Melbourne Corporation v The Commonwealth

[1947] HCA 26

74 CLR 31

THE LORD MAYOR, COUNCILLORS AND Union, Re; Ex

CITIZENS OF THE CITY OF MELBOURNE

THE COMMONWEALTH AND ANOTHER Constitutional Law (Cth.)-Legislative power of Commonwealth-Implied limitation

Interference with governmental functions of States--Banking--" State bank- ing Statute-Validity-Banks not to "conduct any banking business for State or for any authority of a State, including a local-governing authority' MELBOURNE, except with consent of Commonwealth Treasurer--Banking Act 1945 (No, 14 July 15, 16. of 1945), 8. 48.

Section 48 of the Banking Act 1945 provides that Except with the consent furstville CC

in writing of the Treasurer, a bank shall not conduct any banking business for a State or for any authority of a State, including a local governing authority."

Held, by Latham C.J., Rich, Starke, Dixon and Williams JJ. (McTiernan J. dissenting), that this section was not a valid exercise of the power in relation to "banking conferred upon the Commonwealth Parliament by S. 51 (xiii.) of the Constitution which does not authorize legislation directed to the control or hindrance of the States in the execution of their governmental functions.

Held, further, by the whole Court, that "State banking' in S. 51 (xiii.) of the Constitution means the business of banking engaged in by a State as DEMURRER.

In an action in the High Court by the municipality of the city of Melbourne against the Commonwealth and its Treasurer, the Right Honourable Joseph Benedict Chifley, the plaintiff's statement of claim was substantially as follows

1. The plaintiff is and was at all material times a body corporate constituted by statute.

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32

HIGH COURT 2. The defendant the Right Honourable Joseph Benedict Chifley 1947.

is the Treasurer of the Commonwealth.

3. By virtue of various statutes the council of the plaintiff corpor- ation is empowered to make by-laws and regulations for the good rule and government of the City of Melbourne and for other purposes connected with the administration of the affairs of the said city, and the plaintiff is authorized to carry on and carries on various under- takings, including the City Abattoirs, the City Cattle Market, the Queen Victoria Market, the Fish Market, four public baths, a refrig- erator, weighbridges and electric supply and hydraulic power supply undertakings.

4. The plaintiff also controls and maintains various properties, including the Town Hall Chambers, Eastern Market, Hay Market, Western Market and warehouses and stores at the Wharf Market and is responsible for the maintenance of park lands, reserves, streets and footways within the city limits.

5. The plaintiff also administers the Health Acts within the City of Melbourne, the Uniform Building Regulations and the licensing and control of hackney carriages and motor omnibuses within the metropolitan area.

6. In the course of the activities referred to in pars. 3, 4 and 5 hereof, the plaintiff receives sums of money amounting to upwards of £1,800,000 per annum and makes payments (including appropri- ations to sinking funds, reserves and payments of a like character) amounting to a similar sum.

7. For the purpose of dealing with the receipts and payments referred to in par. 6 hereof and of obtaining financial accommodation required by the plaintiff to enable it to carry on the activities above referred to it is necessary for the plaintiff to establish bank accounts and the banking business necessary and incidental to the plaintiff's activities is and has for some years been conducted for the plaintiff by the National Bank of Australasia Ltd., a body corporate specified in Part I. of the First Schedule to the Banking Act 1945.

8. By a letter dated 1st May 1947 from the defendant the Right Honourable Joseph Benedict Chifley to the plaintiff, which letter was received by the plaintiff on or about 2nd May 1947 the said defendant informed the plaintiff as follows:

'Under section 48 of the Banking Act 1945, it is provided that, except with the consent in writing of the Treasurer, a bank shall not conduct any banking business for a State or for any authority of a State, including a local-governing authority. It is further provided by that section that, until a date fixed by the Treasurer by notice published in the Gazette that section

74 CLR 33

shall apply only in relation to banking business conducted for a State, or for any authority of a State specified by the Treasurer by notice in writing. A date has not yet been SO fixed and I propose to specify, on or about 1st August 1947, certain author- ities of a State or local-governing authorities, including the City of Melbourne, to be authorities in relation to which section 48 of the Banking Act 1945 shall apply. In effect this will mean that as from the date on which this specification was made a private bank will not be able legally to conduct business on behalf of any local-governing authority specified in the notice. This information is furnished for the purpose of enabling your authority to make such preliminary arrangements as are con- sidered necessary." 9. On 13th May 1947 a letter was forwarded on behalf of the plain- tiff by the Town Clerk of the City of Melbourne to the defendant the Right Honourable Joseph Benedict Chifley in the following terms :-

Referring to your letter of the 1st instant regarding the provisions of the Commonwealth Banking Act 1945, I have to inform you that your communication was submitted to the last meeting of the City Council, when the council by resolution recorded its objection to the application of the provisions of the Act to the City of Melbourne, and authorized the finance com- mittee of the council to make representations to the Honourable the Treasurer for the exemption of the council from such pro- visions, and to take all other steps which the committee may consider necessary with the object of enabling the council to continue its existing banking arrangements. In accordance with the decision of the council, formal application is hereby made for the exemption of the council from the provisions of the Act." 10. By a letter dated 23rd May 1947 from the said defendant to the plaintiff received by the plaintiff on or about 24th May 1947 the said defendant informed the plaintiff as follows :-------

"I acknowledge receipt of your letter of the 13th May 1947, protesting against, and requesting the exemption of your council from, the operation of section 48 of the Banking Act. Full consideration was given to this matter before it was decided to specify your council as an authority to which section 48 of the Banking Act shall apply. I am satisfied that the Common- wealth Bank is in a position to provide full banking facilities to your council and I cannot see my way clear to exempt the council from compliance with the terms of the order which I propose to issue on 1st August 1947, under that section."

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11. The defendant the Right Honourable Joseph Benedict Chifley threatens and intends by notice in writing to specify the plaintiff as an authority of a State to which S. 48 of the Banking Act 1945 shall apply and further threatens and intends, by withholding his consent in writing to the conduct of banking business for the plaintiff by any bank other than the Commonwealth Bank of Australia to compel or to attempt to compel the plaintiff to transfer its banking business to the Commonwealth Bank.

12. The Banking Act 1945, or alternatively S. 48 thereof, is beyond the powers of the Parliament of the Commonwealth of Australia, contrary to the provisions of the Constitution of the Commonwealth and is void.

The plaintiff claimed (so far as is here material), against both defendants, a declaration in terms of the allegation in par. 12 of the statement of claim and, against the defendant Treasurer, a con- sequential injunction.

The defendants demurred to the statement of claim, and the demurrer now came on for hearing. The order in which the appear- ances of counsel are indicated hereunder is the order in which, at the instance of the Court, counsel presented their addresses.

Barwick K.C. (with him Coppel K.C. and D. I. Menzies), for the plaintiff. The Banking Act 1945, S. 48, is not a valid exercise of the power, under S. 51 (xiii.) of the Constitution, to make laws with respect to "banking, other than State banking," and there is no other power in the Constitution which will support it. Section 51 (xiii.) of the Constitution appears to be a reproduction, with additions, of the provision of The British North America Act 1867 which was under consideration in Tennant v. Union Bank of Canada 1. The meaning of "banking" was there considered, and its meaning in S. 51 (xiii.) received similar consideration in Commissioners of State Savings Bank of Victoria v. Permewan, Wright &Co. Ltd. 2. It will be submitted that S. 48 of the Banking Act is not a law with respect to banking, but it is desired first to put the alternative contention that, if it is a law with respect to banking, it is one with respect to State banking and, therefore, excluded from pl. (xiii.). In the phrase "banking, other than State banking," the word ' banking " must have the same meaning in both instances. It is important to observe that the power is to legislate with respect, not to " bankers," but to the functional operation of banking. Banking is a process involv- ing two parties, banker and customer. The power to regulate

1(1894) A.C. 31 See pp. 46, 47, 2(1914) 19 C.L.R. 457 See pp- 74 CLR 35

banking is, therefore, a power to regulate both parties to the banking transaction. It follows that the exclusion of "State banking' " means the exclusion of the power to regulate a State, in relation to banking, whether in the capacity of banker or customer. In form S. 48 is a prohibition directed to the banker, but in substance-and it is the substance to which one must look to see if the section is within power-it is directed as well to the customer. A customer engaging with a banker in a prohibited transaction would be liable as a principal offender (Crimes Act 1914-1941, S. 5). In effect S. 48 purports to prohibit a State from engaging as a customer in banking transactions except such as may be permitted under the section, the object being, as is admitted on the pleadings, to force the States and their authorities to bank with the Commonwealth Bank. [He referred to the Commonwealth Bank Act 1945, SS. 5, 7, 28 the Con- stitution, S. 105A.] The section, therefore, assumes a power which is excluded by pl. (xiii.). The section must stand or fall according to the extent of the power to regulate States and State authorities As the section expressly includes local-governing authorities under the head of State authorities, there can be no question of severance. The section was drafted on the assumption that State banking meant only banking by a State as banker, as appears from S. 5 (1) of the Act, which provides that nothing in (among other provisions) S. 48 shall apply to State banking. That provision cannot avail to give S. 48 any validity, if the present argument is correct. The plaintiff's next contention assumes that the first argument is not correct, that "State banking' means only banking by a State as banker. The contention is that S. 48 is not a law "with respect to " banking, at all, within the meaning of S. 51 (xiii.) of the Constitution, because it discriminates against (in the sense that it is 'aimed at ") the States and State authorities and provides no discrimen having relation to the subject matter of banking. It singles out the States simply because they are States, not for a purpose that has to do with any particular function of banking it is rather a law with respect to the States and their domestic activities. It is a general prohibition of the transaction of banking business by the States with banks not approved by the Commonwealth Treasurer. That it is directed to the banking business " (as a whole) of a State, and does not discrim- inate between the various functions of banking or classes of banking transaction or seek to regulate any such function or class, is shown by sub-s. (3), which empowers the Treasurer to specify a State (or an authority of a State) in relation to its banking business as a whole or as at a particular office of a bank. It is not a law enabling the Treasurer to say that because of the banking nature of some particular

74 CLR 36

business it ought to be conducted in one place rather than another;

it enables the Treasurer to discriminate between States (or their authorities), not between different kinds of banking business. A law with respect to banking is either a general law binding upon banks with respect to the accounts of all its customers or all their banking business, irrespective of the identity of the customer, or one which discriminates between various functions of banking, because of the nature of the business or the way in which it is conducted, or contains some other discrimination which is founded upon some banking reason. It is not suggested that a law ceases to be a law with respect to banking merely because it discriminates against a particular class of persons or entities The nature of the class may itself disclose a discrimen which is related to banking. It might, for instance, be a highly desirable piece of legislation, and truly banking legislation, which singled out persons who had been convicted of passing valueless cheques and imposed special restrictions on them in relation to banking. What is suggested is that, when a law which refers to banking is discriminatory (in the sense which has been indicated), the question whether the subject matter of the law is banking is to be determined by ascertaining whether the discrimen has a real connection with that subject matter. If it has not, the real subject matter of the law is the class of persons discriminated against. [He referred to John Deere Plow Co. Lid. v. Wharton 1; Great West Saddlery Co. Ltd. v. The King 2.]

[LATHAM C.J. referred to Union Colliery Co. of British Columbia Ltd. v. Bryden 3.]

It is not essential to the validity of this argument that those discriminated against are States of the Commonwealth; the argument would apply with the same force if the discrimination was against, say, brewers, or persons of a particular religion. That S. 48 discrim- inates against the States does, however, afford the plaintiff a further argument which is founded on the proposition that under the Con- stitution neither Commonwealth nor State may pass discriminatory legislation aimed at the other with respect to an essential govern- mental function of that other. It may be that this proposition is merely part of a wider one, that the Constitution does not permit Commonwealth or State to impede the exercise by the other of its functions, whether the legislation is discriminatory or not, and whether or not the function is one which might be called govern- mental." The authorities, however, show that some Commonwealth legislation of a general nature is valid notwithstanding that it affects

1(1915) A.C. 330. 2(1921) 2 A.C. 91. 3(1899) A.C. 580. 74 CLR 37

the States; they also show that the vice that has been found in some legislation is that it is discriminatory. Here the States are discrim- inated against and impeded in relation to an essential governmental function, the disposition and control of the State revenue. The plaintiff, therefore, is not obliged to support the wider proposition or to examine its precise extent. It may be that it must be limited in some respects, perhaps by reference to the precise words of the Constitution granting particular powers. Although the old doctrine of the immunity of instrumentalities has gone, the proposition for which the plaintiff contends still remains valid and finds support in the authorities. The grant of power in S. 51 (xiii.) must be read as it appears in a constitution which provides for the union of indestructible States in an indestructible Commonwealth. Some- times the view is taken that this creates an implication in the light of which the grant of power is to be read; another view which finds support is that the grant of power does not include power to affect the members of the union unless expressly SO stated. The result, whichever way it is achieved, is a consensus of opinion which is sufficient to support, at least, the plaintiff's proposition; how much further it may go, the plaintiff is not concerned to establish. [He referred to Heiner v. Scott 1; Pirrie v. McFarlane 2; Australian Railways Union v. Victorian Railways Commissioners 3; West V. Commissioner of Taxation (N.S.W.) 4; South Australia v. The Commonwealth 5; Victoria v. The Commonwealth 6 Pidoto V. Victoria 7; Victoria v. Foster 8; Essendon Corporation V. Criterion Theatres Ltd. 9 New York v. United States 10.] The result is that a law such as S. 48, even if treated as a law ' with respect to banking," in the widest literal meaning that can be given to those words without regard to context, is still not authorized by S. 51 (xiii.) of the Constitution, because its sole purpose and effect is to impede banking by a State in the exercise of its governmental functions.

1(1914) 19 C.L.R. 381, at p. 393. 2(1925) 36 C.L.R. 170, at pp. 184, C.J. at p. 505 per Starke J. at 191, 221, 229. p. 513; per Williams J. at p. 3(1930) 44 C.L.R. 319, per Starke J. at pp. 389, 390 per Dixon J. 4(1937) 56 C.L.R. 657, per Latham Starke J. at p. 116. C.J. at pp. 668, 669 ; per Dixon 5(1942) 65 C.L.R. 373, per Latham C.J. at pp. 419, 424, 430, 431 ; 6(1943) 66 C.L.R. 488, per Latham 7(1943) 68 C.L.R. 87, per Latham at pp. 390, 391. C.J. at pp. 103, 106 per 8(1944) 68 C.L.R. 485, at pp. 492, J. at pp. 679, 681, 683 per Evatt J. at p. 687. 9Ante, p. 1. Per Latham C.J. and 10(1946) 326 U.S. 572, at pp. 575, per Starke J. at pp. 441, 442, 580, 582 [90 Law. Ed. 326]. 74 CLR 38

Hannan K.C. (with him K. J. Healy), for the States of South Australia and Western Australia (intervening, by leave), adopted the argument of the plaintiff and referred, as to the meaning of " banking," to Quick and Garran's The Annotated Constitution of the Australian Commonwealth, p. 576; Paget's Law of Banking, 4th ed. (1930), p. 5; and, as to the plaintiff's final argument, to the Commonwealth Constitution, SS. 106, 107 Commonwealth Bank Act 1945, S. 9; Constitution Act 1934-1943 (S.A.), S. 72 Audit Act 1921-1936 (S.A.), SS. 18-23 Constitution Act 1889 (W.A.), S. 68 Audit Act 1904 (W.A.), SS. 21-29; Attorney-General (Cth.) v. Colonial Sugar Refining Co. Ltd. 1 James v. The Commonwealth 2.

Mason K.C. (with him Tait K.C., W. J. v. Windeyer and J. D. Holmes), for the defendants. Section 48 is a law with respect to banking other than State banking within the meaning of S. 51 (xiii.) and is, therefore, within the power conferred by that placitum. It is not disputed that, in the placitum, "banking," when used generally, and also in the expression "State banking," has the same meaning. So, by considering the meaning of "banking" generally, one ascer- tains what "State banking" means.

[STARKE J. referred to Hart's Law of Banking, 4th ed. (1931), vol. 1, p. 2.]

The true meaning of the word "banking" is "the carrying on of the business of banking." It is not denied that the business of banking involves two parties, the banker and the customer; but the customer does not carry on the business of banking; it is only a colloquialism to describe the customer as " banking " when he goes to the bank to transact business as customer. Accordingly, a State is not engaged in "State banking" within the meaning of the placitum when it engages as customer in banking transactions the phrase means the carrying on of the business of banking by a State (or a body authorized by it) as banker. With this S. 48 of the Act has nothing to do; S. 5 expressly excludes "State banking from the application of S. 48. It is in keeping with this conception of the meaning of banking that S. 48 is in form (and, it is submitted, also in substance) a direction to the banks, not to the customers, the States. The section is truly a law with respect to the carrying on of the business of banking. Of necessity such a law affects and binds the customer to the extent to which it hits transactions in which he might engage. That merely states the truism that a law on a given subject matter will affect a number of people. The subject matter does not change simply because the provision is said to be

1(1914) A.C. 237, at pp. 252-254. 2(1936) A.C. 578, at p. 611. 74 CLR 39

"aimed at " people whose affairs it touches. The Banking Act sets up a system of licences for banks See SS. 7, 8. It says in effect that no bank shall carry on business without a licence, and, in S. 48 that a second licence or permit must be obtained by a bank that wants to be a banker for a State Government. That such legislation is within the subject matter of banking follows from the decision in Australian National Airways Pty. Ltd v. The Commonwealth 1. So far as S. 51 (xiii.) is concerned, legislation, for instance, which gave the Commonwealth Bank a monopoly of all banking business other than such as was within the exception of "State banking" would be within the subject matter, just as the attempt to create an airlines monopoly was within the subject matter of pl. (i.); it failed, not because it was not within pl. (i.) but because of S. 92 of the Constitution. Whether S. 92 would affect a banking monopoly need not be con- sidered here. It may, however, be observed that the Commonwealth has already taken unto itself certain monopolies which have not been challenged. [He referred to the Post and Telegraph Act 1901-1934, SS. 80, 91 Lighthouses Act 1911-1942, S. 10; Wireless Telegraphy Act 1905-1936, S. 4.] No question of S. 92 has been raised in this case, and it seems unlikely that the question could arise. The proper construction of S. 48 of the Banking Act would seem to be that it is limited to intra-State banking; in any event, the section could be

SO read down if necessary. If a wine and spirit merchant who had carried on business under a licence was deprived by the law of that licence, his customers might be inconvenienced, but no right would be taken away from them. Under State law the question of subject matter could not arise, but, if it could, the law which took away the licence would not be a law " with respect to " the customers. Section 48 is directed to what may be described as the "trading banks." If S. 48 had not been enacted, none of those banks would have been bound to accept the business of a State or a State authority. A State has power to set up its own bank and impose on it such duties as it thinks fit; but the trading banks owed the State no duty the correlative of which would be a right in the State on which S. 48 could operate SO as to prejudice the State. Apart from State banks, the Commonwealth could, without infringing any legal rights of the customers, close all the banks and leave the people without any banking facilities except such as might be provided by State banks. A law to that effect would be a law with respect to banking S. 48 is none the less a law with respect to banking because it stops short of that. The plaintiff's contention was that the section was really a law with respect to the States because it singled them

1(1945) 71 C.L.R. 29. 74 CLR 40

out and discriminated against them in effect, that the discrimen was arbitrary is that the States were selected simply because they were States, and not for a reason related to banking. It can be conceded for present purposes that, if the section was discriminatory in that sense, it would not be a law with respect to banking; but it is submitted that the section is not lacking, as the plaintiff contended, in a sufficient nexus with banking. It can be assumed that the object of, or desire embodied in, S. 48 is to produce the result that all government authorities shall conduct their banking business with publicly owned and controlled banks, either State or Commonwealth; it can even be assumed that the object of the section is to "force" the States and their authorities, SO far as it can be done, to bank with the Commonwealth Bank. There is a real nexus between such an object and the subject of banking because the Commonwealth Bank is established as the central bank for the Commonwealth and it is a recognized function of a central bank to act as government banker: See De Kock on Central Banking, pp. 47 et seq. The extension of this recognized function of a central bank to the accounts of States and authorities of States is within the general theory of central banking because Commonwealth and States may now be regarded as one government for monetary and public credit purposes. [He referred to the Constitution, SS. 96, 105A; South Australia v. The Commonwealth 1; R. v. Brislan: Ex parte Williams 2 Huddart Parker Ltd. v. The Commonwealth 3.] These considerations supply the answer to both the second and third contentions of the plaintiff, which in substance are one argument put in two aspects. In the ultimate result the argument resolves itself into a complaint that the States and their authorities are affected by a law with respect to banking. The plaintiff says, in substance "We like dealing with such and such a bank: you are preventing us from doing SO we do not like it." It is unreal and without significance in law to suggest that the legislation has some sinister purpose or operation, to say that it seeks to "force" the States into something, to control them through their finances and to hamper their functioning. The States and their authorities, as well as private individuals, must, of necessity, be affected by the legit- imate exercise of some, at least, of the legislative powers of the Commonwealth. Laws usually " affect " someone, and the States are not above the law. There is nothing unreasonable or incon- sistent with the Federal structure in the proposition that in their

1(1942) 65 C.L.R., at pp. 420, 421, 2(1935) 54 C.L.R. 262, at p. 276. 423, 424, 429-434, 436, 458, 459, 3(1931) 44 C.L.R. 492, at p. 526. 74 CLR 41

dealings with banks which are subject to Commonwealth control the States must accept the consequences of that control. They are not bound to deal with the banks that are subject to that control. They can set up their own banks and create their own banking conditions. The exception of State banking is an express limitation on the banking power which is quite sufficient to protect the States from prejudice, That being so, there is no room for any implication of a further limit- ation. It is a reasonable assumption that the limitation which is expressed is intended to be the only limitation of the power. More- over, it is significant that the limitation is expressed as it is It suggests the view that State banking would have been within the subject matter of the placitum unless excluded and that, except to the extent expressed, it was not intended to give the States immunity from banking laws. In the interpretation of the Constitution it is not a correct approach to start with the assumption that every grant of legislative power to the Commonwealth must be subject to some limitation in favour of the States. So far as S. 51 is concerned, one must look first to the words of the placitum which is relevant to a given case, to the form in which the grant of power is expressed and to the nature of the subject matter. The preservation of the Federal structure may make necessary an implied limitation of a grant of a particular power which does not itself express a limitation: The implication may be necessary to prevent the States from being destroyed or prejudiced in the exercise of their governmental functions; otherwise, it would not be warranted. There is no warrant for reading any such limitation into pl. (xiii.); there is no need for it.

Reynolds K.C. (with him T. W. Smith), for the State of Victoria (intervening, by leave), adopted the argument of the defendants. [He referred to Victorian Stevedoring and General Contracting Co. Pty. Ltd. v. Dignan 1; South Australia v. The Commonwealth 2.]

Barwick K.C., in reply. It flows naturally from the federal structure that neither Commonwealth nor State is competent to aim its legislation at the other SO as to tend to weaken or destroy the functions of the other. You do not look in any of the placita of S. 51 to find this incompetence; you get it from the federal structure. Accordingly, you do not look (as the defendants say you should) at the placitum to see whether there is room for an implication of the incompetence. You must start with the implication. The inquiry then is whether there is anything in the placitum which cuts down

1(1931) 46 C.L.R. 73, at p. 103. 2(1942) 65 C.L.R., at p. 424. 74 CLR 42

OF A. the implication. That is to say, the placitum must be read as if it

contained an expression of the incompetence unless you find in the placitum something to exclude it. That being so, the defendants get no assistance from the suggestion that the exception of State banking shows that no other exception or limitation was intended. Moreover, on the assumption the defendants make that "State banking" means banking by the State as banker, the exception relates only to a trading function of a State, and there is no reserva- tion of 'governmental" functions (in the narrow sense, in which those functions are distinguished from trading functions). It would be odd if the framers of the Constitution saved State trading functions from Federal interference and left State governmental functions at the mercy of the Federal Parliament. The defendants' argument as to central banking defeats itself. What is called central banking involves holding the funds of the Government which created the central bank, but not those of another Government. The logical outcome of the argument is that the central bank for a State must be a State bank. Assuming (but not conceding) that the defendants are right in regarding central banking as a function of " banking," in the strict sense, it follows that, SO far as a State is concerned, central banking is within the exception of "State banking." The plaintiff submits, however, that central banking is not a nexus, at all, between S. 48 and the subject matter of banking in pl. (xiii). That a government uses a central bank as a medium for carrying into effect a policy of financial or monetary control or protection of public credit does not show that what the bank does as such a medium is within the subject matter of "banking." To say that "Common- wealth and States may be regarded as one government for monetary and public credit purposes" does not solve the problem here. What- ever that expression may mean, it clearly cannot mean that Common- wealth and States are to be regarded as one Government for the purposes of pl. (xiii.).

Cur. adv. vult. The following written judgments were delivered:

LATHAM C.J. The demurrer to the statement of claim in this action raises the question of the validity of S. 48 of the Banking Act 1945. The plaintiff corporation, the Lord Mayor, Councillors and Citizens of the City of Melbourne, claims against the Commonwealth and the Treasurer of the Commonwealth a declaration that the Banking Act 1945 of the Commonwealth, or alternatively S. 48 thereof, is invalid. The defendants' demurrer has been supported by the State of Victoria, intervening by leave, and has been opposed by the

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other intervening States, South Australia and Western Australia. The plaintiff has abandoned a claim that S. 48 of the Act is invalid on the ground that other provisions in the Act are a law imposing taxation within the meaning of S. 55 of the Constitution.

The Commonwealth Constitution, S. 51 (xiii), gives power to the Commonwealth Parliament to make laws for the peace, order and good government of the Commonwealth with respect to Banking, other than State banking; also State banking extending beyond the limits of the State concerned, the incorporation of banks, and the issue of paper money."

The Commonwealth Parliament in the Banking Act 1945, S. 48, has made the following provision :-

48-(1) Except with the consent in writing of the Treasurer, a bank shall not conduct any banking business for a State or for any authority of a State, including a local governing authority.

Penalty One thousand pounds. (2) Any consent of the Treasurer under this section may apply to all such business conducted by any particular bank or at a particu- lar office of a bank, or to the business of any particular State or authority conducted by any particular bank or at any particular office of a bank.

(3) Until a date fixed by the Treasurer by notice published in the Gazette, this section shall apply only in relation to banking business conducted for a State or for an authority of a State, including a local governing authority, specified by the Treasurer by notice in writing, and, if an office of a bank is specified in the notice, at the office SO specified." This section does not "apply with respect to State banking 5 (1).

The statement of claim alleges that the Commonwealth Treasurer has given notice that he proposes on or about 1st August 1947 to specify certain authorities of a State or local governing authorities, including the City of Melbourne, to be authorities in relation to which S. 48 of the Act shall apply. As explained in the communication of the Treasurer, "In effect this will mean that as from the date on which this specification was made a private bank will not be able legally to conduct business on behalf of any local governing authority specified in the notice." The term "private bank" is evidently intended to describe banks other than the Commonwealth Bank.

A subsequent communication states that the Treasurer is satisfied that the Commonwealth Bank is in a position to provide full banking facilities to the Council. Accordingly, the position is that the Federal Treasurer proposes, by the exercise of the powers conferred by S. 48

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A. of the Banking Act, to prohibit the "private banks' from doing

any banking business with the City of Melbourne corporation.

The statement of claim alleges that the Council is empowered to make by-laws for the good rule and government of the City of Mel- bourne and that the Council carries on various undertakings, including the City Abattoirs, the City Cattle Market, the Queen Victoria Market, the Fish Market, public baths, refrigerators, weighbridges electric supply and hydraulic power undertakings that it manages and controls various properties, parks and the like, and administers the Health Acts within the City of Melbourne, the Uniform Building Regulations, and the licensing and control of hackney carriages. In the course of these activities the plaintiff receives large sums of money amounting to upwards of £1,800,000 per annum and makes payments (including appropriations to sinking fund, reserves and payments of a like character) amounting to a similar sum.' In order to deal with its receipts and payments the plaintiff has estab- lished banking accounts, and the banking business of the plaintiff has been done for the plaintiff by the National Bank of Australasia, which is a bank to which S. 48 applies.

The council cannot compel the Commonwealth Bank to accept its business. The effect of the specification made by the Treasurer is therefore that the Melbourne City Council will be compelled to do its banking business with the Commonwealth Bank upon terms which are acceptable to the Commonwealth Bank, or, alternatively, that it cannot conduct general banking business with any bank at all, there being no State bank in Victoria doing general banking business.

Section 48 of the Banking Act is applicable to the banking business of a State or of any authority of a State, including any local governing authority. The arguments which have been submitted to the Court have been directed to the validity of the provision as applying in the case of a State. It has not been argued that S. 48 may be invalid in the case of a State but valid in the case of State authorities, including local governing authorities; that is, no question of severa- bility has been raised on behalf of the defendants. Further, the defendants have disclaimed absence of interest in the plaintiff as a ground of the demurrer, and argument was not heard on that subject. It would, I suggest, have been difficult to raise a doubt upon the matter if S. 48, instead of providing that no bank should do business for a local governing authority without a licence from the Treasurer, had provided that no local governing authority should do business with a bank which did not have such a licence. The meaning of the provision is the same in either form.

74 CLR 45

The contentions for the plaintiff are-(1) S. 48 is not legislation with respect to banking (2) alternatively, if S. 48 is legislation with respect to banking, it is legislation with respect to State banking, and for this reason is expressly excluded from the scope of the Commonwealth power conferred by S. 51 (xiii) of the Constitution; (3) alternatively, if S. 48 is legislation with respect to banking but is not legislation with respect to State banking, it is a law which is directed against an essential State Government activity, namely the custody, control and disposition of government funds; it involves a form of what is called 'discrimination," which is forbidden by the Commonwealth Constitution taken as a whole and is therefore invalid.

Before examining these arguments it is desirable to refer to some other provisions of the Banking Act and certain provisions of the Commonwealth Bank Act 1945. Assent was given to both of these Acts on the same day-3rd August 1945. The Banking Act contains general provisions relating to authority to carry on banking business, protection of depositors, special accounts, advances and investments, and various subjects which clearly fall within any ordinary definition of "banking." Section 4 defines "bank" to mean a body corp- orate authorised under Part II. of this Act to carry on banking business in Australia." Section 5 provides that nothing in Part II. or v. or in SS. 48 to 56 of the Act shall apply with respect to State banking. Part II. (ss. 6 to 28) contains provisions relating to the carrying on of banking business and Part v. deals with interest rates. Section 48 has already been quoted.

Part II. of the Act provides in S. 6 that " Subject to this Act, a person other than a body corporate shall not, at any time after the expiration of six months from the commencement of this Part, carry on any banking business in Australia." Section 7 requires a body corporate to have an authority in writing granted by the Governor-General to carry on banking business as a condition of carrying on such business. Section 8 provides that "The Governor- General shall, within seven days after the commencement of this Part, grant to each body corporate specified in the First Schedule an authority to carry on banking business in Australia." The bodies specified in the First Schedule include, inter alia, the National Bank of Australasia Limited, with which the City Council has been doing its banking business, and other specified banks which operate under charter or under State Companies and Bank Acts. Section 8 also provides for the granting of licences, either unconditionally or subject to conditions specified by the Governor-General, to other bodies corporate to carry on the business of banking. Under S. 8 (5) it is provided that where an authority is granted under the section subject

74 CLR 46

A. to conditions, the Governor-General may from time to time vary

or revoke any of those conditions or impose additional conditions. The penalty for breach of a condition is £1000 for each day: S. 8 (6). The Act contains no statement of the conditions which the Governor- General may attach to the grant of an authority; but no question is raised by this case as to either the construction or the validity of this provision.

The Commonwealth Bank Act 1945 carries on the Commonwealth Bank as established under earlier Acts, which are repealed by the Act. Section 8 of the Act is as follows :-

"It shall be the duty of the Commonwealth Bank, within the limits of its powers, to pursue a monetary and banking policy directed to the greatest advantage of the people of Australia, and to exercise its powers under this Act and the Banking Act 1945 in such a manner as, in the opinion of the Bank, will best contribute to-

(a) the stability of the currency of Australia; (b) the maintenance of full employment in Australia; and (c) the economic prosperity and welfare of the people of Section 9 of the Act is in the following terms :-

(1) The Bank shall, from time to time, inform the Treasurer of its monetary and banking policy.

(2) In the event of any difference of opinion between the Bank and the Government as to whether the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia, the Treasurer and the Bank shall endeavour to reach agreement.

(3) If the Treasurer and the Bank are unable to reach agreement, the Treasurer may inform the Bank that the Government accepts responsibility for the adoption by the Bank of a policy in accordance with the opinion of the Government and will take such action (if any) within its powers as the Government considers to be necessary by reason of the adoption of that policy.

(4) The Bank shall then give effect to that policy." The Act contains provisions relating to central banking functions of the Commonwealth Bank, to the general banking business of the bank and to other departments of the bank.

Under S. 8 the opinion of the bank determines the manner in which the powers of the bank shall be used for the purpose of promoting the objects specified under the headings (a), (b) and (c), and S. 9 enables the Treasurer, in the event of difference of opinion, to control the monetary and banking policy of the bank. I can see no legal ground for objecting to the provision that the powers of the bank

74 CLR 47

are to be utilized for the purpose of attaining the general objectives mentioned, even though the Commonwealth Parliament has no specific power of legislation with respect to certain of those objectives. The Commonwealth Parliament has full power of legislating with respect to the currency of Australia under the Constitution, S. 51 (xii.). But the Commonwealth Parliament has no power to legislate with respect to "the maintenance of full employment in Australia " " and the economic prosperity and welfare of the people of Australia " as subjects in themselves. The Commonwealth Parliament is a Parliament which possesses only 'enumerated or selected legislative powers --a proposition " as to which this Court has never faltered " (Amalgamated Society of Engineers v. Adelaide Steamship Co. Ltd. 1. As in the United States of America, the State Governments

are the ordinary governments of the country the federal govern- ment is its instrument only for particular purposes" (Woodrow Wilson in Constitutional Government in the United States (1908), pp. 183, 184, quoted by Douglas J. in New York v. United States 2 ). The Commonwealth Parliament has no general power to make laws for the peace, order and good government of the people of Australia. In S. 51, which is the principal source of the legislative powers of the Commonwealth Parliament, power is conferred in the following words-" The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to-(i.) Trade and commerce with other countries and among the States," and thirty-nine other specific subjects. Other sections confer powers to legislate with respect to other specific subjects. No power is conferred upon the Common- wealth Parliament to make laws with respect to the subjects of full employment in Australia or the economic prosperity and welfare of the people of Australia.

But the Commonwealth Parliament may exercise the powers which it does possess for the purpose of assisting in carrying out a policy which may affect matters which are not directly within its legislative powers. So this Court has held in Osborne v. The Commonwealth 3 Radio Corporation Pty. Ltd. v. The Commonwealth 4; and see other cases cited in South Australia v. The Commonwealth (Uniform Tax Case) 5. There is no legal obstacle to the use of the Common- wealth Bank as a means of aiding Government policy with respect to employment and economic conditions.

1(1920) 28 C.L.R. 129, at p. 150. 2(1946) 326 U.S. 572, at p. 592 [90 3(1911) 12 C.L.R. 321. 4(1938) 59 C.L.R. 170. 5(1942) 65 C.L.R. 373, at pp. 424, Law. Ed. 326, at p. 339]. 74 CLR 48

Accordingly, in my opinion, no objection to S. 48 of the Banking Act can be founded merely upon the fact that legislative directions are given to the Commonwealth Bank by SS. 8 and 9 of the Commonwealth Bank Act. This conclusion, however, simply means that it is within the power of the Commonwealth Parliament to give directions to, or to provide for directions being given, the Commonwealth Bank as to the manner in which it is to exercise its functions. It leaves untouched the separate and distinct question as to the degree of control over the banking business of States and State authorities which can be exercised by the Commonwealth Parliament under the power to legislate with respect to banking.

In the first place, it is contended for the plaintiff that S. 48 is not legislation with respect to banking. The argument is that S. 48 of the Banking Act simply picks out States and State authorities for subjection to a Commonwealth banking monopoly without any reason which can be described as a reason grounded upon any considerations relating to banking. In other words, S. 48, it is said, is really a law with respect to States and State authorities, controlling them in respect of their banking business, and is not a law with respect to banking. Various analogies were suggested. It was put that if S. 48 is valid in its present form a provision would be equally valid which prohibited a bank from conducting any banking business with any person except with the consent in writing of the Treasurer. If it were sought to obtain a monopoly for the Commonwealth Bank or for any other bank favoured by the Treasurer in this manner the result would be the exclusion of particular persons or classes of persons from the utilization of banking facilities. Under such a provision all persons professing a particular religion or belonging to a particular political party or following a particular occupation could be prevented from using any banking facilities or could be compelled to deal with a particular bank selected by the Treasurer. Such legislation, it was contended, would not be legislation truly with respect to banking, but would be legislation with respect to the particular classes of persons arbitrarily selected by the Treasurer for disqualification or limitation in respect of banking business.

The defendants replied to this contention by referring to Huddart Parker Ltd. v. The Commonwealth 1 and Victorian Stevedoring and General Contracting Co. Pty. Ltd. v. Dignan 2. In these cases it was assumed by the Court that the power of the Commonwealth Parliament to make laws with respect to trade and commerce with other countries and among the States enabled the Parliament (by the Transport Workers Act 1928-1929) to require persons to obtain

1(1931) 44 C.L.R. 492. 2(1931) 46 C.L.R. 73. 74 CLR 49

licences as a condition of engaging in certain operations in such trade and commerce. Section 48 of the Banking Act was, it was submitted, a similar provision requiring banks to obtain a licence from the Treasurer as a condition of engaging in banking business for States or State authorities. But there are at least two points of distinction between these cases and the present case. Under the Transport Workers Act every person had a right to obtain a renewal of a licence, and the reasoning upon which this decision was based shows, in my opinion, that every person had a right to obtain a licence (R. v. Mahony Ex parte Johnson 1 ), he could be deprived of his licence only upon specified grounds which were relevant to the work of transport workers, and there was an appeal to a court against deprivation of licence. Section 48 of the Banking Act leaves the grant or refusal of consent entirely to the discretion of the Treasurer. In the second place, S. 48 singles out for special treatment the banking business of States and State authorities. There was no feature of this character in the Transport Workers' Acts.

Under the section the Treasurer can give consent in the case of one State and refuse it in the case of another State. The consent (sub-s. (2) ) may apply to all the banking business for a State or State authority conducted by a particular bank or at a particular office of a bank or to the business of any particular State or authority conducted by any particular bank or at a particular office of a bank. It would appear, therefore (though this matter was not fully argued), that the Treasurer could not limit his consent to some particular kind of banking business-the consent must be to all or none of the banking business for a State conducted by a particular bank or by a particular bank at a particular place. Thus, it is argued, the character of the banking business done cannot be a ground for giving or withholding a licence, SO that the section simply gives the Treasurer an arbitrary discretion, not related to any consideration affecting banking, to prohibit banking operations by a State.

The plaintiff's argument directed to S. 48 as it now actually stands is based upon the proposition that there can be no reason of a banking character for making a special provision for States or State authorities. It is contended for the defendants, on the other hand, that the estab- lishment of banks, and in particular of central banks, for the purpose of conducting the banking business of governments and managing public finance is a well-recognized department of banking. This contention, expressed in general terms, appears to me to be well founded.

1(1931) 46 C.L.R. 131. 74 CLR 50

There are many instances of special relations between governments and banks discharging central banking functions and to a large extent managing governmental financial operations. The Bank of England has been a financial agent of the Government of Great Britain for many years. So also in the United States of America banks have been established as instrumentalities of governments- per Griffith C.J. in Heiner v. Scott 1, referring to M'Culloch V. Maryland 2 and Osborn v. Bank of United States 3. But while the contention of the defendants accurately states the position in the case of a unitary constitution where it is not necessary to con- sider the relation in which States stand to a Commonwealth or Provinces to a Dominion or other federal organism, it cannot be accepted and applied without limitation in the case of a constitution where the States or Provinces are not subordinate to the federal power except in respect of particular matters. It is one thing for a Government to establish a bank for the purpose of doing the banking business of that Government. It is quite a different thing for the Parliament and Government of a Commonwealth to establish a bank and to require the States to do all their business with that bank. The giving of a monopoly of governmental banking business to a particular bank selected by a Government is a not abnormal feature of legislation with respect to banking, but this statement does not cover the case of one Government seeking to select a bank to do all the banking business of another Government, both governments being subject to a federal constitution. Thus, in my opinion, though the argument that S. 48 is not legislation with respect to banking should not be accepted, the rejection of this argument still leaves open for consideration the question of the validity of such a provision under a constitution establishing not only a federal Government with specified and limited powers, but also State Governments which, in respect of such powers as they possess under the Constitution, are not subordinate to the federal Parliament or Government. State constitutional powers are, subject to the Commonwealth Constitution, expressly preserved by the Commonwealth Constitution-ss. 106, 107.

The second argument for the plaintiff is that if S. 48 is a law with respect to banking it is a law with respect to State banking, and that the express terms of S. 51 (xiii.) of the Constitution prevent the Commonwealth Parliament from making any law with respect to State banking. The contention that S. 48 is a law with respect to State banking challenges an assumption upon which S. 48 is based.

1(1914) 19 C.L.R. 381, at p. 392. 2(1819) I7 U.S. 316 [4 Law. Ed. 3(1824) 22 U.S. 738 [6 Law. Ed. 74 CLR 51

Section 5 of the Act expressly provides that S. 48 shall not apply with respect to State banking. Section 48 expressly relates to the conduct of banking business by a bank (i.e. a bank authorized under Part II.-see S. 4) for a State. Thus S. 48 assumes that the conduct of banking business by a bank (not being a State bank-s. 5) is not

State banking." If this assumption is wrong, S. 48 is invalid as dealing with a subject expressly removed by S. 51 (xiii) of the Con- stitution from Commonwealth legislative power.

A banker conducts a business of banking with customers. The customer of a banker does his banking business with the banker. That which the banker does as a banker is the business of banking, and that which the customer does as a customer of the banker is also the business of banking. If, under the power to legislate with respect to "banking," there is power to legislate with respect to the conduct of customers of bankers in their capacity as such customers- and this is a proposition which can hardly be disputed-then, it is argued for the plaintiff, when it becomes necessary to interpret the words "State banking" the same meaning must be given to " bank- ing" in that phrase. That is to say, the word banking" in the exception of "State banking" must be construed as including the business of banking if the State establishes and conducts a bank, and also the business done by the State as a customer of any bank. It is contended that it is only upon this view that the same meaning can be given to the word "banking" where it is twice used in the phrase banking other than State banking."

This argument is plausible, but in my opinion it should not be accepted. It is true that the power to legislate with respect to banking includes a power to legislate with respect to customers of a bank in their capacity as customers of the bank. So also interpret the exception of "State banking" as excluding any power to make laws not only with respect to banks conducted by States, but also with respect to customers, in their capacity as customers, of banks SO conducted. Upon this construction the same meaning is given to the word "banking" in each case where it appears.

"State banking" cannot, in my opinion, be construed as meaning banking operations transacted within a State, i.e. intra-State banking. Such a construction is, it is true, suggested by the exclusion from federal legislative power of "State banking" together with the express inclusion within that power of "State banking extending beyond the limits of the State concerned." But, if placitum (xiii.) were so interpreted the federal power could be exercised only under the provision relating to "State banking extending" &., because all other banking in Australia would be banking within a State and,

74 CLR 52

upon the construction suggested, would be "State banking" and therefore excluded from federal legislative power. The result would be that the power to make laws with respect to "banking" would have no possible field of operation. The phrase "State banking extending beyond the limits of the State concerned" shows that the words "State banking' are not used to mean banking transactions conducted entirely within a State, because if that were the case the phrase quoted would be self-contradictory.

The words to be construed in the exception " other than State banking" constitute a compound phrase State banking." The question -What is the natural signification of those words ? In my opinion if the question were asked with respect to a particular country, " Is there any State banking in the country? ?" the question would be understood to be an inquiry whether the State conducted banks in that country. It would not be understood to be an inquiry whether some State had dealings as a customer with any banks in that country. "State banking" in my opinion refers to banks established and conducted by a State or by an authority established under State law and representing a State. The exception contained in the words "other than State banking" prevents the Common- wealth Parliament from passing any laws with respect to the estab- lishment, management and conduct of such banks by the State, or with respect to the conduct of customers of such banks in their capacity as such customers. But the exception does not prevent the Commonwealth Parliament from making laws with respect to the conduct of customers (including States) of banks other than State banks. Accordingly, in my opinion, it should not be held that S. 48 of the Banking Act is invalid as being legislation with respect to State banking:

The third argument of the plaintiff is that S. 48 introduces a degree of control of State banking activities which is forbidden by the Federal Constitution. The proposition upon which the plaintiff relies is that the Commonwealth Parliament cannot, even under a legislative power expressly conferred upon it, make a "discrimina- tory as distinct from a general, law, which is aimed at or directed against an essential governmental power or function of a State.

It may be difficult to determine in some cases whether a function in fact undertaken by a Government is a governmental function which, under a federal constitution, cannot be controlled by another Government established under the constitution. But there can be no doubt that not only the raising of money by taxation, but also provision for the custody, management and disposition of public revenue moneys are activities which are essential to the very existence

74 CLR 53

of a Government. It is equally essential that a Government should have the power of borrowing money and of providing for the custody and expenditure of loan moneys. In M'Culloch v. Maryland 1, it was held that a bank was " a convenient, a useful, and essential instrument in the prosecution of the "fiscal operations" of the Government of the United States. The necessity of banking facilities to the Government of a country was emphasized in Weston v. City Council of Charleston 2, where Marshall C.J. referred to the Bank of the United States as an instrument essential to the fiscal opera- tions of the Government." It would be impossible in practice for a State Government to exist without making provision for the custody and expenditure of public moneys, and it could not do this in modern conditions without using a bank.

The various State Audit Acts contain provisions with respect to the custody and disposition of public moneys which cannot operate according to their terms if S. 48 is valid and is put into operation.

I mention the following by way of illustration. The Audit Act 1928 (Vict.), S. 22, requires receivers of public revenue to pay moneys into such bank at such place and in such manner as the Governor (i.e. the Governor of the State) in Council appoints. For failure to comply with this provision there is a penalty not exceeding £500. Section 26 is a similar provision. The Audit Act 1921-1936 (S.A.), S. 18, is as follows :-

"The Treasurer may, from time to time, agree with any bank upon such terms and conditions as he may think fit for the receipt, custody, payment, and transmission of public moneys within or without the State, and for advances to be made and for the charges in respect of the same, and for the interest payable by or to the bank upon balances or advances respectively, and generally for the conduct of the banking business of the State."

Section 19 provides that :- "(1) The Public Account shall be kept in such bank and under such subdivisions (if any) as the Treasurer may, in writing, direct.

(2) All moneys paid into any bank to the Public Account shall be deemed to be public moneys and the property of His Majesty, and to be money lent by His Majesty to the bank."

The Audit Act 1904 (W.A.), S. 21, is in the same terms as S. 18 of the South Australian Act.

If S. 48 of the Banking Act is valid, these provisions will become ineffective-it will be the Commonwealth Treasurer, and not the State Treasurer who will determine in what bank the State moneys

1(1819) 17 U.S., at p. 422 [4 Law. 2(1829) 27 U.S. 449, at p. 469 [7 Law. Ed. 481, at p. 488]. 74 CLR 54

will be kept and how they may be withdrawn and for what purposes advances may be made. These matters are plainly subjects of great importance to the States.

It is conceded for the plaintiff that the Commonwealth Parliament may pass general legislation with respect to banking, and that it may specify conditions (relevant to the subject of banking) which must be complied with by banks and by customers of banks. But S. 48 is specifically directed to and limited to States as customers of banks. It has the effect of submitting their banking operations to the control of the Commonwealth Bank, which is in turn subject to the control of the Commonwealth Treasurer (Commonwealth Bank Act, SS. 8 and 9). If S. 48 is valid, a State and a State authority can, in the absence of any available State bank, be compelled to do all its banking business with the Commonwealth Bank. This is stated by the Treasurer to be the object (as it is plainly the consequence) of the notification proposed to be made under S. 48. As the Commonwealth Bank is under no legal obligation to accept the business of any State-either upon any particular terms or at all-the result is that the operations of a State in paying money into a bank, in drawing out money, and in obtaining advances from a bank, will be subject to Commonwealth control. Such operations are included within banking business as generally conducted See Commissioners of State Savings Bank of Victoria v. Permewan, Wright &Co. Ltd. 1. Thus the Common- wealth Bank, acting under direction of the Commonwealth Treasurer, could, SO far as legal obligation goes, decline to accept moneys or to allow cheques to be drawn for particular purposes or at all, and could refuse to make advances for particular purposes-even though the Parliament of the State had appropriated moneys for those purposes. It is contended that legislation which is specifically directed towards-or, as it is put, against-a State and State author- ities in relation to the custody, control and management of public revenue and loan moneys is legislation which is forbidden by the Constitution as dealing, and especially as dealing in a discriminatory manner, with an essential State governmental power, capacity, and function.

In D'Emder v. Pedder 2, it was decided that "when a State attempts to give to its legislative or executive authority an operation which, if valid, would fetter, control, or interfere with, the free exercise of the legislative or executive power of the Common- wealth, the attempt, unless expressly authorized by the Constitution, is to that extent invalid and inoperative." This rule was, in that case, applied in favour of the Commonwealth, In Federated

1(1914) 19 C.L.R. 457. 2(1904) 1 C.L.R. 91, at p. 111. 74 CLR 55

Amalgamated Government Railway and Tramway Service Association V. N.S.W. Railway Traffic Employees Association 1, and other cases, the rule was extended SO as to apply in favour of a State as a reciprocal limitation upon Commonwealth legislative power. In the Engineers' Case 2, this extension of the rule was repudiated. It was held that D'Emden v. Pedder 3 really stated in other words the effect of S. 109 of the Constitution, which gives supremacy over State legislation to laws made under powers conferred upon the Commonwealth Parliament by the Constitution. It was held, therefore, that it was a fundamental mistake to treat what had been called the " reserved powers" of the States as a basis for implying any limitation upon Commonwealth power. The

reserved powers of the States can be ascertained only after the extent of Commonwealth power has been determined. A grant of power cannot be construed by first purporting to describe the residue left by the grant. I venture to refer to what I have said on this matter in the Uniform Taxation Case 4. In the Engineers' Case (2) it was decided that "laws validly made by authority of the Constitution bind, SO far as they purport to do so, the people of every State considered as individuals or as political organisms called States - in other words, bind both Crown and subjects" " 5. Thus the validity of a Commonwealth law is to be determined by reference to the terms of the Constitution, without applying any presumption that there are certain powers reserved to the States which must not be impaired or interfered with by federal laws.

But this principle does not mean that the States are in the position of subjects of the Commonwealth. The Constitution is based upon and provides for the continued co-existence of Commonwealth and States as separate Governments, each independent of the other within its own sphere. The Engineers' Case (2) recognizes, in the case of State legislation, a difference between "provisions which apply generally to the whole community without discrimination and

an act of the State legislature discriminating against Common- wealth officers." The former may be valid and the latter might be invalid 6. In Pirrie v. McFarlane 7, there are several references to the same distinction-see the report 8. In West v. Commis- sioner of Taxation (N.S.W.) 9, Dixon J. made the observation that the Engineers' Case (2) "does not appear to deal with or affect the question whether the Commonwealth Parliament is authorized to

1(1906) 4 C.L.R. 488. 2(1920) 28 C.L.R. 129. 3(1904) 1 C.L.R. 91, at p. 111. 4(1942) 65 C.L.R., at p. 422. 5(1920) 28 C.L.R., at p. 153. 6(1920) 28 C.L.R., at pp. 156, 157. 7(1925) 36 C.L.R. 170. 8(1925) 36 C.L.R., at pp. 184, 216, 9(1937) 56 C.L.R. 657, at p. 682. 74 CLR 56

enact legislation discriminating against the States or their agencies." Dixon J. repeated this comment in Essendon Corporation v. Criterion Theatres Ltd. 1. In West's Case 2 Evatt J. referred to the distinction between general laws and laws 'discriminating against' Commonwealth or State officials and said :-"- A different angle of approach to the question of discriminatory legislation is this, that it must at least be implied in the Constitution, as an instrument of Federal Government, that neither the Commonwealth nor a State legislature is at liberty to direct its legislation toward the destruction of the normal activities of the Commonwealth or States." See also the Uniform Taxation Case 3, as to the distinction between general legislation and legislation limited to a particular case. This distinc- tion has been regarded as of significance by the Privy Council in determining questions of the validity of laws: See e.g. Great West Saddlery Co. Ltd. v. The King 4.

In the United States of America, as in Australia, the doctrine of immunity of State instrumentalities from federal legislative control has had a chequered career. In M'Culloch v. Maryland 5 it was decided that a State could not impose a tax upon a bank incorporated by Congress for fiscal purposes of the Government because "the states have no power, by taxation or otherwise, to retard, impede, burden or in any manner control the operations of the constitutional laws enacted by congress to carry into execution the powers vested in the general government. This is, we think, the unavoidable consequence of that supremacy which the constitu- tion has declared." In Weston v. Charleston 6 the Supreme Court declared invalid a State Act taxing stock of the United States. The principle stated in these and similar cases was not limited to the power of taxation, but applied to any State attempt to control federal instrumentalities.

In Veazie Bank v. Fenno 7, it was held that Congress could impose a tax upon the circulation of notes issued by a bank chartered under State law of such amount as to prevent the use of such notes. In this case the Court, however, included a saving clause in its reasons for judgment in the following terms "-"-"It may be admitted that the reserved rights of the States, such as the right to pass laws, to give effect to laws through executive action, to administer justice through the courts, and to employ all necessary agencies for legitimate

1Ante, p. 1, at p. 23. 2(1937) 56 C.L.R., at p. 687. 3(1942) 65 C.L.R., at p. 431. 4(1921) 2 A.C. 91, at p. 119. 5(1819) 17 U.S., at p. 436 [4 Law. 6(1829) 27 U.S. 449 [7 Law. Ed. 7(1869) 75 U.S. 533 [19 Law. Ed. 74 CLR 57

purposes of State Government, are not proper subjects of the taxing power of Congress " 1.

In The Collector v. Day 2, the Court applied the general principle of M'Culloch v. Maryland 3 in favour of State instrumentalities and held that the salary of a State judge could not be taxed under Acts of Congress which were general taxation laws. The Court said- " in respect to the reserved powers, the state is as sovereign and independent as the general government. And if the means and instrumentalities employed by that government to carry into operation the powers granted to it are necessarily, and, for the sake of self-preservation, exempt from taxation by the states, why are not those of the states depending upon their reserved powers, for like reasons, equally exempt from Federal taxation ? Their unim- paired existence in the one case is as essential as in the other. It is admitted that there is no express provision in the Constitution that prohibits the general government from taxing the means and instru- mentalities of the states, nor is there any prohibiting the states from taxing the means and instrumentalities of that government. In both cases the exemption rests upon necessary implication, and is upheld by the great law of self-preservation as any government, whose means employed in conducting its operations, if subject to the control of another and distinct government, can exist only at the mercy of that government " 4. The court relied upon what I have called the saving clause in Veazie Bank v. Fenno 5. Thus the doctrine of reciprocal immunity of Federal and State instrumental- ities was fully established.

Many difficulties arose in the application of this doctrine, and in Graves v. New York 6, The Collector v. Day (2) was overruled. It was held that State income tax could validly be imposed upon Federal officers, the non-discriminatory nature of the law being made the basis of the decision. This rule was applied in other cases, such as James v. Dravo Contracting Co. 7 (State taxation of the gross receipts. of a contractor with the federal Government); Helvering V. Gerhardt 8 (federal taxation of salaries of officers of a State Port Authority) Allen v. Regents of University System of Georgia 9 (federal taxation of a corporation created as a State instrumentality

1(1869) 75 U.S., at p. 547 [19 Law. 2(1870) 78 U.S. 113 [20 Law. Ed. 3(1819) 17 U.S. 316 [4 Law. Ed. 4(1870) 78 U.S., at p. 127 [20 Law. 5(1869) 75 U.S. 533 [19 Law. Ed. 482]. 6(1939) 306 U.S. 466 [83 Law. Ed. 7(1937) 302 U.S. 134 [82 Law. Ed. 8(1938) 304 U.S. 405 [82 Law. Ed. 9(1938) 304 U.S. 439 [82 Law. Ed. Ed., at pp. 126, 127]. 74 CLR 58

to manage, inter alia, athletic exhibitions); O'Malley v. Woodrough 1 (State taxation of the salary of a federal judge). In all these cases the law was upheld expressly on the ground that it was non- discriminatory.

The case of New York v. United States 2 corresponds to the Engineers' Case 3 in Australia. It represents a further endeavour to enunciate a principle which will allow Federal and State Govern- ments to exercise powers, particularly of taxation, over the same persons, without conflict. The judgments, proceeding as they do upon differing grounds, illustrate the difficulties of the problem. It is recognized that a federal system fails unless the federal and State Governments can each carry out their functions as contemplated by the Constitution. The subordination of either to the other is incon- sistent with a federal system. But, as in the Engineers' Case (3), it was held that some federal legislation, even taxation legislation, is applicable to the States. It was held that the State of New York, which owned and operated certain mineral water springs, was not immune from a tax imposed upon mineral waters by an Act of Congress. (Similarly in Australia it has been held that the States are bound to pay federal customs and excise duties (R. v. Sutton (Wire Netting Case) 4, and Attorney-General (N.S.W.) v. Collector of Customs (Steel Rails Case) 5

In New York v. United States (2) all the justices conceded that the powers of the Federal Government cannot be used to destroy State Governments and vice versa, but the majority was of opinion that the extension of governmental activities into many trading and similar activities had made it impracticable to uphold a general rule of immunity in the broad terms of M'Culloch v. Maryland 6 and The Collector v. Day 7. It was admitted, however, by all the justices that there are some activities which are necessarily govern- mental in character (cf. Uniform Taxation Case 8 ), and that federal and State legislatures are limited in their powers of legis- lation with respect to agencies of other governments.

In the judgment of Frankfurter and Rutledge JJ. it is stated that the fact that " ours is a federal constitutional system with it implications regarding the taxing power as in other aspects of government

Thus, for Congress to tax State activities while leaving untaxed the same activities pursued by private persons

1(1939) 307 U.S. 277 [83 Law. Ed. 2(1946) 326 U.S. 572 [90 Law. Ed. 3(1920) 28 C.L.R. 129. 4(1908) 5 C.L.R. 789. 5(1908) 5 C.L.R. 818. 6(1819) 17 U.S. 316 [4 Law. Ed. 7(1870) 78 U.S. 113 [20 Law. Ed. 8(1942) 65 C.L.R. 373, at p. 423. 74 CLR 59

would do violence to the presuppositions derived from the fact that we are a Nation composed of States 1. (This statement may be compared with those which I have quoted from Australian cases distinguishing between general legislation which includes States and State agencies and legislation described as discriminating against States and their agencies.) The limitation upon federal legislative power in relation to the States is expressed by these learned justices in the following words There are, of course, State activities and State-owned property that partake of uniqueness from the point of view of intergovernmental relations. These inherently constitute a class by themselves. Only a State can own a Statehouse: only a State can get income by taxing. These could not be included for purposes of federal taxation in any abstract category of taxpayers without taxing the State as a State. But SO long as Congress generally taps a source of revenue by whomsoever earned and not uniquely capable of being earned only by a State, the Constitution of the United States does not forbid it merely because its incidence falls also on a State. If Congress desires, it may of course leave untaxed enterprises pursued by States for the public good while it taxes like enterprises organized for private ends. Cf. Springfield Gas and Electric Co. v. City of Springfield 2; University of Illinois v. United States 3 Puget Sound Power and Light Co. v. City of Seattle 4. If Congress makes no such differentiation and, as in this case, taxes all vendors of mineral water alike, whether State vendors or private vendors, it simply says, in effect, to a State: 'You may carry out your own notions of social policy in engaging in what is called business, but you must pay your share in having a nation which enables you to pursue your policy'' 5. The federal law was upheld because it was not specifically directed against the States, but levied a tax " exacted equally from private persons upon the same subject matter' " 6.

Rutledge J., in a separate opinion, based his decision upon the absence of discrimination against a State. He explained what was meant by discrimination in this connection by saying that he took the limitation against discrimination "to mean that state functions may not be singled out for taxation when others performing them are not taxed or for special burdens when they are," and he added, " Perhaps there are other limitations also " 7.

1(1946) 326 U.S., at p. 575 [90 2(1921) 257 U.S. 66 [66 Law. Ed. 3(1933) 289 U.S. 48, at p. 57 [77 4(1934) 291 U.S. 619 [78 Law. Ed. 1025]. 5(1946) 326 U.S., at p. 582 [90 Law. Law. Ed., at p. 330]. Ed., at pp. 333, 334]. 6(1946) 326 U.S., at p. 584 [90 Law. 131]. 7(1946) 326 U.S., at p. 585 [90 Law. Law. Ed. 1025, at p. 1028]. 74 CLR 60

Stone C.J., Reed, Murphy and Burton JJ., though agreeing in regarding "as untenable" the distinction which had been drawn in earlier cases between "governmental" and "proprietary" interests of States, said: "Concededly a federal tax discriminating against a State would be an unconstitutional exertion of power over a coexisting sovereignty within the same framework of government" 1. They proceeded to observe that even a federal tax which was not discrim- inatory as to the subject matter " may nevertheless SO affect the State, merely because it is a State that is being taxed, as to interfere unduly with the State's performance of its sovereign functions of government" 2. (It may be observed, with respect, that this statement of principle renders it necessary to distinguish between the "sovereign functions of Government" performed by a State and other functions assumed and performed by it.) It is said that a tax "even though non-discriminatory, may be regarded as infringing its sovereignty' (2) because a sovereign Government was the taxpayer. The test is stated to be whether the tax, even if non-discriminatory, "unduly interferes with the performance of the State's functions of government" 3. A law which specifically and directly interfered with a State's functions of government would plainly be invalid under this principle-whether it was or was not a taxation law.

I quote these American decisions, not as authorities upon the construction of the Australian Constitution, but as illustrating in an instructive manner the method by which an endeavour has been made to solve a problem which necessarily arises under a federal constitution. The relevant result which emerges is the same as that which is suggested by the more recent cases in this Court to which reference has been made-namely that federal laws expressed in general terms may apply to the States (as was shown in the Engineers' Case 4 ) but that federal laws which "discriminate" against the States are not laws authorized by the Constitution. Laws discrim- inate" against the States if they single out the States for taxation or some other form of control and they will also be invalid if they "unduly interfere" with the performance of what are clearly State functions of government.

I have some difficulty in understanding how "discrimination" in a precise sense can be shown in a law applying only to one person or class of persons in respect of a particular subject matter. Discrim- ination appears to me to involve differences in the treatment of two or more persons or subjects. Legislation with respect only to one

1(1946) 326 U.S., at p. 586 [90 Law. 2(1946) 326 U.S., at p. 587 [90 Law. 3(1946) 326 U.S., at p. 588 [90 Law. 4(1920) 28 C.L.R. 129. 74 CLR 61

or more persons or with respect only to one or more subjects is not,

I suggest with respect, properly described as discriminating against other persons or other subjects simply because it leaves them alone.

as the Imperial Parliament in the plenitude of its power possessed and could bestow,' a doctrine affirmed and applied in a remarkable degree in Attorney-General for Canada v. Cain 1.

The nature and principles of legislation' (to employ the words of Lord Selborne in R. v. Burah 2 ), the nature of dominion self-government and the decisions just cited entirely preclude, in our opinion, an a priori contention that the grant of legislative power to the Commonwealth Parliament as representing the will of the whole of the people of all the States of Australia should not bind within the geographical area of the Commonwealth and within the limits of the enumerated powers, ascertained by the ordinary process of construction, the States and their agencies as representing separate sections of the territory. These considerations establish that the extent to which the Crown, considered in relation to the Empire or to the Commonwealth or to the States, is bound by any law within the granted authority of the Parliament, depends on the indication which the law gives of intention to bind the Crown. It is undoubted that those who maintain the authority of the Commonwealth Parliament to pass a certain law should be able to point to some enumerated power containing the requisite authority. But we also hold that, where the affirmative terms of a stated power would justify an enactment, it rests upon those who rely on some limitation or restriction upon the power, to indicate it in the Constitution" 3.

It has been said that the banks to which S. 48 applies are private trading banks and that the Commonwealth Bank is given the functions of a central bank. A central banking system is set up by the Commonwealth Bank Act 1945 and the Banking Act 1945: See Parts III. and VII. of the former Act and Part II., Division 3, of the latter Act.

In a central banking system, the central bank regulates the volume of credit " and the trading banks are responsible for distributing that credit amongst different industries": S. 166, Report of the Australian Royal Commission on Banking (1937.).

This specialization of functions may make it necessary to limit the powers of the trading banks. It is, I apprehend, a reason for the control which S. 48 places upon the trading banks. "But the efficient operation of a central banking system requires some limit- ation upon the powers of the trading banks in the general interest of the community. It may be in the interest of any trading bank, influenced by considerations of profit and liquidity, to expand or

1(1906) A.C. 542, at p. 547. 2(1878) 3 App. Cas. 889, at p. 904. 3(1920) 28 C.L.R., at pp. 152-154. 74 CLR 92

92

HIGH COURT contract credit at a time when the general interest requires different action ": S. 532 of the above-mentioned Report. The expansion or contraction of government credit by the trading banks could more than anything else upset any regulation of credit made by the central bank.

In S. 164 of the Report it is said that the volume of credit would be affected "by the trading banks allowing their ratios to vary within wide limits." Other factors affecting the volume of credit are also mentioned. The relation between the central bank and

' the governments" is stressed in S. 581 of the report as a very important factor in determining whether the central bank has adequate power to change the policy of the trading banks in the matter of the expansion or contraction of credit.

In S. 143 of the Report it is stated: "From 1912 the Commonwealth Bank held the Commonwealth Government account, and by 1920 those of most of the States. By doing SO the Bank was better able to avoid the dislocations which might be associated with large government operations in the money markets and with any lag of revenue behind expenditure."

Sir Ernest Musgrave Harvey, Deputy Governor of the Bank of England, said in the course of the evidence which he gave to the Committee on Finance and Industry: "Then another function which

I think it is essential should be performed by the Central Bank is that it should conduct the main banking business of the State." He proceeded to point out that the State collects and distributes vast sums and that the incidence of the receipts and the payments of the State is necessarily unevenly distributed." He also said that unless the central bank was the banker for the "State" there could be "violent oscillations of credit which would create great disturb- ances in the value of money from day to day." The advantage of the "State" having the central bank as its banker was summed up by Sir Ernest Harvey in these words: "If, however, the' (banking) "arrangements" (of the State) are entrusted to the Central Bank, the Central Bank has notice beforehand exactly as to the amounts which have to be provided. It can lay its plans to ensure that the State shall have the funds it requires, and moreover, that when those funds have been distributed they may be re-absorbed in an orderly and gradual manner without causing undue disturbance, and without leaving a flood of suddenly manufactured credit to disturb the value of money and possibly the value of the monetary unit measured internationally." The word "State" in this evidence applies to a State in the general sense of the term. Sir Ernest Harvey's evidence, in principle, applies both to Commonwealth and State financial operations.

74 CLR 93

The report of the Committee is in accordance with the evidence which Sir Ernest Harvey gave on the relation of a central bank to the government and the necessity of its being the government's banker: "In practice the tasks which have been imposed upon the Central Bank make it imperative that it should hold the account of the Government, for the financial operations of Government are conducted on a scale SO great as seriously to derange the money market unless special measures are taken to counteract the incon- veniences which result from the inflow of revenue or the temporary easiness which results from interest and dividend payments. This task ought to devolve upon the Central Bank in virtue of its general function as guardian of the money market, and does in fact devolve upon it when it carries the Government account."

In Central Banking, a work by M. H. De Kock, Deputy Governor of the South African Reserve Bank, it is said at p. 64 " Central banks everywhere operate as bankers to the State, not only because it may be more convenient and economical to the State, but also because of the intimate connection between public finance and monetary affairs. The State is the largest receiver of revenue and the biggest disburser of expenditure in any country, while the central bank is charged with the duty and responsibility of controlling or adjusting credit in the national economic interest. As the manifold financial activities of the State can easily interfere with money- market conditions and exchange rates and with the credit policy of the central bank, the banking operations of the State can best be centralised in the central bank." This author said at p. 63: " In many countries the central bank keeps the accounts not only of the Central or Federal Government, but also of the Provinces or States."

It is a reasonable conclusion to draw from the views of these authorities about public finance and government banking business and their possible effects on the stability of credit and the value of money, that the transactions which a Government needs to have with a bank in order to carry on its financial operations, is a special branch of banking business, and that a trading bank is not a suitable bank to conduct those operations in a country where there is a central bank. All the reasons given by these authorities why the central bank should conduct the main banking business of the government apply to the banking business of the Australian States and of State authori- ties and local government authorities in Australia. The finances of all these bodies are public finances: their financial operations may be all classed as government financial operations. They receive and expend vast revenues and expend very large amounts of borrowed money. The receipts and expenditure of the States and the bodies

74 CLR 94

A. mentioned in S. 48 constitute a very large proportion of the public

finance of this country.

It follows from the view that the banking transactions of a govern- ment are a particular branch of banking, suitable to be conducted by a central bank, rather than a trading bank, that S. 48 is a law for regulating the conduct of particular banking transactions and that the substance of the law is not a regulation of the States or the other authorities mentioned in the section. The subject of the section is the banking business which it describes.

The contention is made that S. 48 discriminates against the States or is aimed at the States.

If discrimination is fatal to a federal law, it would be necessary to define its meaning and to examine the limits of the power under which it would be claimed that the law was passed.

The contention misses the principle upon which the section is founded. Section 48 contains a complete category of banking business which is proper to a central bank, rather than a trading bank. Section 48 gives power to the Treasurer, if recourse is not had to State Banks, to secure that the banking business included in the category will be diverted to the central bank when it is expedient to do SO. The selection of the banks and the banking business to which the section applies is founded upon banking considerations which are in accordance with views widely, if not universally, held as to the proper division of business between the central bank of a country and its trading banks. Section 48 introduces a control over the trading banks' acceptance of government banking business which has the object of enabling the central bank to exercise its functions effectively. I am of opinion that S. 48 is in substance a law with respect to the subject of banking and is within the legis- lative power contained in S. 51 (xiii.) of the Constitution.

Section 48 does not infringe upon any right reserved to the States by any provision of the Constitution.

In regard to S. 107 of the Constitution, it is said in the Engineers' Case 1 "But it is a fundamental and fatal error to read S. 107 as reserving any power from the Commonwealth that falls fairly within the explicit terms of an express grant in S. 51, as that grant is reason- ably construed, unless that reservation is as explicitly stated."

Section 5 of Part I. of the Financial Agreement provides in the last paragraph "Notwithstanding anything contained in this Agreement, any State may use for temporary purposes any public moneys of the State which are available under the laws of the State, or may, subject to maximum limits (if any) decided upon by the

1(1920) 28 C.L.R., at p. 154. 74 CLR 95

Loan Council from time to time for interest, brokerage, discount, and other charges, borrow money for temporary purposes by way of overdraft, or fixed, special, or other deposit, and the provisions of this Agreement other than this paragraph shall not apply to such moneys.

Sub-section (5) of S. 105A of the Constitution, which authorizes the making of the Financial Agreement, says that every agreement made under the section shall be binding upon the Commonwealth and the States who are parties to it "notwithstanding anything contained in this Constitution." The rest of the sub-section is not material at present. The provisions of S. 5 of Part I. of the Financial Agreement are therefore binding on the Commonwealth, notwith- standing anything contained in the Constitution. The borrowing of money by overdraft signifies a transaction between a State and a bank: and a State may borrow from a bank by any of the other means mentioned in the provision of the agreement. It stipulates the means whereby a State may borrow but it does not give the State a constitutional right to approach any banker from whom a State might have got an overdraft when the agreement was made. The provision prescribes the means by which a State may borrow it has nothing to say about the bank from which the State is given leave to borrow. Section 48 does not eliminate all banks it does not defeat or impair the right which is given by the provision of the Financial Agreement to borrow for temporary purposes.

In S. 133 of the Report of the Australian Royal Commission to which I have referred, this statement is made about borrowing by the States by means of overdraft, for temporary purposes: 'In October, 1929, treasury-bills were issued in Australia instead of a public loan, but at the end of the year a total of £2.5 m. was outstanding. In December, 1930, this sum had increased to £9 m. At a conference between the Commonwealth Bank and the trading banks in that month it was decided that future banking accommodation to the Governments should be provided only by treasury-bills issued under the authority of the Loan Council. Both Commonwealth and State Governments had previously borrowed money for temporary purposes by means of overdrafts either from the Commonwealth Bank or from trading banks. To the banks which held them, treasury-bills at this time were merely short-term government securities, but in June, 1931, a step was taken which altered their significance for the trading banks. In accordance with the Premiers' Plan, government deficits continued to be financed by treasury-bills (30th June 1931) the balance outstanding amounted to £20.6 m."

74 CLR 96

The emphasis which was laid in argument on the right of a State to put its revenue in any bank it pleases, overlooks the substantial matter that a government has recourse to a bank to finance its operations because revenue lags behind expenditure and there is a need to borrow money on a large scale for public works. A State could look after its cash without the assistance of a bank. When the nature and incidence of the financial operations of a government are considered the examples of hypothetical federal laws which were given in argument in order to impugn S. 48 appear to be irrelevant. One example was a law forbidding a bank to conduct banking business for a brewery without the licence of the Treasurer. I do not know of any expression of an opinion that it is a function of a central bank to conduct not only the banking business of governments but also of breweries. There is no point in the example. The reasons which justify S. 48 have no application to the banking business of a brewery. The other example of a hypothetical law was a law forbidding banks to transact any banking business for the members of a prescribed religious denomination without the Treasurer's consent. Membership of the religious denomination does not place the banking transactions of persons who belong to the denomination in any sensible category of banking. The law might well be regarded as a law for the persecution of the members of the denomination because of their religious belief rather than a law for the regulation of a branch of banking.

For these reasons, I am of opinion that the demurrer should be allowed.

WILLIAMS J. The questions raised upon the argument of the demurrer and the material sections of the Banking Act 1945, and in particular S. 48, have been fully set out in the preceding judgments, and I shall not repeat them. The first question is whether S. 48 of the Banking Act is legislation with respect to State banking within the meaning of the exception in S. 51 (xiii.) of the Constitution. The origin of the placitum is S. 91 (15) of The British North America Act 1867, which gives the Parliament of Canada exclusive legislative authority over "banking, the incorporation of banks, and the issue of paper money." The additional words other than State banking, also State banking extending beyond the limits of the State con- cerned" have been incorporated in the placitum. In Tennant V. Union Bank of Canada 1, Lord Watson, in delivering the judgment of the Privy Council, said that banking is "an expression which is

1(1894) A.C. at p. 46. 74 CLR 97

wide enough to embrace every transaction coming within the legit- imate business of a banker." This statement was recently repeated by Lord Porter in delivering the judgment of the Privy Council in Attorney-General for Canada v. Attorney-General for Quebec 1. These citations show, if authority is needed, that the legislation authorized by the placitum is legislation with respect to the business of banking. The bodies which engage in the business of banking are the banks. It would not be an ordinary use of language to say that the customers of the banks engage in such a business. The customers carry on some other business of their own, and it is the business of the banks to provide one form of facility which enables their customers to carry on such businesses. The States would not be concerned (that is, interested) in any real sense in the business of banking other than in the business of banks which were their agencies. There would be no reason why the States as customers of independent banks should not be subject to general laws made by the Common- wealth Parliament relating to the conduct of banking business. There would be even less reason why, if the States as customers were not subject to such laws in the case of accounts in their own territories, they should not also be exempt in respect of accounts which they opened in other States when those other States as cus- tomers were exempt within their own territorial limits. In my opinion the expression "State banking" in the placitum does not refer to the States as mere customers of banks, but to banks con- stituted and controlled by the States.

The second question is whether S. 48 is legislation with respect to banking within the ambit of placitum (xiii.). The Banking Act controls the right to carry on the business of banking in Australia by providing that-(1) a person other than a body corporate shall not, at any time after the expiration of six months from the com- mencement of Part II., carry on any banking business in Australia (s. 6) (2) a body corporate shall not, after the expiration of the same period, carry on any banking business in Australia unless it is in possession of an authority in writing granted by the Governor- General to carry on banking business, but the Governor-General shall, within seven days after the commencement of Part II., grant to each body corporate specified in the First Schedule an authority to carry on such business (ss. 7 and 8; (3) bodies corporate which are authorized to carry on banking business in Australia cannot carry on such business for a State or any authority of a State, including a local governing authority, except with the consent in writing of the Treasurer (s. 48). The First Schedule consists of two

1(1947) A.C. 33, at pp. 41, 42. 74 CLR 98

parts, the first containing the names of fourteen incorporated banks, compendiously known as the private trading banks, and the second the names of the Hobart Savings Bank and Launceston Bank for Savings. The Commonwealth Bank Act 1945 was assented to on the same date as the Banking Act. Section 17 of the former Act provides that the Commonwealth Bank shall carry on general banking business. This is a specific provision relating to the Commonwealth Bank which, in my opinion, relieves the Commonwealth Bank, which is under a duty to carry on general banking business, from the necessity of obtaining any further authority to do SO under S. 7 of the Banking Act. Accordingly, the existing banks to which S. 48 applies are those enumerated in the First Schedule to that Act.

While S. 48 in form prohibits private trading banks from conducting business with the States and their authorities without the consent of the Treasurer, its pith, substance, effect and operation is to compel the States and their authorities to bank either with a State Bank or with the Commonwealth Bank. The express exception of State banking in placitum (xiii.) prevents the Commonwealth directing the States not to bank with State banks. The purpose of S. 48 is therefore to give the Commonwealth Bank as complete a monopoly as possible of the business of the States and their authorities as customers of banks. If the Commonwealth can say to the States and their authorities that they shall not bank with the private trading banks, it can equally say that they shall not bank with the Commonwealth Bank or with any State bank if and in SO far as it extends beyond the limits of the State concerned, and thereby prohibit the States and their authorities from resorting to any bank other than a State bank, and then only in respect of business within the State concerned. The receipt, custody and payment of the public moneys of a State is an essential governmental function of that State. The Audit Acts of the States, to several of which we were referred, authorize the Treasurers of the States to make agreements with such banks as they may think fit for these purposes. But S. 48 of the Banking Act seeks to empower the Treasurer of the Commonwealth to override the Audit Acts of the States and to impose his will upon the Treasurers of the States as to the banks with which the States may do business.

I must give effect to the principles for the construction of the Constitution laid down in the Engineers' Case 1. It is pointed out that " Laws validly made by authority of the Constitution, bind,

SO far as they purport to do so, the people of every State considered as individuals or as political organisms called States-in other words,

1(1920) 28 C.L.R. 129. 74 CLR 99

and subject " 1. But the Parliament of the Com- monwealth is only authorized by S. 51 to make laws with respect to the enumerated subjects (1) for the peace, order and good government of the Commonwealth, and 2 subject to the Constitution, and there arises from the very nature of the federal compact, which contem- plates two independent political organisms, each supreme within its own sphere, existing side by side and exerting divided authority over the same persons and in the same territory, a necessary implic- ation that neither the Commonwealth nor the States may exercise their respective constitutional powers for the purpose of affecting the capacity of the other to perform its essential governmental functions. Therefore a federal law which purports to bind the States must be examined to ascertain whether it is really a law for the peace, order and good government of the Commonwealth with respect to one of the enumerated subjects, or a law which, under colour of such a purpose, is really a law the purpose of which is to interfere with such functions. As the Privy Council has pointed out in relation to the Canadian Constitution in Attorney-General for Alberta v. Attorney-General for Canada (2), each case must be deter- mined as it arises for " no general test applicable to all cases can safely be laid down." Dixon J. has pointed out in West's Case 3 that there are two reservations to the principle laid down in the Engineers' Case 4 that the powers of the Parliament of the Common- wealth under S. 51 must be construed as extending to the States.

The first reservation is that in the Engineers' Case (4) the question was left open whether the principle would warrant legislation affecting the exercise of a prerogative of the Crown in right of the States. The second is that the decision does not appear to deal with or affect the question whether the Parliament is authorized to enact legislation discriminating against the States or their agencies."

Section 48 is legislation which clearly discriminates against the States and their agencies. We were not asked, and I would not be prepared, to hold that legislation which conforms to the language of a placitum is necessarily invalid if it discriminate against a State or States. Many emergencies could arise which would justify the Commonwealth enacting legislation under the defence power during hostilities which would discriminate against a State or States. But the presence of discrimination points strongly to the law being aimed at the States, and if the law is in pith and substance a law which seeks to give directions to the States as to the manner in which they shall exercise their executive, legislative or judicial governmental

1(1920) 28 C.L.R. 129, at p. 153. 2(1939) A.C. 117, at p. 129. 3(1937) 56 C.L.R., at p. 682. 4(1920) 28 C.L.R. 129. 74 CLR 100

functions it is not a law for the peace, order and good government of

the Commonwealth, but an unlawful intervention in the constitu- tional affairs of the States.

Three recent cases in this Court relating to the exercise of the defence power during hostilities illustrate the operation of the principle. In the Uniform Tax Case 1, the Income Tax (War- time Arrangements) Act 1942 was held to be valid by the majority of the Court. That Act in form discriminated against the States because it conscripted into the service of the Commonwealth the taxation staffs of the States and acquired for the Commonwealth the offices in which the State Income Tax Departments were carried on. The purpose of the Act was to create a Common- wealth Income Tax Department to collect taxation levied by the Commonwealth, a large part of which was required to prosecute the war. The loss of the services of these staffs and possession of these premises by the States was likely to hinder the carrying on of the governmental functions of the States, but this hindrance was of the same character as the disturbance which was being caused to all sorts of businesses from the Commonwealth having to conscript employees holding important positions in such businesses and to take possession of convenient premises in which they were being carried on in order to prosecute the war. There was nothing in the Act which attempted to prevent the States from utilizing the services of other officers less experienced, and securing other premises less convenient to carry on the same governmental functions. The convenience of the States, like that of individuals, had to give way to the overriding necessity of the prosecution of the war. In Victoria V. The Commonwealth 2, and Victoria v. Foster 3, on the other hand, where the Commonwealth sought to direct the States as to the remuneration, holidays and hours of work of public servants who were not conscripted by the Commonwealth, but continued to be employed by the States upon work relating to the essential governmental functions of the States, the legislation was held to be beyond the ambit of the defence power and therefore invalid.

The effect of S. 48 is to deprive the States and their authorities of the use of banking facilities available to the general public. Its purpose is to give to the Treasurer of the Commonwealth the power to dictate to the States where they shall bank their public moneys. It is plainly in pith and substance legislation aimed at giving directions to the States as to the manner in which they shall exercise part of what the Privy Council has called in James v. The Commonwealth 4;

1(1942) 65 C.L.R. 373. 2(1942) 66 C.L.R. 488. 3(1944) 68 C.L.R. 485, 4(1936) A.C. 578, at p. 611. 74 CLR 101

and in Abitibi Power &Paper Co. v. The Montreal Trust Company 1, their sovereign powers.

The extent to which the legislation encroaches upon such sovereign powers is well illustrated by the provision of the Financial Agreement referred to by the Chief Justice, which gives the States an overriding constitutional right flowing from S. 105A of the Constitution to borrow moneys for temporary purposes by way of overdraft. Prior to 1929, when S. 105A was inserted in the Constitution, the States had the same right as ordinary members of the public to approach any banks carrying on a general banking business to arrange over- drafts. It was obviously intended by the Financial Agreement that this right should be preserved to the States, subject only to the limitations contained in the provision itself.

It might be contended that S. 48 only infringes the provision in question to the extent to which it seeks to prohibit the States arranging such overdrafts with the banks enumerated in the First Schedule to the Banking Act. But overdrafts are not granted in gross. The essence of an overdraft is that the indebtedness of the customer to the bank is not fixed, but fluctuates from time to time within the agreed limit as moneys are paid in and drawn out of an active current account operated upon in the ordinary course of the business of the customer. The Financial Agreement therefore plainly contemplates and intends that the States shall have the right to become ordinary customers of any banks carrying on a general banking business.

For these reasons I am of opinion that S. 48 is unconstitutional and invalid and that the demurrer should be overruled.

Demurrer overruled with costs. Declare that S. 48

of the Banking Act 1945 is void. Defendants to pay costs of action. Solicitor for the plaintiff: T. C. Trumble. Solicitor for the defendants H. F. E. Whitlam, Crown Solicitor for the Commonwealth.

Solicitors for the interveners A. J. Hannan, Crown Solicitor for South Australia; P. G. B. d'Arcy, Crown Solicitor for Western Australia; F. G. Menzies, Crown Solicitor for Victoria.

1(1943) A.C. 536, at p. 547.