LAW 2501 Australian Constitutional Law

The Bank of New South Wales v Commonwealth case or as is famously referred to as the Bank Nationalisation Case, saw a noteworthy decision being given by the High Court of Australia. In this case, the constitutional requirements were dealt with, with regards to the property being acquired on “just terms”, along with the interstate trade and commerce being free. Under this case, the power of the commonwealth, which was related to the acquisition of property, pursuant to section 51(xxxi) of the Constitution was considered by the court. Further, the level of compensation which had to be provided to the banks, which were being acquired, on the basis of the bank nationalisation scheme, being provided on just terms of not, was also discussed under this case. A key discussion of this case was the applicability of section 51(xxxi) and 92.  In the following parts, the relationship between section 51(i) and section 92 of the Constitution has been elucidated, to understand the manner in which they coincide and contradict each other. Once this is done, the approach adopted by the High Court of Australia, regarding the relationship between these two sections, in the quoted case has been discussed.

The Commonwealth is empowered through section 51(i) of the constitution of the nation to legislate regarding the matter which relate to the trade and commerce with the other nation and within the states. The key issue with regards to section 51(i) relates to the meaning which has been attributed to the term trade and commerce. This question was addressed by the High Court in 1920, in the matter brought before it in W&A McArthur Ltd v Queensland. This was a case where the court had to deal with the meaning given to the term trade and commerce with regards to section 92 of the Australian Constitution, which contains the reference to the trade, intercourse and commerce amongst the states.

In this case, the view regarding the interstate trade and commerce being limited to the merchandise transportation over the borders of state was rejected by the court. Instead of taking this view, the court took the meaning of the words in the ordinary business sense. The three judges of this case stated that that the term trade, commerce and intercourse were not a term of art. These are terms of common knowledge and expressions of fact, which is well known from lawyers to laymen, and is understood better by the commercial men and traders in comparison to the judges. Even the judges, due to their position, are aware that in the given case, they were the general import of words. The specific circumstances which could fall in the ambit of this expression were dependant on the different phases and the development of intercourse, trade and commerce. All of the commercial arrangements where the transportation is direct and important are the results of trade and commerce. This, the trade and commerce includes all of the activities particular the ones which involve the business transaction.

The power which has been given to the commonwealth through section 51(i) enables the participation and regulation of the commerce and trade amongst the states and with the other nations. One of the limiting factors of this section relates to its relationship with section 92 of the constitution. Section 92 provides that the intercourse, trade and commerce within the states have to be free in entirety. However, this does not rest easily with section 51(i) where no limit is expressed other than the law, which has to be with respect to the overseas and interstate commerce and trade. Though, through section 51(i) the power has been conferred subject to the constitution and this is the reason that it is constrained by section 92. In view of that, such an interpretation where the scope of interstate commerce and trade is extended for the purpose of section 51(i) and where the powers of the commonwealth are enlarged, a parallel expansion could also be entailed regarding the scope of interstate commerce and trade for section 92’s purpose, and this ultimately leads to the expansion of reach of the restriction placed on the power of commonwealth.

The case of Australian National Airways Pty Ltd v Commonwealth illustrated the difficulty which is present for the coexistence of the two sections, where the ability of the Commonwealth to establish the government owned interstate airlines, pursuant to section 51(i) was upheld by the High Court; though the provisions regarding the airline being a monopoly due to section 92 being infringed were invalidated. The two sections were reconciled for a short while, where section 92 was applied for the states only. This meant that the trade and commerce taking place interstate had the broader interpretation, which increased the power of the commonwealth in the economic matters, where the consequential restrictions pertaining to the legislative powers affected only the states. Even though the majority of High Court accepted this approach, in the case of  W&A McArthur Ltd v Queensland; though, the same became difficult to sustain and was ultimately overrules in James v Commonwealth by the Privy Council.

Coming to the case of Bank of New South Wales v Commonwealth, before getting to its decision and the manner in which section 51(i) interplayed with section 92, it is crucial to understand the background of this case. In this case, in 1947, the Labour government, which comfortably won two strong elections, announced its intention to nationalise the Australian private banks, back in 1947. In order to undertake this objective, the Banking Act, 1947 was passed by the Parliament. Based on this act, the shares were to be owned by the Commonwealth Bank of Australia in the private banks, which would in turn be owned by the Federal Government. Due to the proposal being very controversial, its constitutional validity was challenged by different banks, one of which was the Bank of New South Wales, along with the non labour states of Western Australia, Victoria and South Australia.

The hearing for this case, in the court, lasted for a period of 39 days. The party arguments’ summary is covered in 143 pages in the Commonwealth Law Report. Most of the arguments put before the court were rejected. The law was declared as invalid on four key grounds, although this was done by different majority of the judges. It was stated by the court that section 92 of the constitution conferred a positive right over the banks for engaging in interstate banking business. The case also covered the property acquisition which was not on just terms, which was against section 51(xxxvi) of the constitution. The issues which were related to the acquisition were born out of the sections of the Banking Act, which detailed the new directors’ appointment for the private banks which had the power to control, dispose off, manage and direct the assets of such banks. It was also held by Dixon J, that there had been a circuitous device for the indirect acquisition of the proprietary interest’s substance. Also, by setting up the Court of Claims, the attempt was made by the act, to invalidate/ to oust the High Court’s original jurisdiction.

This case highlighted that the language contained in section 51 leaves the scope of broad construction. The initial wordings of this section provide that the parliament has the power of making the law, subject to the constitution, for the order, peace and good government of Commonwealth, with respect to. These last three words indicate that the powers covered under section 51 cannot be given a pedantic or narrow operation. And this dictum was endorsed by the judges of this case.

This case presents the example of the breadth of section 51(xxxi) with regards to the concept of property. The provisions in this case were deemed as effectively removing the control of property of the private banks by Dixon J. And he concluded that this was an acquisition of the proprietary right in essential sense. In order for a term to be constitutionally valid pursuant to section 51(xxxi) of the constitution, there is a need for the law to provide that the acquisition of property by the commonwealth should not only provide a proper mechanism for property acquisition for the purpose for which the power of making law lies with Commonwealth Parliament, but to also provide the just terms payment for the undertaken acquisition. Thus, the effect of this section is to provide the guarantee for the property acquisition by the federal government done compulsorily and to legitimize the same when it is properly authorized and is accompanied with just terms or compensation.

The critical ground, based on the law, which was invalidated in this case, was the acquisition of shares and assets. The crucial policy and political questions were based on section 92’s effect. Rather than being a realistic policy, the nationalisation of industry would have remained an aspiration for the Commonwealth Labour Government, as soon as the politicians formed the notion that the restriction on interstate banking activity would run foul due to section 92. This effectively meant that the commonwealth would be permitted to run its industrial enterprise as airline or bank; though, it could not restrict the others from engaging in such interstate enterprises. The individual rights theory of section 92 were put forward for deciding that the act covered under this case was foul of section 92. Each and every company or person had the entitlement of being immune from the government interferences, specifically in the legislation form in the interstate trade. Two of the judges stated that the section 92 guaranteed the freedom which was a personal right attached to the individuals.

Dixon J stated that some of the regulations could still be allowed and leaves the trade and commerce absolutely free as the assurances given under section 92 supposes that the mutual relations between man and government and between men, is regulated through the law. And so, the trade and commerce has to be conducted based on the law. This translates into the compliance with the range of regulatory directions, based on a multitude of regulatory directions. Due to the test of time, the interpretation of section 92 was halted. After a period of around forty years, and a range of judicial interpretation by the court, a different interpretation of this section was settled for, which could have made the decision of this case easier, and this was the case of Cole v Whitfield, which has been discussed in Part B of this discussion.

Till the time this decision could come, the nationalisation aims of the Labour party had been rejected and became engaged in the government owned businesses’ privatisation. An appeal was made to the Privy Council against this judgement. Though, after a record hearing of thirty six days, the judgement of the High Court was upheld. Though, the reasoning given by the Privy Council created difficulties and confusion regarding the freedom of trade and also puzzled the reader, due to the contradictory statements made in this case. This was specially due to the statement regarding some of the economic activities, at a certain stage of social development maintaining the prohibition that the state monopoly was reasonable and practice way of regulation, and that the interstate commerce, intercourse and trade resultantly prohibited, as well as, monopolised, continued to be absolutely free.

Hence, in this case, the two sections, i.e., section 92 and section 51 were used to challenge the constitutional validity of the Banking Act and this act was invalidated on the basis of these two sections. The first one was based on section 92 where the interpretation of operation of the constitution freedom regarding the interstate trade and commerce, based on the individual rights was conferred as a positive right by the court on the banks looking to engage in the business of interstate banking. The second based for invalidating the legislation was based on section 51 (xxxi), where the mechanism which was used to nationalise the banks was not taken to be based on just terms, thus breaching the scope of the quoted section. Even though there is a difference between section 51(i) and section 51 (xxxi), the essence remains the same, and this relates to the power of the parliament to make the law; through, the later section is specific to acquisition of property, which was the core of this case.  

This was a case where the two clauses came together to invalidate the attempts of the labour party, to come up with a legislation which would have invalidated the provision of the Australian constitution. Hence, at times these two sections are contrary to each other and result in a tug of war for supremacy of one over the other, the Bank Nationalisation Case saw a harmony being attained between the two, where each section invalidated the Banking Act brought forward by the Labour party on a different ground, so as to uphold the validity of the constitutional provisions. Thus, it can be concluded that this case helped in protecting the constitutional validity by the sections being brought to a harmony and protecting the public by not letting an unfair legislation being passed.

Cole v Whitfield saw a historic ruling being given by the High Court of Australia where the two long settled approaches regarding the interpretation of the constitution were overruled. These two approaches were related to the no regard to the debates of Constitutional Conventions in the matter of constitution’s interpretation and the other one was related to the section 92 of the constitution regarding absolutely free term, which protected the personal individual right of freedom when it came to the interstate trade. Through this case the economic notion of free trade replaced the earlier notions, in the sense that the interstate trade could not be subjected to discriminatory burdens of the protectionist kind. And even though this case saw a unanimous judgement being granted, the verdict of this case still remains a source of controversy. The decision of this case has been applied in different cases and one of these cases was the case of Castlemaine Tooheys Ltd v South Australia where the act of South Australia was dealt with on the basis of it contravening section 92 of the Australian constitution. In the following segments, the interpretation of section 92 in Cole v Whitfield by the High Court has been analysed. Once this is done, the manner in which the decision given under Cole v Whitfield was applied to Castlemaine Tooheys Ltd v South Australia has been elucidated.

As has been stated earlier also, section 92 of the constitution of the nation provides the guarantee regarding the free movement of goods amongst the commonwealth states and territories. The section states that the intercourse, trade and commerce between the states shall be free absolutely. The High Court of Australia, save for the phrase “absolutely free”, has provided a very certain and clear meaning to this section. Though, the difficulties are faced with regards to the interpretation of the meaning when it comes to the “absolutely free” phrase. The main difficulty which is related to this phrase is that the same is incomplete in a logical sense. This is because the section does not provide what it is from and which interstate commerce or trade is to be considered as absolutely free. On the basis of this, there has been an inability on part of the courts to read this phrase without any qualifications. Section 92’s interpretation remained chaotic and was a source of judicial labyrinth till the time the decision was given in the case of Cole v Whitfield which resolved this issue by developing a distinctive test for this section.

Cole v Whitfield was a case where the initial five judges who were appointed to the High Court had been leading participants in the Constitutional conventions and were considered as being amongst the constitution’s framers. The constitution was described by the court as being framed in the nation, by the people of the nation and for the use of the people of the nation. So, when the court starting speaking on the knowledge, intention and expectation of the framers of constitution, the judges referred to the personal experience which they had in this matter, instead of the knowledge or the intention of the Imperial Parliament in the matter of passing of the Commonwealth of Australia Constitution Act 1900. Even though the intention was refereed, it was however settled that the High Court doctrine regarding the records of debates of this convention was not available in the constitution’s construction.

In this case, the court decided upon the “absolutely free” phrase as is given under section 92, as not being a guarantee of the absolute freedom of restriction. It was argued that this notion would cause chaos. The individual rights approach was rejected by the court, which was earlier adopted in the case of Bank of New South Wales v Commonwealth, thus endorsing the free trade approach. With this decision the court broke apart from the tradition and made consultations with the constitutional convention debate transcripts so that the true purpose given under section 92 could be established. It was concluded by the court that this was done for the creation of a free trade zone amongst the state of Australia and the phrase of absolutely free had to be referred in the economic sense. Hence the law which are of protectionist type and which interfere with the interstate commerce or trade would be deemed as invalid. The purpose of the Tasmanian law was also looked into by the court and it was held by them that the objectives were of the conservational nature. As in this case, the law were applicable on all of the crayfish, it was not deemed as being in protectionist nature and due to these reasons, the provisions covered section 92 were not contravened.  The approach given under this case was again adopted in the matter of Castlemaine Tooheys Ltd v South Australia. Thus, in both of these cases, the High Court developed a rule of reasonableness, or of proportionality, or of adaptedness and appropriateness, which was operable in the way which was similar to the rule of reason, i.e., the Cassis rule, given in EEC.

In Castlemaine Tooheys Ltd v South Australia, even though the parties had conceded that the deposit disadvantage increase, the matter which had to be resolved was regarding the permissibility for the legislation of state to be disadvantageous for the interstate beer over the local beer, if the same on surface was directed towards solving the environment related issues. The unanimous decision given in this case was that the legislation was against section 92 of the Australian constitution. From the outside, when a requirement or prohibition is imposed over the interstate and intrastate trade, or on the traders in interstate, it is not to be taken as protectionist. Though, in such a case where the law has been designed for the purpose of securing the genuine objective and there exists a non discriminatory method, in such cases, it can be suggested that the object is meant to discriminate. The burden which is placed over the commerce or trade is genuine only in such cases where it is simply incidental towards the achievement of the genuine point, or in such case where the regulation could be adapted and appropriate or could be necessary for the enhancement or protection of the community’s welfare.

In Cole v Whitfield, the first test given by the judges was the discriminatory protectionism and this was basically an invalidity test. Based on this test, a measure or a law would be invalid in case a burden on the interstate commerce or trade is imposed which, in a protectionist sense, is discriminatory. The second test given under this test was abridged proportionality and was a saving test. As per this test, a measure or a law would be deemed as invalid in case the objective of it is not protectionist and the burden which is imposed on the interstate commerce or trade is appropriate, as well as, is adapted for fulfilment of such objective.

The academic commentators, since the year of 1988, have considered the two fold test given in Cole v Whitfield as being the definitive test for the section 92. Even the courts have considered that this is a definitive test and this was confirmed two years later in the case of Castlemaine Tooheys Ltd v South Australia. Since then, the law on section 92 has not been revised by the court. Though, the test given under the case of Cole v Whitfield is not definitive and there is a need to revise the abridged proportionality which has been framed in Cole v Whitfield for the purpose of section 92. The discriminatory protectionism test which invalidates the measure or law under challenge for the contravention which has been alleged for section 92 purposes. The law or measure would be invalidated based on the test when it places a burden over the interstate commerce or trade which is in the protectionist sense due to it being discriminatory. Though, the discretion pertaining to the saving or measure or law is retained by the court even when the same contravenes the section. In the same manner as is the invalidity test under section 92, the same is for the saving test. The critique regarding the abridged proportionality is based on the comparison with the concept of robust proportionality which is a European continental concept. This comparison shows that the abridged proportionality test needs the suitability of measure or law, which is under challenge, to be assessed for suitability.

For undertaking this assessment, there is a need for the court to analyse the objective of measure or law. In comparison to this, under the robust proportionality test, the court is required to assess the suitability, as well as, the necessity of measure or law, along with the attainment of balance between the freedom as covered under section 92 and the restrictions which this freedom covers. For undertaking this assessment, there is a need for the court to analyse the effect of measure or law under challenge, along with its objective. Therefore, by implication, the abridged proportionality test has the risk of saving such a measure or law which has a discriminatory effect and which is against the trade or commerce, in case they have such an objective, which cannot be deemed as protectionist. And on the basis of this, it can be argued that the abridged proportionality test is unable to preserve the common market with such a strength which is same as that under the robust proportionality test. Another problem is the emphasis over the abridged proportionality test as it implies an instrumental use of the facts. Hence, what is needed is that the test laid down through Cole v Whitfield should not be used only for assessing the suitability and there is also a need to consider the balance of measure or law which is under challenge. So, with a more vigorous proportionality concept, along with the objective, the effect of such measure or law could also be analysed.

The saving test developed in Cole v Whitfield by the High Court of Australia and then adopted in Castlemaine Tooheys Ltd v South Australia as complementary to the discriminatory protectionism is flawed doctrinally. This is due to the claims related to the saving test, i.e., of abridged proportionality pertaining to section 92 of the constitution. The abridged proportionality test fails in meeting the federal objective of the common market which was intended by the founders for section 92. This is due to the fact that the test is based upon inadequate understanding pertaining to proportionality. And the second reason which is the direct result of the first reason is that this test is concerned with only the objective, instead of being focused upon the effect of the measure or law which is under challenge. The saving test pertaining to section 92 was initially sketched in Cole v Whitfield; though, the same fully became a canvass with the case of Castlemaine Tooheys Ltd v South Australia. Both of these cases indicate that the prudent regulations are compatible with section 92 of the constitution, only in such cases where the burden is imposed over the interstate trade and the same is incidental, instead of being disproportionate to the genuine objective which is aimed to be attained.

The development of the saving test is of particular significance due to the decision which was given in Castlemaine Tooheys Ltd v South Australia. This case is of particular significance as through this case, the Court allowed the development of the saving test which was born from the earlier case of Cole v Whitfiled. This resulted in the completion of the revolutionary revisions of law based on section 92 of the Australian constitution. The latter case stands as an authority for the principle that the measure or law which would in any other case be a contravention of section 92 could be deemed as valid in case the same is aimed towards attaining the non-protectionist objective and any burden which is imposed over the interstate commerce or trade is adapted to the attainment of such objective and is appropriate. So, based on the latter case, section 92 is not breached in such cases where the legislative measures could be deemed as adapted and appropriate towards the resolution of such issues. Further, any burden which is imposed over the interstate trade or commerce was not disproportionate and was merely incidental to its attainment. The accuracy and simplicity of the saving test developed through the case of Castlemaine Tooheys Ltd v South Australia could be deemed as an antidote towards the discriminatory protectionism findings under the invalidity test of Cole v Whitfield.

From the discussion carried out here, it becomes very clear that the decisions given in Cole v Whitfield and Castlemaine Tooheys Ltd v South Australia are of grave importance in the nation. This is due to the fact that through these cases, the inconsistency with the interpretation of section 92, which was born due to the previous rulings, were given away with, with the introduction of the two tests. Even though these two tests are not perfect, steps can be taken in this regard to either fix these imperfections, or better yet, amend section 92 so as to give away with the shortfalls of this section, which has led to the reliance being placed on the tests which were brought into force through the first case, and which was later affirmed in the latter case. Till the time the same is done, the test given through the case of Cole v Whitfield proves to be of great help in such cases where an issue is raised due to the shortfalls in the interpretation of section 92 of the Australian Constitution.

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