This case was heard in 1833, before Australia's federation. At the time, New South Wales was not part of an independent country; it was a colony of the British Empire. Even though it was self-governing in many ways, it was not always clear how independent its legal system was from Britain's.
The issue in this case was whether there was a legal limit on the interest rates that could be charged on loans. This was an issue because such a limit existed in the United Kingdom, but it was unclear whether it would in an Australian colony (49).
It was necessary for the Court to comment on how New South Wales came to inherit many of its laws from the United Kingdom when it was colonised. This included the question of whether all the laws of the United Kingdom were brought over, and on the legal basis for Australia's colonisation.
Chief Justice Forbes delivered the leading judgment. He began by citing a previous decision about colonial law, which claimed that where a territory is uninhabited and is "found" by English settlers, those settlers bring English law with them onto that land (51). It was held that this does not extend to all English laws (52), just those that are relevant to the creation of a colony.
More generally, this finding is relevant to Australian law because it is a clear statement about colonisation. It is a formal restatement that Australia was considered by the Courts to be terra nullius, or empty land, before colonisation (59). The decision also clarified that the colony of New South Wales could form a legitimate government (60).
This case is important because it demonstrates the long history of Australian legal institutions supporting the fiction of terra nullius. It created a precedent which requires Australian courts to operate on the assumption that no civilisation existed in Australia prior to colonisation, and that there has only ever existed one set of laws in Australia: laws inherited from England. This assumption is difficult for the law to move beyond, as shown by the litigation in Mabo no. 2 (1992).
This case was referred to in Love & Thoms v Commonwealth (2020). In that case, Nettle J highlighted how the Australian common law has continued to rely on the assumption that it automatically and totally gained the right to make laws for the territories of Australia at the time of settlement [265-7].
It has been remarked that, aside from the legal proposition that Australia was settled by the British Empire, not invaded, the statement of the law in MacDonald v Levy hints at a positive future outcome for native title. If the previously mentioned assumption that Australia was settled can be dispelled within the law, then it must be accepted that it was invaded and conquered. This would fundamentally require that Aboriginal legal custom, and especially land rights, receive more formal recognition (see, e.g., McNeil 1990, p. 92).