Commonwealth v Bank of New South Wales

Commonwealth v Bank of New South Wales (1949) 79 CLR 497, [1950] AC 235, known as the Bank Nationalisation Case, was a Privy Council decision that affirmed the High Court of Australia's decision in Bank of New South Wales v Commonwealth, promoting the theory of "individual rights" to ensure freedom of interstate trade and commerce. The case dealt primarily with Section 92 of the Constitution of Australia

Facts

After two strong election wins, the Australian Labor Party government of Ben Chifley announced in 1947 its intention to nationalise private banks in Australia. It achieved this process by passing the Banking Act 1947. The policy proved very controversial, and the Bank of New South Wales challenged the constitutional validity of the law. The High Court found specific provisions of the law were invalid and struck them down. The Commonwealth government appealed the decision in the Privy Council.

Advice

The Privy Council endorsed the previous High Court decision in adopting the individual rights approach. Provisions of the Commonwealth law prohibited private banks from carrying out interstate business banking. Interstate banking transactions under the law were thus not "absolutely free" and hence in violation of Section 92 of the Constitution. The Lords argued that a simple legislative prohibition of interstate trade and commerce would be constitutionally invalid, but a law seeking to regulate or prescribe rules as to the manner of trade and commerce would not necessarily be in breach of Section 92. In addition, the act was held to be not an act with respect to banking, and therefore invalid under s51(xiii), the banking power.

The High Court of Australia also looked to the provision's unconstitutionality with respect to s51(xxxi) the "acquisition of property on just terms" provision. The problem with acquisition arose out of the Act's sections detailing the appointment of new directors for all private banks with the power to control, manage, direct and dispose of assets of those banks. The court held, per Dixon J at 348-51 that this was a "circuitous device to acquire indirectly the substance of proprietary interest."

In addition, the High Court also examined the unconstitutionality of the compensation mode set up, to provide shareholders with the chance to gain compensation in respect of their holdings. The act set up a "Court of Claims" which the High Court held, at 368 to be repugnant under s75(iii) of the Constitution as it effectively ousted the jurisdiction of the High Court. In addition, due to its unconstitutionality the act provided no valid provision for compensation for the acquisition of shares or assets.

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