Analysis of Australian Constitutional Law: Section 51 and 92 Cases

This assignment delves into Australian Constitutional Law, examining the interplay between Sections 51 and 92 of the Australian Constitution, particularly through the lens of the landmark Bank of New South Wales v Commonwealth (Bank Nationalisation Case). It explores the Commonwealth's power to legislate on trade and commerce (Section 51(i)) and its relationship with the guarantee of free interstate trade and commerce (Section 92). The assignment unpacks the High Court's interpretation of these sections, focusing on the concept of 'just terms' in property acquisition (Section 51(xxxi)) and the implications of the Banking Act 1947, which aimed to nationalize private banks. The analysis covers key legal arguments, court decisions, and the historical context of the case, including the role of the Privy Council. The assignment highlights the challenges in reconciling these constitutional provisions, emphasizing the impact of Section 92 on government's power to regulate interstate commerce and the evolution of judicial interpretations over time.

AUSTRALIAN CONSTITUTIONAL LAW 2
Part A
The Bank of New South Wales v Commonwealth1 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
free2. Under this case, the power of the commonwealth, which was related to the acquisition of
property, pursuant to section 51(xxxi)3 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 case4. 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 states5. 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
1 (1948) 76 CLR 1
2 Rosalind Dixon and George Williams, The High Court, the Constitution and Australian Politics (Cambridge
University Press16-Feb-2015)
3 Constitution of Australia, s 51(xxxi)
4 Jade, Bank of NSW v Commonwealth [1948] HCA 7; 76 CLR 1 (2017) <https://jade.io/article/64583>
5 Constitution of Australia, s 51(i)

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in 1920, in the matter brought before it in W&A McArthur Ltd v Queensland6. This was a case
where the court had to deal with the meaning given to the term trade and commerce with regards
to section 927 of the Australian Constitution, which contains the reference to the trade,
intercourse and commerce amongst the states8.
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 judges9. 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 transaction10.
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
6 (1920) 28 CLR 530
7 Constitution of Australia, s 92
8 Victor S. MacKinnon, Comparative Federalism: A Study in Judicial Interpretation (Springer Science & Business
Media, 2012)
9 Australasian Legal Information Institute, Bank of NSW v Commonwealth ("Bank Nationalisation case") [1948]
HCA 7; (1948) 76 CLR 1 (11 August 1948) (2017)
<http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1948/7.html>
10 R. Rhodes, The Australian Study of Politics (Springer, 2009)

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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 trade11. 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 commonwealth12.
The case of Australian National Airways Pty Ltd v Commonwealth13 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 Commonwealth14 by the Privy Council15.
11 George Williams, Labour Law and the Constitution (Federation Press, 1998)
12 Zhang-Yue Zhou, Developing Successful Agriculture: An Australian Case Study (CABI, 2013)
13 (1945) 71 CLR 29
14 [1936] AC 578
15 At 11

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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
Government16. 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 Australia17.
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 business18. 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
16 Brendan Lim, Australia's Constitution after Whitlam (Cambridge University Press, 2017)
17 At 11
18 Justin T. Gleeson and Ruth C. A. Higgins, Rediscovering Rhetoric: Law, Language, and the Practice of
Persuasion (Federation Press, 2008)

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setting up the Court of Claims, the attempt was made by the act, to invalidate/ to oust the High
Court’s original jurisdiction19.
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 sense20. 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 compensation21.
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
19 Nicholas Aroney, Peter Gerangelos and Sarah Murray, The Constitution of the Commonwealth of Australia
(Cambridge University Press, 2015)
20 Nick O'Neill, Simon Rice and Roger Douglas, Retreat from Injustice: Human Rights Law in Australia (The
Federation Press, 2nd ed, 2004)
21 Janet McLean, Property and the Constitution (Hart Publishing, 1999)

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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 individuals22.
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 halted23. 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 Whitfield24, 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
22 Crispin Hull, Chapter 2 — Major Cases 1 (2017) <http://www.crispinhull.com.au/high-court-book/chapter-two-
major-cases-1/>
23 Ibid
24 (1988) 165 CLR 360

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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 banking25. 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 property26, which was the core of this case27.
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
25 The University of Melbourne, Australian & Comparative Constitutional Law: Federal Constitution - Landmark
cases (2017) <http://unimelb.libguides.com/c.php?g=402909&p=2744053>
26 Constitution of Australia, s 51(xxxi)
27 H.P. Lee and George Winterton, Australian Constitutional Landmarks (Cambridge, 2003)

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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.
Part B
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 kind28. 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 Australia29 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
28 Jade, Cole v Whitfield (2017) <https://jade.io/article/67418>
29 (1990) 169 CLR 436

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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 section30. 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 section31.
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
30 Günther Doeker, The treaty-making power in the Commonwealth of Australia (Springer, 2012)
31 Gonzalo Villalta Puig, ‘A European Saving Test for Section 92 of the Australian Constitution’ (2008) 13 Deakin
Law Review.

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Commonwealth of Australia Constitution Act 190032. 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 construction33.
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 established34. 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,
32 Australia Constitution Act 1900 (Cth)
33 Australasian Legal Information Institute, Cole v Whitfield ("Tasmanian Lobster case") [1988] HCA 18; (1988)
165 CLR 360; (1988) 78 ALR 42; (1988) 62 ALJR 303 (2 May 1988) (2017)
<http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1988/18.html?context=1;query=Cole%20v
%20Whitfield>
34 Gonzalo Villalta Puig and Christian Twigg-Flesner, Boundaries of Commercial and Trade Law, Issue 1 (Walter de
Gruyter, 14-Nov-2011)

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which was operable in the way which was similar to the rule of reason, i.e., the Cassis rule, given
in EEC35.
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 welfare36.
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
35 Christopher Staker, ‘Section 92 of the Constitution and the European Court Of Justice’ (1990) 19 Federal Law
Review.
36 Australasian Legal Information Institute, Castlemaine Tooheys Ltd v South Australia [1990] HCA 1; (1990) 169
CLR 436 (7 February 1990) (2017) <http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/HCA/1990/1.html?
context=1;query=Castlemaine%20Tooheys%20Ltd%20v%20South%20Australia>