Melbourne Corporation v The Commonwealth

The case of *Melbourne Corporation v The Commonwealth* was heard in the High Court of Australia. The dispute arose between the City of Melbourne (the plaintiff) and the Commonwealth of Australia and its Treasurer (the defendants) concerning the validity of section 48 of the *Banking Act 1945* (Cth). Section 48 prohibited banks from conducting banking business for a State or any State authority, including local governing authorities, without the consent of the Commonwealth Treasurer. The City of Melbourne, a local governing authority, sought a declaration that this section, and indeed the entire *Banking Act 1945*, was beyond the legislative powers of the Commonwealth Parliament.

The High Court was required to determine several legal issues. Primarily, the Court had to decide whether section 48 of the *Banking Act 1945* was a valid exercise of the Commonwealth Parliament's legislative power with respect to "banking, other than State banking" under section 51(xiii) of the Constitution. This involved considering whether the section was genuinely a law with respect to banking, or if its true purpose and effect were to interfere with the governmental functions of the States. A further issue was the interpretation of "State banking" within section 51(xiii), specifically whether it encompassed a State acting as a customer of a bank, or only a State acting as a banker. The Court also considered whether, even if section 48 was a law with respect to banking, it was invalid due to an implied prohibition against Commonwealth legislation unduly impeding the essential governmental functions of the States.

A majority of the High Court, comprising Latham C.J., Rich, Starke, Dixon, and Williams JJ. (with McTiernan J. dissenting), held that section 48 of the *Banking Act 1945* was not a valid exercise of the Commonwealth's power under section 51(xiii) of the Constitution. The Court reasoned that while the power to legislate with respect to "banking" is granted, this power does not extend to legislation that directly controls or hinders the States in the execution of their governmental functions. The majority found that section 48, by restricting the ability of State authorities to conduct banking business with private banks and effectively compelling them to use the Commonwealth Bank, interfered with the States' governmental operations. The Court also affirmed that "State banking" in section 51(xiii) meant the business of banking engaged in by a State, whether as banker or customer, and that the prohibition in section 48 was directed at the State as a customer. The Court applied the principle that the federal structure of the Constitution implies limitations on legislative power to prevent one level of government from unduly interfering with the essential functions of the other.

The demurrer filed by the defendants was overruled, and the plaintiff was granted the declaration sought. The Court declared section 48 of the *Banking Act 1945* to be invalid as an exercise of the Commonwealth's legislative power.