Opinion Number. 1850

Subject

BANKING
APPEAL TO PRIVY COUNCIL FROM DECISION OF HIGH COURT IN BANK OF NSW V COMMONWEALTH (1948): JOINT OPINION OF J.D. HOLMES AND B.P. MACFARLAN RELATING TO VALIDITY OF s 46 OF BANKING ACT 1947 CONSIDERED IN LIGHT OF PRINCIPLE OF IMPLIED CONSTITUTIONAL IMMUNITIES OF THE STATES FROM COMMONWEALTH LEGISLATION AND s 105A OF CONSTITUTION AND FINANCIAL AGREEMENT 1927: FEDERALISM IN CONSTITUTIONAL INTERPRETATION: CONSTITUTIONAL IMPLICATIONS: STATE BANKING

Key Legislation

CONSTITUTION ss 51(xiii), 105A: BANKING ACT 1947 ss 46, 48: FINANCIAL AGREEMENT made 12 December 1927 between the COMMONWEALTH OF AUSTRALIA, the STATE OF NEW SOUTH WALES, the STATE OF VICTORIA, the STATE OF QUEENSLAND, the STATE OF SOUTH AUSTRALIA, the STATE OF WESTERN AUSTRALIA and the STATE OF TASMANIA cl 5(9)

Date

THE BANKING ACT 1947
JOINT OPINION

We are asked to prepare a Memorandum of the arguments which we think could be put advantageously for the appellants, and on the appellants’ attitude generally on the question of State immunities and section 105A of the Constitution in the light of the decisions of the Justices of the High Court and of the arguments already put.

We have had placed before us a draft of the appellants’ Case before the Privy Council, which sets out the matter involved and the views which were taken by the individual Justices in the High Court upon the matter.1 Of the Justices who dealt with the question all were of the opinion that the Act, and in particular section 46 thereof, was not invalid on the basis of any immunity of State instrumentalities; the remaining Justices (Rich and Williams JJ.) did not deal with the point at all.

Even if there is some room for a doctrine of interpretation of Commonwealth and State powers based upon the Federal structure of the Constitution, none of the views expressed in West v. Commissioner of Taxation (56 C.L.R. 657) or in Melbourne Corporation v. The Commonwealth (74 C.L.R. 31) require that section 46 of the Banking Act 1947 should be held invalid. In the first place, none of the Justices who held section 48 of the Banking Act 1945 invalid in Melbourne Corporation v. The Commonwealth (supra) thought it necessary to hold section 46 of the Banking Act 1947 invalid on this ground. In the second place, section 46 of the Banking Act 1947 is a general banking law which hypothesi is valid apart from any implied prohibition; Section 48 of the Banking Act 1945 was construed as a discriminatory provision. Though a general law may be held invalid (under the head of some doctrine of immunity), in so far as it affects an essential function of a State, such a doctrine could not apply in the present case for the reason that the Constitution in section 51(xiii) makes particular provision as to State banking. It may be said that the Constitution was intended to maintain the system of banking as it existed in 1901, at the will of the persons who from time to time administer that system or the institutions which comprise it, as against the will of the Governments of Australia. Logically this would mean that each private bank could voluntarily go out of existence but none could go out of existence at the will of any Government. It would follow that a State could not complain if any one private bank were prohibited from carrying on business and others were left; it can only complain when all are prohibited.

Neither the terms of the Constitution generally nor section 51(xiii) in particular compel such an extraordinary construction. State Banks are protected by the terms of section 51(xiii). This circumstance would seem to remove the possibility of any implication in favour of a State.

What we have said assumes some place in the Constitution for a modified doctrine of immunity of State instrumentalities on the lines foreshadowed in West v. Commissioner of Taxation and implemented in Melbourne Corporation v. The Commonwealth. Of course the Commonwealth in this case should maintain, in the first place, that there is no room whatever for such a doctrine in the interpretation of the Australian Constitution and should rely strongly upon the view of the Privy Council in Webb v. Outtrim (1907 A.C. 81). Though that case was not followed by the High Court in Baxter v. Commissioner of Taxation (1904, 4 C.L.R. 1087), the High Court in 1920 insisted in the Engineers’ Case (28 C.L.R. 129) that it was following the decision of the Privy Council in Webb v. Outtrim and that Court has reiterated ever since that it has never departed from the doctrine of the Engineers’ Case.

To summarise:

1.  Webb v. Outtrim (supra) is a decision that there is no implication to be drawn from the Constitution based upon the American doctrine of immunity of Governmental instrumentalities.

2.  South Australia v. The Commonwealth (65 C.L.R. 373) is an authority in the appellant’s favour. It is to be noted that Dixon J. was not one of the Justices who decided that case. The ‘reservations’ from the Engineers’ case, stated by Dixon J. in West v. Commissioner of Taxation (56 C.L.R. 657 at pp. 680 and 682) (see also per Dixon J in Australian Railway Union v. Victorian Railway Commissioners (44 C.L.R. 319 at p. 391) and expanded by him in Essendon Corporation v. Criterion Theatres Ltd. (74 C.L.R. 1 at pp 22 and 23) to include ‘taxation’ are in conflict with the views expressed by the majority in South Australia v. The Commonwealth.

3.  Assuming some doctrine of interpretation based upon an implication from the Federal structure of the Constitution,

(a)  the terms of sec. 51(xiii) leave no room for the application of such a doctrine.

(b)  Sec. 46 is a general law in no way concerned with State instrumentalities.

(c)  Melbourne Corporation v. The Commonwealth (supra) is distinguishable.

(d)  Alternatively to (c), that case was wrongly decided.

(e)  In the event of the appellants contending that Melbourne Corporation v. The Commonwealth was wrongly decided it should be noted that in In re Foreman; Uther v. Federal Commissioner of Taxation (74 C.L.R. 508) some of the Justices temper the doctrine by denying it the quality of reciprocity (see per Latham C.J. at p. 520; Rich J. at pp. 523 and 524; Dixon J. at pp. 531 and 532; Williams J. at p. 540); per Starke J. at p. 525 and see also Williams J. at p. 539 (contra).

We now pass to the question arising under Section 105A of the Constitution and the Financial Agreement 1927. On this matter opinions have already been given by Mr. Weston K.C. and Mr. Holmes stressing that the relevant clauses of the Financial Agreement do not create a right but only an exception from a prohibition and at most, if there is a right created, it is only a right to request an overdraft from a bank and not a right to an overdraft. If these views are correct as we are of the opinion that they are, there is no inconsistency between the Act and the Financial Agreement.

The Financial Agreement ‘is part of the organic law of the Commonwealth’ (New South Wales v. The Commonwealth (No. 1) (46 C.L.R. 155 at p. 186). It is submitted that it should be interpreted not simply as a contract, but as a Statute. As such, clause 5(9) limits the powers of Governments with respect to negotiating overdrafts. It does not expressly alter any other constitutional powers of the Commonwealth or States. To read into it a restriction upon sec. 51(xiii) or any other section of the Constitution would go further than any canon of construction warrants.

1 High Court decision: Bank of NSW v Commonwealth [1948] HCA 7; (1948) 76 CLR 1. Privy Council decision: Commonwealth v Bank of NSW [1949] UKPCHCA 1; (1949) 79 CLR 497 (PC).