fact that many of the abnormal conditions which have been created by the war will still be in operation. Acute shortages of materials, dislocated markets and high costs are illustrations. Moreover, the Commonwealth could not justly fix prices during hostilities and thereby prevent traders from building up reserves against post-war dislocation, unless it also had power to prevent such dislocation when the fighting is over. This supplies an even closer nexus with defence.
  14. The Commonwealth can, therefore, rely on the defence power to sustain its control of prices during the immediate period of transition. How long this power would continue is, however, a matter of considerable uncertainty. The problem is to determine the point at which the situation has so far changed that the ‘defence’ aspect disappears. As
    Mr Justice Dixon said recently (Stenhouse v. Coleman (1945) A.L.R. at p. 14):(3)
  15. The course of the war has taught us that, in grave emergencies, it may be necessary, in exercise of the defence power, to assume control of the greater part of the human and material resources of the nation. The character of a war and the state of emergency at a given time may justify measures which, at another time, would be unwarranted. One difficulty to which this elastic application of the defence power gives rise is that regulations, the necessity or justification for which would be conceded during the emergency which called them forth, may continue unrevoked when the emergency may have passed and conditions may have assumed a normal appearance.

  16. In the Kentucky Distilleries case, the Supreme Court of the United States examined in great detail the factors both for and against the contention that, since the passing of the Wartime Prohibition Act, the conditions had so far changed that the necessary nexus with the war powers could no longer be shown. Two Canadian cases after World War I–the one invalidating and the other upholding Canadian post-war prices controls–likewise show the complexity of the questions involved. In re Board of Commerce Act 1919 and Combines and Fair Prices Act 1919 (1922) 1 A.C. 191, the legislation was not limited in time, and apparently contemplated permanent Dominion control of the matters regulated. The Privy Council held, despite the date of its enactment, that the Act could not be supported by reference to the emergency conditions arising out of the war. On the other hand, the Privy Council upheld, as a valid exercise of power in the emergency conditions arising out of the war, legislation, passed after the Armistice, which provided for the temporary continuation of the war-time controls of supplies and prices of paper pulp: Fort Frances Pulp Co. v. Manitoba Free Press (1923) A.C. 695. This latter case turned not on the Dominion’s specific ‘defence’ power but on its general or residuary powers to make laws on matters of nation-wide scope and importance–a power to which there is no parallel in the Australian Constitution. The decision, therefore, cannot be taken as a direct authority for the proposition that the defence power itself would authorise such a prolongation of price control.
  17. The conclusion to be drawn from the decided cases is that during the immediate transition from war to peace the defence power will continue to sustain Commonwealth price-fixing measures; that the duration of this period must be regarded as altogether uncertain; and that at any stage of the transition any particular exercise of power is open to challenge on the ground that, in relation to that particular subject-matter at any rate, the necessary nexus with defence has disappeared. There have been judicial hints that a distinction may well be drawn between the actual prosecution of a war and the restoration of peace-time conditions after it, and that the necessary nexus with defence may be more difficult to establish during the latter process. The inconvenience of so obscure a position is obvious.
  18. During the discussions which preceded the referendum of 1944, reference was made on a number of occasions to the uncertainty of the defence power as a foundation for a national system of post-war price control. In preparing for the Constitutional Convention of 1942, the object in view, of course, was the readjustment of powers necessary for a permanent post-war reconstruction. At the referendum, the proposal was to ensure that the Commonwealth should have adequate reconstruction powers, in relation to prices as well as to other matters, at any rate for a fixed five-year period after the cessation of hostilities. There is no reason to vary the views then expressed that the defence power is altogether insufficient for the former purpose, and altogether too uncertain for the latter. But it does not follow that the defence power could not support the necessary measures during the initial period of transition now immediately ahead. For the reasons already given, it would appear to do so.
  19. The second question which arises is what price-fixing powers can be exercised by the States. Broadly, a State can lawfully fix the prices, within its own territories, of all goods sold and services supplied. Its power to do so is, of course, subject to the requirements of section 92. The High Court decided in McArthur v. Queensland (1920) 28 C.L.R. 530 that a State could not validly include, even in a general price-fixing regulation, the sale in Queensland of goods to be forwarded from New South Wales. The Privy Council has since rejected the High Court’s reasoning in this case, and expressed disapproval of the decision itself: see James v. Commonwealth (1936) 55 C.L.R. 1, 49, 59. In the result, it seems that a State can constitutionally fix prices, so long as it does not do so in a manner which (for example, by discriminatory treatment) interferes with the free passage of goods into and out of the State: Fox v. Robbins (1909) 8 C.L.R. 115, Vacuum Oil Co. v. Queensland (1934) 51 C.L.R. 108, James v. Commonwealth (1936) 55 C.L.R. 1.
  20. The real barrier to the exercise of effective price control by the States is not so much the presence of section 92 in the Constitution as the practical difficulties and inconveniences involved in the attempt to fix fair prices by six separate and independent authorities, each possibly acting on its own distinct set of principles. Interstate trade is likely to be thrown into inextricable confusion by any such process. The ineffectiveness of separate State action in relation to price control was demonstrated by Australia’s experience after World War I.
  21. Having regard to the constitutional uncertainty of the Commonwealth’s present powers, and the practical inefficacy of the States’ powers, for maintaining the necessary stability in the Australian price structure in the period now ahead, there is an overwhelming case for a reference by the States to the Commonwealth Parliament, for a limited period, of the whole subject-matter of the regulation of prices. The answer to the third question set out above is that a reference by the States would fully meet the needs of the situation.
  22. During 1943, the validity of a reference for a limited period under section 51(xxxvii) was much canvassed in some quarters. There is no reason for altering the view then expressed that such a reference can validly be made.(4)

[Vol. 36, p. 595]

(1) This date is attributed. The opinion in the Opinion Book is undated, but its position in relation to adjacent opinions suggests it was written in August 1945.

(2) 78 US 493, 507 (1870).

(3) (1944) 69 CLR 457, 471–472.

(4) This opinion is unsigned in the Opinion Book.