Commonwealth Companies and the Constitution
| Published date | 01 June 1998 |
| Date | 01 June 1998 |
| DOI | 10.22145/flr.26.2.3 |
| Subject Matter | Article |
COMMONWEALTH
COMPANIES
AND
THE
CONSTITUTION
Nick Seddon and Stephen Bottomley*
INTRODUCTION
The Commonwealth has since federation formed
and
controlled
many
corporations,
both
statutory
and
those created
under
companies legislation.1
In
this article
we
explore the constitutional basis for the Commonwealth forming
and
controlling a
Corporations
Law
company. This is atopic which has received little attention
but
it
is
becoming increasingly clear
that
a
proper
understanding
of the Commonwealth's
constitutional position,
when
it
forms
and
controls companies, is necessary because of
the increased emphasis
on
commercialisation
and
entrepreneurialism
and
the
sometimes
drawn-out
process of privatisation of Commonwealth bodies.
It
is generally
assumed
in
this article
that
the Commonwealth will
make
use
of a
company
for some commercial purpose,
but
we
acknowledge this is
not
always the
case.
It
is possible,
and
quite common, for the Commonwealth to use acompany for the
implementation of apolicy or for some other governmental
purpose
not
directly
related to commercial activity.2 The use of the company form by the Commonwealth
in
any
situation raises
important
questions
about
government responsibility
and
accountability. While
we
do
not
address these questions directly
in
this paper,
our
underlying
concern nevertheless is
that
the use of acompany by the Commonwealth
for
ordinary
commercial purposes has the potential to
erode
the notion of
governmental responsibility.
*
1
2
Reader
and
Professor, respectively,
Centre
for
Commercial
Law,
Australian
National
University.
The
authors
are
indebted
to
the
referee, .Professor
George
Winterton,
Dennis
Rose QC,
Peta
Spender,
Christos Mantziaris,
George
Williams
and
Wayne
Leach, a
former
honours
student,
for his
unpublished
Research
Unit
paper
"Limitations
on
Commonwealth
Power
and
Commonwealth
Government-Owned
Corporations:
the
Need
for
Constitutional
X-Ray Vision".
See GSawer, "The Public
Corporation
in
Australia"
in
W
Friedmann
(ed),
The
Public
Corporation
-A
Comparative
Symposium (1954)
at
9;
MSexton
and
LMaher, "Competitive
Public
Enterprises
with
Federal
Government
Participation; Legal
and
Constitutional
Aspects" (1976) 50 ALJ
209.
Two
examples:
Commonwealth
Hostels Ltd,
which
was
the
subject
of
discussion
in
Commonwealth v
Bogle
(1953) 89 CLR 229;
and
the
Maritime
Industry
Finance
Company
Ltd
(MIFCo),
registered
by
the
Commonwealth
in
1998 to establish a
loan
facility for
the
purpose
of
paying
redundant
waterside
workers.
272
Federal
Law
Review Volume 26
The questions
which
are
discussed
in
this article are
whether
there are limits
on
the
Commonwealth's
power
to engage
in
commercial activity
and
to form companies
and,
if
there are,
what
is the consequence of the Commonwealth either forming
or
controlling a
company
which is arguably
beyond
its constitutional power.
Alternatively,
if
there
are
no
limits
on
the
power
to incorporate acompany,
are
there
any
limits
on
what
a
Commonwealth
controlled
company
can
do? These questions
are
not
easily answered, given the fact
that
acompany, once formed, is
an
autonomous
legal entity
which
is
governed
by
the Corporations Law. The basis
upon
which
alegal
challenge
could be
mounted
to the existence,
or
activities, of
that
company
is
not
easily
found.
The Commonwealth's capacity to form companies comes from its executive
power
unless there is legislation
in
place which modifies
or
replaces the executive power,
in
which case the legislation is the source of
power
to act.3The executive
power
is
acknowledged (rather
than
defined)
in
s
61
of the Constitution. Its scope
in
relation to
the Commonwealth's ability to make contracts
or
otherwise engage
in
commercial
activity
has
been
the subject of
much
academic debate
but
little
in
the
way
of judicial
pronouncement.
In
the
first
part
of this article the problems are looked
at
from the constitutional
perspective. The principal focus is
on
the scope of the executive
power
which
will
in
most
cases
be
the source of the Commonwealth's
power
to form acompany. The
generally accepted
view
is
that
the Commonwealth's executive
power
is limited
but
the
exact
nature
of the limitation will be discussed below.
The premise
on
which this
argument
is
pursued
is
that
the
Commonwealth
cannot
do
indirectly
through
the use of a
company
what
it
cannot
do
directly (though, as will
be
seen, this is merely astarting
point
and
its soundness
has
to be tested). Against this
premise is the
fundamental
point
that
the
company
is aseparate legal entity from the
Commonwealth.
How
can
this entity,
though
spawned
by
the Commonwealth,
run
into problems related to the Commonwealth acting
beyond
its powers?
In
the
second
part
of this article, the problems are looked
at
from the perspective of
corporations law. Specifically,
we
examine
whether
corporate
law
rules
and
principles
are capable of constraining the activities of
Commonwealth
companies
and
whether
the corporate veil
can
be lifted to allow the actions of the
Commonwealth
to
be
dealt
with
directly.
It is because the Commonwealth's executive
power
is limited
that
this article
focuses
on
the
Commonwealth
and
not
on
the States or Territories. State
and
Territory
executive
power
is, to all intents
and
purposes, plenary.4 The executive
power
of a
State
has
been
equated
with
the
power
of the sovereign.sIt is therefore difficult to
imagine acircumstance
where
achallenge could be
mounted
either to the existence,
or
the activities, of aState
or
Territory
owned
company. Possibly, if legislation limited a
3
4
S
New South Wales v
Bardolph
(1934) 52 CLR 455
at
496
per
Rich
J;
Johnson
vKent (1975) 132
CLR 164
at
169
per
Barwick
CJ;
Attorney-General v
De
Keyser's Royal Hotel [1921] AC 508
at
575
per
Lord
Parmoor.
Building Construction Employees and Builders
Labourers
Federation
of
New South Wales v
Minister for Industrial Relations (1986) 7NSWLR 372; Union Steamship
Co
of
Australia Pty Ltd
vKing (1988) 166,CLR 1.
NeuJ
South Wales v
Bardolph
(1934) 52 CLR 455
at
474-75
per
Evatt
J.
1998 Commonwealth Companies and the Constitution 273
State's ability to establish acompany, achallenge could be
mounted
but
such a
challenge has never been mounted, as far as the authors know.
Commonwealth
statutory corporations
It
is
worth
drawing
aparallel with the Commonwealth's ability to form astatutory
corporation. This is simply alegislative exercise where the formation of acorporation
by
an
Act of the Commonwealth Parliament
may
be challenged if the Act is
constitutionally invalid. This will
depend
on
the limits of the Commonwealth's powers
under
the Constitution, asubject which also has been little explored in connection with
forming statutory corporations.
The
existence
of astatutory corporation has never been successfully challenged
on
this basis,6 though the activities of Commonwealth statutory corporations
have
been
challenged, either
on
the basis
that
aparticular activity expressly authorised
by
the
legislation could not,
on
constitutional grounds, be so authorised;
or
on
the basis
that
a
particular activity
was
ultra
vires
the statutory corporation's legislation.
An
example of
the former
was
Attorney-General
(Western
Australia) vAustralian
National
Airlines
Commission
7
in
which the High
Court
held
that
aprovision of the Commission's
enabling legislation8
was
unconstitutional to the extent
that
it
permitted
an
intrastate
journey, the Commonwealth Parliament's power
in
this respect being limited to
authorising interstate journeys.9
An
example of the latter
was
Commonwealth
v
Australian
Commonwealth
Shipping
Board
10 in which the High
Court
held
that
acontract
made
by
the Board
was
ultra
vires
its legislation.
11
The two questions -whether legislation authorising aCommonwealth statutory
corporation to undertake aparticular activity is unconstitutional
and
the question
whether
aparticular activity of astatutory corporation is ultra
vires
its legislation -
do
become entangled. In the course of discussing whether the Commonwealth Shipping
Board
had
exceeded its statutory powers, the High
Court
did
say
some things
about
the Commonwealth's
power
to engage
in
commercial activities, for example: "[t]here is
no
power
which enables the Parliament or the Executive government to
set
up
manufacturing
or
engineering businesses for general commercial purposes."12 Another
way
in
which the two questions are linked is
that
astatutory corporation's enabling
legislation
may
be pegged back to the constitutional limits by aspecific section. This
6
7
8
9
10
11
12
An
unsuccessful challenge
was
mounted
to the existence of Australian
National
Airlines
Commission
in
Australian National Airways Pty Ltd vCommonwealth (1945)
71
CLR
29.
In
Victoria vCommonwealth and Connor (1975) 134 CLR 81, legislation
purporting
to establish
the
Petroleum
and
Minerals Authority
was
declared to be wholly invalid for
non-
compliance
with
the Constitution, s57
with
the result
that
the Authority
never
existed.
(1976) 138 CLR 492. See also Australian National Airways Pty Ltd vCommonwealth (1945)
71
CLR29.
Australian National Airlines Act 1945 (Cth), s19B.
Constitution, s51(i). However,
an
intrastate jourriey
was
held
by
the majority to be
permissible
under
the
Constitution, s122 (the territories power) if
it
occurred
in
the course
ofa
journey
between
aState
and
Territory.
(1926) 39 CLR 1.
An
unsuccessful
attempt
to challenge the Australian Atomic
Energy
Commission's
purchase
of
shares
in
a
mining
company
was
made
in
Kathleen Investments
(Aust) Ply Ltd vAustralian Atomic Energy Commission (1977) 139 CLR 117.
Commonwealth
Shipping
Act1923 (Cth).
(1926) 39 CLR 1
at
9
per
Knox
CJ,
Gavan
Duffy, Rich
and
Starke
JJ.
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