LAWS1116 Lecture 6

Corporations Power

  • Obtained from s51 (xx) – the power to make laws with respect to “Foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth”
  • A concurrent power – one that both states and the Commonwealth can exert simultaneously (though the actual formation of corporations has been held to be a state only power)

Relevant Considerations regarding this head of power

  • What are the entities that parliament can make law for?
  • What kinds of laws can parliament make with respect to them?

Current System

  • Each state has passed a Corporations Act based on the Corporations Act 2001 (Cth) for the ACT
  • Incorporations case held that Cth could not control the formation of Corporations (outside of the territories, where they could do so via their territory power) so each state had to pass a copy of the Cth one to effectively grant them that power
  • Statutory corporations can also be founded directly by the Commonwealth – eg. ABC Act (1983) (Cth)
  • These include local governments, incorporated by the States under local government Acts

Why Corporations?

  • Separate the directors and shareholders from the company (no direct liability)
  • Become a legal entity – can sue or be sued in its own name, own property, etc.
  • Perpetual Succession – exists as a perpetual entity despite ownership changes

Foreign Corporations

  • By definition, any corporation not formed within the Commonwealth
  • Need to look at foreign law to determine if the foreign company can be considered a corporation – usually involves checking if it is a separate legal entity to its members
  • Cth can pass laws to ALL kinds of foreign corporations, not just foreign financial and trading corporations

Trading Corporations

  • Huddart Parker (1908) held this applied to interstate corporations only (under the reserved powers doctrine)
  • Concrete Pipes Case (1971) overruled this – held it was based on the discredited reserved powers doctrine
  • Defined trading corporations as corporations set up to trade or with a “substantial” trading element
  • Tests to identify a trading corporation include:
    • Is trading the purpose for which it was set up (especially relevant to new corporations, probably not relevant for established ones any more)
    • Is trading the predominant, primary activity of the corporation?
    • Is trading a substantial and not insignificant part of its operations? (Probably the main one, but also the hardest to accurately answer)

Financial Corporations

  • A corporation engaged in commercial dealings in finance
  • Requires transactions where the subject is finance (borrowing and lending) rather than just buying and selling.
  • Test is analogous to trading corporations – financial dealings a “substantial” part of the activity (State Superannuation Board)
  • State banks expressly exclused (s51 (xiii)) (State Bank NSW v Commonwealth)

Kinds of Laws that can be made under s51 (xx)

  • It is only one of three powers that affect persons/entities, rather than activities (the other two being aliens and races)
  • HC refuses to specify the outer bounds of the power – instead simply increasing it incrementally on a case by case basis (but never subsequently decreasing it)
  • Does NOT extend to formation/incropration process (Incorporation case, Huddart Parker) but can incorporate statutory corporations via statute (Airlines Case (1945))
  • Reasons for this: s51 (xx) states “formed”, so only applies to corporations already formed. s51 (xiii) did give that express power, which implies an exclusion to s51 (xx) powers not specified, and it mentions foreign corporations in same phrase as trading and financial, and they cannot regulate the formation of foreign corporations.
  • Cannot make laws to ABOLISH corporations, either (Bank of NSW v Commonwealth)

Extent of Power to Regulate Corporations

1. Distinctive Character test

  • Law must have the quality that relates it to the trading or financial characteristics of the corporation
  • Work Choices held this would make s51(xx) unstable – rejected it in favour of clear plain literal meaning (the Engineers approach)
  • Possibility of abuse is no reason to limit the meaning (Work Choices)
  • Majority in Work Choices followed Gaudron in Re Pacific Coal – effectively plenary power to pass laws relating to any foreign, trading, or financial corporation

2. Object of statutory command test

  • Law is valid if the object/entity it is targeted at is a constitutional corporation
  • Also supports laws PROTECTING constitutional corporations
  • May regulate purely intra-state activity (rejected Huddart Parker/reserved powers)

Relevant Cases

Huddart Parker v Moorehead (1909)

  • Issue: Did the Commonwealth “Australia Industries Preservation Act 1906” comply with the limits of the corporations power under section 51?
  • Ruling: No, as the Commonwealth could still only interfere with INTERSTATE trade. Also held that it could not control the FORMATION of corporations.
  • Justification: The federal structure of the constitution reserved the power of internal trade and commerce to the states

Strickland v Rocla Concrete Pipes (Concrete Pipes Case) (1971)

  • Issue: Did the trade practices Act apply to an exclusively Queensland company?
  • Ruling: Yes, as it was a corporation
  • Justification: Commonwealth can make laws regarding any trading or financial corporations. Any common law to the contrary (Huddart Parker) is based on the discredited reserved powers doctrine, and is not good law

R v Trade Practices Tribunal; Ex parte St George County Council (1973)

  • Issue: Was the St George County Council a trading corporation?
  • Held: No, they were not
  • Justification: Gibbs and Menzies held that the primary feature was the PURPOSE for which it was established, while Barwick and Stephen held that it is defined by its predominant or characteristic activity

Adamson’s Case (1979)

  • Issue: Was a football club or league a trading corporation?
  • Held: Yes, they were
  • Justification: 4:3 held that their trading activities were “substantial”, even though they were not the purpose or predominant characteristic. Effectively made the test a lot vaguer and more encompassing.

State Superannuation Board v Trade Practices Commission (1982)

  • Issue: Was the State Superannuation Board really a financial corporation?
  • Held: Yes, they were
  • Justification: 3:2 held that the same ‘substantial and not insignificant part of its operations’ test applied in Adamson’s case to trading corporations should be applied to financial ones as well

Bank of NSW v Commonwealth (1948)

  • Issue: Did the corporations power apply to state banks?
  • Held: No, it did not
  • Justification: s 51 (xiii) precludes s 51 (xx) from applying to state banks

Fontana Films (1982)

  • Issue: Did the trade practices Act passed under the corporations power also apply to secondary boycotts, where non-corporations boycotted supplies to corporations as part of industrial action?
  • Held: Yes, it did
  • Justification: The relevance of the conduct to corporations made law affecting it a law with regard to corporations

Davies v Commonwealth (1998)

  • Issue: Was the Bicentennial Authority Act, passed under the corporations power, capable of granting a monopoly of the term “2000”?
  • Ruling: No, it could not
  • Justification: It could grant protection against deceptive use, but NOT a complete monopoly – was outside the poorly defined bounds of the corporations power.

Work Choices Case (2006)

  • Issue: Could the Commonwealth government pass sweeping industrial relations reform under the guise of the corporations power?
  • Ruling: Yes, it could
  • Justification: 5:2 held that as long as the law could but termed a law with regard to corporations, it didn’t matter if it was actually primary an industrial relations law, or that it had no foreign, trading or financial com