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Published online by Cambridge University Press: 24 January 2025
This article examines the breadth of the corporations power in s 51(xx) of the Australian Constitution. The issue we address can be posed in a couple of ways. Once formed, to what degree does the national Parliament have power to ‘re-form’ corporations? Or, to put it in a more neutral way, once incorporated, what power does the national Parliament have over a corporation’s constitution? Addressing this issue requires us to explore the vision or model of the corporation which underlies the limit, recognised in the Incorporation Case of 1990, that the Commonwealth may only wield power over corporations already ‘formed’.
As well as being of considerable theoretical interest, this question has importance from a more practical, federal perspective. Can the national Parliament legislate under the corporations power to regulate the formation, composition, operation and dissolution of the key corporate decision-making bodies, namely the board of directors and the general meeting? Could the corporations power, for instance, be used to mandate employee or environmental representation, or gender balance, on the boards of trading corporations nationwide? Does it extend to regulating board remuneration and the role of the general meeting in that contentious field? Many aspects of board composition and remuneration are currently dealt with by means of the ASX Principles of Corporate Governance (‘the Principles’), with which listed companies are expected to ‘comply or explain’.
The authors acknowledge Stacey Lu's invaluable research assistance, supported by a Law School contestable grant.
1 ‘Neutral’ since to talk of a power to ‘re-form’ corporations might imply that since the Commonwealth lacks power over corporate ‘formation’ it lacks power over re-formation. But creation is arguably distinct from re-modelling, especially when we are dealing with an artifice like corporate structure.
2 New South Wales v Commonwealth (1990) 169 CLR 482 ('Incorporation Case’).
3 A controversial law requiring listed companies to raise the proportion of women on their boards to 40% by 2016 is currently before the French Parliament: see ‘La Vie en Rose', The Economist (London), 8 May 2010, 70. Currently only 10.5% of directors of CAC-40 listed companies are female. Norway introduced a similar rule in 2003 and now has the highest proportion of female directors of listed companies in the world at 44.2%: see ‘French Plan to Force Gender Equality on Boardrooms', The Guardian (London), 3 December 2009, 20.
4 For thorough treatments of what bodies are classed as ‘trading corporations’ see Nicholas, Gouliaditis, ‘The Meaning of “Trading or Financial Corporations“: Future Directions’ (2008) 19 Public Law Review 110Google Scholar and Rosemary, Owens, ‘Unfinished Constitutional Business: Building a National System to Regulate Work’ (2009) 22 Australian Journal of Labour Law 258Google Scholar.
5 A corporation's guiding purpose, even not-for-profit status, is irrelevant: R v Federal Court of Australia; Ex parte WA National Football League (1979) 143 CLR 190. Section 109 of the Constitution ensures valid Commonwealth law trumps State law otherwise governing the corporation. The only exception would be the Melbourne Corporation principle, covering corporations that lie at the heart of State governmental affairs (see Melbourne Corporation v Commonwealth (1947) 74 CLR 31): this might protect some aspects of the ‘constitution’ of local councils.
6 For example, the Hydro-Electric corporation embroiled in Commonwealth v Tasmania (1983) 158 CLR 1 ('Tasmanian Dam Case’).
7 Modern universities are trading corporations given their reliance on fee-paying courses and investment income: eg, Quickenden v O'Connor (2001) 109 FCR 243.
8 See Commonwealth Government, National Governance Protocols (2004) Department of Science, Education and Training <http://www.dest.gov.au/archive/highered/governance/docs/nat_gov_prot.pdf>. Fiscal benefits were to flow to complying universities under the Higher Education Support Act 2003 (Cth) s 33-15 (as it then was).
9 The Commonwealth provides a large share of the funding for universities. However the carrot and stick of funding an area does not permit comprehensive or mandatory legislation: British Medical Association in Australia v Commonwealth [No 2] (1949) 79 CLR 201 (‘Pharmaceutical Benefits Case’). See further Greg, Craven, ‘Commonwealth Power over Higher Education: Implications and Realities’ (2006) 1 Public Policy 1Google Scholar.
10 There are of course corporations that are not covered by s 51(xx), in particular corporations that do little or no trade, such as some charitable, governmental and trustee corporations.
11 Huddart Parker & Co Pty Ltd v Moorehead (1909) 8 CLR 330 ('Huddart Parker’). Though during those decades the power was assumed to be narrow, there were manifold theories seeking to define its limits: John, L Taylor, ‘The Corporations Power: Theory and Practice’ (1972) 46 Australian Law Journal 5, 5–6Google Scholar.
12 Strickland v Rocla Concrete Pipes Ltd (1971) 124 CLR 468 and Mikasa (NSW) Pty Ltd v Festival Industries (1972) 127 CLR 617.
13 New South Wales v Commonwealth (2006) 229 CLR 1 ('WorkChoices Case’).
14 All that is required is that a ‘significant’ or not insubstantial share of the organisation's revenue comes from trading in the sense of selling or supplying things at a price. See further Gouliaditis, and Owens, both above n 4. Although it is the governing test, the activities test has been criticised: see Gouliaditis at 119–28, including at 120–1 discussion from the High Court bench suggesting several judges have doubts about its over-inclusiveness.
15 We use the term ‘affairs’ in a broad sense: ‘activities’ would beg the question. Tony, Blackshield and George, Williams, Australian Constitutional Law and Theory (Federation Press, 5th ed, 2010)Google Scholar 804 similarly use the phrase ‘aspects or activities'.
16 Leslie, Zines, The High Court and the Constitution (Butterworths, 4th ed, 1997) 104–7Google Scholar and (Federation Press, 5th ed, 2008) 137–8.
17 Suzanne, Corcoran, ‘Corporate Law and the Australian Constitution: A History of Section 51(xx) of the Australian Constitution’ (1994) 15 Journal of Legal History 131Google Scholar.
18 Huddart Parker (1909) 8 CLR 330, 409–10.
19 ‘[T]he power is not expressed as one with respect to the activities of corporations, let alone activities of a particular kind …': Actors and Announcers Equity Association v Fontana Films Pty Ltd (1982) 150 CLR 169, 207. In Brennan J's terms (at 222) ‘it is a power to make laws with respect to corporate persons, not with respect to functions, activities or relationships'. Murphy J held similarly.
20 Including laws aimed at a sub-set of corporations. See the targeting of a single, State owned corporation in the Tasmanian Dam Case (1983) 158 CLR 1.
21 Pursuant to Constitution s 51(xxxvii).
22 ‘Corporation’ derives from Latin ‘corpus', meaning ‘body'.
23 Incorporation Case (1990) 169 CLR 482, 497.
24 Compare also Dixon J in Stenhouse v Coleman (1944) 69 CLR 457, 471. In truth, such categorisations are merely suggestive as there are no hard and fast distinctions: eg ‘lighthouses’ are physical entities but they are also a public service activity. At worst, they dissolve into the quixotic, like the classifications of ‘animals’ in Jorge Luis Borges's ‘The Analytical Language of John Williams’ in Borges, ‘Other Inquisitions 1937-1952’ (Ruth K C Simms trans, University of Texas Press, 1993): animals belonging to the Emperor, stray dogs, mermaids, etc.
25 This approach might be contrasted with the ‘corporate realism’ of Gierke and Savigny which recognised the moral identity of the corporate person as a voluntarily created institution analogous to partnership. For an updated version of this theory, see Gunther, Teubner, ‘Enterprise Corporatism: New Industrial Policy and the “Essence” of the Legal Person’ (1988) 36 American Journal of Comparative Law 130, 137–40Google Scholar, arguing that, in granting legal personality to the corporation, the law takes its lead from society's recognition of the firm's capacity for collective action.
26 This idea has been revived since the 1980s in the US law and economics literature: see for example Easterbrook and Fischel's highly influential (economic) argument that the corporation is simply ‘shorthand for the complex arrangements of many sorts that those who associate voluntarily in the corporation will work out among themselves.’ In essence, the corporation is merely a ‘nexus of contracts’ and the board of directors are the – economic, if not legal – ‘agents’ of the shareholders under incomplete contracts: Frank, Easterbrook and Daniel, Fischel, The Economic Structure of Corporate Law (Harvard University Press, 1991)Google Scholar, especially 12–36.
27 The examples given are all drawn from other Commonwealth powers: s 51(i) trade and commerce, 51(xiii) banking, 51(vi) defence, 51(xix) aliens, s 51(xxvi) races, 51(vii) lighthouses, 51(xviii) copyrights etc and 51(xxi) marriage.
28 See, eg, Margaret, M Blair, ‘Locking in Capital: What Corporate Law Achieved for Business Organizers in the Nineteenth Century’ (2003) 51 UCLA Law Review 387Google Scholar and Henry, Hansmann and Reinier, Kraakman, ‘The Essential Role of Organizational Law’ (2000) 110 Yale Law Journal 387Google Scholar.
29 As was the case with the original Commonwealth Bank: see the Bank of New South Wales v Commonwealth (1948) 76 CLR 1 ('Bank Nationalisation Case’), below n 95.
30 Taylor, above n 11, 8.
31 Robert, Austin and Ian, Ramsay, Ford's Principles of Corporations Law (LexisNexis/Butterworths, 14th ed, 2010)Google Scholar [8.070] note that ‘there is no scope for confusion of corporate powers and directors’ powers of the kind that occurred in some English cases and which was untangled in Rolled Steel Products (Holdings) Ltd v British Steel Corp [1986] 1 Ch 246.’ The distinction in Australian law is explained by McPherson J in ANZ Executors and Trustees Co Ltd v Qintex Australia Ltd [1991] 2 Qd R 360.
32 Corporations Act 2001 (Cth) s 140(1).
33 Ibid s 198A(1).
34 Ibid s 203C lays down a default rule for proprietary companies that the shareholders can remove the directors by majority vote, while s 203D makes the rule mandatory for public companies. In addition, s 136(2) lays down a mandatory rule that the constitution should remain under the control of the ‘company’ (ie the general meeting) by special resolution.
35 Ibid s 9. There are occasional statutory references to the general meeting. For example, s 250N requires public companies to hold an annual general meeting 36 Part 2G.1 of the Corporations Act 2001 (Cth) refers to and regulates ‘directors’ meetings', while pt 2G.2 deals with ‘members’ meetings', and specifies who may call them, but, leaving s 250N aside, there is no legal requirement that these meetings actually take place.
37 See, eg, Barron v Potter [1914] 1 Ch 895 in which the court held that, in the event of board deadlock, management power would be taken over by the general meeting. Deadlock was interpreted narrowly in Massey v Wales (2003) 177 FLR 1, where the court held that there would be no deadlock – and therefore management power would remain vested in the board – so long as the general meeting had a constitutional power to appoint additional directors.
38 For example, Len, Sealy and Sarah, Worthington, ‘Shareholders as an Organ of the Company', ch 4 of Cases and Materials in Company Law (OUP, 8th ed, 2008)Google Scholar; Austin and Ramsay, above n 31, [7.070]; Elizabeth, Boros and John, Duns, Corporate Law (OUP, 2nd ed, 2010)Google Scholar, 5.1. However, apart from the analysis discussed below, Gower and Davies do not address the current position explicitly. There is actually very little in the case law on the relation of the general meeting to the company. One important exception is the dictum of Jordan CJ in Clifton v Mount Morgan Ltd (1940) 40 SR (NSW) 31, 44 suggesting that a company
'is incapable of acting except through the medium of agents. The Articles of Association … prescribe the various agencies which may act on behalf of the company, the manner in which these agencies may be set in motion, and the scope of their respective authorities.’
He rejected an argument that the shareholders could interfere with the board on the basis that it ‘confuses the corporation with the persons who are its members’ (at 49).
39 Austin and Ramsay, above n 31, [11.040] note that current developments suggest that the law might evolve so as to impose a fiduciary duty on ‘corporate controllers as such, whether they exercise their control through occupying positions as directors or through voting as members.’ There could conceivably also be implications for the general meeting if it took decisions which adversely affected creditors, although under the default rules this would not happen: management power is vested in the board.
40 For example, ibid [7.070] and [13.060], and Boros and Duns, above n 38, 84–5.
41 Sealy and Worthington title a chapter of their text as ‘The Board of Directors as an Organ of the Company', although they do not address the point explicitly: above n 38, ch 5. In contrast, Hannigan appears to treat the board of directors as an agent, referring to a possible ‘lack of authority, perhaps on the part of the board': see Brenda, Hannigan, Company Law (LexisNexis/Butterworths, 1st ed, 2003) 177Google Scholar.
42 Paul, Davies, Gower and Davies’ Principles of Modern Company Law (Sweet & Maxwell, 8th ed, 2008) 369Google Scholar.
43 (1884) LR 25 Ch D 320.
44 [1906] 2 Ch 34.
45 Ibid 42–43.
46 Although Cozens-Hardy LJ agreed (ibid 45) ‘entirely’ with Collins MR, he rejected the idea that the directors were ‘agents of the company’ (by which he appears to have meant agents of the association of shareholders), preferring the idea that they are ‘in the position of managing partners appointed to fill that post by a mutual arrangement between all the shareholders.’
47 This argument appears to find support in Paul, Davies, Gower and Davies’ Principles of Modern Company Law (Sweet & Maxwell, 7th ed, 2003)Google Scholar, which states at 300 that it is not inappropriate in English law to view the directors as obtaining powers by delegation from the shareholders. However, ‘this does not make the directors the agents of the shareholders, but it does produce, as between the directors and the company, a relationship akin to agency.’
48 Marshall's Valve Gear Co Ltd v Manning Wardles & Co Ltd [1909] 1 Ch 267.
49 John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113, 134.
50 Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666, 683–4 (Samuels JA).
51 Harold, Ford and Robert, Austin, Ford's Principles of Corporations Law (Butterworths, 6th ed, 1992)Google Scholar [1409] (emphasis in original). The equitable duty of the board to act in the interests of the company (the principal) is a convincing indicator of an agency relationship. In contrast, and from a metaphorical perspective, there would be no need to impose such a duty on an organ of the company since its continued existence is tied up with the survival of the body of which it is a constituent part.
52 Austin and Ramsay, above n 31, [7.070].
53 Ibid.
54 Ibid [13.060]. It states — rather confusingly — that ‘[b]ecause on matters within the actual authority given by s 198A the board gets authority directly from the Corporations Act the board is more than an agent; it is also a primary organ of the company. But it still exercises an actual authority like an agent.’ The difficulty with this argument is that s 198A is a replaceable rule, and thus vests powers in the board by default through the effect of s 140, which provides that ‘A company's constitution (if any) and any replaceable rules that apply to the company have effect as a contract …'. Further confirmation that the replaceable rules are generally treated as default terms of the corporate contract rather than rules of law is found in s 135(3), which provides that ‘A failure to comply with the replaceable rules as they apply to a company is not of itself a contravention of this Act …'.
55 (1950) 50 SR (NSW) 250.
56 Ibid 259.
57 (1966) 117 CLR 52.
58 (1999) 195 CLR 636.
59 Ibid 646.
60 Ibid 645.
61 Ibid 649. See Re Duomatic Ltd [1969] 2 Ch 365.
62 Ian, M Ramsay, G P, Stapledon and Kenneth, Fong, ‘Affixing of the Company Seal and the Effect of the Statutory Assumption in the Corporations Law’ (1999) 10 Journal of Banking and Finance Law and Practice 38, 39Google Scholar.
63 Ibid 50–1.
64 Austin and Ramsay, above n 31, [14.010].
65 Corporations Act 2001 (Cth) s 198A: the board has full powers, except those reserved by the constitution to the general meeting.
66 Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 ('Meridian Global Funds Management Asia’). For a detailed discussion of this case, see Ross, Grantham, ‘Corporate Knowledge: Identification or Attribution?’ (1996) 59 The Modern Law Review 732Google Scholar.
67 Meridian Global Funds Management Asia [1995] 2 AC 500, 506.
68 Indeed, a close reading of earlier cases on the attribution of a state of mind to a company arguably shows that the courts did not intend to develop a wide-ranging substitute for, or supplement to, the agency principle. Compare Lennards Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 (Viscount Haldane LC) with El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685 (Hoffmann LJ) and see Tesco Supermarkets Ltd v Nattrass [1972] AC 153 (Lord Diplock).
69 And can then rely on Corporations Act 2001 (Cth) s 129(7) to assume that the board resolution is genuine.
70 The concession theory of the corporation suggests that corporations exist only because a State has given them entity status. This was certainly convincing when corporate status was conferred by Act of Parliament. However, incorporation is now available as of right, and occurs when the incorporators go through the registration process: see Corporations Act 2001 (Cth) s 119. Concession theory has now fallen out of favour with the rise of the contractual theory of the corporation which dominates law and economics. In any event, although it accepts that the state has a right to regulate corporations, concession theory does not offer an answer to the question addressed in this article, namely whether the existence of the legal entity presupposes a constitution which allocates power to different human actors. For a law and economics critique of concession theory, see Gary, M Anderson and Robert, D Tollison, ‘The Myth of the Corporation as a Creation of the State’ (1983) 3 International Review of Law and Economics 107Google Scholar.
71 Huddart Parker (1909) 8 CLR 330.
72 Ibid 354.
73 Ibid 370–1.
74 Ibid 371.
75 Ibid.
76 Ibid 412.
77 Ibid.
78 Ibid 412–3.
79 Ibid 413.
80 Ibid 397–8 (emphasis added).
81 Ibid 395.
82 Ibid 398.
83 Ibid 394.
84 Ibid.
85 Ibid 396. See also 395.
86 Ibid 396. But note, again, how this passage rests on the heresy of an ‘internal/external’ distinction.
87 Ibid 394–5.
88 There has been contention over whether s 51(xx) includes a power to dissolve corporations since Quick and Garran's Annotated Constitution of the Commonwealth of Australia (1901, LexisNexis 2002 reprint) at 606 stated that ‘corporations may be both created and wound up under the provisions of Federal Law'. Of course the first part of that statement was rejected in the Incorporation Case. But that does not necessarily invalidate the claim about winding up: dissolution is not the mirror of creation any more than death is the negation of birth (as opposed to the termination of life). In any event, the most common kind of corporate dissolution must be a necessary incident of the insolvency power (s 51 xvii).
89 Huddart Parker (1909) 8 CLR 220, 395.
90 See especially Tasmanian Dam Case (1983) 158 CLR 1, 116–7 (Gibbs CJ).
91 Except of course if the organs are failing.
92 Huddart Parker (1909) 8 CLR 220, 396.
93 Christopher, Stone, Where the Law Ends: the Social Control of Corporate Behavior (Harper & Row, 1975)Google Scholar.
94 See above, text accompanying nn 44–8.
95 Bank of New South Wales v Commonwealth (1948) 76 CLR 1 ('Bank Nationalisation Case’) While the case went to the Privy Council, the opinion there only covered appeal procedure and the width of s 92's guarantee of freedom of interstate commerce.
96 Cf Cole v Whitfield (1988) 165 CLR 360. The Commonwealth today could nationalise not just banking, but a host of other corporate-dominated sectors, if only it could afford just terms.
97 Bank Nationalisation Case (1948) 76 CLR 1, 202.
98 Ibid 255–6 (emphasis added).
99 Ibid 315 (emphasis added).
100 Indeed like Starke J (ibid 315), Rich and Williams JJ (at 257–8) argued that the banking power was not a power to regulate the structure of banks already formed under State law.
101 Contrast how the WorkChoices Case denied that the specific industrial disputes power in s 51(xxxv) meant that the corporations power could not support a general industrial relations law for corporations. Explicit limits in one power however may apply to overlapping powers: eg the exclusion of ‘State [run] banking’ from the banking power extends to the corporations power.
102 Sarah, Joseph and Melissa, Castan, Federal Constitutional Law: a Contemporary View (Law Book Co, 2nd ed, 2006) 103Google Scholar.
103 (1990) 169 CLR 482.
104 Taylor above n 11; O I, Frankel and John, Taylor, ‘A 1973 National Companies Act? The Challenge to Parochialism’ (1973) 47 Australian Law Journal 119Google Scholar argued for Commonwealth power to enact a complete corporations law; P H, Lane, ‘Can there be A Commonwealth Companies Act?’ (1972) 46 Australian Law Journal 407Google Scholar, denied such power.
105 Incorporation Case (1990) 169 CLR 482, 498.
106 Ibid.
107 Ibid 499–500.
108 Ibid 504–5.
109 Ibid 506.
110 Ibid 509.
111 Ibid 509–10.
112 Ibid 510.
113 Ibid 510–1.
114 Geoffrey, Kennett, ‘Constitutional Interpretation in the Corporations Case’ (1990) 19 Federal Law Review 223Google Scholar; James, Crawford, ‘The High Court and the Corporations Power’ (1990) 3 Australian Corporation Law Bulletin 32Google Scholar.
115 (2006) 229 CLR 1.
116 Re Dingjan; Ex parte Wagner (1995) 183 CLR 323; Re Pacific Coal Pty Ltd; Ex parte Construction, Mining and Forestry Union and The Commonwealth of Australia (2000) 203 CLR 346.
117 Ibid 365.
118 WorkChoices Case (2006) 229 CLR 1, 114–5, quoting Re Pacific Coal (2000) 203 CLR 346, 375 (Gaudron J).
119 This argument might draw support from the fact that the contemporaneous 1992 edition of Ford's Principles treated the board as agents of the corporate entity; see, above, text accompanying nn 51–2.
120 Re Dingjan (1995) 183 CLR 323, 365.
121 Namely the denial of power to create corporations and the recognition that the relevance of the law to corporations could not be too indirect.
122 WorkChoices Case (2006) 228 CLR 1, 116.
123 Ibid 117–8.
124 Ibid 115.
125 Ibid 114.
126 Ibid 104 (emphasis in original).
127 Zines, 5th ed, above n 16, 138.
128 Joseph and Castan, above n 102.
129 Zines, 4th ed, above n 16, 106. Compare Kennett, above n 114, 226, countenancing a ‘plenary power’ covering, inter alia, ‘how companies are constituted'.
130 George, Winterton et al, Australian Federal Constitutional Law: Commentary and Materials (LBC, 2nd ed, 2007) 302Google Scholar; Zines, 4th ed, above n 16, 107.
131 Zines, 4th ed, above n 16, 107. From an efficiency perspective, the Incorporation Case was probably a failure; but Zines is implying that once the national Parliament was denied power over corporate formation, it is best it does not meddle in their re-formation.
132 Crawford, above n 114, 34.
133 With the exception of the Melbourne Corporations limitation applying to some core State government entities.
134 Though we have argued the analogy is generally inapt, to this extent the corporations power would share something with a power over persons: the fact of incorporation is no more amendable than the fact of birth, recorded in a register of births.
135 Huddart Parker (1909) 8 CLR 220, 396.
136 Dating to the 19th century and now found in the Australia Acts (Cth and UK) s 6.
137 Australian Securities Exchange, Listing Rules (at 24 January 2011) rr 10.17, 10.19; Corporations Act 2001 (Cth) s 250R(2).
138 Zines, 5th ed, above n 16, 138.
139 As to which see criticisms of the ‘trading activities’ test, above n 14.
140 Peter Hanks, ‘The Political Dimension of Constitutional Adjudication’ (1987) 10 University of New South Wales Law Journal 141.