Lecture 7 Corporations Power

Like all powers in s 51, the corporations power is a concurrent power, so the states can
legislate with respect to corporations. In practice, the actual formation of corporations has
been held to be a state power only. The corporations power has been interpreted widely by
the High Court. Using this power, the Commonwealth has been able to legislate with respect
to interstate trade, and other subjects that are otherwise outside of its reach.
Section 51(xx) provides:
The Parliament shall, subject to this Constitution, have power to make laws for the peace,
order and good government of the Commonwealth with respect to: [...]
(xx) foreign corporations, and trading or financial corporations formed within the limits of the
Commonwealth; [...]

Interpreting the Power

Section 51(xx) has become a massive source of power for the Commonwealth to regulate
economic activity.
The interpretation of the power raises two primary issues:
1. What are the entities with respect to which Parliament may legislate?
2. What kinds of legislation may Parliament make with respect to these entities?
Current System
Each state has passed a Corporations Act based on the Corporations Act 2001 (Cth).
Statutory corporations can also be founded directly by the Commonwealth, such as the ABC
Act (1983). These also include local governments, incorporated by the States under local
government acts.

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Why Corporations?
Corporations separate the directors and shareholders from the company itself so that they
have no direct liability. The company becomes a legal entity, so it can sue or be sued in its
own name, it can own property, etc. There is also perpetual succession, since the company
continues to exist even following ownership changes.
Types of Entities
Section 51(xx) applies to the following three categories of corporations. These three
categories are often referred to as constitutional corporations.

Foreign corporations;

Trading corporations formed within the limits of the Commonwealth;

Financial corporations formed within the limits of the Commonwealth.

The three categories of constitutional corporations all assume some knowledge of

corporations in general. A corporation is an association of people given artificial legal
personality.
Australian corporations are established by state or federal law. The Corporations Act 2001
(Cth) has counterparts in each state or territory. This is a cooperative scheme meant to
ensure that corporations law is uniform throughout Australia.
Private companies become incorporated by being registered under one of the Corporations
Acts. A corporation may also be incorporated under a special statute, such as the University
of Queensland Act 1998 (Qld). Local government authorities are also typically incorporated
under legislation, such as the City of Brisbane Act 2010 (Qld).
Some of the legal consequences of incorporation are as follows:

The company becomes an entity separate from its shareholders and directors;

The company can hold property and sue and be sued in its corporate name;

Shareholders of the company enjoy limited liability with regard to corporate debts;

The company enjoys perpetual succession unless deregistered.

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Foreign Corporations
We turn now to the first of the three types of constitutional corporation. A foreign
corporation is any corporation not formed within the Commonwealth. We must look at
foreign law to see when such a corporation is created. It will be regarded as a corporation if,
under foreign law, it has separate legal personality from its members. Section 51(xx) applies
to all foreign corporations (not just financial and trading corporations).

Trading Corporations
A trading corporation, in the most straightforward sense, is a corporation set up primarily to
engage in trade. What if a corporation is not set up primarily for trading, but does engage in
some trade? The High Court has essentially utilised three different tests to work out
whether a company of this sort is a constitutional corporation.
The first test is a purposive one. The nature of the corporation is determined by the purpose
for which it was created. R v Trade Practices Tribunal; Ex parte St George County Council
(1974) concerned a local council. One of its functions was to supply electricity to local
residents. The High Court held by majority that the council was not a trading corporation.
Gibbs CJ observed that the council was set up not to trade, but for the purposes of local
government to provide an essential service to the inhabitants in the way most beneficial to
them.
Menzies J agreed, suggesting that companies established to undertake public works for
community benefit may not be trading corporations for constitutional purposes. A university
may have a bookshop and a church may run a charity shop, but this does not make them
trading entities.
The second test looks at the current activities of the corporation. This test was adopted by
the two dissenting judges, Barwick CJ and Stephen J, in St George County Council. Barwick CJ
held that a trading corporation is a corporation whose predominant and characteristic
activity is trading in goods or services. The purposes for which a corporation trades are
largely irrelevant. It is the companys current activity that matters, not its original purpose.

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The third test asks whether trading activities are a substantial or not insignificant part of
the companys operations. This test was adopted by Mason and Murphy JJ in Adamsons
Case (1979). The case concerned the Western Australian and South Australian Aussie Rules
leagues. The league rules prevented player transfers without the consent of the players
current club.
The issue was whether the rules were in breach of the Trade Practices Act. The leagues
argued that they were not trading corporations, but this argument was rejected by a
majority. Mason and Murphy JJ both held that a trading corporation must have trade as a
substantial part of its current activity. The football leagues were not set up primarily to
trade, but trade was a substantial part of their day to day operations. The substantial
activity test seems to be most favoured by the High Court today.
Intra-State Trading
The early High Court ruled that s 51(xx) does not cover corporations engaged exclusively in
trade within a single state. This conclusion was based partly on the reserved powers of the
states. See Huddart Parker v Moorehead (1908). This early approach was overruled in
Strickland v Rocla Concrete Pipes (1971).
Concrete Pipes Case (1971)
The Concrete Pipes Case asked whether provisions of the Trade Practices Act 1965-1968
(Cth) on anti-competitive conduct applied to a corporation trading exclusively within
Queensland. The High Court held that intra-state trading corporations were within
Commonwealth power.
Huddart, Parker was wrongly decided, as it relied on reserved powers reasoning. However,
the legislation was ultimately struck down for overbreadth, as it was not limited to
constitutional corporations.
Financial Corporations
A financial corporation is one that engages in commercial dealing in finance. This definition
was adopted by Mason, Murphy and Deane JJ in the Superannuation Board Case (1982).

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A company fulfils the definition when it trades in finance (for example, borrows or lends
money), as opposed to dealing in goods or services. Banks, building societies and broking
firms would therefore fall within the definition.
The test for a financial corporation is analogous to that of trading corporations: financial
dealings must be a substantial part of the activity (State Superannuation Board Case).
However, State banks expressly excluded by s 51(xiii) (State Bank NSW v Commonwealth)
State Superannuation Board v Trade Practices Commission (1982)
The Superannuation Board Case raised the question of whether a super fund for Victorian
public servants was a financial corporation. The majority held that it was, because financial
activities constituted a substantial part of its operations (Deane J, 304). However, Gibbs CJ
and Wilson J argued in dissent that the purpose of the corporation was governmental, not
financial.
Scope of the Power
What kinds of laws can the Commonwealth make with regard to constitutional
corporations? Section 51(xx) is a power with regard to a particular type of entity. It is not a
purposive power (like defence) or a power to regulate a specific activity.
The High Court determines the outer limits of the power on a case by case basis. However,
the decided cases reveal some general principles.
Creation and Abolition
The High Court has held that the Commonwealth lacks the power to legislate with respect to
the incorporation of corporations. The words formed within the Commonwealth refer to
corporations already formed under state laws. See New South Wales v Commonwealth
(Incorporation Case) (1990).
The High Court has also held that Parliament may regulate the activities of corporations, but
not ban them or remove their legal status. See Commonwealth v Bank of New South Wales
(Banking Case) (1948).
The Commonwealth may, however, sometimes incorporate corporations by relying on other
heads of power. For example, the Australian Broadcasting Corporation (ABC) is incorporated

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under s 51(v) conferring power to legislate for postal, telegraphic, telephonic and other like
devices.
Distinctive Character Test
Some High Court decisions have supported the view that a law will only fall within the
corporations power if the subject matter of the law relates to the distinctive character of
trading and financial corporations.
This would mean the law would have the quality that relates to some aspect of trade or
finance activities. It could not regulate, say, the relations of corporations with contractors or
employees. See, for example, Re Dignan; Ex parte Wagner (1995), ruling that legislation
enabling a tribunal to set aside unfair contracts entered into by constitutional corporations
was outside the power.
The Work Choices Case held that this would make s 51(xx) unstable, and rejected it in favour
of a clear, plain and literal meaning following the Engineers approach. It was further held
that the possibility of abuse is no reason to limit the meaning. The majority in the Work
Choices case followed Gaudron in Re Pacific Coal: effectively plenary power to pass laws
relating to any foreign, trading or financial corporation.
Object of Statutory Command Test
However, the dominant test for s 51(xx) is now whether the object of statutory command is
a constitutional corporation. In other words, if the law instructs a constitutional corporation
to do or not do something, then it is likely to fall within s 51(xx). The provision also supports
laws aimed at protecting corporations from conduct intended or likely to cause them loss or
damage. It may regulate purely intrastate activity, rejecting Huddart Parker and reserve
powers.
Third Parties
Actors and Announcers Equity v Fontana Films (1982) concerned a provision of the Trade
Practices Act prohibiting secondary boycotts of corporations. A secondary boycott is where
action is taken against a corporation to stop it dealing with a third party who is the real
target of the action. The provision was upheld on the basis that it regulates third party
actions that are intended to cause corporations loss or damage.

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Intra-State Activities
Section 51(xx) can extend to laws regulating purely intra-state activities. Huddart Parker
held that purely intra-state activity was outside the power. However, this approach was
overruled in the Concrete Pipes Case.
Work Choices Case (2006)
The Work Choices Case is most important recent decision on the corporations power. The
Work Choices legislation was a series of controversial amendments to the Workplace
Relations Act 1996 (Cth).
The Workplace Relations Act was supported by s 51(xxxv) covering conciliation and
arbitration [...] of industrial disputes extending beyond the limits of any one State.
However, the amendments sought to rely instead on the corporations power and thereby
regulate employers operating within a single state.
The legislation was challenged on a number of grounds, including that:
It deals with the internal relations of corporations with their workers, rather than their
relations with external entities. This argument was rejected as unjustifiably limiting the plain
words of the power.
The existence of a specific industrial relations power in s 51(xxxv) precludes using s 51(xx)
for industrial relations purposes. This argument was rejected based on the Engineers
doctrine and multiple characterisation.
The majority judges upheld the legislation based on a broad reading of s 51(xx). The law
regulates constitutional corporations and is therefore within the power. `There were strong
dissenting judgments from Callinan and Kirby JJ. They argued that unless limits are placed
on powers like s 51(xx) the federal balance will be destroyed.
Callinan J argued:
There is nothing in the text or structure of the Constitution to suggest that the Commonwealths
powers should be enlarged, by successive decisions of this Court, so that the Parliament of each State is
progressively reduced until it becomes no more than an impotent debating society. This Court too is a creature
of the Constitution. [...] The Court goes beyond power if it reshapes the federation (225-6).

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Limits of the Power

The corporations power is now very broad. Nonetheless, the High Court has occasionally
been willing to strike down a law for not being sufficiently connected with the power.
Davis v Commonwealth (1988) concerned legislation establishing the Australian Bicentennial
Authority (ABA) as a corporation. The law sought to give the ABA a monopoly over certain
words and symbols, including 200 years. The High Court held that the corporations power
would cover prohibitions on misleading use of corporate names or symbols, but granting a
monopoly over 200 years was beyond its scope.

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