New South Wales v Commonwealth

New South Wales v Commonwealth - [1990] HCA 2 - HCA 1990 case summary — Zoe

[15]

The power conferred by s. 51(xx) is not expressed as a power with respect to a function of government, a field of activity or a class of relationships but as a power with respect to persons, namely, corporations of the classes therein specified: Actors and Announcers Equity Association v. Fontana Films Pty. Ltd. [1] and The Commonwealth v. Tasmania (the Tasmanian Dam Case) [2] . The Commonwealth contention is that the words "formed within the limits of the Commonwealth" serve merely to distinguish local trading or financial corporations from foreign corporations. No doubt the words do serve that function but their plain meaning goes beyond the mere drawing of that distinction. The expressions "trading or financial" and "formed within the limits of the Commonwealth" serve to restrict the classes of domestic corporation which can be the subject of Commonwealth power. To fall within one limb of the power, a corporation must satisfy two conditions: it must be formed within the limits of the Commonwealth and it must be a trading or financial corporation. To fall within the other limb, a corporation must be a foreign corporation, that is, a corporation formed outside the limits of the Commonwealth. The distinction based on the place of formation is obvious, but the basis of the distinction is formation. The word "formed" is a past participle used adjectivally, and the participial phrase "formed within the limits of the Commonwealth" is used to describe corporations which have been or shall have been created in Australia. (Clearly enough, the phrase is used to describe corporations formed after as well as those formed before federation.) The subject of a valid law is restricted by that phrase to corporations which have undergone or shall have undergone the process of formation in the past, present or future. That is to say, the power is one with respect to "formed corporations". That being so, the words "formed within the limits of the Commonwealth" exclude the process of incorporation itself. Such corporations are distinguished from corporations which have been or shall have been created outside the limits of Australia.

[42]

The argument that par. (xx)'s grant of legislative power "with respect to trading or financial corporations formed within the limits of the Commonwealth" should be construed as not extending to laws with respect to the incorporation of such corporations focussed upon the word "formed". The legislative power could not, so it was said, extend to authorize laws governing the formation of such corporations since, until they are formed, they do not exist as the subject-matter of the power. Any superficial appeal of that argument does not, in my view, survive close examination. One objection to it is that it fails to distinguish between the abstract subject-matter of the legislative power and concrete instances of that subject-matter. One might as well say that a legislative power with respect to locally manufactured motor vehicles would not extend to laws governing the local manufacture of motor vehicles or that the legislative power with respect to lighthouses does not extend to laws governing the erection of lighthouses since, until it is manufactured locally or erected, neither the locally manufactured motor vehicle nor the lighthouse exists as such. Another objection is that the argument fails to accord proper scope to the words "with respect to" in s. 51 or to the settled principle which requires that par. (xx), which is a constitutional grant of plenary legislative power, be liberally, and not narrowly or technically, construed: "it should be construed with all the generality which the words used admit" (per Dixon C.J., Kitto, Taylor, Menzies, Windeyer and Owen JJ., Reg. v. Public Vehicles Licensing Appeal Tribunal (Tas); Ex parte Australian National Airways Pty. Ltd. [27] ). In that regard, it is important to note that the basis of the argument is a reading of the word "formed" as meaning "which have already been formed at the time of application of the relevant law". That constrictive interpretation of the word seems to me to be quite unjustified. In the context of the use of the phrase "formed within the limits of the Commonwealth" in contradistinction to "foreign", the word "formed" is properly to be understood as representing a use of the past participle as part of an adjectival phrase which is without temporal significance. As Stephen J. pointed out in Mikasa (N.S.W.) Pty. Ltd. v. Festival Stores [28] , such a merely descriptive use of the past participle is "common enough", it "is not the past tense , it is neutral in temporal meaning and applies equally to the future as to the past" (see, also, per Murphy J., Kathleen Investments (Aust.) Ltd. v. Australian Atomic Energy Commission [29] ). When the word "formed" is so understood, it affords no basis for excluding the formation or incorporation within the limits of the Commonwealth of trading and financial corporations from the scope of the legislative power granted by the second limb of par. (xx). To the contrary, it tends to focus attention upon that aspect of the grant of power.

[44]

The other main argument in support of the exclusion of incorporation from the ambit of the legislative power was based on the suggested authority of Huddart, Parker & Co. Pty. Ltd. v. Moorehead [30] , disinterred and selectively dissected for the occasion. In that case, the Court (Griffith C.J., Barton, O'Connor and Higgins JJ., Isaacs J. dissenting) held that the provisions of ss. 5 and 8 of the Australian Industries Preservation Act 1906 Cth were ultra vires the Parliament. The basis of that decision was their Honours' conclusion that the grant of legislative power in s. 51(xx) with respect to trading or financial corporations should be narrowly construed as excluding any general legislative power to regulate or control the actual conduct and activities of such corporations (see, in particular, per Griffith C.J. [31] ; per Barton J. [32] ; per O'Connor J. [33] ; per Higgins J. [34] ). That narrow construction of s. 51(xx) and the actual decision in Huddart Parker were disapproved and authoritatively discarded by the Court in Strickland v. Rocla Concrete Pipes Ltd. [35] . As was pointed out in Strickland [36] (per Barwick C.J.), the judgments of Griffith C.J., Barton J. and O'Connor J. were all permeated by the doctrine of the reserved powers of the States which was "exploded and unambiguously rejected" in the Engineers' Case [37] . The judgment of Higgins J. expressed a much less general, but nonetheless unacceptable, reserved powers doctrine. His Honour saw the absence of reference to intra-State trade or commerce in s. 51(i) as indicating that the internal trade of a State was prima facie an "area" which was "forbidden to the Federal Parliament" (Huddart Parker [38] ). More important, his Honour's judgment was based on a since-discredited perception of a dichotomy between laws with respect to different subject-matters of legislative power which precluded the dual characterization of a particular law( [39] ; Strickland [40] ; the Tasmanian Dam Case [41] ). Not surprisingly, no direct attempt was made in the course of argument of the present case to reverse Strickland or to reinstate the decision in Huddart Parker or the discredited doctrines which it reflected. Instead, it was argued that it was possible to isolate, from the actual decision and from the reasoning upon which it was based, statements expressing a conclusion that the legislative power with respect to local trading or financial corporations conferred by the second limb of s. 51(xx) did not extend to the making of laws dealing with the incorporation of such corporations. It was submitted that Huddart Parker survives as authority for that conclusion.

[46]

The question whether the legislative power conferred by the second limb of par. (xx) extends to laws dealing with incorporation was not directly involved in Huddart Parker. It was dealt with in the judgment of the majority Justices in the course of what Barwick C.J. described in Strickland [42] as the "fundamental" error of "setting out to decide at one blow the full ambit of a constitutional power". Their Honours' conclusion that the legislative power conferred by the paragraph did not extend to laws dealing with incorporation flowed from a view that the second limb of par. (xx) conferred legislative power only with respect to trading or financial corporations formed under or by the law of a State. The basis of the majority view in that regard was a reading of the words "corporations formed within the limits of the Commonwealth" as meaning corporations "formed under State laws" (see per Griffith C.J. [43] ; per Barton J. [44] ; per O'Connor J. [45] ; and per Higgins J. [46] ). That constrictive reading of those words cannot be divorced from the discredited doctrine of the reserved powers of the State in the case of Griffith C.J., Barton J. and O'Connor J. or the mistaken perception of a dichotomy between laws with respect to different grants of legislative power in the case of Higgins J. Thus, the critical sentence in the judgment of Griffith C.J. [43] reads: " The formation and regulation of corporations in general is one of the matters left to the States, and in my judgment the words "formed within the limits of the Commonwealth" mean formed under State laws" (emphasis added). Moreover, as Barwick C.J. pointed out in Strickland [47] in comments with which McTiernan J. and Walsh J. agreed, the conclusion of the majority Justices in Huddart Parker to the effect that the expression "formed within the limits of the Commonwealth" in par. (xx) was apt to include only corporations formed according to the laws of the States was "clearly" wrong. Regardless of whether the legislative power conferred by the second limb of par. (xx) extends to incorporation, there are other legislative powers pursuant to which the Parliament might make provision for the formation or incorporation within the Commonwealth of a trading or financial corporation:

[50]

Isaacs J.'s view that the Parliament's legislative power with respect to local trading or financial corporations did not extend to laws dealing with the internal procedures or management of such corporations clearly influenced his conclusion that incorporation was beyond the reach of par. (xx). "[F]ederal incorporation", his Honour wrote [53] , "necessarily includes a granting of all capacities and the enactment of all ancillary provisions for internal procedure, even though these matters would otherwise be exclusively within State jurisdiction". While Isaacs J.'s conclusion that laws with respect to the internal management of local trading or financial corporations were beyond the ambit of a power to make laws with respect to such corporations was largely left as a matter of assertion, he did advance a number of related reasons for construing par. (xx)'s grant of power as not extending to incorporation. In particular, his Honour was influenced by the presence of the word "formed" in the paragraph and the consideration that a corporation is, by its nature, a legal conception existing only in contemplation of law. I have already expressed my reasons for rejecting the argument that the word "formed" should be construed as confining the reach of the legislative power to corporations which are already in existence at the time of application of the relevant law. The fact that the local trading or financial corporations to which par. (xx) refers are legal conceptions which are created by, and exist only in the contemplation of, law seems to me to support an expansive rather than a restrictive construction of a legislative power conferred "with respect to" such corporations. His Honour asserted [54] that when "a power to create corporations was intended to be given it was expressly mentioned", referring to the "Banking" power (par. (xiii)). This assertion seems to me, with respect, to be little different from the fallacious view that the plenary grants of legislative power contained in s. 51 should be read down so as to prevent overlapping and produce complete consistency between them. It is, in any event, simply wrong. Many of the grants of legislative power in s. 51 include power to create corporations notwithstanding that incorporation is not "expressly mentioned". Thus, it has been held that the very first of those grants (i.e. with respect to interstate trade and commerce), which contains no mention of either corporations or incorporation, confers legislative power to create a corporation (see Australian National Airways Pty. Ltd. v. The Commonwealth [55] ; Strickland [56] ).

[54]

The second subsidiary argument was, as I followed it, essentially an appeal to convenience. It was said that the words "trading or financial" in par. (xx) significantly restrict the corporations to which the grant of legislative power extended. That being so, it would be productive of difficulty and inconvenience to construe par. (xx) as conferring a legislative power with respect to the incorporation of those corporations only. One answer to this argument is that it assumes an unduly restrictive connotation of the phrase "trading or financial corporations" in par. (xx). As the judgment of a majority of the Court in Fencott v. Muller [58] , makes plain, that composite phrase is not to be narrowly or technically construed. Indeed, reference to writings current at the time of Federation lends strong support for the view that the phrase "trading or financial corporations" in par. (xx) should be construed as being adequate to encompass companies formed for the purpose or engaged in the pursuit of profit as distinct from the special classes of company which were seen as falling outside the scope of ordinary company law (see, e.g., Lindley, Treatise on the Law of Companies, 5th ed. (1889), p. 10: "Companies formed for merely scientific, literary, artistic, or charitable purposes, and not with any view to the acquisition of gain or the avoidance of loss by themselves or their members do not fall within the scope of this treatise "). So understood, the exclusion from the scope of the legislative power of the special classes of corporation which are not, for relevant purposes, trading or financial corporations does not seriously impair the competence of the national Parliament to do that which Professor Harrison Moore saw (p. 148), in 1902, as being "of course" authorized by par. (xx), namely, "to make a Companies Law for the whole of the Commonwealth". In any event, there is a more complete answer to the argument of inconvenience based on the consideration that the grant of legislative power with respect to local trading or financial corporations does not extend to all corporations. It is that, while that consideration might well be seen by the Parliament as calling for restraint in the exercise of the legislative power, it does not provide any legal justification for denying the generality of a plenary grant of legislative power with respect to the designated class of corporation. If even further answer to an argument based upon the alleged inconvenience of uniform companies legislation in relation to trading and financial corporations be needed, it is plain enough. It is that the advantages of such national companies legislation with respect to such corporations seem to me overwhelmingly to outweigh the alleged inconvenience.

At a glance

Court

Decision date

Before

Source

Judgment (57 paragraphs)

Parties