#7321 - The Melbourne Corporation Principle - Federal Constitutional Law

Melbourne Corporation v Commonwealth (1947) 74 CLR 31

Facts: During WWII CBA was given a power to oversee private banks and control the supply of money and credit. The Banking Act 1945 sought to make this permanent. Ben Chifley (PM and Treasurer) proposed to compel states and authorities, including LGAs to bank with the CB. Section 48 provided that banks could not conduct banking business for a State or authority of a State, including an LGA without consent of the treasurer. The Melbourne City Council were notified that it was an authority to which s 48 applied and thus sought to have it struck down.

Held: s 48 is invalid

Dixon J noted that the Engineers’ Case stood for the prima facie rule that a power to legislate wrt a given subject gives the Parliament power to make laws on that subject which affect the operation of State agencies. But this is subject to three reservations:

• The prerogative and tax power (irrelevant to this Case

• The use of federal legislative power to make, not a law of general application, but one which discriminates against States or places a particular disability on the operation of its activity and the execution of its constitutional powers – essentially exercising its executive function

Though this control can be attempted where a matter falls within a head of power but it doesn’t fallow that that connection with the matter brings a law aimed at controlling the State’s exercise of its powers within the exercise of CTH legislative power. These laws wear two aspects:

1. The matter wrt which it is enacted is restriction of State action – prescribing the course the executive should take or limiting the courses available to it. The direct operation of such a law is to place a disability on the State and thus it can be described as a law for the restriction of State action in the chosen field

2. The other aspect is that the law is connected with a subject of CTH Power

   1. If so insubstantial, tenuous or distant by the control it seeks to impose upon state it will fail because it cannot be described as being wrt that subject matter

   2. But if it operates directly on a matter in an actual head of power its validity couldn’t be denied on the grounds of irrelevance. Generally such a law will be valid unless a further reason appears to exclude it

      1. May be difficult on powers like lighthouses, bills of exchange etc. but not wrt things like tax

But there must be firm adherence to the principle that the federal power of taxation won’t support laws placing special burdens on states. The federal system itself is the foundation of the restraint on the use of power to control States – and this constitutional objective applies to all powers if States are made the subject of special burdens (except those which are concerned with special states – 31, 32, 33, 35).

• Regardless of the overthrow of the doctrine of reciprocal immunity of government, the CC does not countenance the notion that the legislative powers of a government in the system can directly deprive another of powers committed to it, or restrict that government in its exercise

  • It is for this reason that the distinction is drawn between a law of general application and one singling out single governments for special burdens

• The foundation of the Constitution is the concept of central government and separate State governments – the Constitution predicates their continued existence. States are conceived as bodies politic whose existence and nature are independent of the powers allocated to them.

  • On this footing the constitution proceeds to distribute powers between the CTH and States and provide for their inter-relation

• His honour noted that the fact that a power may be abused doesn’t mean it’s to be restricted forms a proper objection to the view that governments cannot exercise power interfering with others, but it is irrelevant where the question is an attempt to restrict/control the State in the exercise of a function forming part of its executive power is permitted by the Constitution

  • Of further note is the fact that the federal government’s power is necessarily stronger than that of the States – it carrying affirmative grants of executive power

    • These two considerations add great strength to the implication protecting the CTH from the operation of State laws affecting the exercise of federal power but also amplify the field protected and limit the claims of States to protection from exercises of CTH power

• Thus the considerations on which States’ title to protection from CTH control doesn’t arise from the character of their powers but from their position as separate governments exercising independent judicial functions

“To my mind, the efficacy of the system logically demands that, unless a given legislative power appears from its content, context or subject matter so to intend, it should not be understood as authorizing the CTH to make a law aimed at the restriction or control of a State in the exercise of its executive authority. In whatever way it may be expressed an intention of this sort is, in my opinion, to be plainly seen in the very frame of the Constitution”

(The other judges based their conclusion on different emphasis):

Starke J also thought that the maintenance of States and their powers is as much an object of the Constitution as the maintenance of CTH power and thus they could not abolish one another. However he differed from Dixon J in that he thought the presence/absence of discrimination was not a decisive test for constitutional power:

• Instead the question was a practical one:

  • “Whether legislation or executive action thereunder on the part of the CTH or of a State destroys, curtails or interferes with the operations of the other, depending upon the character and operation of the legislation and executive action thereunder. No doubt the nature and extent of the activity affected must be considered and also whether the interference is or is not discriminatory. But in the end the question must be whether the legislation or the executive action curtails or interferes in a substantial manner with the exercise of constitutional power by the other

Latham CJ and Williams J didn’t like the idea of discrimination as a criterion either but focussed on characterisation. Unlike Dixon J who argued that the validity of a law within the core of a power couldn’t be denied, for these two the mere fact that a law was characterised as restricting the power of States could preclude characterisation as valid. Discrimination for Latham CJ, in the sense actually used, is legislation by the CTH wrt a State or State functions as such and not with respect to a head of power.

• The Commonwealth Parliament has no power to make laws wrt State governmental functions as such, and the State Parliaments have no power with respect to Cth governmental functions as such

• Furthermore, federal legislation which though within a head of power which is clearly about what is a state governmental functions will be said to interfere ‘unduly’ with that function and thus be invalid. The invalidity of a federal law seeking to control which seeks to control a State governmental function is brought about by the fact that it is in substance a law wrt a subject as to which the CTh Parliament has no power to make laws (easier to deal with than what is “undue” which is a vague conception)

Rich J approached the question as one of an “implied immunity” rather than “characterisation”. For his honour, though there are no State reserved powers, this is subject to the CC itself which expressly provides for the continued existence of States. Anything preventing this is necessarily invalid since it is inconsistent with the constitution. There are two such classes of case;

1. Where the CTH singles out states or agencies to which they delegate some of the normal/essential functions of government and imposes restrictions on their ability to perform these functions or impede them from doing so

   1. These would be invalid since nothing in the CC authorizes them

2. Where though the States and their essential agencies aren’t singled out they are subject to a provision of general application which in its particular application would so prevent or impede them

   1. A general income tax Act purporting to exclude revenues of the States from taxation would be in this

Victoria v Commonwealth (Payroll Tax Case) (1971) 122 CLR 353

Facts: This case was a major re-appraisal of both the Engineers and Melbourne Corporation Case. The Payroll Tax Act (Cth) imposed a 2.5% tax on all wages paid by an employer. S 3 of the Pay-roll Tax Assessment Act defined employer to include the Crown in right of a State and a municipal corporation or Local Governing Body/Public Authority constituted under a State Act. The MC Principle was confirmed but not applied to invalidate the tax. Barwick CJ echoed his own argument as counsel in the MC case as adopted by Latham CJ.

Barwick CJ remarked that the Constitution, in providing for states, didn’t give the CTH legislative power over them or their powers and functions or governments.

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