The Treasurer desires my advice upon the points raised by Messrs Allen Allen & Hemsley in their letter of 2 February 1915 to the Governor of the Commonwealth Bank, of which the following is a copy:

As requested by you we have given very careful consideration to the following points raised by you, namely:

1. Is the Bank a legally constituted corporate body?
2. Has the Commonwealth Parliament authority to confer upon the Bank the various powers contained in the Commonwealth Bank Acts of 1911-1914?
3. What transactions (if any) of the Bank are subject to any State laws?

With regard to the first question as to whether the Bank is a legally constituted corporate body-

We are of the opinion that under section 51 sub-sections 13 and 39 of the Commonwealth of Australia Constitution Act the Commonwealth Parliament has power to pass an Act creating a corporation for the purpose of acting as an instrumentality of the Governemnt in connection with all banking and financial matters, and that, consequently, the Bank is a legally constituted corporate body.

The question was to some extent considered but not decided in the recent case Heiner v. Scott. The judgments of the Chief Justice and Mr Justice Powers appear to support the view which we have expressed above. The remaining four Judges left the point entirely open and declined to deal with it as, in their opinion, it was not necessary in that case to decide it.

With regard to the second question as to whether the Commonwealth Parliament has authority to confer upon the Bank the various powers contained in the Bank Acts 1911-1914-

While we are of opinion that the Commonwealth Parliament has authority to confer upon the Bank the powers of carrying on banking business and that such powers would, unless prohibited, include the right to carry on ordinary banking business with the general public, we doubt very much if that Parliament could confer upon the Bank powers in connection with its ordinary banking business which would infringe upon the laws of any State as, for instance, in Clause 4 of the amending Act of 1914 it is provided that, notwithstanding anything contained in any Act or State Act relating to bankruptcy or insolvency, 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.

In our opinion the Commonwealth could not, under the Constitution in its present form, give the Bank such priority in respect of debts due to the Bank and which arise out of its ordinary banking business and not in respect of any business which it has carried on as an instrumentality of the Government.

In our opinion such a power could only be acquired and conferred by an alteration in the Constitution.

With regard to the third question as to what transactions of the Bank are subject to any State laws-

The recent case of Heiner v. Scott has settled the point that customers' cheques are liable to any Stamp Duty imposed by the State. This would also in our opinion cover any mortgages or securities given by a customer to the Bank which, under the laws of the State, are liable to Stamp Duty, or, to express it in somewhat wider terms, the operations of the Commonwealth Bank as between itself and its general customers are not the discharge of a function of the Executive Government of the Commonwealth and, therefore, no privileges can be claimed in respect thereof. (See the judgment of the Chief Justice in the case of Heiner v. Scott.)

Where the Bank is or may be fairly assumed to be acting as an instrumentality of the Government, as for instance where it issues drafts for or on behalf of the Government, or where it buys lands for the purpose of erecting banking buildings, or takes land on lease for a similar purpose, we are of opinion that such transactions would not be governed or affected by any State laws.

With regard to a State tax on profits under Income Tax or similar acts, we are of opinion that the Bank would not be subject to such taxation in respect of any profits made inasmuch as section 30 of the Banks Act of 1911 provides for the disposal of such profits and thereby gives the Commonwealth such an interest in the profits as to preclude such profits from taxation by a State.

Our views as expressed above are the result of much thought and careful consideration, but you will, of course, bear in mind that the only mode of deciding the legal points with certainty is by obtaining the opinion of the High Court thereon, or by obtaining an alteration in the Constitution. As regards the first question-I agree with the conclusion arrived at by the writers, that the Bank is a legally constituted corporate body. This conclusion in my opinion derives some support from the reasoning of the High Court in the Jumbunna case⁽¹⁾ wherein it was held inter alia that the provisions of section 58 of the Commonwealth Conciliation and Arbitration Act (which provided for the incorporation of organisations registered under the Act) were valid as being incidental to the power of the Commonwealth to make laws with respect to 'conciliation and arbitration for the prevention and settlement of industrial disputes extending beyond the limits of any one State'.

As regards the second question-I have no doubt that the powers conferred on the Commonwealth Bank under the original Act are a valid exercise of the powers of the Parliament. It is however not quite beyond doubt whether the provisions contained in sections 4 and 9 of the amending Act of 1914 are wholly within the powers of the Parliament.

As regards the third question-the High Court in the case of Heiner v. Scott 19 C.L.R. 381 undoubtedly drew a distinction between the operations of the Bank when carrying on ordinary banking business and when acting as an instrumentality of the Government. The principle of the decision appears to be that when the Bank is carrying on ordinary business it is subject to the general provisions of State laws in relation to banking.

I agree with Messrs Allen Allen & Hemsley that the profits of the Commonwealth Bank are not subject to taxation by a State.

[Vol. 13, p. 438]

(1)Jumbunna Coal mine, No Liability v. Victorian Coal Miners' Association 6 C.L.R. 309.