Heiner v Scott [1914] HCA 82; (1914) 19 CLR 381 (18 December 1914)

O'Sullivan (A.-G. for Queensland) and Knox K.C. (with them Browne), for the respondent.

The appellant comes, supported by the Commonwealth, to maintain the proposition that the enforcement of the provisions of the Queensland Stamp Act, which imposes a stamp duty of 1d. on every inland bill of exchange payable on demand (which term includes a cheque on a banker) and imposes a penalty upon any person who issues such a bill of exchange not duly stamped, is an interference with the efficiency of an instrumentality of the Commonwealth, that is to say, the Commonwealth Bank, and therefore impliedly forbidden by the rule laid down by this Court in D'Emden v. Pedder[1], affirmed in Deakin v. Webb[2], and reaffirmed in Baxter's Case[3]. That rule was expressed in these terms[4]:—"When a State attempts to give to its legislative or executive authority an operation which, if valid, would fetter, control, or interfere with, the free exercise of the legislative or executive power of the Commonwealth, the attempt, unless expressly authorized by the Constitution, is to that extent invalid and inoperative."

In order to bring the present case within that rule the appellant must establish (1) that the carrying on of the ordinary business of banking by the Commonwealth Bank is an exercise of the executive power of the Commonwealth, and (2) that, if it is, the requirement that cheques drawn upon a private account shall be stamped is an interference with the freedom of that exercise.

The first subject of inquiry is, therefore, whether the Commonwealth Bank is in carrying on that business exercising a function of the executive Government of the Commonwealth. It may be conceded that the Commonwealth Parliament may for the more convenient exercise of any of the executive functions of government set up a corporation for the purposes of acting as an agent or instrumentality of government, as was done in the United States of America by the establishment of national banks (see M'Culloch v. Maryland[5] and Osborn v. Bank of United States[6]). This Court held in The Jumbunna Case[7] that a corporation might be created by the Commonwealth Parliament for analogous purposes. The Supreme Court of the United States pointed out, however, in Osborn's Case[8], that the privileges that could be claimed by such a corporation were no greater than if the same governmental functions had been entrusted to an executive officer of the Government. If that limitation is adopted, as it must be, the privilege that can be claimed in respect of a bill of exchange drawn on the Commonwealth Bank is no greater than can be claimed in respect of a bill of exchange drawn on the Commonwealth Treasurer by a creditor of the Commonwealth.

At this stage it is convenient to refer to the Act (No. 18 of 1911) by which the Commonwealth Bank is established, the provisions of which are in some respects remarkable. Sec. 5 declares or enacts that "a Commonwealth Bank, to be called the Commonwealth Bank of Australia, is hereby established." Sec. 6 enacts that it shall be a body corporate with perpetual succession and a common seal, and may hold land and may sue and be sued in its corporate name. This is all. There are no corporators. How there can be perpetual succession when there are no persons to succeed one another I do not quite understand. It is commonly said that a corporation aggregate is "a mere abstraction of law" "having a metaphysical existence only" (Grant). This is, of course, true in one sense, but has always been said of a fictitious entity composed of the aggregate of several persons, and never of a mere disembodied spirit. I pass by the question whether in the nature of things it is competent for the Commonwealth Parliament to declare that such an abstraction disassociated from any material persons shall be regarded as a corporation, and will assume that it is, and that the Bank is a real entity cognizable by law. Probably the true effect of the Act is a declaration that the Commonwealth may itself carry on the business of banking under the name of the "Commonwealth Bank of Australia."

The question then arises, as in every case of an asserted exercise of legislative power, "Under what power conferred by the Constitution is the corporation created?" A power to incorporate banks is conferred by sec. 51 (XIII.), and I will assume that this power is sufficient to establish the legal existence of the corporation. The next question is as to the powers which the Parliament can confer upon such a corporation, and it may be conceded that a bank lawfully incorporated has primâ facie the ordinary powers of a bank.

But when we come to the further question, "How far can such a bank be made an instrumentality of the Government?" recourse must be had to pl. xxxix., which confers power to make laws incidental to the execution of any power vested by the Constitution in the Government of the Commonwealth. The executive powers of the Commonwealth as well as its legislative powers are limited to those conferred by the Constitution itself. If the carrying on of ordinary banking business is not an executive function of the Commonwealth conferred by the Constitution the Parliament cannot confer that function upon its instrument, for the stream cannot rise above its source.

It may be conceded that it is a function of government to raise money by way of loan for governmental purposes and to make provision for the custody and management of the public funds, whether raised by taxation or loan, but it does not follow that it is a function of government to carry on a trade for the purpose of raising revenue. In my opinion the carrying on of ordinary banking business is not a function of the executive Government of the Commonwealth conferred by the Constitution. It may be that the carrying on of such a business is not unlawful in the sense of being forbidden by law, but the liberty to do so cannot be regarded as anything more than a permissive faculty, permitted only in the sense of not being prohibited by positive law. Such tacit permission cannot confer any right to restrict the States in the exercise of their legislative powers over all persons who in the like absence of prohibition engage in such enterprises. The faculty is, in truth, one which is common to all such persons.

For these reasons I am of opinion that the operations of the Commonwealth Bank, as between itself and its customers, are not the discharge of a function of the executive Government of the Commonwealth, and that no privileges can be claimed in respect of them.

As to the second point, it can only be maintained by attributing to the word "interfere," as used in the rule relied on, a meaning which has never been attributed to it either in the United States or in Australia—in other words, by laying down a new rule, which, so far from being founded on American decisions, has been emphatically repudiated by the Supreme Court of the United States. See particularly Railroad Co. v. Peniston[9].

In my opinion it is impossible to say that the operations of the Commonwealth Bank are fettered or interfered with in any rational sense by requiring the customers of the Commonwealth Bank to observe the same fiscal regulations as are imposed upon the customers of other banks.

The appellant, on information of the respondent, an inspector of stamps, was convicted, under sec. 26 of the Queensland Stamp Act 1894, of having signed a cheque liable to stamp duty but lacking the stamp. He was fined one shilling and ordered to pay costs plus the duty of one penny, and he appeals to this Court, contending that a cheque drawn by a customer of the Commonwealth Bank upon his current account in that Bank is free of duty notwithstanding the provisions of the Queensland Act.

The Stamp Act was in existence before Federation, and was passed seventeen years before the Commonwealth Bank Act, No. 18 of 1911. There is nothing in the Bank Act which can be said to deal expressly with the point. The Queensland Act is general in its operation, and the question whether the signatory of such a cheque is liable to pay the penny duty, or, in other words, whether he is liable to a fine for non-payment of it, rests entirely on implication.

The appellant and the intervenant urge that the Commonwealth Bank is in all its operations under the Statute an instrumentality of the Government of the Commonwealth; that it is indeed by its special constitution a department of the Commonwealth Government; that the tax on the cheque is a tax on the operations of that Bank in part of its general banking business, since the transaction evidenced by the cheque is a transaction of the Bank; that its general banking business is an essential and organic part of its functions given it by federal Statute, that is to say, of its functions as a Commonwealth department, in the sense that without such operations the capacity of the Bank to serve the main purpose of its creation would be seriously impaired if not destroyed.

Very many cases were cited, but those on which the appellant and the intervenant most relied were M'Culloch v. Maryland[10], Osborn v. Bank of United States[11], and The Banks v. The Mayor[12] so far as that case relates to the immunity from State taxation of certificates of indebtedness issued by the United States to creditors of the Government, for supplies furnished to it for carrying on national defence. Of course, many other authorities were strongly urged, but it was upon the reasoning of the Supreme Court in these cases, adopted and followed in many others, that the claim for immunity was rested.

The questions raised have been numerous and interesting, and among them were the questions whether the Commonwealth Bank Act rests on any express authority at all, such as secs. 51 (XIII.) and 51 (XXXIX.) of the Constitution; whether, apart from express authority, the executive powers of the Commonwealth did not warrant the creation of a bank as an instrument of the Treasury, whose general trading operations were so essential to its life as such an instrument, that they must be protected against State taxation; whether there was any distinction on the question of immunity between a State tax including operations by cheque on current account on any bank whatever, and one limited to such transactions with respect to the Commonwealth Bank alone; whether the immunity claimed was a means of defence of a Commonwealth instrumentality against interference, or merely a claim by one trading concern that it should have a preference in this respect over all other trading concerns on the mere ground that its trading purported to be authorized by a federal Statute.

It is not my purpose in this judgment to deal with any of those questions, for the simple reason that unless the tax objected to is a tax on the operations of the Bank all the questions I have stated may, though of course only for the purpose of argument, be conceded to admit only of answers favourable to the appellant and to the Commonwealth. But I must guard myself against the assumption that I think any of such answers ought to be favourable if the determination of such questions were vital to this case. It is only if the operations of the Bank are taxed that any of these questions arise; and I think that the subject of this taxation is not an operation of the Bank in any sense in which the American cases, if we accept their reasoning, declare the immunity of certain operations of federal instrumentalities from taxation.

In M'Culloch v. Maryland[13] the legislation complained of was an Act of a State legislature purporting to tax "All banks or branches thereof in the State of Maryland not chartered by the legislature," by requiring that notes issued by them should be on stamped paper. M'Culloch, the cashier, had violated this Act by issuing notes upon unstamped paper. In Osborn v. Bank of United States[14] the Statute complained of was passed by the legislature of Ohio "to levy and collect a tax from all banks, and individuals, and companies and associations of individuals, that may transact business in this State, without being allowed to do so by the laws thereof." The impost took the form of an annual tax on each office of discount and deposit of the Bank in Ohio. In each of these cases the State Statute was held unconstitutional so far as its effect was to impose a tax on a bank which had been made an instrumentality of the Government of the United States, and undoubtedly that was the effect. In The Banks v. The Mayor[15] the certificates of indebtedness held to be beyond the taxing power of the States were issued by the federal Government, and to tax them was held to be in effect the taxation of the express federal power to borrow money on the credit of the United States. There were other questions in that case with which we need not trouble ourselves. There are numerous other cases in the American reports which assert the same principle as these three. If the giving of this cheque were, in the sense connoted by the cases, an operation of the Bank which the State tax directly affected, then if it were established that the Commonwealth Bank was a federal instrumentality acting as such in respect of the particular transaction, the reasoning of the cases cited would cover this case, and the appellant and the Commonwealth could properly apply it in their support.

An ordinary cheque such as this upon money to the credit of a customer on account current is an inland bill of exchange payable on demand. It is a request to the banker, not indeed to pay out any part of the actual and specific moneys of the customer in the banker's hands, but to hand to the payee a specified portion of a debt with which the banker has credited the customer in consideration of moneys deposited with the former by the latter. Before the creditor can have the cheque cashed he must sign it, but before he does so it must be duly stamped (sec. 26). The Bank has nothing whatever to do with the stamping. It is the customer who must buy the duty stamp if he wants his order cashed, otherwise there is a penalty to be paid—not by the Bank, but by him. The Bank does not lose to the extent even of the penny. It is urged, however, that it is the operation that is taxed. In a sense that is true. But the contract out of which the credit balance arises is not touched. The tax relates to the customer's demand for part performance of that contract. That demand is certainly taxed, but the Bank's operation, namely, the part payment of the debt, is not hindered or touched in any way whatever. The whole burden falls on the ordinary citizen who has a credit in that Bank just as he might have one in any other. The drawing of the cheque, which involves the tax, is the operation of that citizen solely, and the Bank has no concern in it, save that it would have the use of more money if the cheque were not presented. I think, therefore, that the tax is not any operation of the Bank, and I also think that in any sense connected with any such transaction, it cannot possibly impair or affect the Bank as a federal instrumentality—if, indeed, it be one: Railroad Co. v. Peniston[16]; Clement National Bank v. Vermont[17]. The reasoning in the last named case would warrant a judgment, not only on the ground which I assign, but on much wider grounds, which, however, it would be superfluous to adduce at present. Even to the extent of those further grounds, the reasoning appears to me to have great weight.

The case of D'Emden v. Pedder[18] was strongly relied on against the tax. This case is not governed by that authority. There the State tax, a general one on receipts, was enforced against the appellant, an officer of a public department exclusively belonging to the Commonwealth, in respect of a receipt given by him to the paying officer of the Commonwealth for his salary, which receipt was necessary under the federal Audit Act. The learned Chief Justice has quoted the rule which the Court laid down in that case at p. 111. In accordance with that rule the Tasmanian stamp law was held to be not within the competence of the State legislature in so far as it could be held to tax such a receipt as was given in that case. The Court held that, if so construed, the Act was invalid and inoperative, because the stamp duty was a diminution pro tanto of the remuneration of a federal officer. It also held, again in accordance with the rule stated, that the Tasmanian Act, if held to tax such a receipt, would be an interference with the federal officer in the exercise of his duty, and would therefore be invalid. The Court went on to say that while the general words of the Act were wide enough to include such receipts, still the applying of the general words of a State law to a federal officer, where the application of the law would be an infringement of the Constitution, seemed to the Court a violation of a clear principle of construction, which the Court cited from the judgment of Cotton L.J. in Ex parte Blain[19].

Here the application of the State law to a subject's action in issuing his cheque is a mere exercise by the State of what is called "police power." It cannot be said to be an infringement of the Constitution.

It is not necessary to emphasize further the very broad distinction between D'Emden v. Pedder[20] and this case.

The question is whether sec. 26 of the Queensland Stamp Act 1894 is enforceable against a private citizen of Queensland who signs a cheque upon the Commonwealth Bank of Australia in respect of a current account in that Bank.

The appellant contends that in such circumstances the provisions of the section are not enforceable on the ground that enforcement would amount to State interference with a Commonwealth operation, or alternatively would conflict with paramount Commonwealth legislation. That contention involves three steps, namely: (1) that the Commonwealth has power to establish an organism to carry on banking business either as representing the Commonwealth or otherwise under conditions which free its operations from any State interference; (2) that the Commonwealth Parliament has so created an organism, namely, the Commonwealth Bank of Australia; (3) that the enforcement of the section is an interference with the operations of the Bank.

In the view we take, it is not necessary to determine how far the first step is substantiated. Our silence on that point is not to be construed as evidencing any opinion one way or the other.

As to the second step, the matter depends entirely on the construction of the Act. And as different considerations might present themselves upon different sections, it is sufficient to state our opinion with regard to the only portion of the Act involved in the present appeal. That part is contained in sec. 7, which enacts that "the Bank shall ... have power ... (c) to receive money on deposit, either for a fixed term or on current account."

We do not think the Act constitutes the Bank universally the agent of the Commonwealth in the sense necessary to make all its acts the acts of the Commonwealth itself—in other words Sovereign Acts. In respect of sub-sec. (c) of sec. 7, its personality is kept distinct from that of the Commonwealth. In respect of some of its functions and obligations, it may or may not be identified with the Commonwealth—a matter for possible future consideration.

Moreover, the Act does not either expressly or by necessary implication purport to forbid a State to require a customer of the Bank who draws a cheque upon his current account to affix a duty stamp before executing the instrument. What would be the legal force and effect of such a prohibition if made as under the power contained in sub-sec. XIII. of sec. 51 of the Constitution is a question included in the first step, which, as we have said, is a matter left undecided by this case.

The third step is not necessary to determine. But one thing appears to us clear. The respondent relied strongly on American authorities, substantially upon two, viz., the National Bank v. Commonwealth[21] and Railroad Co. v. Peniston[22]. In the first case the expression relative to State action on federal operations is "interfere with or impair their efficiency," and in the second there is a phrase "direct obstruction to the exercise of federal powers."

The argument rested on these decisions was that unless the Court can see either that the interference "directly obstructs" the Commonwealth operations, or that after weighing the effect of the interference it "impairs the efficiency" of those operations, the State law must be held fully operative.

Now, this doctrine, so far as American law is concerned, has been recently entirely swept away by the case of Farmers Bank v. Minnesota[23], a unanimous judgment of the Supreme Court of the United States delivered in February of this year. The Supreme Court of Minnesota acted upon the doctrine no doubt thinking itself bound by the words in the dicta referred to. But the United States Supreme Court put those expressions aside, and held that the rule affirmed by Marshall C.J. in M'Culloch v. Maryland[24] still stands unimpaired.

The rule, quoted verbatim in the recent case mentioned from the judgment of Marshall C.J. in Weston v. City Council of Charleston[25], is where a federal power is given "the grant of the power is incompatible with a restraining or controlling power, and the declaration of supremacy is a declaration that no such restraining or controlling power shall be exercised. The right to tax the contract to any extent, when made, must operate upon the power to borrow before it is exercised, and have a sensible influence on the contract. The extent of this influence depends on the will of a distinct government. To any extent, however inconsiderable, it is a burthen on the operations of government. It may be carried to an extent which shall arrest them entirely."

The Supreme Court proceeds to say that it is on this ground that United States bonds have always been held exempt from taxation and e converso State bonds are not taxable by the federal Government.

If, therefore, American doctrine is to be relied on, the test is whether the State action has any "sensible influence" upon the Commonwealth operation, not whether that operation is thereby "directly obstructed" or "impaired in efficiency."

Whether or not that is the true standard to apply to our own Constitution it is not necessary now to determine.

The appellant in this case—not a Commonwealth official—was convicted and fined for signing a cheque on his private current account in the Commonwealth Bank of Australia without having duly stamped the cheque in accordance with sec. 26 of the Queensland Stamp Act of 1894.

The question to be decided in this case is whether sec. 26 of the Queensland Stamp Act in question, which imposes a duty of one penny on every bill of exchange payable on demand (including cheques on bankers), if enforced against a customer of the Commonwealth Bank of Australia, would fetter, control or interfere with the free exercise of the legislative or executive power of the Commonwealth by fettering, controlling or interfering with an instrumentality of the Commonwealth, namely, the Commonwealth Bank of Australia.

The first question to decide is whether the Commonwealth Bank of Australia has, by the Act by which it is established (No. 18 of 1911), been made an instrumentality of the Government to carry out functions of government only or to carry out, so far as current accounts of ordinary customers are concerned, apart from the savings bank business, the ordinary business of a trading bank.

The Bank is, in my opinion, constituted by the Act a Commonwealth instrumentality to carry out savings bank business—a governmental function in Australia—and possibly other government business, but under sec. 7 (c) of the Act the power to receive deposits on current account in its trading banking business is only given to it as a trading bank, and not to carry out any governmental functions.

Several other important questions have been raised during the argument, but I do not think it necessary to express any opinion about them on this appeal.

It was not seriously contended that the Constitution gave the Commonwealth special power to establish an ordinary trading bank for profit, that is, a bank apart from one to carry out government functions, or that pl. xxxix. of sec. 51 of the Constitution included any power to establish a bank except as one incidental to the execution of any power vested by the Constitution in the Parliament or in either House thereof, or in the Government of the Commonwealth, or in the federal judicature, or in any department or office of the Commonwealth.

Personally, I agree with the learned Chief Justice where he says[26] that "It may be conceded that the Commonwealth Parliament may for the more covenient exercise of any of the executive functions of government set up a corporation for the purposes of acting as an agent or instrumentality of government, as was done in the United States of America by the establishment of national banks." And I agree with all my colleagues that, under the special Act constituting the Commonwealth Bank of Australia, sec. 26 of the Queensland Stamp Act, if enforced against customers of the Bank keeping ordinary accounts and drawing cheques on their current accounts, is not an interference by the State with, or a fettering of, the free exercise of the proper functions of any duly constituted instrumentality of the Commonwealth.

Solicitor, for the Commonwealth, Gordon H. Castle, Crown Solicitor for the Commonwealth.

[1] [1904] HCA 1; 1 C.L.R., 91.

[2] 1 C.L.R., 585.

[3] [1907] HCA 76; 4 C.L.R., 1087.

[4] [1904] HCA 1; 1 C.L.R., 91, at p. 111.

[5] 4 Wheat., 316.

[6] [1824] USSC 39; 9 Wheat., 738.

[7] 6 C.L.R., 309.

[8] [1824] USSC 39; 9 Wheat., 738.

[9] [1873] USSC 134; 85 U.S., 5, at p. 36.

[10] 4 Wheat., 316.

[11] [1824] USSC 39; 9 Wheat., 738.