Telstra Corporation Act 1991

The Act directly affects:

• Telstra Corporation Limited and any Telstra successor company, which are subject to ongoing foreign ownership compliance obligations.
• Foreign persons who acquire, or may acquire, shares in a Telstra successor company, who must not create an unacceptable foreign-ownership situation.
• The Minister for Finance, who holds residual powers under the privatisation framework and may make determinations under various provisions.
• Shareholders of Telstra successor companies generally, whose rights are affected by the company's obligation to prevent unacceptable foreign ownership and by the remedial order and divestiture mechanisms.
• Employees who were transferred from Telecom or OTC to Telstra on the succession day, whose long service leave, safety rehabilitation and compensation, and retirement benefit rights were preserved by Part 3A.
• ACMA, which is referenced in the context of the customer service guarantee re-affirmation (section 8CN).

Part 2A: Foreign ownership restrictions

Company-level obligation (section 8BI): A Telstra successor company must take all reasonable steps to ensure that an unacceptable foreign-ownership situation does not exist in relation to it at any time. Failure is an offence carrying a penalty of 500 penalty units (section 8BI(2)).

Acquirer-level prohibition (section 8BH): A person or persons acting under an arrangement who acquire shares in a company and thereby cause an unacceptable foreign-ownership situation to come into existence, or who increase an existing unacceptable situation, commit an offence carrying up to 400 penalty units if they knew or were reckless as to whether the acquisition would have that result. The offence extends to increases in an existing situation, not only to the creation of a new one.

Record-keeping and information (Division 7 of Schedule): Regulations may require persons to provide information necessary for monitoring compliance with the foreign ownership limits.

Board citizenship (Division 9): The chairperson and a majority of the directors of a Telstra successor company must be Australian citizens.

Head office and base of operations (Division 8): A Telstra successor company's head office and base of operations must remain in Australia.

Part 2AA: Anti-avoidance

Section 8CCA prohibits a Telstra successor company from entering into, beginning to carry out, or carrying out a scheme for the sole or dominant purpose of avoiding the application of any provision of the Act in relation to the company. This prohibition does not create a criminal offence but is a ground for an injunction under Division 1 of Part 2B.

Part 4: Vesting of property and liabilities

On the succession day, Part 4, section 11 provided that all property and rights of Telecom and OTC vested in Telstra, all their liabilities became liabilities of Telstra, and Telstra became the successor in law of both. The extra-territorial scope of this vesting was made express by section 10.

Part 5: Name protection

Section 15 prohibited any person other than a protected body from using a protected name (Telecom, OTC or Telstra and associated names) in connection with a business during the transitional protection period without Telstra's written consent. The penalty was $1,000.

Minister for Finance: Under section 8AJ(3A), the Minister for Finance may make a written determination setting rules with which a Telstra sale scheme must comply. Such a determination is a legislative instrument, though disallowance under the Legislation Act 2003 does not apply to it.

Federal Court (section 8BJ): On application by the Minister or the Telstra successor company, the Federal Court may make remedial orders if an unacceptable foreign-ownership situation exists. These can include orders requiring disposal of shares and other ancillary orders.

Minister (section 8CD): The Minister may apply to the Federal Court for an injunction restraining a person from engaging in conduct in contravention of Part 2, 2A or 2AA.

Regulator powers: The Act does not itself create a specialist regulator; enforcement functions are vested in the Minister and the Federal Court. ACMA is mentioned only in the context of the re-affirmation of the customer service guarantee in Part 2C.

Authorised person: The Minister or a person authorised in writing by the Minister may issue certificates under section 27(2) that are conclusive evidence that a matter is an exempt matter for tax exemption purposes.

| Provision | Offence | Penalty | |---|---|---| | s 8BI(2) | Telstra successor company fails to take all reasonable steps to prevent unacceptable foreign-ownership situation | 500 penalty units | | s 8BH | Person acquires shares knowing or reckless as to whether unacceptable foreign-ownership situation results | 400 penalty units | | s 15(1) | Unauthorised use of protected name during transitional protection period | $1,000 |

Contraventions of the anti-avoidance provision (s 8CCA) are not criminal offences but are grounds for injunctive relief in the Federal Court under Division 1 of Part 2B.

Prosecutions under Part 2B, Division 2 may be instituted by the Minister or the Telstra successor company (section 8CJ). The prosecution regime includes provisions for service of process on foreign bodies corporate through their Australian agents (section 8CK).

The Federal Court's remedial order power under section 8BJ includes the ability to make ancillary and consequential orders and, before making a final order, to make interim injunctions (section 8CE). An applicant for an interim injunction is not required to give an undertaking as to damages (section 8CE(2)).

The privatisation process established by the Act was completed in stages:

• Succession day: The day Telecom and OTC merged into Telstra on commencement of the Act in 1992.
• Minority-interest sale time (section 3): The first time after commencement of Part 2A when a person other than the Commonwealth became the legal owner of any voting shares in Telstra. This triggered the foreign ownership restriction regime.
• Designated day (section 3): 24 November 2006, the date identified for various transitional employment provisions, including the Maternity Leave Act changeover.
• LSL changeover day: The day a specified item in the Long Service Leave (Commonwealth Employees) Regulations 1957 was repealed, triggering the long service leave transitional provisions in Part 3A, Division 1.

Corporations Act 2001 (Cth): The Act repeatedly cross-references and modifies the Corporations Act. Section 8AT provides that the Commonwealth is to be bound by chapters 6CA, 6D and 7 of the Corporations Act in connection with Telstra sale schemes. Section 8AUA and section 8AU deal with alterations of Telstra's constitution and interact with the Corporations Act provisions on shareholder resolutions and court powers.

Telecommunications (Consumer Protection and Service Standards) Act 1999 (Cth): Part 2C of this Act re-affirms the Parliament's intention that the universal service obligation under Part 2 of that Act and the customer service guarantee under Part 5 of that Act will continue. Expressions used in sections 8CM and 8CN have the same meanings as in the corresponding Parts of that Act.

Telecommunications Act 1997 (Cth): The broader telecommunications regulatory framework within which Telstra operates. The Act does not directly incorporate that Act but the two instruments are closely connected: Part 7 of this Act establishes that Telstra is not a public authority, which affects how the telecommunications regulatory regime applies to it.

Trade Practices Act 1974 (Cth) (now Competition and Consumer Act 2010 (Cth)): The constitutional challenge decided by the High Court in Telstra Corporation Limited v The Commonwealth [2008] HCA 7 concerned Part XIC of the Trade Practices Act (the telecommunications access regime) and whether it effected an acquisition of Telstra's local loop infrastructure on other than just terms under section 51(xxxi) of the Constitution.

Public Governance, Performance and Accountability Act 2013 (Cth): Referenced in the definition of "Minister for Finance" in section 3.

Long Service Leave (Commonwealth Employees) Act 1976 (Cth): Part 3A, Division 1 preserves long service leave entitlements for former Telecom and OTC employees by reference to the Long Service Leave Act.

Safety, Rehabilitation and Compensation Act 1988 (Cth): Part 3A, Division 2 addresses the application of this Act to Telstra employees following the privatisation.

State and Territory laws: Part 7, Division 3 addresses the application of State and Territory laws to Telstra. The question of whether State and Territory laws (including rating and charging legislation) could apply to Telstra's telecommunications cables was litigated in Bayside City Council v Telstra Corp Ltd [2004] HCA 19.

The foreign ownership calculation excludes Commonwealth shares: Under clause 12 of the Schedule, a person's stake is calculated on the assumption that the only shares are shares held by persons other than the Commonwealth. This means the 35% and 5% limits apply to the non-Commonwealth portion of the register. After full privatisation, this distinction no longer has practical effect, but it was significant during the progressive sale stages.

Anti-avoidance is non-criminal but still carries injunction risk: Section 8CCA is expressed as a prohibition but does not create a criminal offence. A Telstra successor company that arranges its affairs to circumvent the foreign ownership limits will face Federal Court injunction proceedings even without a criminal prosecution.

Exempt matter certificates are conclusive: An authorised person's certificate under section 27(2) that a matter is an exempt matter is conclusive evidence of that fact "except to the extent to which the contrary is established". The evidentiary weight of this provision means challenges to tax exemption decisions face a high bar.

Part 7 non-Crown status is subject to express exceptions: Section 26 establishes that Telstra is not a public authority or Crown instrumentality "except so far as express provision is made by this Act or any other law of the Commonwealth". The carve-out means specific provisions in other Acts can treat Telstra as a public body for defined purposes, and this was litigated in the Bayside and HCA 2008 cases.

Name protection period: The name protection provisions in Part 5 applied only during the "transitional protection period" as defined. They are now spent, but historical disputes about unauthorised use of the Telecom and OTC names arose from this provision.

Example 1 (foreign investor): A Singapore-based sovereign wealth fund holds 4% of the voting shares in Telstra. It proposes to increase its holding to 6%. Before completing the acquisition, the fund should check whether the acquisition would, taking into account all foreign persons' aggregate stakes, push total foreign ownership above 35%, or push any single foreign person's stake above 5%. If the fund's stake would reach 6%, that alone would trigger an unacceptable foreign-ownership situation under section 8BG(b). The acquisition would expose the fund to an offence under section 8BH if it knew or was reckless as to this outcome.

Example 2 (successor company compliance): A Telstra successor company discovers that, following a secondary market acquisition by a group of foreign persons, aggregate foreign ownership has exceeded 35%. The company must immediately take all reasonable steps to remedy the situation, for example by exercising any divestiture powers in its constitution or by applying to the Federal Court for a remedial order under section 8BJ. Failure to act is itself an offence under section 8BI.

Example 3 (anti-avoidance scheme): A Telstra successor company proposes to establish a nominee arrangement under which foreign persons' shares are registered in the name of an Australian nominee company, with the intention that the foreign persons' interests would not be counted as stakes. If the sole or dominant purpose of the arrangement is to avoid the application of Part 2A, the arrangement would contravene section 8CCA. The Minister could apply to the Federal Court for an injunction under section 8CD to restrain the company from carrying out the scheme.

Example 4 (exempt matter certificate): Telstra, in connection with a merger of subsidiaries, takes steps that would otherwise attract State stamp duty. An authorised person issues a certificate under section 27(2) that the merger constitutes an exempt matter. That certificate is conclusive evidence for all proceedings, including State revenue proceedings, that the matter is exempt from tax.