Marcus Clark & Co Ltd v The Commonwealth

[1952] HCA 50

87 CLR 177

MARCUS CLARK &CO. LIMITED

THE COMMONWEALTH AND OTHERS

DEFENDANTS. R. B. DAVIES INDUSTRIES LIMITED

THE COMMONWEALTH AND OTHERS

DEFENDANTS. Constitutional Law (Cth.)-Defence power-Defence preparations-Clapital issues-

Control-Restriction on issue of capital by companies-Restriction on issue of securities-Consent of Treasurer-Consent not to be refused except for purposes of or in relation to defence preparations-Treasurer's statement-The Con- stitution (63 &64 Vict. C. 12) S. 51 (vi.)-Defence Preparations Act 1951 MELBOURNE, (No. 20 of 1951)* S. 4-Defence Preparations (Capital Issues) Regulations (S.R. 1951 No. 84)t, regs. 6, 10, 17.

Section 4 of the Defence Preparations Act 1951, to the extent to which it purports to authorize the Defence Preparations (Capital Issues) Regulations, and the regulations are laws with respect to defence within S. 51 (vi.) of the The Defence Preparations Act 1951

defence should be immediately made contained the following preamble

to an extent, and with a degree of Whereas Australia, in common with

urgency, not hitherto necessary except the United Kingdom, the United States of America and other nations

And whereas the defence prepara- associated with Australia in the British Commonwealth of Nations and

first place, the raising, equipping and in the United Nations, is pledged to

provisioning of the armed forces of support collective action for resisting

Australia in increasing numbers and international aggression:

the equipping and provisioning of And whereas, in the opinion of the

armed forces of other members of the Parliament and of the Government of the Commonwealth, there exists a state of international emergency in which it

And whereas the defence prepara- is essential that preparations for

87 CLR 178

In considering the application or operation of the defence power the distinction between a period of actual hostilities and a period of apprehended danger short of war can never be disregarded. But the restrictions upon raising money by the issue of share capital or debentures or other securities are auxiliary to and consequential upon the diversion of tangible and intan- gible resources to warlike purposes and such a diversion a country may feel constrained to make under a threat of war as much as when actually engaged

So held by Dixon C.J., McTiernan, Webb and Fullagar JJ. (Williams and Kitto JJ. dissenting).

Australian Communist Party v. The Commonwealth, (1951) 83 C.L.R. 1, distinguished. DEMURRERS.

Marcus Clark &Co. Ltd. v. The Commonwealth and Others. The plaintiff Marcus Clark &Co. Ltd. brought an action against the Commonwealth of Australia, the Right Honourable Sir Arthur William Fadden and the Attorney-General for the Com- monwealth of Australia in which the statement of claim was substantially as follows

2. The nominal capital of the plaintiff is £1,298,924. Its issued capital is £1,002,786 divided into 300,000 six per cent cumulative first preference shares of £1 each, 297,848 six and a half per cent cumulative second preference shares of £1 each and 809,876 ordinary shares of 10/- each. The whole of the said issued capital has been fully paid.

materials and facilities) for use in, or and sustenance of the people of

in connexion with, defence prepara-

And whereas the defence prepara- and sustenance of the people of

tions mentioned in the preceding paragraphs cannot be carried out to in defence preparations

the necessary extent, and, in particular, And whereas the defence prepara-

diverted to the extent necessary to expansion of the capacity of Australia

fulfil the requirements of defence, to produce and manufacture goods, and to provide services, for the

undertaken for adjusting the economy purposes of the defence preparations mentioned in the last two preceding

war and for avoiding or reducing paragraphs and generally for the

economic dislocations or instability purpose of enabling the economy of

caused by, or impeding, defence pre- Australia to meet the probable demands upon it in the event of war

And whereas, having regard to the And whereas in present circum-

foregoing, the miltary and economic stances the defence preparations

strength necessary for the defence of mentioned in the preceding paragraphs

Australia cannot, in the opinion of of the Commonwealth, be built up of Australia (including money,

and maintained with sufficient expedi-

87 CLR 179

3. The plaintiff has for many years past carried on and is still carrying on at a number of places in the said State a large and extensive business of selling goods by retail.

4. The plaintiff has also during the said period carried on and is still carrying on in a number of places other than the said places referred to in the preceding paragraph hereof a large and extensive business of manufacturing goods for sale by retail.

5. In connection with and for the purposes of each of its said businesses referred to in pars. 2 and 3 hereof the plaintiff is possessed of real estate of large value. On the said real estate there are erected large and valuable buildings.

6. A large number of the said buildings are now in need of repair and remodelling and unless the plaintiff is enabled to repair and remodel its said buildings its said businesses will suffer serious loss and damage.

7. In consequence of the plaintiff having become liable under awards made pursuant to the Commonwealth Conciliation and Arbitration Act 1903-1949 and the Industrial Arbitration Act 1940-1949 (N.S.W.) to pay increased rates of wages to persons employed in its said business, the plaintiff will be unable to conduct its business at a profit unless it is able to increase the volume of each of its said businesses.

8. The plaintiff is unable out of its own money to do the said repairs and remodelling or to do such acts and things and incur such expenses as are necessary for the purpose of increasing the volume of each of its said businesses.

sources (including money, materials Government has authority to take such

and facilities) for the purposes of defence preparations (c) the adjust- required in relation to any or all of

ment of the economy of Australia to the matters mentioned in the preceding paragraphs "

or reduction of economic dislocation Section 4 of the Act provided

or instability caused by, or impeding, (1.) The Governor-General may make

defence preparations; and (d) measures regulations for or in relation to defence preparations.

ance of the people of Australia in the (2.) The regulations which may be made under the last preceding sub- section include, without limiting the

people of countries associated with generality of the power to make

Australia in defence preparations. regulations conferred by that sub-

(3.) Nothing in this section section, regulations for or in relation

authorizes the making of regulations- to-(a) the expansion of the capacity

(a) imposing taxation; (b) with respect of Australia to produce or manufacture

to the borrowing of money on the goods, or to provide services, for the

public credit of the Commonwealth purposes of defence preparations or

(c) for or in relation to the compulsory for the purpose of enabling the economy

direction of labour or (d) imposing of Australia to meet the probable

any form of, or extending any existing demands upon it in the event of war;

obligation to render, compulsory naval, (b) the diversion and control of re-

military or airforce service.'

87 CLR 180

9. For the attainment in part of the purposes aforesaid the plaintiff has arranged to borrow from the Mutual Life &Citizens Assurance Limited the sum of £100,000, the repayment of such sum to be secured upon certain of the said real estate owned by the plaintiff.

10. Further in order to achieve the said purposes the plaintiff proposes to increase its nominal capital and to issue from its then unissued capital 401,114 ordinary shares of 10/- each.

11. The defendant the Right Honourable Sir Arthur William Fadden is the Treasurer of the Commonwealth of Australia and is the Minister for the time being administering the Defence Prepara- tions (Capital Issues) Regulations.

12. For the purposes aforesaid the plaintiff has applied to the defendant the Right Honourable Sir Arthur William Fadden to consent to the plaintiff borrowing the said sum of £100,000 and giving security therefor and to consent to the issue of the capital referred to in par. 10 hereof.

13. The defendant the Right Honourable Sir Arthur William Fadden has refused to consent to each of the applications referred to in the preceding paragraph hereof.

+ The Defence Preparations (Capital

the issue or giving of a security by Issues) Regulations were made on 1st

anyone, company or not, if it involved August 1951, in pursuance of S. 4 of

the raising of money beyond a certain the Defence Preparations Act 1951. Part II. of the regulations, headed

interest over four and a half per cent Companies, dealt with the raising by

per annum upon a first mortgage of companies of money by issuing share

land or upon a further charge in favour capital or by borrowing on deposit

of a first mortgage of land. Regulation without security, and contained reg. 6

10, which was contained in this Part, which provided :---" A company, or a

provided :---" (1.) A person shall not, person acting for or on behalf of a

without the consent in writing of the company, shall not, without the consent

Treasurer, issue or give a security. in writing of the Treasurer, make an

(2.) Nothing in this regulation pre- issue of authorized capital of the

vents or affects the issue or giving of a company if the amount of authorized

security by a local authority-(a) to capital issued by the company during the preceding two years (including the

the local authority is constituted or issue then made), together with-(a)

(b) with the approval of the Treasurer the amount borrowed and not repaid

of that State, or a Minister of State under a security issued or given by the

for that State acting on his behalf, to company during that period, not being

a person other than the Government a security referred to in sub-regulation (3.) of regulation 13 of these Regula-

Part IV. headed Miscellaneous, tions; and (b) the amount borrowed

includes regs. 16 and 17 which pro- and not repaid under a deposit

vided 16 (1.) Where application accepted or received by the company during that period, exceeds Ten

under these Regulations, the Treasurer thousand pounds." Part III., headed

may, subject to the next succeeding Securities, dealt with the borrowing

regulation, grant the consent, either by all persons, including companies,

unconditionally or subject to such upon security, its plan being, subject

conditions as he thinks fit, or refuse to certain exceptions, to prohibit with-

to grant the consent. (2.) Where the consent of the Treasurer is granted

87 CLR 181

14. The said refusal of the defendant the Right Honourable Sir Arthur William Fadden was not for the purposes of or in relation to defence preparations.

The plaintiff claims the following declarations and orders 1. A declaration that the Defence Preparations Act 1951, SO far as it purports to authorise the Defence Preparations (Capital Issues) Regulations is invalid.

2. A declaration that the Defence Preparations (Capital Issues) Regulations are invalid.

3. A declaration that regs. 6, 7, 8, 10, 11, 14, 15-24 (both in- clusive) of the said regulations or some of them are invalid.

Alternatively- 4. A declaration that the refusal dated 8th October 1951, of the defendant the Right Honourable Sir Arthur William Fadden to consent to each of two several applications dated 27th August 1951 and 29th August 1951 respectively made by the plaintiff under and pursuant to the Defence Preparations (Capital Issues) Regulations is contrary to the said regulations and particularly reg. 17 thereof.

5. An order that the defendant the Right Honourable Sir Arthur William Fadden do consider and determine each of the said appli- cations according to law. subject to conditions, the person to

to the court for an order directing whom, or the company to which, the

the Treasurer to state in writing the consent is granted shall comply with

facts and matters by reason of which- those conditions. (3.) Where the con-

(a) the refusal of consent or (b) the sent of the Treasurer is granted under

condition subject to which the consent these Regulations but no period is

was granted, was for purposes of or specified in the consent as the period

in relation to defence preparations, of its operation, the consent shall

as the case may be. (4.) Notice of an cease to be in force at the expiration

application under the last preceding of the period of six months after the

sub-regulation shall be given to the date on which the consent was granted.

Treasurer, who shall be entitled to 17. (1.) The Treasurer shall not

appear upon the hearing of the refuse to grant consent under the last

application. (5.) The court may, if it preceding regulation except for pur-

thinks fit, make the order applied for. poses of or in relation to defence

(6.) A statement in writing by the preparations. (2.) The Treasurer shall

Treasurer made in compliance with an not grant consent under the last

order under the last preceding sub- preceding regulation subject to a

regulation shall be filed in the court condition except for purposes of or in

and shall thereupon, subject to any relation to defence preparations. (3.) A

objection as to the relevancy of any person taking proceedings in a court

part of the statement, be prima facie for relief, whether by way of a declara- tion or otherwise, upon the ground

the statement. (7.) The court may that an application for the consent of

make an order with respect to the the Treasurer under these Regulations

costs of and incidental to the appli- has been refused contrary to this

cation, and of and incidental to the regulation, or upon the ground that

preparation and filing of the statement, whether the proceedings in relation to application under these Regulations has been granted subject to a condition contrary to this regulation, may apply

87 CLR 182

6. An order that the defendant the Right Honourable Sir Arthur William Fadden do consent to each of the said applications.

On 8th November 1951, McTiernan J. made an order pursuant to reg. 17 of the Defence Preparations (Capital Issues) Regulations for the delivery of a statement by the Treasurer of the Common- wealth setting out the facts and matters by reason of which the refusal of consent to the proposed capital issue was for purposes of or in relation to defence preparations. The Treasurer's statement was as follows

" '1. The Government of which I am a member has formed the conclusion on all the material available to it that there is an unmis- takable danger of the occurrence of a general war involving the Commonwealth of Australia and that the threat thereof is such that Australia must be prepared for possible mobilization for hostilities by the end of 1953.

2. Accordingly, defence preparations of the Commonwealth upon the scale stated later are, in the opinion of the Government, made necessary by reasonably anticipated possibilities of armed conflict by legal obligations arising out of Australia's membership of the United Nations and consequential duty to safeguard mutual security by Australia's need to co-operate with other members of the British Commonwealth of Nations; and by the minimum required of Australia as an independent nation collaborating with the other nations of what is known as the 'Free' or Western World.

3. The defence preparations planned by the Government involve recruiting for the armed forces and production of all necessary material on a scale which will make possible effective national mobilization, ready for full armed national participation, if necessary, by the end of the year 1953.

4. So far as they relate to the physical economic resources and industrial capacity of Australia, the defence preparations above- mentioned may be classified under three headings (i) the raising, training and equipping of armed forces; (ii) the provision of mobilization requirements (including reserves) of arms, munitions, ships, aircraft, transport and general war stores and supplies; (iii) the construction of various works, factories and other buildings important for defence.

5. Defence requirements in manpower before the call-up of armed forces upon mobilization are estimated (as at the end of 1953) as follows -

87 CLR 183

(i) employees in Government ship-building yards,

aircraft and munitions factories and annexes (ii) employees in private firms working on defence (iii) employees on defence works and buildings with the addition upon mobilization of:

(iv) strength of the Navy, Army and Air Force 6. The total of 392,500 is estimated to include 320,000 males and 72,500 females, representing respectively 11.1 per cent of the estimated total of occupied males in Australia and 8.9 per cent of the estimated total of occupied females in Australia as at end of 1953.

7. At present, the numbers of persons engaged on defence are as follows :-

(i) strength of the Navy, Army and Air Force

(excluding reserves) (ii) employees in Government shipbuilding yards,

aircraft and munitions factories and annexes (iii) employees in private firms working on defence

orders (estimate) (iv) employees on defence works and buildings 8. Of these, 98,900 are males, equal to 3.6 per cent of the present total of occupied males in Australia and 5,800 are females, equal to 0.73 per cent of the total of occupied females in Australia.

9. In the financial year 1950-1951, expenditure by the Com- monwealth Government on goods and services for purposes of defence amounted to £96 millions. This amount covers expenditure on pay and allowances of the forces, arms, munitions and equip- ment, ship and aircraft construction, works and buildings directly related to defence, and provision of general defence supplies. The amount of £96 millions represents 3.1 per cent of the esimated national income in 1950-1951 (set out in the White Paper (F4547) presented by myself for the information of Honourable Members of the Commonwealth Parliament in September, 1951). The propor- tion of the national income thus expended will vary closely with the proportion of the occupied population employed on defence. As set out in par. 6 above, at the stage of mobilization the number of persons engaged upon defence will constitute approximately 11

87 CLR 184

per cent of the total of occupied persons in Australia. In conse- quence I estimate that direct defence expenditure by the Com- monwealth on goods and services for purposes of defence will constitute a portion of the then national income amounting approximately to 11 per cent.

10. The defence preparations of the Commonwealth therefore involve a progressive absorption of resources during a period of approximately two years from the present time until a stage is reached at which, when mobilization plans are complete, approxi- mately 11 per cent of national income will be spent on defence activities. The proportionate absorption might of course be greater if at that time adverse economic factors had caused national income to rise less than might now be anticipated. It may be considered that national income in 1950-1951 was abnormally high, having increased by £800 millions, or 34 per cent above the previous year, because of exceptional wool prices, large increases in wage rates and various other exceptional factors.

11. Since national income has its counterpart in the nett produc- tion and supply of goods and services, to say that 11 per cent of national income will be spent on defence is equivalent to saying that 11 per cent of total national output of goods and services will be applied to defence. It may be noted that in the United States of America it is estimated that the proportion of national income going into defence will this year reach about 15 per cent. The corresponding figure for the United Kingdom is about 9 per cent.

12. Proposals to obtain further capital by the raising of loans or the issue of share capital, as exemplified by the applications of the applicant company, must be considered against the above- mentioned estimates of the diversion of economic resources upon the scale indicated in this Part of my statement. The proposals must also be considered in the light of the facts as to the present and probable future employment of manpower and resources and the absence of any manpower and resources not currently employed. These facts are indicated in Part III. of this statement.

13. The applicant company has made two applications. The first was made under the National Security (Capital Issues) Regula- tions by letter dated 9th March 1951, and was renewed by letter of 27th August 1951, as an application under the Defence Prepara- tions (Capital Issues) Regulations. I attach a copy of the letter of 9th March, 1951, marked Annexure No. 1' and an extract from the later letter of 27th August 1951, marked Annexure No. 2.' The second application was made by letter dated 29th August 1951.

87 CLR 185

I attach a copy of this letter marked ' Annexure No. 3 together with a copy of the formal application referred to therein.

14. With respect to the first of the applications abovementioned, referring to a proposed loan, secured by mortgage, of £100,000 by the Mutual Life and Citizens Assurance Co. Ltd. to the applicant company, the applicant company disclosed that the company intended to utilize the money when lent for the following purposes and in the following amounts :-

(a) New bedding factory at Newtown (b) New showroom at Dubbo (c) Alterations to applicant's properties at Sydney,

Newcastle, Lismore and Dubbo (details given) (d) Other unspecified alterations 15. I set out in subsequent Parts of this statement facts and matters relevant to the relation between defence preparations and the activities proposed to be carried out by the applicant company as set out in par. 14 above. In addition, there are certain particular considerations in connection with these matters which must be taken into consideration. (a) Bedding Factory at Newtown:

The applicant company stated that application had been made to the Department of Building Materials in New South Wales for a permit to carry out the work in connection with the bedding factory but that a permit had not been obtained. The applicant company asserted that the work was necessary because the Cumber- land County Council had served notice on the company that its existing premises, now used as a bedding factory in Mountain Street, Sydney, would be resumed for the purpose of constructing new arterial roads. I am informed and believe it to be true that (i) there has been some correspondence on the matter between the applicant company and the Cumberland County Council (ii) no notice of resumption has yet been given by the Cumberland County Council in respect of the applicant company's property; and (iii) if it were decided to resume the applicant company's property, the resumption is not likely for some years. (b) Showroom at Dubbo

The erection of the new showroom was commenced on 24th July, 1950, and it was estimated that the work would be completed in October, 1951.

87 CLR 186

(c) Alteration to various properties

In addition to alterations and improvements of an unspecified nature, the work on which scarce labour and materials was to be used included the following items: (i) installation of electrical and radio department (ii) construction of delicatessen department (iii) new awning and shopwindows; (iv) replan of layout of advertis- ing office.

In a further statement, the applicant company indicated that some of the repairs, alterations and improvements had already been commenced and that others would be commenced as soon as detailed plans were available.

16. Apart from a general statement that the condition of many of its properties had deteriorated during the war, the applicant company provided no evidence to show that the work was essential. The applicant company stated that it had already spent consider- able sums in carrying out repairs, improvements and alterations. It would appear that the applicant company desired to remodel its buildings in order to make them more attractive for the display of goods and the inducement of expenditure by customers. In fact, the whole of the proposed expenditure of £44,350, referred to in pars. 14 and 15 (c), is, from the description thereof, shown to be alterations and improvements to the internal arrangements of retail sale facilities which, in each particular case, are not essential in character and are not shown by any statements by the applicant company to be of essential importance or urgent in character. Moreover, some of the alterations and improvements have already been commenced, and presumably have been paid for in part. The loan for which consent was sought would provide funds to reimburse whatever fund has been employed for the work and would in consequence become available for the general purposes of the business. To this extent, portion of the loan of £100,000 is to be considered as in the same class as the share capital proposed to be raised, as set out in the application dated 29th August 1951.

17. Further to the matters set out in pars. 14, 15 and 16 above, the proposed activities of the applicant company to be financed by the loan for which consent was sought would necessarily involve the use of building materials, certain other timbers, glass, metal and fittings, and skilled and semi-skilled craftsmen and tradesmen. The effect of the demand for utilization of such materials, and the demand for and employment of such manpower, upon defence preparations and upon the diversion of resources necessary to execute defence preparations is more particularly described in Part IV. of this statement.

87 CLR 187

18. The information accompanying the application of the applicant company dated 29th August 1951, for permission to raise £200,557 of capital by the issue of 401,114 shares of the nominal value of 10/- each, indicates that the capital sought to be raised, together with all or an unascertained portion of the £100,000 sought to be borrowed as abovementioned, would, if obtained by the applicant company, be used to increase the turnover of its business. This business is primarily concerned with the retail sale of household and residential furniture, furnishings and fittings, and also male and female clothing. Attached hereto and marked

Annexure No. 4' is a copy of the mail order catalogue of the applicant company indicating the general range of goods supplied by it. The applicant company asserts, and I have reason to believe in accordance with the facts, that the costs of conducting its business have risen and will continue to rise, for some time at least. The prices of trading stock sold by the applicant company have risen over the immediate past. The minimum labour costs of conducting the business as fixed by law have increased over the same period, and it may reasonably be anticipated that some further increases will take place. I am, therefore, aware that the limitation of the capital resources (trading funds or circulating capital) of the applicant company must in existing circumstances have the effect of preventing the desired increase in the turnover of the business and, should costs and prices continue to rise, may cause a decrease in turnover. Further, amongst the circumstances which appear to me to be relevant is the publicly announced policy of the national banking system of curtailing, rather than extending, credit facilities for businesses of the kind carried on by the applicant company. In consequence, the refusal of the applications of the applicant company may well have the effect of limiting, and possibly may reduce, the turnover of the applicant company. The facts and matters showing the relation of these possible consequences to defence preparations are set out in Part IV. of this statement.

19. The nature of the proposed activities of the applicant company, for which the loan moneys and share capital sought were to be used, has been indicated in Part II. of this statement. The relation of these activities to defence preparations depends upon the extent of the diversion of resources and manpower involved in the execution of defence preparations. This extent has been broadly indicated in Part I. of this statement as involving, at the stage of mobilization, 11 per cent of national production. The relation to defence preparations also depends upon the facts and matters which

87 CLR 188

condition and impede the actual process of this diversion. The most important of these facts and matters are set out below in this Part.

20. If, as in 1939, there had been available currently unused economic resources and manpower, substantial defence preparations would have been carried out before the necessity arose to withdraw resources and manpower from present employment. No such unused resources or manpower, however, are at present available. On the contrary, at the present time practically all resources of manpower, materials, plant, buildings and equipment are being fully used or employed. Indeed, many types of manpower and materials are extremely scarce by comparison with the current demand for them.

21. At 30th June 1951, the total number of persons receiving unemployment benefits in Australia was 449. This position may be contrasted with June, 1939, when there were 298,000 unemployed in Australia.

22. Serious shortages of labour exist in all the main branches of industry. In June 1951, unfilled vacancies registered with the Department of Labour and National Service were as follows :---

Unfilled Vacancies, June 1951. Industry Group Primary Production Mining and Quarrying Manufacturing Building &Construc- Transport Operation Communication,

Finance &Commerce Public Administration

Health and Educa- tion Other Services

* Not available Because many employers having vacancies for labour do not register them with the Department of Labour and National Service, the foregoing figures do not show the full extent of labour shortages.

87 CLR 189

23. During 1951-1952, additional manpower (of working age) will become available from natural increase to the extent of 16,000 and from immigration to the extent of 79,000, a total of 95,000. If immigration continues at present rates the same increase will occur in 1952-1953. During recent years, however, whilst the labour force has increased year by year, the shortage of labour has also increased progressively. This is indicated by the following comparison :-

Wage and Salary Earners (excl. Rural and Female

Commonwealth Employment Domestic Workers and

Service Unfilled Vacancies. Defence Forces). June 1946

(a) May 1949; June figures affected by N.S.W. coal strike. 24. The absence of unused resources is also indicated by the estimates of shortages of supply of basic materials set out below. By reason of the nature of the production required for defence preparations, the demand for these basic materials will be even further accentuated. Diversion for defence preparations will involve an increase in activities already disproportionately weak in relation to the whole economy. This diversion, therefore, involves not merely a change in but a reversal of the present direction in which materials and manpower are tending to flow. The marked scarcity of basic materials of primary importance for defence preparations is demonstrated by the estimates prepared by the Commonwealth Ministry of National Development.

Estimated Supply Item Coal (tons) Coke (tons) Steel (tons) Pig Iron (tons) Copper (tons) Cement (tons) Sawn Timber (1000

87 CLR 190

25. Increased defence preparations involve, as is disclosed by the foregoing paragraphs of this Part, the reduction of other economic activities, since no unused resources are available, and also involve the diversion of manpower and material into uses different from those into which they are flowing under existing economic inducements. These diversions need to be carried out urgently, and might be achieved by one or other of the following three ways :-

(a) By full-scale legal compulsions throughout the economy, including acquisition of property and conscription of labour power. These methods could in present circumstances be highly disturbing, would involve extensive official activities and controls and, in the opinion of the Government, could in fact impair the effectiveness of defence preparations.

(b) By offering such high financial inducements in the form of prices and wages as will attract resources and labour away from the activities which otherwise would absorb them. That course of action would, in the opinion of the Government, accentuate the inflationary difficulties at present threatening the economy, and seriously prejudice the effectiveness of defence preparations.

(c) By limiting and reducing various economic activities of the nation, particularly those related to the provision and sale of civilian goods, SO that manpower and resources will be released and, in particular, SO that the existing materials and manpower may be more effectively and easily diverted to defence preparations.

26. The course of action referred to in par. 25 (c) above directly touches the activities of the applicant company proposed to be carried out with the capital to be obtained by the loan and the issue of shares previously mentioned. This impact upon the pro- posed activities of the applicant company is one of the matters which demonstrates that the refusal of consent to the applicant company's, application was for purposes of or in relation to defence preparations and is dealt with more fully in Part IV. of this statement.

27. In SO far as the applicant company proposed alterations or expansions in the materials, equipment and buildings employed in its business, the attraction of manpower and resources would necessarily be in the opposite direction to that required for defence preparations. The labour required for the purposes of the applicant company is of a class in which the existing

87 CLR 191

shortage is acute. The requirements of defence preparations in the construction of houses, buildings, hutments and other structures will accentuate the present unsatisfied demand for this class of labour. The requirements of housing and shelter for increased armed forces will have the same effect. Diversion of labour and materials to defence preparations of the kinds mentioned would thus be impeded by the proposed activities of the applicant company.

28. The maintenance of, or an increase in, the turnover of the applicant company would also impede the diversion of materials and manpower towards defence preparations. A very large proportion of the goods customarily sold by the applicant company consists of durable consumer goods used in furnishing and equipping residential establishments of all kinds. If the consumption of new goods of this character is not curtailed, the diversion of economic resources to defence preparations cannot take place. Substantial quantities of foodstuffs cannot be curtailed without injury to the efficiency of the nation. The curtailment of luxury consumer goods will not release sufficient resources to permit the transfer of 11 per cent of the national production to defence prepar- ations. The partial curtailment of consumer goods of the character supplied by the applicant company and of many other classes of consumer goods, not essential to the maintenance of physical and mental efficiency, is unavoidable and essential if the diversion of resources required for defence preparations to the extent indi- cated in Part I. of this statement is to be carried out.

29. By avoiding increased supplies and in fact reducing the existing supply of the consumer goods abovementioned, the demand upon the manufacturers of these goods will be reduced. In consequence, the competition of these manufacturers for labour and materials will be reduced. These manufacturers will to some extent become willing to undertake the execution of contracts for the production of goods required for defence preparations without a marked increase of current prices and costs. Further, the reduction of demand upon these manufacturers and suppliers will affect in turn the demands upon the suppliers of the raw materials used by the manufacturers, and the diversion of the suppliers to the production of materials for the fulfilment of defence contracts will be facilitated. More generally, however, the limitation of, and even reduction in, the supply of consumer goods and the reduction pro tanto in the volume of consumption existing at present in Australia will generally modify the intensity of the demand for

87 CLR 192

materials and labour and, by SO doing, make possible and also facilitate the far-reaching transfer of materials and manpower necessary to increase the production of basic materials and muni- tions and other defence requirements. The curtailment in the supply of the goods provided and sold by the applicant company THE

has, therefore, a real and substantial, even though, in one aspect, not direct, relation to defence preparations, and the refusal of consent was for purposes of or in relation to defence preparations.

30. Further, an important part of the business of the applicant company is carried on in the form of time payment or hire purchase sales. The provision of consumer credit by these means enables purchasers to anticipate the receipt of moneys for the purchase, particularly of durable consumer goods and, in consequence, to establish and fix the direction of demand and of consumption for a number of years in the future. The continuance and increase of trading by these means would counteract in an accentuated form the diversion of resources and the decrease in consumption which

I have indicated as necessary to accomplish in the course of the next two years. Limitation of various forms of consumer credit will be a most effective means of facilitating the essential diversion of resources particularly in the immediate future, which is most significant for defence preparations.

31. In order to achieve a diversion of the national production to the extent previously indicated by me as necessary for defence preparations, it would probably be necessary, even in an economy not already suffering from shortages and inflationary conditions, to limit the increase of, and even to reduce, the existing level of turnover of the class of business carried on by the applicant company. The necessity is accentuated by the inflationary aspects of the present state of the national economy referred to in the next Part of this statement.

32. Marked inflationary pressures are at present operating in the Australian economy, that is to say, an excess of consumption and investment demand for goods and resources over the supply of goods and resources. Total demand cannot be measured accurately, since the extent of unsatisfied demand is not represented by any evidence capable of record. Realized demand, however, can be measured by expenditure and this is conveniently recorded in the following tables :-

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Personal Consumption Private Investment

&Maintenance 1945-46 1946-47 1947-48 1948-49 1949-50 1950-51

33. Realized demand is expressed in monetary terms as above set out. Since prices have not remained constant, the supply of goods corresponding to this demand cannot be accurately measured in money terms, and cannot be effectively expressed in an overall figure of material quantities. The extent to which prices have risen provides some indication of the failure of supply to keep pace with demand expressed in actual purchases. The increases of expenditure are manifestly at a much greater rate than physical production. The average rate of increase in physical production has been indicated as certainly less than three per cent per annum. The contrast between the rates of increase in expenditure and the estimated rates of increase of production indicates the severity of the inflationary factors operative in the economy.

34. The connection between the inflationary condition of the economy and the defence preparations required to be executed within the next two years is both direct and indirect, but in each case real and substantial. The existence of these inflationary conditions at one and the same time, places additional difficulties in the way of diverting resources essential for defence preparations and makes more dangerous a reliance upon higher monetary inducements as a means of securing those diversions. These matters, and their relation to the refusal of the applicant company's applications, are dealt with in the remainder of this Part and in the concluding Part of this statement.

35. The existence of an inflationary condition in the economy has accentuated, and is accentuating, the difficulties of diverting resources and manpower to the activities required in defence preparations. The inducement flowing from large unsatisfied monetary demand for consumer goods naturally stimulates

87 CLR 194

widespread efforts to expand existing industries and to start new enterprises, since markets appear expansive and prices likely to rise. In consequence, the competition for labour, materials and plant becomes more intense. The result is to cause or continue the movement of labour and material away from, rather than towards, the basic productive activities essential to or part of defence production. In addition, the increased activity in the parts of the economy supplying consumer needs, and the activity promoted in satisfying the demands of those suppliers, accentuate the resistance to diversion and reshaping of the economy, thereby impeding defence preparations. With the prospect of profitable expansion and rising prices, businesses are more than usually reluctant to permit labour and materials to pass away from them- selves to different uses, thus producing a rigidity impeding diversion.

36. Successful diversion of manpower and resources in the direc- tion required by defence preparations, in the light of the matters set our in par. 35 above, could not be achieved by competitive bidding for labour and materials by defence contractors and Government departments producing war supplies. The resistances resulting from efforts of other businesses to expand due to inflationary conditions would be overcome only if very high monetary inducements in the form of higher wages and prices for materials were offered. But the paying of these monetary inducements in the form of higher wages and prices for materials would add to the inflationary pressures in the economy and reinforce the tendencies which defence prepara- tions require to be reversed. The higher wages and prices paid by and on behalf of the Commonwealth for defence preparations would, within a short period, be translated into accentuated demand by the recipients thereof for consumer goods, and would stimulate increased buying of durable goods upon a basis of consumer credit in the form of hire purchase and time payment.

37. The situation arising from the facts and matters referred to above has grave consequences apart from the immediate con- nection with defence preparations. Some of these consequences, however, ultimately affect defence preparations by affecting the will power of the community and its sustained effort to defend itself. These matters are referred to in Part VI. of this statement.

38. Further, the facts and matters abovementioned cannot be counteracted or overcome solely by control over applications to raise capital as sought by the applicant company and other appli- cants. The control of such applications is taking place concurrently with other actions of the Government and Parliament of the Commonwealth, directed towards counteracting the tendencies

87 CLR 195

abovementioned, which arise from the inflationary condition of OF the economy. These other actions form part of the circumstances surrounding the exercise of capital issue control. The success of these other actions will make more practicable the diversion of resources and manpower which will result from the limitations that the refusal of the applicant company's applications, together with other applications having the same relation to, and effect upon, defence preparations, places upon the raisings of capital.

39. The other actions of the Government and Parliament above- mentioned are directed to the reduction of the general level of consumption expenditure and, particularly but not exclusively, expenditure upon luxury goods and the less essential forms of civilian goods, and also to the restriction of the level of private investment, particularly in those forms which tend to promote consumption. In addition, restrictions upon various forms of public investment have been made effective. These objectives are being sought by taxation of individual incomes directed to reduction of consumer demand, by sales tax and excise taxation for the same purpose, and also by increased taxation upon companies, thereby curtailing further investment and reducing consumers' income. Public expenditure upon less essential public works is also being curtailed. In the situation resulting from these actions, the limitation of borrowing and issuing of new shares, as in the case of the applicant company, will become more effective in promoting the diversion of materials and manpower to defence preparations.

40. The carrying out of defence preparations necessarily involves diversion of manpower and resources. If these diversions are not achieved by the means of limitation of consumption and supply and expenditure, the necessary objectives will require either excessive compulsions, the moral and psychological costs of which would inevitably prove excessive, or the reliance upon financial inducements in the form of prices and wages offered to induce labour and other producers to abandon their existing activities and turn to defence production. This second course might well fail to achieve practical results. In any case, as I have stated in par. 36 above, it could not fail to accentuate the inflationary conditions existing in the economy. Those conditions, if continued and accentuated, would have the most dangerous and far-reaching effects upon the will of the community to work, to prepare itself for and fight in defending itself. My colleague the Prime Minister and I myself have in the past publicly expressed this view. We

87 CLR 196

have also expressed our conviction that this destructive consequence is the deliberate aim of the enemies of this country. With the concurrence of the Prime Minister, and also for myself and on behalf of the Government, I now affirm that the enemies of this country aim to undermine its national strength and defensive capacity by a variety of means, direct and indirect. These means include encouraging all those circumstances in which preparations for defence may bring about the destructive consequences to which

I have referred. I affirm the urgent necessity of taking all action and selecting all means which will ensure effective defence prepara- tions without producing those dangerous consequences to the will power and spirit of the nation. The regulation and control of the issue of capital is, as also are the other actions which I have mentioned, essential to avoid the dangers to which I have referred."

In the defence the defendants pleaded, inter alia: (a) Without regard to the facts and matters referred to in sub-par. (b) hereof except such of the said facts and matters as may be judicially noticed and having regard to any other facts and matters which may be judicially noticed, alternatively, (b) Having regard to the facts and matters contained in the statement made by the said the Right Honourable Sir Arthur William Fadden on 23rd November 1951, and filed herein in compliance with the order dated 8th November 1951, made by his Honour Mr. Justice McTiernan under reg. 17 of the Defence Preparations (Capital Issues) Regula- tions--(i) The Defence Preparations Act 1951, was a law validly made by the Commonwealth Parliament in pursuance of the powers conferred upon it by the Commonwealth Constitution. (ii) The Defence Preparations (Capital Issues) Regulations being Statutory Rule 1951 No. 84 were and each of them was validly made in pursuance of the powers conferred on the Governor-General by the Defence Preparations Act 1951. (iii) The refusal of the defendant the Right Honourable Sir Arthur William Fadden referred to in pars. 13 and 14 of the statement of claim at all times material was and is for the purposes of or in relation to defence preparations.

The plaintiff demurred to the defence. R. B. Davies Industries Ltd. v. The Commonwealth and Others.

The plaintiff R. B. Davies Industries Ltd. brought a similar action against the same defendants. No statement by the Treasurer was sought in this case. In the defence the defendants pleaded, inter alia :

87 CLR 197

2. By reason of the facts and matters referred to in pars. 4 and 5 hereof the Defence Preparations Act 1951, SO far as the same author- ized the making of the Defence Preparations (Capital Issues) Regulations being Statutory Rule 1951 No. 84, was and is a law with respect to the naval and military defence of the Commonwealth.

3. By reason of the facts and matters referred to in pars. 4 and 5 hereof the said Defence Preparations (Capital Issues) Regulations were made and were at all material times for and in relation to defence preparations.

4. At all times material to this action: (a) The effective defence of the Commonwealth has necessitated extensive defence preparations being made urgently by the Com- monwealth within the period of the next two or three years.

(b) Such defence preparations have included: (i) the recruitment and training of additional men and women in the naval military and air forces of the Commonwealth up to the minimum total determined by Her Majesty's Government in the Commonwealth as necessary for the effective defence of the Commonwealth and (ii) the increased production of munitions and equipment for the use of such armed forces in the forms and quantities determined by Her Majesty's Government in the Commonwealth to be necessary for the same purposes as aforesaid, and (iii) the organisation and development of industries, including those more especially con- cerned with the supply of power fuel and transport, essential for the production of munitions and equipment as aforesaid and for the conduct of hostilities in time of war.

(c) The carrying out of the defence preparations referred to in sub-par. (b) above have necessitated many men and women changing from the occupations in which they have been and are at present engaged and entering in some cases into the armed forces and munitions and equipment production and into the other industries mentioned in sub-par. (b) (iii) above.

(d) The carrying out of the defence preparations abovemen- tioned has involved the use of goods and commodities both as materials for and equipment utilised in producing the munitions and equipment mentioned in sub-par. (b) (ii) above and in creating and maintaining and protecting stocks of materials of special strategic or wartime importance.

(e) The carrying out of the defence preparations abovementioned has also involved the employment of goods and commodities both as materials for and productive equipment utilised in industries (such more particularly as those supplying power fuel and transport) not themselves producing munitions or equipment or stocks of

87 CLR 198

materials of special strategic or wartime importance but essential for the production of such munitions or equipment or stocks as aforesaid and essential for the conduct of hostilities in time of war.

(f) The transfer of men and women to the armed forces aforesaid and to the productive activities forming part of the defence prepara- tions aforesaid has necessarily involved the diversion of men and women from other gainful occupations in which they have been or are or might otherwise hereafter be employed and further the production of munitions and equipment and materials of strategic and watime importance has involved the diversion of material and equipment from existing or prospective use in other activities.

(g) The transfer without legal compulsion of the men and women referred to in sub-par. (f) above and the diversion without legal compulsion of the materials and equipment aforesaid has been assisted and promoted by the limitation of existing or prohibition of proposed productive activities which have either a remote or indirect connection with the production of munitions equipment and strategic and wartime materials or have no such connection at all. (Such productive activities are hereinafter referred to as "non-strategic production".)

(h) The control of the issue of capital has been a reasonable and necessary means of limiting the increase or preventing or limiting the establishment of the non-strategic production abovementioned and thereby facilitating the diversion without legal compulsion of the men and women and materials and equipment and productive capacity to carry out the minimum amount of defence preparations determined to be necessary by Her Majesty's Government in the Commonwealth.

5. Further to the matters set out in par. 4 above, at all times material to this action-

(a) The available total of purchasing power or money in the Commonwealth was and is excessive in relation to the available total amount of labour and goods and services in the Common- wealth, thereby causing an unbalanced situation in the national economy which is hereafter referred to as an inflationary condition and which condition threatens grave harm to the economic stability of the Commonwealth, to the welfare of its citizens, to the capacity of the Commonwealth to defend itself and the will-power of the nation upon which such capacity depends;

(b) The diversion of the men and women such as is referred to in par. 4 above and the diversion of materials and equipment therein mentioned has (by reducing still further the available supplies of labour, goods, commodities and services and not reducing

87 CLR 199

but possibly increasing the amount of money) tended to increase the inflationary condition referred to in par. 5 (a) above and thereby to increase the evils and dangers to the nation therein mentioned.

(c) The limitation or prohibition of non-strategic production by the means referred to in par. 4 (h) above has prevented or limited the increase in the inflationary condition referred to in sub-par. (b) above and thereby prevented or reduced the evils and dangers to the nation abovementioned and thereby promoted the defence of the Commonwealth.

6. Notwithstanding the facts and matters alleged in pars. 1 to 17 of the statement of claim the refusal by the Treasurer of the Commonwealth of Australia of the application by the plaintiff referred to in par. 4 of the statement of claim was for the purposes of or in relation to defence preparations by reason of the facts and matters referred to in pars. 4 and 5 hereof and in particular by reason of the following facts and matters :-

(a) The materials and production the increased supply of which is most urgently required in the production of the munitions and equipment referred to in par. 4 (b) (ii) hereof and the industries essential for the production of such munitions and equipment and for the conduct of hostilities in time of war referred to in par. 4 (b) (iii) hereof are more particularly set forth in the statement made public by the Treasurer of the Commonwealth of Australia on or about 13th February 1951, which described the industries production and enterprises which are, as abovementioned, most urgently required for purposes of defence preparations (hereinafter called " the said defence priorities ") as follows :- 1. General-Basic Products:

Cement Construction Materials. Clay Products Manufacture-Bricks, Tiles, Pipes, Insulators

and other Electrical Ceramica. Timber Getting and Sawmilling. Coal Mining and Processing. Coke Production. Production of Non-Ferrous and Radio-Active Metals Manufac-

ture of Iron and Steel, including Finished Steel Products. 2. List of Industries Vital for Security:

Selected Heavy Chemicals (including Chemical Fertilizers)

and Related Raw Materials. Agricultural Fertilizers, Agricultural Chemicals and Related

Raw Materials. Selected Plastics and Related Raw Materials.

87 CLR 200

Selected Solvents. Petroleum Refining. Chemical Products from Coal or Oil. Carbide. Graphite and other Electrical Carbon Products/Castings and

Forgings of Metal. Large Scale Power Raising Equipment, both Thermal and

Hydro-electric. Large Equipment for Power Transmission and Distribution. Railway Rolling Stock Manufacture. Crawler Tractor Manufacture. Selected Food Processing Projects. Gas Turbine Manufacture. Reciprocating Internal Combustion Engines. Electrical Equipment for Internal Combustion Engines. Selected Motor Vehicle Components. Wood Pulp. Paper (other than Newsprint) and Paper Board. Electronic Equipment for very high Frequencies and above. Shipbuilding. Aircraft and Accessories for Aircraft Manufacture and Servicing Heavy Earth Moving Equipment. Manufacture of Tools and Gauges of Defence Importance. (b) The defence preparations of the Commonwealth of Australia require the diversion of men and women and materials to the industries and enterprises included in the said defence priorities and in consequence the limitation of new industries and enterprises not included therein.

(c) The proposed new industry and enterprise of the plaintiff for which the capital sought in the application mentioned in par. 4 of the statement of claim was intended were not and are not within any of the said defence priorities.

(d) The industries and enterprises referred to in the said defence priorities at all material times were not and are not now operating to an extent necessary for the defence preparations of the Common- wealth of Australia and the men, women and materials necessary to provide for production in and the development of the said indus- tries and enterprises can be obtained only from the total supply of the same available in the Commonwealth.

(e) The refusal of the application of the plaintiff mentioned in par. 4 of the statement of claim will prevent the absorption of men, women and materials in the industry and enterprise proposed

87 CLR 201

by the plaintiff and will thereby facilitate the diversion or absorption of the same to or by industries and enterprises within the said defence priorities.

The plaintiffs demurred to the defence. The demurrers were heard together, and by consent counsel for the defendants was heard first.

P. D. Phillips Q.C. (with him C. I. Menhennitt and R. Else- Mitchell), for the defendants in both actions. The defence prepara- tions mentioned in the preamble to the Defence Preparations Act 1951, include not only providing forces but the sustenance of the people, expansion of production and other efforts to meet demands in the case of war. The necessity for diversion of resources for defence preparations and many other matters in the preamble may be matters of judicial notice, but the extent of the necessity is a matter of judgment and therefore of evidence. Parliament has indicated the scope of the term "defence preparations' " Section 4 (1) must be a valid law with respect to defence. The important problem is, to what extent. Even if S. 4 (2) is totally invalid, it would be struck out and S. 4 (1) would remain. The regulations are validly made under this Act. Section 4 (1) is either a simple authorization of legislation emphasizing preparations or it may seek to incorporate other legislative powers of the Com- monwealth than the defence power. The regulations are for or in relation to defence preparations because they are for or in relation to matters in S. 4 (2) (b) and (c). The provisions of SS. 5 to 12 found their origin in the national security legislation. Section 13 shows the temporary nature of the Act. The true meaning of S. 4 (2) (b) is to give power to make regulations for the diversion and control of resources for purposes of defence preparations. A problem arises whether it authorizes regulations for diversion and control or diversion or control of resources. The regulations here are for both. The words are wide but the validity of the Act is not to be determined by saying that because the words are capable of a meaning which would embrace regulations which had no con- nection with defence therefore the grant of power is invalid. The second part of S. 4 (2) (c) does authorize regulations which are within power and these regulations provide an example of regulations which are for the purpose of avoiding economic dislocation caused by and impeding defence preparations. What must be considered is whether these particular regulations have a real connection with defence. These regulations are for the diversion and control of

87 CLR 202

resources and for the avoidance and reduction of economic dislo- cation. The presence of the exceptions in reg. 6 shows that the regulations are operating genuinely on extensions of existing enterprises. See reg. 8 (b) which must be read with reg. 9. Regula- tion 12 operates in the light of reg. 13 (2). Regulations 16 1 and (2) and 17 (1) and (2) have to be considered together. The Treasurer may only refuse consent when his refusal has a relation to defence preparations. Regulations which require capital issues to be scrutinized and only those refused, the grant of which would affect defence preparations, the refusal being for or in relation to defence preparations, must be regulations within power. Otherwise it would have to be said that the scrutiny of all new capital expenditure for its defence significance is too remote from defence to be within power. It cannot be said that capital development may not be prejudicial to defence preparations. Mandamus would lie to compel the Treasurer to perform his duty i.e. not to refuse consent except for purposes of defence preparations.

[DIXON C.J.--Would mandamus go to make him consent or only reconsider ?]

It is immaterial for the present purposes. A "value judgment must be made in a matter of this kind: reg. 17 (3). Mandamus is all the more possible if the Treasurer must disclose reasons.

[DIXON C.J.-What do the opening words of reg. 17 (3) con- template ?]

It was contemplated that if the Treasurer was told by this Court that his refusal was erroneous as contrary to law he would abide by the law as laid down by this Court. Regulation 17 (3) to (7) guarantees effectiveness to the legal remedies available. Regulation 17 as a whole contemplates and effectuates legal remedies by an applicant who is refused, directed to ascertaining whether the refusal has a connection with defence. The facts and matters contained in the Treasurer's statement show that he performed his duty under the regulations when he refused the application. The defendants are entitled to show by the facts set out in the defences that the Act and regulations will operate validly. The defendants do not seek to rely on any other facts. Some of these facts may be matters of judicial notice, others of evidence. It is all a question of whether the facts do support validity.

[DIXON C.J. referred to Australian Communist Party v. The Commonwealth (1), per Williams J.]

That is the view we want to stress. Five separate questions arise (i) the Act on its face; (ii) the regulations on their face

1(1951) 83 C.L.R. 1, at p. 225. 87 CLR 203

(iii) the Act in the light of additional facts; (iv) the regulations in the light of additional facts; (v) the refusal in the light of the Treasurer's reasons. As to (v) there is a marked difference between the two cases. In the Marcus Clark &Co. Ltd. Case the application was for more capital for the purpose of maintaining retail turnover in R. B. Davies Industries Ltd. Case the application related to an entirely new industry, that of making brass pipe joints by a particular process. The defence power has three sectors: the preparation for war, the conduct of hostilities and the winding up of the effects of war. This Act authorizes regulations in the first sector only. Section 4 1 must be valid, then the question whether S. 4 (2) is valid or not would not be discussed as a whole because the next question is does the Act authorize the regulations All the regulations require is that anyone seeking capital in excess of £5,000 per year should submit the application for scrutiny and that the application be granted unless the refusal is for or in relation to defence preparations. If new capital may have relation to defence preparations then a law which directs that new capital proposals shall be scrutinized for the purpose of seeing if they have such a relation is within power. If the community arrives at a stage where effectual defence preparations cannot be carried out unless the necessary resources of manpower and materials are conserved then a law which requires every application to be scrutinized to see whether its refusal is related to defence prepara- tions must be valid. It is self evident that every defence prepara- tion necessarily involves that some other activity of the company cannot be carried out. In the present circumstances in this country a law authorizing this screening process until December 1953, the screening process being limited to defence preparations, is necessarily within power because the nature and extent of the defence preparations taken in conjunction with the known produc- tive capacities of the community here and now make a law for screening SO conditioned necessarily within power. This is sub- stantiated by facts available and capable of proof which show what is the relative scale of productive activities involved in defence preparations. An appreciation of the circumstances with the consequential preparations appropriate to that appreciation cannot be determined by judicial knowledge. One of the functions of the Executive is the measurement of defence preparation. This does not infringe in any way on the decision in Australian Communist Party v. The Commonwealth (1). Defence preparations

1(1951) 83 C.L.R. 1. 87 CLR 204

are something relevant to a situation as perceived by the Executive. But it may be said that unless the scale of defence preparations is

SO great as to curtail civilian production a law of this kind has no real relation to defence. Therefore it is necessary to look at the actual scale. See the Treasurer's statement. Ultimately it is a question of degree whether the law in question has a sufficient or real connection with defence. What is a refusal which is prejudicial to defence preparations ? The problem is whether a law prohibiting expenditure for defence reasons, within constitutional power, which operates upon a decision of the Treasurer, subject to judicial control, is valid. During the recent war there were many such cases where the law was held valid. In Shrimpton v. The Common- wealth 1 the regulations were expressed to be unlimited. He also referred to Stenhouse v. Coleman 2.

[FULLAGAR J. referred to Reid v. Sinderberry 3.] See per Starke J. (3A). If it be assumed that a use by the Treasurer of these powers for general purposes of anti-inflationary policy would be invalid and a use of them for defence preparation would be valid the Court has only to ensure that the Treasurer is confined to the latter because then the law in its operation will be confined to defence purposes. [He referred to Water Conservation and Irrigation Commission (New South Wales) v. Browning 4 per Latham C.J. 5; per Rich J. 6.] It would be entirely destructive of the machinery of government if Australian Communist Party V. The Commonwealth 7 was supposed to assert that a discretion at the point of linkage with power can never occur in a valid law unless the whole of the matters involved in the discretion are always matters of judicial determination. The words 'for or in relation to are used as the words " in respect of " as interpreted in the Constitution. [He referred to Australian Communist Party V. The Commonwealth 8 per Dixon J.]. That case has no significance to the present case, because there the link with power was a matter as to which discretion operated and in respect of which no judicial examination was possible. The defendants do rely upon a passage in the judgment of Kitto J. in that case 9 which defines the kind of relation between an Act and the purpose of defence which is necessary for the Act to have a real relation with defence. You cannot tell whether a law is within power or not just by looking

1(1945) 69 C.L.R. 613. 2(1944) 69 C.L.R. 457. 3(1944) 68 C.L.R. 504. 4(1947) 74 C.L.R. 492. 5(1947) 74 C.L.R., at p. 496. 6(1947) 74 C.L.R., at p. 498. 7(1951) 83 C.L.R. 1. (3A) (1944) 68 C.L.R., at pp. 515, 516. 8(1951) 83 C.L.R., at p. 180. 9(1951) 83 C.L.R., at pp. 276, 278. 87 CLR 205

at the legal operation of the law. Regard must be had to the H. C. practical results the law was calculated to produce.

[McTIERNAN J. referred to Sloan v. Pollard 1.] The real problem in Marcus Clark's Case is whether the Treasurer's refusal was for or in relation to defence preparations. The Court is concerned to ensure that he has not directed his mind to any extraneous matters. [He examined the Treasurer's statement in detail.] From a review of that statement it follows that what might be described as the anti-inflationary operation of new capital issues has a real relation with defence for two reasons: (i) It is essential to check the very tendencies which defence preparations themselves engender in order to effect the programme (ii) The anti-inflationary aspect of the operation of the regulations is only the reflection in monetary terms of the material diversion and the resistances to the material diversion. In Davies' Case the plaintiffs have not asked for the Treasurer's reasons but to some extent they have been set out in the defence. This case was an application for new capital to embark upon a manufacturing process not concerned with consumer goods. If the plaintiff desires to show that the Treasurer has exceeded power, it must show that there could not possibly be a valid application in the administrative process, as described in the defence, leading to a refusal. The administrative process contains a list of priorities. Any appli- cation falling within that list would be granted, but the fact that a grant is made in a case in which the Treasurer could have refused does not show that the refusal in any particular case is beyond power. In Davies' Case the application was refused because it was a new enterprise outside the priorities.

B. P. Macfarlan (with him K. S. Jacobs) for the plaintiff Marcus Clark &Co. Limited. The second recital in the Defence Preparations Act 1951 must be read as expressing the object or belief of Parlia- ment and it shows that Parliament intended to enact a law giving it the same powers and authorities as it would have at the height of a war. That intention colours the operative part of the Act. The reference to the British Commonwealth of Nations and the United Nations shows that Parliament intended the powers of this Act to go beyond what was necessary for the defence of Australia proper.

[McTIERNAN J. referred to Sloan v. Pollard (1).] The extent of the Parliament's legislative power within the country depends on whether the arrangements as a result of which

1(1947) 75 C.L.R. 445. 87 CLR 206

it came to send troops overseas were entered into in time of peace

or war. The recitals here control the operative sections they provide a dictionary: see recitals 3 to 7. Recitals 4 to 7 are in substance reproduced in S. 4 2 and at least recital 3 is in S. 4 1. The preservation of the formality of S. 4 (1) by S. 4 (2) widens what is contained in S. 4 (1) and colours it with the powers in S. 4 (2) which are economic in character. It is not irrelevant that at all material times there were other Acts in force which gave Parliament and the Executive ample powers to deal with measures of an ex facie defence nature, e.g. the Defence Act 1903-1951, the Naval Defence Act 1910-1949, and the Air Force Act 1923-1950. Section 10 of the Act expressly preserves all powers given by any other Act. " "Preparations in this Act is not used in a limited sense because Parliament already had such powers under other Acts: see S. 63 of the Defence Act 1903-1951. On its proper construction the Act gives Parliament very wide powers which in the present defence situation are outside the scope of the defence power. If the suggested meaning is given to defence preparations, to give it any other meaning would be to give the phrase a different operation from what Parliament intended. The preamble is the obstacle to reading it down. The maximum borrowing allowed in any one year is £5,000: see regs. 13 and 6 (a). Parliament has said in the preamble that there is a state equivalent to a state of war, but the question is still one for the Court to determine Australian Communist Party v. The Commonwealth (1). There is no defence situation which would warrant the Court extending the defence power or giving an extended application to it. This is a purely anti-inflationary measure. In Aberdare Collieries Pty. Ltd. v. The Commonwealth (2) counsel for the Commonwealth con- ceded and the Court held that the section of the Act there under consideration which was enacted in December 1951 could not be supported by any widening of the defence power based upon the likelihood of any future war. [He referred to Australian Com- munist Party v. The Commonwealth (1) is not of prohibitive effect see per McTiernan J. 3, per Williams J. 4, per Webb J. 5, per Fullagar J. 6 and per Kitto J. 7; cf. per Dixon C.J. 8.]

[DIXON C.J. referred to Harisiades v. Shaughnessy 9.] The decisions of this Court always make it clear that the con- nection with defence must always appear objectively. If it clearly

2(1952) 86 C.L.R. 12. 1(1951) 83 C.L.R. 1. 3(1951) 83 C.L.R., at pp. 205, 206. 4(1951) 83 C.L.R., at p. 224. 5(1951) 83 C.L.R., at pp. 243, 244. 6(1951) 83 C.L.R., at pp. 263, 265. 7(1951) 83 C.L.R., at pp. 274, 278. 8(1951) 83 C.L.R., at p. 200. 9(1951) 342 U.S. 580 [96 Law Ed. 87 CLR 207

appears that the opinion of the executive is wrong the duty of this Court is to make its own assessment of the situation: see per Holmes J. in Chastleton Corporation v. Sinclair 1. No attempt is here made to put before the Court any facts, from which the Court could make an objective judgment; cf. per McTiernan J. in Australian Communist Party v. The Commonwealth 2. -To give the opinion of an officer of the Executive Government probative effect would be to deny the decision which has been made in that case. The defence power may never be used outside its primary aspect unless the emergency or unless the defence situation is seen to be such as to authorize it. The argument that the exercise of a power can increase that power has never been accepted in this Court: see per Dixon J. in Hume v. Higgins 3. [He referred also to Australian Communist Party v. The Common- wealth per Dixon C.J. 4, and per Williams J. 5; Woods V. Lloyd W. Miller Co. 6 per Jackson J.; R. v. Foster Ex parte Rural Bank of New South Wales 7.]. The possibility of a future war will always exist. If it were held that the defence power would justify any legislation at any time which dealt with any matter the character of which would be required to change or with any problem the presence of which would aggravate the conduct of such a war, the result would be that the Parliament would have power to legislate with respect to almost every subject. The regulations here authorize the calling up of any person from any place in Australia to any place for interrogation without any recompense. The regulations must stand or fall on their own without any other assistance from the exercise of other powers. Even if it be assumed that these regulations do achieve something in the sense of diverting some men or some materials to what are called defence preparations, in the relevant defence situation which was ostensibly a position of peace the Court cannot say that the regulations can reasonably be seen to assist the then requirements of defence. The regulations are said to be designed to achieve a diversion of men and materials but there is nothing in the law which requires that after that diversion they should assist defence purposes: see R. v. University of Sydney Ex parte Drummond 8 particularly per Starke J. 9, and per Williams

1(1923) 264 U.S. 543, at p. 547 2(1951) 83 C.L.R., at p. 208. 3(1949) 78 C.L.R. 116, at p. 134. 4(1951) 83 C.L.R., at p. 202. 5(1951) 83 C.L.R., at p. 222. 6(1947) 333 U.S. 138, at pp. 146, [68 Law Ed. 842, at p. 843]. 147 [92 Law Ed. 596, at pp. 603, 7(1949) 79 C.L.R. 43, at p. 83. 8(1943) 67 C.L.R. 95. 9(1943) 67 C.L.R., at p. 108. 87 CLR 208

J. 1, and Australian Communist Party v. The Commonwealth 2

per Dixon J. If a restriction on capital issues for the purpose of defence preparations is invalid, it can make no difference if the discretion is restricted to defence preparations. The Act is aimed at the economy and Parliament has shown an intention to be content with nothing less than these overall powers; therefore, S. 15A of the Acts Interpretation Act 1901-1950 is excluded. As to the exercise of the Treasurer's discretion the Court cannot say that its exercise is in relation to defence preparations if the Treasurer has taken into account irrelevant considerations. Parts V. and VI. of the Treasurer's statement do not contain any relevant consideration in determining whether the exercise of the discretion was for the purposes of defence. The Treasurer has taken into consideration certain irrelevant matters see par. 16.

J. D. Holmes Q.C. and Dr. F. Louat, for the plaintiff R. B. Davies Industries Limited. The Defence Preparations (Capital Issues) Regulations prevent capital issues in such a way as not necessarily to require that persons or materials are diverted to defence preparations. The test of validity must be, not what may follow after a capital issue has been limited, but what is done by limiting a capital issue. See per Kitto J. in Australian Communist Party v. The Commonwealth 3. A series of companies with not more than £10,000 of capital each might be formed to carry on the same new business as R. B. Davies Industries Ltd. proposed. Therefore the law itself does not necessarily achieve its declared object. Regarded as a law for diverting materials and persons it has no connection with defence. The regulations do not require the finance, if it is available, to be directed to any particular defence operation. The situation under which the regulations were enacted was one in which inflation was a major economic problem and the inflation was due to a variety of causes. The only cause associated with defence is that produced by the regula- tions themselves. To the extent that the defence preparations have increased the inflationary position, it is said that the increase has been stopped. The situation then is that the regulations when they commenced were completely unassociated with defence preparations. In other words, it is no justification of the regula- tions to say that they cure the evils which they themselves create. The regulations in their legal operation do not prevent any inflation- ary condition. The list of defence priorities includes castings

1(1943) 67 C.L.R., at p. 114. 2(1951) 83 C.L.R., at p. 185. 3(1951) 83 C.L.R., at p. 278. 87 CLR 209

and forgings. This is the business of R. B. Davies Industries Ltd. in its hot pressing process and consent should therefore have been given on that ground. The situation here is no different from the situation in R. v. University of Sydney Ex parte Drummond 1. Mr. Macfarlan's further argument on the regulations is adopted. The contention that what is done under the defence power can provide a reason for an extension of the power is a revolutionary doctrine for which no authority exists and is fundamentally opposed to all decisions of this Court on the ambit of the defence power see per Dixon J. in Australian Communist Party v. The Commonwealth 2. That case is authority for the proposition that the existence and degree of emergency cannot be established by Parliament or by the Executive see per Dixon J. (3), per McTiernan J. 4, per Williams J. (5), per Webb J. 6, per Fullagar J. 7 and per Kitto J. 8.

Dr. F. Louat. Even if S. 15A of the Acts Interpretation Act 1901-1950 is applied the Defence Preparations (Capital Issues) Regulations are SO framed that their necessary effect is to authorize the Executive to determine for itself the limits of the defence power. Regulation 17 (1) is wider than S. 4 (1) because it has different legal consequences. "Defence preparations" is in substance as wide as the defence power itself in 1951-1952. The only link between the regulations and the defence power is the grounds on which the Treasurer may refuse consent. [He referred to Lloyd v. Wallach 9, Liversidge v. Anderson 10 and R. V. Halliday Ex parte Sutherland 11.]

I have not been able to see any sound reason for saying that S. 4 (2) is invalid. I would not be prepared to regard the fact that the words "defence preparations" occur in every paragraph as conclusive-as I think we were, in effect, invited to do by counsel for the defendants. And I express no opinion as to the validity of such provisions in what Isaacs J. once called a period of " pro- found peace " No one would regard the present state of peace as very "profound". The view taken of the situation by the Parliament and the Government is expressed in the second recital in the preamble, and facts which may be judicially noticed go a considerable distance towards supporting that view. It is im- possible for a court to say that it is not justified. And it seems to me equally impossible to say that the execution of a substantial defence programme is not quite likely to bring about economic strains and dislocations of such a nature that, unless they can be controlled by the authority constitutionally responsible for defence, the defence programme itself may be imperilled or impeded.

It was said that the Act claimed complete war powers for the Commonwealth, and amounted to the re-enactment, in a time of peace, of the National Security Act. Whether, if this were so, it would be fatal, I need not consider, because I am clearly of opinion that it is not SO. It was said that the exercise of a power could not extend a power-that the Commonwealth could not, by taking steps which were within power, achieve the result of extending the ambit of its power. I do not understand this argument. It must often happen that one step will not be fully effective, or will be in danger of defeating its own object, unless another step also is taken. It is true that "you may complement, but you may not supplement a granted power ". But, as the gravity of a situation increases, the scope of what is complementary to the defence power must become progressively enlarged, and the reactions of measures taken must often call for control or modification by other measures.

I am of opinion, in the next place, that the Capital Issues Regu- lations are a valid exercise of powers conferred by S. 4 (2) of the Act. It may be said that the provisions of reg. 17 (1) and (2) are conclusive on the question, for they prohibit a refusal of consent or the imposition of a condition upon consent except for purposes of or in relation to defence preparations", and, although the words

defence preparations" must be given a wide meaning in the light of the preamble and S. 4 (2) of the Act, the opinion has already

87 CLR 256

been expressed that S. 4 2 is valid. But some such limitation restriction upon the discretion to refuse consent or impose a con- dition would have to be implied: of. Shrimpton v. The Common- wealth 1. And the question arises whether a measure imposing a prohibition of certain borrowings and capital issues is a measure of the character authorised by S. 4 (2). It appears to me that the view may be reasonably entertained that the " expansion of the capacity of Australia to produce or manufacture goods or to provide services" for one purpose will be aided by measures tending to limit or restrict the production or manufacture of goods or the provision of services for other purposes. It appears to me also that such measures may also be thought quite reasonably to conduce to the diversion of resources from other purposes to the purposes contemplated by S. 4 (2). If these conclusions are reached, the regulations must be held valid. They are, in my opinion, valid.

I must notice one argument which was pressed particularly by Mr. Holmes. It was put as resting on a supposed principle laid down in R. v. University of Sydney; Ex parte Drummond (2). It was said that the regulations were invalid because their direct operation was merely negative, and that it did not necessarily follow that prohibitions effected under them would achieve any such expansion or diversion of resources as was said to be intended and desired. The argument appears to me to cut right across the principle, which has never been doubted since Farey v. Burvett 3 that the Court cannot be concerned either with the wisdom or with the effectiveness of a particular measure adopted in pursuance of the defence power. The measure is to be held valid if it is one which could reasonably be regarded as a means towards attaining an object which is connected with defence. I have expressed my view that the measure now in question fulfils this test.

It remains only to consider the attack on the Treasurer's refusals of consent in the particular case. The question thus raised is to be approached, I think, from the same point of view as the question of the validity of the regulations. The Court will not substitute an opinion of its own for an opinion of the Treasurer, but it will form an opinion as to whether the reasons for the refusals of consent can reasonably be regarded as connected with defence preparations in the sense in which that expression is used in the Act.

In the present case we have a full statement, obtained and filed in pursuance of reg. 17, of the "facts and matters by reason of

2(1943) 67 C.L.R. 95. 1(1945) 69 C.L.R. 613. 3(1916) 21 C.L.R. 433. 87 CLR 257

which" each refusal was 'for purposes of or in relation to defence preparations' The statement is long and elaborate, and I do not think it necessary to set it out in any detail. It is divided into six parts. Part I. sets out the view taken by the Government of the international situation and the requirements of the defence pro- gramme on which the Government has embarked. It declares, and on its face shows, that this programme involves a progressive absorption of resources over a period in preparations for defence. It goes into some detail, and gives figures and estimates. Part II. examines, against the background sketched by Part I., the purposes for which the plaintiff requires the capital which it seeks to raise by way of loan and by an issue of new shares. The plaintiff's business is ' primarily concerned with the retail sale of household and residential furniture, furnishings and fittings, and also male and female clothing. The view is expressed that the capital expenditure contemplated by the company is not shown to be of essential importance or urgent in character' Part III. sets out show how the defence programme of the Government necessitates a diversion from other avenues of the resources of the country in labour and materials. Three courses of governmental action, which could achieve or conduce to such a diversion, are set out. The third of these, which is considered in present conditions to be the most practicable and the least disturbing, is 'by limiting and reducing various economic activities, particularly those relating to the provision and sale of civilian goods" Part IV. expresses and explains the Treasurer's opinion that the capital expenditure contemplated by the plaintiff would involve an attraction of manpower and resources in the opposite direction to that required for defence preparations. Part v. deals with certain economic factors which at the present time accentuate the difficulties attending the desired diversion of resources. Part VI. emphasises the urgencies of the general situation. Parts v. and VI., while by no means without importance, do not, I think, SO far as reasons for a particular refusal are concerned, carry the matter much further than what has gone before.

Having read with care the Treasurer's statement, which I have somewhat inadequately summarised above, I find it impossible to say either that he has refused consent for reasons not connected with defence preparations or that he could not reasonably regard refusals of consent as conducing to the attainment of the objects of the Defence Preparations Act. I cannot say that his refusals were not for purposes of or in relation to defence preparations"

The plaintiff's demurrer should, in my opinion, be overruled.

87 CLR 258

R. B. Davies Industries Ltd. v. The Commonwealth and Others.

This case raises the same constitutional questions as the case of Marcus Clark &Co. Ltd. v. The Commonwealth. For the reasons which I have stated in that case I am of opinion that the demurrer in this case also should be overruled. The plaintiff, however, should have an opportunity of pursuing further, if it thinks fit, its attack upon the refusal of the Treasurer to give his consent in the particular case. I agree, therefore, with the order proposed by the Chief Justice. Marcus Clark &Co. Ltd. v. The Commonwealth and Others.

KITTO J. This is a demurrer in an action by which the plaintiff challenges on constitutional grounds the validity of the Defence Preparations Act 1951 and the Defence Preparations (Capital Issues) Regulations made thereunder, and seeks, by way of alter- native relief, a declaration that two applications which it has made for consents under the regulations have been refused by the Treasurer contrary to their provisions. The defendants, by a curiously expressed paragraph of their amended defence, displaying rather more indifference to the rules of pleading than is usually overlooked even in these days, assert the validity of the Act and of the regula- tions, and allege that it was for authorized purposes that the Treasurer refused the applications for consent. To this paragraph the plaintiff demurs. I am of opinion, for reasons which I shall state, that a law in the terms of the regulations is not within the power of the Commonwealth Parliament with respect to defence in the circumstances of the present times. No other head of legislative power is relied upon. I therefore consider the regula- tions to be invalid; and being of this opinion, I would uphold the demurrer without considering the independent attack which the plaintiff makes upon the action of the Treasurer in refusing the applications for consent.

The question upon which the validity of the regulations depends is whether it is right to say that a law which does what these regula- tions do, " in the way of changing or creating or destroying duties rights or powers " (South Australia v. The Commonwealth 1 ), can fairly be said, in the situation of recognizable danger which confronts Australia in these days, to possess the character of a law with respect to defence. What, then, is the legal effect of these regula- tions ? Briefly, they prohibit a variety of transactions except with the consent of the Treasurer of the Commonwealth, and they place

1(1942) 65 C.L.R. 373, at p. 424. 87 CLR 259

a restriction upon his power to refuse consent or to grant it upon conditions. The transactions, shortly described, are: (i) the issue by a company of authorized capital SO as to bring the total issued within two years, plus the amounts within that period borrowed and not repaid under certain kinds of securities and under un- secured loans, to more than £10,000 (reg. 6); (ii) the making by a company of any call upon certain classes of shares unless stated conditions are fulfilled (reg. 7); (iii) the accepting or receiving of a deposit (an unsecured loan) by a company (other than a bank, a declared pastoral company, a building society or a co-operative society) if the amount borrowed and not repaid during the preceding two years (including the deposit), plus the amount of authorized capital issued during that period and the amount borrowed and not repaid under a security given during that period, exceeds £10,000 (reg. 8 (a); (iv) the payment of interest by such a company as in (iii), on certain deposits, at a rate higher than ten shillings per centum per annum (reg. 8 (b) ); (v) the issue or giving by a person, of a security, which means bond, debenture, debenture stock, inscribed stock, mortgage or charge (except to the Commonwealth or State, an authority of the Commonwealth or of a State, a bank, a declared pastoral company, a building society or a co-operative society), unless the amount is limited in a manner similar to (iii) and the security is not a first mortgage or charge over land at a rate of interest exceeding £4 10s. Od. per centum per annum (regs. 10, 12, 13); and (vi) the paying or charging by a person of interest on certain securities at a rate higher than the rate payable under the security, or the repayment or receipt of an amount of capital in excess of the amount borrowed under a security (reg. 11). The consent of the Treasurer may be granted unconditionally or subject to such conditions as he thinks fit, or refused (reg. 16). It is not to be refused, nor is it to be granted subject to a condition " except for purposes of or in relation to defence preparations " (reg. (1), (2) ). The substantial effect is that the Treasurer is empowered, provided that he acts for purposes of or in relation to defence preparations" to restrict, in the case of companies, the issue of share capital, the making of calls, the borrowing of money, and the rate of interest which may be paid and to restrict, in the case of individuals, the giving of securities and the rate of interest payable.

Financial controls of this general description have become familiar as devices appropriate to situations of actual or potential inflationary tendencies. They provide a means of assisting a

87 CLR 260

selected category of purposes in the economic life of a community, by precluding access for other purposes to some of the chief sources of finance. By thus controlling the flow of purchasing power, they have the practical effect of diverting goods and services away from those purposes which are not within the favoured class and (since they are unlikely to be allowed to lie idle if there is a demand for them in another direction) towards the purposes which the controls are designed to help. Their value in an inflationary situa- tion is twofold, for the flow of goods and services is then dispro- portionately small in relation to the flow of purchasing power in the community. In the first place the control of capital issues may be used to divert purchasing power from those purposes which have the greatest tendency to accelerate the inflationary process. In the second place, and it is here that its usefulness mainly lies, the control enables the limited flow of goods and services to be left available for such purposes of government or of private enterprise as are considered of greatest national importance. When this method is employed, the purposes not favoured are denied the purchasing power which commands goods and services and thus some of the competition for the inadequate flow of goods and services is eliminated, and as a consequence the purposes for the advancement of which the control is imposed are more likely to be satisfied, and are likely to be satisfied more cheaply. It is true that the desired diversion of goods and services to the favoured purposes is achieved by a negative or indirect means. It is also true that a diversion away from some purposes is not necessarily the same thing as a diversion to other purposes. But reason and experience combine to teach that in a practical world a system which closes one channel to the flow of purchasing power is nothing less than a system which increases the flow into those which are left. Conscription and direction of labour, and the compulsory acquisition and rationing of goods, are direct and obvious means of satisfying the requirements of governmental and private purposes from a volume of goods and services which is insufficient for the demand; but it is not always expedient, and it may not always be practicable, to resort to such courses to meet the difficulty. Capital issues control, operating as it does to limit the purposes for which would-be consumers may get purchasing power into their hands, is an indirect but effective means of achieving the same ends. It produces less disruption of the life of the community and less interference with personal liberty but its true nature, if for these reasons it is less apparent, is not different.

87 CLR 261

It follows that, for the purpose of deciding the real character of legislation setting up a particular system of capital issues control, the decisive consideration must be found in the range of purposes which the system, on the true construction of the legislation, is adapted to assist by enabling supplies of money (purchasing power) to be cut off from others which are the actual or potential rivals of those purposes in drawing upon the inadequate flow of goods and services. To say this involves no departure from the well- established proposition that the character of legislation is to be determined, for the purpose of deciding its constitutional validity, by considering its operation in law, and not by looking to conse- quences which lie outside its legal operation. The operation of capital issues control legislation is necessarily to give one set of purposes a preferred position over others in point of law, and its character is therefore determined by the nature of the purposes to which, by construction of its provisions, it is found to enable preference to be given. If these purposes may be truly described as incidental to the defence of the Commonwealth, I see no difficulty in ascribing to the legislation the character requisite to support it under S. 51 (vi.) of the Constitution. If, on the other hand, these purposes are not confined to purposes incidental to defence, the legislation has not a specifically defence character, and I fail to see how the defence power can be relied upon to support it.

The necessity for a specific relation to defence appears to me to be critical in this case. It is of profound importance that the Court's constitutional duty of deciding the limits of the legislative power with respect to defence should be performed with a lively appre- ciation of the likelihood that any future war will be a total war, and of the serious error it would be to adopt any narrow or pedantic test in the search for a specific connection between legislation which is said to rest on the defence power and the purpose for which the power exists. But it is also essential that there should not be allowed to the imagination which is proper for the task SO loose a rein that the power of defence ceases to have any real boundaries. Unless the federal system of government which the Australian people have chosen is virtually to be turned into a unitary system by every emergence of a danger of war, it is imperative that insistence shall constantly be laid upon the insufficiency of the defence power to support any measure which cannot be seen with reasonable clearness, upon consideration of its legal effect, to have a special relevance to some aspect or incident of defence, considered as a purpose separate and distinct from governmental

87 CLR 262

purposes in general or the general well-being of the community: see Victorian Chamber of Manufactures v. The Commonwealth 1; and cf. R. v. Foster; Ex parte Rural Bank of New South Wales 2.

It may well be that at the present time we are not far from war, and for my part I take the situation to be SO fraught with danger that it is indeed essential, as the Defence Preparations Act recites, that preparations for defence should be immediately. made to an extent, and with a degree of urgency, not hitherto necessary except in time of war. But the fact remains that, since it is the danger of war and not war itself which is upon us, the facet of defence which presents itself as a subject for legislative and executive attention is preparation for war and not the immediate conduct of war. It is not possible to affirm that the incidents in the exercise of the defence power are identical in these two departments of activity. The difference may be described as only one of degree and a pre-war situation may be such as to merge very gradually into a war situation. But it remains true that before hostilities break out it must be seldom that the range of the incidents of defence is at its maximum. Because of this, there seems to me to be room for error in reasoning which starts from the postulate that a given measure would be within the defence power as it exists during a great war, and relies upon symptoms of the times suggestive of impending war as a sufficient warrant for giving the power a more or less similar application. It is true that even when the nation is not at war the limits of the power are not constant they may indeed vary with changing situations but it does not follow that in a situation which, while dangerous, is still definitely short of war, it is proper to decide the ambit of the power by reference to its ambit during hostilities. Each situation must, I think, be considered, not for the purposes of assimilation to any other, but for the sake of the light which its own features provide for the ascertainment of the presence or absence of such a relevance in challenged legislation to purposes of or incidental to defence as suffices to give it the character of legislation with respect to that subject.

However seriously one may regard the portents of the present day, there is no denying that the range of particular purposes which are incidents in defence is more limited than it is when the actual prosecution of a tremendous struggle demands to be made the all-absorbing national pre-occupation. That makes it all the

1(1943) 67 C.L.R. 413, at pp. 417, 2(1949) 79 C.L.R. 43, at p. 83. 87 CLR 263

more difficult and yet all the more necessary to see that legislation setting up a system of capital issues control is SO limited in operation as to exhibit a specifically defence character.

Now, in the international situation which faces Australia at present, it is obvious that preparations against the contingency of war, if made on a scale which pays any regard to the character of modern warfare, must be expected to absorb a considerable propor- tion of the goods and services from time to time available in the community. A law is clearly, I should think, within the defence power if its operation is to reduce the opposition which defence purposes have to meet in the endeavour to secure an adequate supply of goods and services. To disqualify competitors with defence purposes is necessarily to assist defence and capital issues regulations, if their character may fairly be described by saying that their operation is to do that, must, I think, be within the defence power, whether the time at which the question arises is one of war or not. On the other hand, capital issues legislation has no claim to be supported under the defence power in such a situation as the present, if one cannot say more by way of describing its character than that it operates to disqualify competitors with general governmental purposes, or with purposes less likely to accentuate inflationary pressure upon the national economy, or with any other kind of purposes not distinctively related to defence.

I do not overlook the fact that the continuing soundness of the financial system is essential if the nation is to put itself in any shape to meet the eventuality of war. So it is if the nation is to maintain or improve its position in any other direction. The truth is, I think, that the financial stability of the country cannot fairly be regarded as a specifically defence matter when the country is not engaged in war, because the view is not then justified, as it may be during war, that the end to which the economy is for the time being predominantly directed is the defeat of the nation's enemies. And even the probability that the inflationary conditions already existing in Australia will both impede and be aggravated by extensive preparations for war provides no justification for characterizing capital issues control legislation as legislation upon an incident of defence by reason of any aptitude the legislation may have for dealing with inflationary tendencies generally. The legislation would need to reveal some special capacity to assist in counteracting the tendency of the inflationary situation to hamper the defence programme, or some special capacity to prevent the acceleration of inflationary tendencies by the carrying out of that programme.

87 CLR 264

The defendants contend that in the case of the Defence Prepara- tions (Capital Issues) Regulations the necessary specific connection with defence is supplied by the provisions of reg. 17 and the whole case seems to me to come down in the long run to the question whether reg. 17 upon its true construction SO limits the Treasurer's power to refuse consent, or to grant consent subject to a condition, that the category of purposes which the regulations operate to prefer is a distinctively defence category. There are two reasons which lead me to conclude that an affirmative answer should not be given to that question.

The first reason lies in the great width of the expression purposes of or in relation to defence preparations " The regulations them- selves do not define 'defence preparations" The Act, by its recitals and by the provisions of S. 4, refers to a number of matters which the expression as used in the regulations must, I think, be taken to include but nothing in the nature of an exclusive definition is to be found. In some contexts the expression might doubtless be used in a narrow sense, as comprising only the raising, equipping, training and maintaining of armed forces. Even so, "purposes of or in relation to defence preparations would cover a field to which different minds might well set different limits. But in the regulations it is impossible to doubt that 'defence preparations" is used in the far wider sense which is indicated by the recitals and S. 4 of the Act, with the result that purposes of or in relation to defence preparations" must include, to take two examples only, any purpose which has a relation to ' the expansion of the capacity of Australia to produce or manufacture goods, or to provide services,

for the purpose of enabling the economy of Australia to meet the probable demands upon it in the event of war and any purpose which as a relation to the avoidance or reduction of economic dislocation or instability caused by, or impeding, defence preparations" It seems to me that the briefest consideration of the enormous sweep of these completely vague abstract concep- tions should suffice to make it plain that, although there is ample proof in the language used that the legislature in passing the Act was looking at national problems from a defence point of view, the regulations have been SO drafted that their operation (and it is their operation that matters) is to empower the Treasurer to assist by his veto a multitude of purposes which cannot be said to have any greater significance for defence than for the general advancement of the country. Purposes connected, directly or indirectly, with public works, or with any aspect of the production or distribution of primary produce, from wool to asparagus, or with

87 CLR 265

any aspect of a great variety of secondary industries from the manufacture of steel to the production of shaving cream, all these and more lie open to a Treasurer, acting in good faith and in accord- ance with reg. 17, as purposes for which he may exercise the power reposed in him. Indeed the limits to which the regulation purports to subject the power of veto defy specification. This being so, the regulations in my opinion cannot be held to have a specifically defence character unless we are to say that in these days it is primarily for defence that the national economy exists. In the midst of open war, it may well be far from extravagant to say precisely that but it cannot be said in the present situation, despite its dangers.

The second reason which leads me to the conclusion I have stated is this. Suppose that the purposes to which reg. 17 refers are all purposes within the present reach of the defence power notwithstanding the great uncertainty of the language used to describe them. Even so, the limit which reg. 17 places upon the Treasurer's power of absolute or conditional veto is that he shall not use it 'except for purposes within the description. That is to say, it is a limit by reference, not to the purposes which are really apt to be served by a refusal of the Treasurer's consent, but to the purposes which the Treasurer aims to serve by his refusal. It is a subjective and not an objective test which the regulation lays down. When the country is in the throes of a great struggle such a test may suffice to give the requisite con- nection with the subject of legislative power indeed the National Security (Capital Issues) Regulations which were in force during the last war did not contain any express provision circumscribing the Treasurer's authority by reference to purposes, and their validity doubtless depended upon an implication that the consent might not be refused except for purposes having a real connection with the prosecution of the war: cf. Shrimpton v. The Common- wealth 1; Dawson v. The Commonwealth 2. In the midst of hostilities it may not be difficult to regard legislation which depends for its application upon an executive judgment concerning a matter material to the prosecution of the war as legislation upon an incident of defence cf. Australian Communist Party v. The Commonwealth 3. But when no major war is in progress it is not possible, I think, to concede a defence character to legislation conferring upon the Executive a power to interfere with rights

1(1945) 69 C.L.R. 613. 2(1946) 73 C.L.R. 157. 3(1951) 83 C.L.R., at pp. 195, 258, 87 CLR 266

existing under State law, unless there is to be found in the legisla- tion some more substantial connection with defence than is supplied by making the exercise of the power conditional upon an intention thereby to assist some purpose of defence.

In my opinion the regulations are void and the demurrer should be allowed. R. B. Davies Industries Ltd. v. The Commonwealth and Others.

I would allow the demurrer for reasons similar to those which

I have stated in the case of Marcus Clark &Co. Ltd. v. The Commonwealth of Australia.

Marcus Clark &Co. Ltd. v. The Commonwealth and Others.

Demurrer overruled. The plaintiff to pay the

costs of the demurrer. R. B. Davies Industries Ltd. v. The Commonwealth and Others.

Demurrer overruled. Costs of the demurrer

reserved for the judge at the trial of the action or, if the action do not go to trial, then for the order of a judge sitting in the original jursidiction to whom application is made. Solicitors for the plaintiffs: in the first action, Stephen, Jaques &Stephen, by Blake &Riggall; in the second action, J. Stuart Thom &Co., Sydney, by Ellison, Hewison &Whitehead.

Solicitor for the defendants in both actions: D. D. Bell, Crown Solicitor for the Commonwealth.