Does the Corporations Power Extend to Reconstituting Corporations?

Published date01 March 2011
AuthorGraeme Orr,Andrew Johnston
Date01 March 2011
DOI10.22145/flr.39.1.3
Subject MatterArticle
DOES THE CORPORATIONS POWER EXTEND TO RE-
CONSTITUTING CORPORATIONS?
Graeme Orr and Andrew Johnston*
THE CORPORATIONS POWER: WHAT LIMITS?
Overview
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' corp orations? Or, to
put it in a more neutral way, once incorporated, what power does the national
Parliament have over a corporation's constitution?1 Addressing this issue requires us
to explore the vis ion 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'.2
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 corporation s nationwide?3 Does it extend to regulating board remuneration
and the role of the genera l 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'. However, legislative intervention might be required in areas
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* Associate Professor and Senior Lecturer, respectively, at the Law School, University of
Queensland, St Lucia, 4072, Australia. The authors acknowledge Stacey Lu's invaluable
research assistance, supported by a Law School contestable grant.
1 'Neutral' sin ce 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.
72 Federal Law Review Volume 39
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covered by the Principles if the federal government were dissatisfied with the contents
of the Principles, which are, after all, aimed at protecting the interests of participants i n
the capital markets. Similarly, the federal government might take the view that it
would be inappropriate for certain regulatory objects to be left to soft law a nd market
forces, either because they run counter to the interests of capital market participants, or
because the issue is of such importance that mandatory regulation is required. Finally,
the federal government might want to regulate unlisted public companies, which
currently lie beyond the reach of the Principles and the 'comply or explain ' principle.
At present this issue may be forestalled by the fact of State referral of power to
create a national Corporations Law. But such referrals are hardly set in stone. On the
contrary, if the national Parliament were to move on any of these issues, it might
trigger more conservative States to withdraw their referrals. Conversely, bold
legislation on those issues probably has to be national , given the risk of corporate flight
to any States not covered by such regulation.
Further, given the wide net the courts have cast over 'trading corporations',4 a host
of important not-for-profit and State entities, not answerable to the Corporations Act
2001 (Cth), can be regulated under the s 51(xx) power.5 These include higher education
institutions, State owned utilities,6 and local governments. Arguably even industrial
associations are covered. If the corporations power extends to re-constituting
corporations already formed, then the Commonwealth could, for instance, control the
shape of university senates.7 Indeed, it was Howard government policy to trim
university senates to reduce the influe nce of academic and stude nt members and
mandate more involvement from outsiders with commercial expertise.8 But it only
attempted this indirectly, via its fiscal power: 9 if the corporations po wer extends to re-
constituting, it could have done so directly.
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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 110 and Rosemary Owens, 'Unfinished Constitutional Business:
Building a National System to Regulate Work' (2009) 22 Australian Journal of Labour Law 258.
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 li e 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
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 1.
2011 Does the Corporations Power extend to Re-constituting Corporations? 73
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Alternatively, is there something in the text, precedents or policy arguments
surrounding s 51(xx) to deny its extension to the constitution of corporations? If so,
where does such a restriction to an otherwise plenary power over existing corporations
come from? It might be thought that an answer would be found i n corporate law
theorising about the inter-relationship of the general meeting, the board of directors
and the incorporated entity. Consequently, this article explores the extent to which the
corporate legal entity has a n existence separate from the human beings who control
and decide upon its activities. As a legal entity, can a corporation be said to have been
'formed' independently of the designation in its constitution of those human beings
who will act for it or on its behalf? This requires a consideration of the debate over
whether the general meetin g and, more particularly, the board, are organs or agents of
the corporation. Corporate law, however, turns out to be unsettled a nd inconclusive of
the matter.
When it comes to constitutional case law, the dicta we have uncovered do point to
some area of the corporate constitution being off-limits to the national Parliament,
under an assumption that ce rtain 'internal management' str uctures must accompany
corporate formation. This may be consonant with a view of the general meeting and
board as 'organs' of the corporate entity and therefore indivisible from it. Yet, as we
show, that conclusion is not necessitated by the logic of s 51(xx), by constitutional
precedent or by corporate law theory. Indeed, in our view it makes more sense of
corporate law to conceive of the board as an agent of the corporation and, for policy
reasons, to re ad s 51(xx) as permitti ng national regulation of crucial corporate
governance matters such as board composition.
Background
Section 51(xx) of the Constitution grants the national Parliament power to make la ws:
with respect to foreign corporations , and trading and financial corporations formed
within the limits of the Commonwealth.
For ease of reference, the three types of corporations are often called 'constitutional
corporations' and the power has long been dubbed the 'corporations po wer'.10
The ter ms of s 5 1(xx) are short, but dec eptively simple, so that its scope has been
notoriously difficult and controversial. The past cent ury of judicial interpretation and
legislative experimentation divides into two periods. The first lasted for over 60 years,
during which the power lay dormant than ks to the narrow reading in Huddart Parker &
Co Ltd v Moorehead .11 Then, over t he last 40 yea rs, the power has been read
expansively. In a series of cases stretching from Strickland v Rocla Concrete Pipes Ltd12 to
the WorkChoices Ca se,13 the scope of the power has broadened in the two questions
which have dominated attention. Those have been the 'who' and t he 'what' questions:
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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 pow er 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, 56.
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').
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(a) 'who' is covered? (In particular, which bodies qualify as 'trading
corporations'.)14
(b) 'what' corporate affairs can be regulated? 15
This paper relates to the 'what' question, or rather o ne neglected aspect of it. That is,
the extent t o which s 51(xx) permits national re gulation of the constitut ion of
corporations, or whether there is some implied limi tation on the power to regulat e the
corporate form, organs or core governance structures.
With one glaring exception, the trajectory of the last 40 years, across each of the
'who' and 'what' questions has been to read the power increasingly expansively, as if
there were a kind of Hubble's constant informing judicial interpretation. Freed of the
gravitational restraint of the doctrine of reserved State powers and of attempts to
restrain the corporations power to cover only inter -state matters, 'trading or financial'
affairs or 'external' relationships, the power's scope has broadened in decision after
decision. The exception to this expansive trajectory was the Incorporation Case. There, a
6:1 majority of the High Court decided that the Commonwealt h had no power under
s 51(xx) to regulate the creation of corporations.
A POWER OVER THE CORPORATE CONSTITUTION?
The question animating this article has elicited almost negligible judicial attention and,
with the notable exception of Leslie Zines, little academic attention. Even then, 'the
internal management of corporations ' warrants just three pages in the fourth ed ition of
Zines' The High Court and the Constitution, and two pages in the latest edition. 16
At first glance, this neglect is surprising. After a ll, questions of the constitution of
corporate entities go to the very heart of their definition, nature and governance.
Indeed, they go to the root of the idea of 'corporateness': they would be primary
questions for even the narrowest reading of which corporate affairs can be regulated
under a 'corporations power'.
The question appears to have been neglected for two reasons. One is that regulatory
attention has been centred on activities and conduct. As Corcoran observed in 1994,
outside the Incorporation Case the focus of legislators has been 'not on federal regulation
of corporations as such, but rather on the control of certain kinds of activity engaged in
by persons who happe n to be corp orations'.17 This is understandable. Trading
corporations have come to dominate large swathes of economic and even social life.
Realising this, the Commonwealth has sought to invert 'Higgins' horribles' a list of
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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. Al though it is the governing test, the
activities test has been criticised: see Gouliaditis at 11928, including at 1201 discussion
from the High Court bench sugg esting several judges have doubts about its over-
inclusiveness.
15 We use the term 'affa irs' in a broad sense: 'activities' would beg the question. Tony
Blackshield and George Williams, Australian Constitutional Law and Theory (Federation
Press, 5th ed, 2010) 804 similarly use the phrase 'aspects or activities'.
16 Leslie Zines, The High Court and the Constitution (Butterworths, 4th ed, 1997) 1047 and
(Federation Press, 5th ed, 2008) 1378.
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 131.
2011 Does the Corporations Power extend to Re-constituting Corporations? 75
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areas where the early, States-rightist High Court fea red a broad reading of the
corporations power would lead the Commonwealth18 into a list of honourables. It
has used the power to pursue g oals as diverse as bespoke environmental protection
(the Tasmania n Dam Ca se) and generalised co mpetition a nd consumer la w (under the
Trade Practices Act 1974 (Cth)). This focus of regulatory attention on corporate 'activity'
culminated in the recent WorkChoices Case, which upheld a national law covering the
field of employment within corporations.
Case law challenges to legislative com petence have thus been concerned with
which activities, during the ongoing life of corporations, are amenable to national
regulation. Even when judges have asserted, as in Fontana Films, that the test is not
limited to the activities of corporations, least of all activities of a particular kind,19 they
have done so in the context of activities a ffecting corporations (in that case, industrial
boycotts). After WorkChoices, the assumption of legal commentators has been that
creation of corporations aside the Commonwealth can do anything it likes to or with
corporations. All it has t o do is frame the law as one that uses constitutional
corporations, or a sub-set of them, as a discrimen: that is, to frame legal provisio ns as
either regulating or protecting constitutional corporations.20 The focus on activities has
tended to beg the question of the scope of the power.
A second reason why s 51(xx)'s potential in relation to corporate constitutions has
been neglected is that, for the most economically significant corporations, there has
been a fair degree of political consensus over the key aspects of corporate law since at
least the 1960s. This is witnessed in the various co-ordinated endeavours, ranging from
uniform companies codes through co-operative schemes to the truly national
Corporations Act 2001 (Cth) based on the referral of State powers.21 Without consensus,
such co-operative fed eralism would never have b orne fruit. Whether Labor or Liberal,
governments have worked within the same core assumptions about the scope of
corporations law: namely that it should encompass the relations between directors,
shareholders and to a lesser ex tent creditors, with other interests being dealt with
by specific legislation. While there was some slippage from unifor mity in the 1960s and
1970s, the move to a national law was not driven by division over the scope of
corporations law or the optimal default rules for the corporate constitution, but by
concerns to limit the tra nsaction costs and confusion arising from the parochialism of
State-based registration and corporate law bureaucracies.
What constitutes a corporation?
This question is almost an ontological one: what is the essence of a corporation? On
one view, which would enlarge Commonwealth power, a corporation is nothing more
than a convenient legal fiction. The law for a number of economic and other policy
reasons is responsible for imputing entity status and a 'body' (as the etymology
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18 Huddart Parker (1909) 8 CLR 330, 40910.
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).
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implies) to the corporation.22 The law then treats that entity as a juristic person,
separate from the natural persons in the real world such as the directors and
employees who work towards a common goal under the aegis of the corporation's
interests or the investors who contribute finance. This legal construction has no
counterpart in the physical world, w here a corporation is little more than a name and
number in a registry. Since the mere act of registration and the legal grant of entity
status would suffice for a corporation to be 'f ormed', on this view the Commonwealth's
power 'with respect to' corporations would truly be plenary.
It is often said that the corporations power is a 'persons' power, over a type of
juristic person, rather than one over 'a function of government, a field of activity or a
class of relationships'.23 From this angle, the power is distinct from the bulk of other
Commonwealth legislative powers dealing with fields of activity (such as trade or
commerce and banking) or purposes (notably defence).24 The distinction implies a
commonality with other powers over actual pe rsons, such as aliens or people of
particular races. Except that a corporation is not a natural person like a foreigner.
Indeed, it is not even a ph ysical entity, such as a lighthouse, with an existence that pre-
dates the law. A corporation is a purely legal construct, an artifice more akin to a
copyright or patent.25
In the alternative, a rival view paints the corporation as a legal fiction, but one
which stands in for the association of members which created it and who have a
residual claim to its profits. In this view, the essence of the corporation lies in its
written constitution (formerly its memorandum and articles of association), the terms
of which regulate the ro le of, and relationship between, its shareholder members and
its board of directors. This view sees the 'c orporation' as legal shorthand for the older
concept of an association as a contractual gathering of people with a mutual purpose;
an idea evident in the etymology of the word 'company'.26 In this view, a patent or
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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 an alogous 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 13 0, 13740, 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: Fra nk
2011 Does the Corporations Power extend to Re-constituting Corporations? 77
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copyright is less the analogy than a marriage or partnership: the law merely recognises
a relationship which could albeit at considerably higher transaction cost be
created by means of a bespoke contract.27
This rival view, with its shareholder-centricity has had considerable influence on
corporate governance debates. But both in its old partnership variant and its modern,
nexus of contracts version, this view can be criticised for downplaying the functional
significance of the separate legal entity, which allows investors to make irrevocable
commitments of capital towards a bus iness purpose and permits asset partitioning, to
protect members' assets from creditors of the corporation and corporate assets from
creditors of the members.28
This view also runs up against a distinct empirical problem when one realises that
not all corporations f it this company model. This is obvious in the cases of statutory
corporations, such as universities, the one-person corporation now permitted under
the legislation, and the corporation sole or corporation without incorporators, such as a
government-owned bank.29 As Taylor noted, the word 'formed' in s 51(xx) is perfectly
apt to cover the corporation sole, whereas the term 'incorporated' might have implied
the model of a company beginning as an association of persons.30 The deficiencies of
the company model also become apparent when one ventures away from the world of
corporations as investment vehicles, and into the real m of public purpose corporations.
Universities may issue 'membership' numbers to their staff and students, but they are
surely neither owned nor governed by them. Local governments, also, have tended to
be incorporated, but were clearly mini-polities even before the franchise moved from
ratepayers to residents. Yet as we have noted, State banks, universities and most local
governments are classed as trading corporations today.
CORPORATE THEORY AND STRUCTURE: ORGANS, AGENTS AND
CAPACITY
In this section we consider how corporate law theory describes t he core of the
corporation. As a purely legal entity, a corporation can of course only act through
humans. The question of which humans act on behalf of or as the corporation is
generally viewed as separate to the question of corporate capacity (that is whether the
company has the ability, in law, to do the act in question).31
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Easterbrook and Daniel Fischel, The Economic Structure of Corporate Law (Harvard
University Press, 1991), especially 1236.
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 387 and Henry
Hansmann and Reinier Kraakman, 'The Essential Role of Organizational Law' (2000) 110
Yale Law Journal 387.
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) [8.070] note that 'there is n o scope for confusion of
corporate powers and directors' powers of the kind that occurred in some English cases
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Under modern Australian law, capa city is regulated by s 124(1) of the Corporations
Act 2001 (Cth), where it is clearly tre ated as an incident of i ncorporation. Once
incorporated, a company is granted the same legal capacity and powers as an
individual and also has all the powers of a body corporate. At this point the powers
and capacity exist merely as potentialities, and will be exercised only if the relevant
human actors decide that they should be exercised.
In addition to capacity, the Corporations Act 2001 (Cth) deems that the 'replaceable
rules' supplied in the legislation and any additional bespoke rules embodied in a
formal corporate constitution have effect as a statutory contract. 32 One of these
replaceable rules operates by default to vest a general power to manage the business in
the directors (widely understood to mean the board). 33 Some other powers are given to
the general meeting by default, and certain specific powers are reserved to the general
meeting by the legislation.34
Australian law does not mandate the identity or arguably even the existence of
these two groupings as such. As regards the general meeting, the legislation reserves
certain powers to the 'compa ny' and so clearly anticipates that there will be a grouping
of humans capable of passing resolutions which bind the corp oration, while the
statutory definition of 'special resolution' clearly anticipates that the members of the
company will vote.35 As regards the directors, there is no reference in the legislation to
the 'board' as such, 36 and it is possible to replace the default provision vesting
management in the dire ctors with a bespoke provisio n for a governing dire ctor, or a
clause naming a particular individual or individua ls to manage the business. It would
also be possible if ill-a dvised to vest management powers in the general meeting.
A further question then arises: if the shareholders in general meeting deleted the
default provision allocating management power to the board, as well as the replacea ble
rule allowing them to appoint directors, who would be responsible for management? It
seems likely that a court would rule that management powers revert to the general
meeting, since to rule otherwise would leave the corporation without a grouping
responsible for management.37 The essential point is that few would contend that a
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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 8 95 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.
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corporation with such a constitution had not been created; it would simply be viewed
as dysfunctional.
The main corporate law question for t he issue addressed in this article is how the
decisions and acti ons of the board and general meeting are attributed to the
corporation. These groupings could in principle be treated as either organs or agents of
the corporation. If the board of directors and the general meeting are treated in law as
organs rather than agents, then this means that they act as the corporation, rather than
on its behalf. If the law grants such status however metaphorical it is to these
groupings of individuals, this would provide powerful support for the position that
incorporation necessarily presupposes or implies prior designation of the organs;
without organs, a corporation can have no meaningful existence or autonomy. On the
other hand, if the law treats either or both of these groupings as mere agents, then it
could be argued that the corporation as a separate entity pre-exists them, or at least has
a viable existence without them. In general, academic works in the United Kingdom
and Australia accept the general meeting as an organ of the corporation, although
there is litt le by way of judicial authority on the point.38 Moreover, what little judicial
authority exists for treating the board of directors as an organ rather tha n an agent is
not entirely convincing.
As we foreshadowed earlier, the privileged, organic position of the shareholders,
whose collective decisions are treated as decisions of the company, is a remainder from
the days when the general meeting of the partnership was 'the company', and its
decisions obviously bound not only itself but also the agents of the partnership, the
managing partners. Yet it can be argued at least from a normative perspective
that the general meeting should be treated in law as an agent rather than an organ. The
shareholders' privileged position as an organ whose collective decisions are attributed
by law to the separate corporate entity is a legacy from partnership days, prior to the
separate legal entity principle. The courts began to come to terms with the implications
of the interposition of the separate legal entity for the board-shareholder relationship,
when they rejected the idea that the board was merely the agent of the shareholders.
However, the continued insistence that the general meeting is an organ of a 'separate
legal entity' highlights the incompleteness of the transition from partnership law and
norms to a system of corporate law which seriously treats the corporation as a distinct
legal entity with its own interests. It would arguably be more coherent to jettison the
notion of organs altogether and move entirely to agency, although this would raise the
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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); Austin and
Ramsay, above n 31, [7.070]; Elizabeth Boros and John Duns, Corporate Law (OUP, 2nd ed,
2010), 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 Moun t 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 ag encies may be set in motion, and the scope
of their respective authorities.'
He rej ected 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).
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possibility of a fiduciary duty on the general meeting to act in the best interests of the
corporation. 39
The position of the board is more complex. Australian texts generally assume that
the board is an organ of the company, 40 as do many English text books.41 However,
case law support for this proposition is less than unequivocal and the issue requires
more detailed consideration.
Gower and Davies' text on company law explains that
until the end of the nineteenth century, it seems to ha ve been generally assumed that the
proposition remained intact that the general meeting was the supreme organ of the
company and that the board of directors was merely an agent of the company subject to
the control of the company in general meeting.42
However, earlier cases such as Isle of Wight Railway Co v Tahourdin,43 which treated
the board as agent of the general meeting and therefore subject to its a uthority in the
form of a majority resolution were distinguished, and account taken of the
legislative impositi on of a separate legal entity, in Automatic Self-Cleansing Filter
Syndicate Ltd v Cuninghame.44 In that case, Col lins MR described the relationship
between the board and the company as follows:
It has been suggested that this is a mere question of principal and agent, and that it
would be an absurd thing if a principal in appointing an agent should in effect appoint a
dictator who is to manage him instead of his managing the a gent. I think that that
analogy does not strictly apply to this case. No doubt for some purposes directors are
agents. For whom are they agents? You have, no doubt, in theory and law one entity, the
company, which might be a principal, but you have to go behind that when you look to
the particular position of directors. It is by the consensus of all the individuals in the
company that these directors become agents and hold their rights as agents. It is not fair
to say that a majority at a meeting is for the purposes of this case the principal so as to
alter the mandate of the agent. The minority also must be taken into account. There are
provisions by which the minority may be over-borne, but that can only be done by
special machinery in the shape of special resolutions. Short of that the manda te which
must be obeyed is not that of the majority it is that of the whole entity made up of all
the shareholders. If the mandate of the directors is to be altered, it can only be under the
machinery of the memorandum and articles themselves. I do not think I need say more.45
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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 posi tions 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, 845.
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) 177.
42 Paul Davies, Gower and Davies' Principles of Modern Company Law (Sweet & Maxwell, 8th ed,
2008) 369.
43 (1884) LR 25 Ch D 320.
45 Ibid 4243.
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This dictum treats the directors as agents of the legal entity, with the shareholders
only able to give instructions or change the mandate of the directors by means of
changing the memorandum and articles b y special resolution or unanimous
agreement.46 Only when it acts in this way is the general meeting treated as the
'principal' or as an organ of the company, with 'the whole entity made up of all the
shareholders' giving a mandate to the directors. In contrast, and since their mandate
issues from the corporate entity, the board of directors are 'agents' rather than an organ
of the corporation.47 Further support for this interpretation could be drawn from the
Court of A ppeal's insistence that the shareholders can vary the identity of the
management grouping and the scope of its powers by altering the constitution by
special resolution. One wo uld expect that it is not possible to change an organ whilst a
body continues to function!
Although one contemporaneous case created some doubt about the universality of
the Cuninghame principle,48 the general principle was confirmed by the English Court
of Appeal in John Shaw & Sons (Salford) Ltd v Shaw:
The only way in which the general body of the shareholders can control the exercise of
the powers vested by the a rticles in the directors is by altering the articles, or, if
opportunity arises under the articles, by refusing to re-elect the directors of whose actions
they disapprove. They cannot themselves usurp the powers which by the articles are
vested in the directors any more than the directors can usurp the pow ers vested by the
articles in the general body of shareholders.49
A similar approach was taken in Winthrop Investments Ltd v Winns Ltd, where the
New South Wales Court of Appeal emphasised that the general meeting has
no general power to transact the company's business or to give effective directions about
its management ... The general meeting is not, I think, the proper forum to determine
matters of management, however critical they may be. The area of management is one in
which the shareholders have no directly effective will. 50
These dicta confirm that the articles (and now th e replaceable rules and the
constitution) of the corporation divide power between the board and general meeting,
and that both groupings exercise the company's powers in the spheres carved out for
them by the constitution. The argument is that the general meeting acts as an organ
with its acts automatically attributed to the corporate entity, but the board of directors
acts as an agent of the corporation, both in managi ng its business generally and in
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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), 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, 6834 (Samuels JA).
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making specific contracts on its behalf. This argument found support in the sixth
edition of Ford's Principles of Corporations Law:
Although the board is not a delegate of the general meeting, the board's decisions are
made for the company and not by the company. The only decisions made by the company
are those made by the company in general meeting, that is to say, a general meeting of
the members. One sign of the difference is that the directors are in a fiduciary
relationship to the company but the general meeting is not.51
However, la ter editions of Ford's Principles appear to have resiled from this view,
and in the current, fourteenth edition of Ford's Principles, a 'principal argument for the
organic approach', is said to be that 'it is an inevitable consequence of the view that on
incorporation, a company is a discrete entity.'52 There seems to be an assumptio n that
if the board of directors is no longer the agent of the shareholders, then it must be an
organ of the company. With respect, Cunninghame and Shaw provide no support for an
argument that the board is an organ of the company. Instead they simply support the
legally unproblematic proposition that the constitution carves out a sphere of
protected decis ion making, withi n which the shareholders cannot interfere otherwise
than by altering the constitution. This says nothing about whet her the board's
decisions are attributed to the corporation via the organic route or via more standard
agency principles. Yet the current edit ion of Ford's P rinciples states that a 'now widely
accepted' approach 'treats both the board and the members in general meeting as
corporate organs.'53 Later, it states unequiv ocally that 'the board is more than an agent;
it is also a primary organ of the company.'54
Three Australian cases are relied upon in support of t his conclusion that the board
is an organ. However, none of these cases provide direct, unequivocal support for this
conclusion. The first case, Richardson v Landecker,55 concerned a challenge to a lease
which was signed by the company's managing director, ra ther than executed under its
seal. Street CJ emphasised that '[a] company requires some human agency in order to
manifest its intention, and the signature ... merely gave an operative effect to the name
of the company already printed on the d ocument.'56 This distincti on between
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51 Harold Ford and Robert Austin, Ford's Principles of Corporations Law (Butterworths, 6th ed,
1992) [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 per spective, 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.
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authenticating consent and actually giving consent as an agent allowed the court to
hold the lease valid, relying on statutory provision recognising express or implied
authority. The court therefore concluded that the managing director had authority
which was not disp uted in the case to act as an agent to authenticate the company's
execution of the contract. However, the case nowhere explains how the company gave
its assent to the lease. It does not say t hat the board approved the lease as the
company, and it could e qually be argued that the board approved the lease as agent of
the company, with the managing director simply a uthenticating the company 's
approval by signing the documentation.
The second case is Black v Smallwood.57 This High Court decision concerned whe ther
Smallwood and another, who had signed a contract as directors of a company that they
believed existed but was in fact non-existent, would be personally liable on the
contract. The majority concluded that Smallwood and colleag ue did not enter into any
contract. The case provides no authority for the proposition that the board of d irectors
acts as an organ of the company.
In the third case, MYT Engineering Pty Ltd v Mulcon Pty Ltd,58 a deed of
arrangement was executed by affixing the company seal witnessed by one person who
purported to attest as director and secretary. This did not comply with the requirement
of the articles of association that it be countersigned by a second director. The statutory
rule also required dual attestation. Howeve r, a High Court majority held that a deed of
company arrangement did not have to be executed as a deed,59 and that the statutory
requirement that '"the company" execute the instrument ' should be understood to
require 'a visible expression of the company's assent to the terms'.60 In this case the
company assented to the deed of arrangement by means of the Duomatic principle: 'All
the corporators agreeing that the instrument should be executed, there is no separate
question abo ut whether the co mpany assented to it. The question is about t he
sufficiency of the manifestation of the a ssent.'61 In other words it was the general
meeting acting by the unanimous consent of shareholders that was the relevant
organ for these purposes, so the case is not authority for the proposition that the board
of directors acts as an organ whose decisions are decisions of the corporation.
Ramsay, Stapledon and Fong argue that there is a distinction betwee n the
'substantive authority' of officers to exercise corporate power, and the 'formal
authority' of officers to provide the company's assent in t he proper form, with the
statutory assumption of due sealing relati ng only to the latter.62 This is important, they
suggest, because it remains necessary to demonstrate that the company authorised the
transaction for it to be binding. On the question of where substantive authority might
be found, Ramsay, Stapledon and Fong suggest that a third p arty might rely either on
'common law age ncy principles, to show t hat a pers on who dealt with them on behalf
of the company had (express or implied) actual authority or ostensible authority to
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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, 39.
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commit the compa ny to the transaction in question' or the statut ory assumptions.63
They do not argue that the board of directors may act as an organ of the corporation
for the pur poses of concluding a contract. It seems equally if not more plausible
that a decision of the board of directors that a corporation sh ould enter a particular
contract might be attributed to the separate legal entity by age ncy principles. However,
although the latest edition of Ford's Principles maintains this dist inction between formal
and substantive assent, it argues that 'not only must the act be authorised by an organ
of the company but also the company must manifest in proper form its intention to be
bound.'64 While this for mal and substantive authority distinction is doubtless a correct
statement of the law, there is nothing in any of the case law to indicate that substantive
assent has to be given by an organ as opposed to an agent with appropriate authority.
It could be argued , following Cuninghame, that the replaceable rule, empowering the
directors to manage the corpora tion,65 makes the board of directors an agent with
unlimited authority to manage the company's business and to enter into contracts on
its behalf, subject only to fiduciary duty.
A final authority requiring consideration in this context is Meridian Global Funds
Management Asia.66 In that case, Lord Hoffmann gave the Privy Council's seal of
approval to the organic approach as a rule of attribution. However the question arose
in the highly specific context of when and how a state of mind can be attributed to a
corporation for the purposes of particular provisions of civil and criminal law. In going
considerably further than earlier authority, in which courts had concluded that it was
necessary to identify an alter ego or organ of the company, Lord Hoffmann said:
Any proposition about a company necessarily involves a reference to a set of rules. A
company exists because there is a rule (usuall y in a statute) which says that a persona
ficta shall be deemed to exist and to have certain of the powers, rights and duties of a
natural person. But there would be little sense in deeming such a persona ficta to exist
unless there were also rules to tell one what acts were to count as acts of the company. It
is therefore a necessary part of corporate personality that there should be rules by which
acts are attributed to the company. These may be called 'the rules of attribution'.
The company's primary rules of attribution will generally be found in its formal
constitution, typically the articles of association, and will say things such as 'for the
purpose of appointing members of the board, a majority vote of the shareholders shall be
a decision of the compan y' or, 'the decisions of the board in managing the company's
business shall be the decisions of the company'. There are also primary rules of
attribution which are not expressly stated in the articles but implied by company law,
such as 'the unanimous decision of all the shareholders in a solvent company about
anything which the company under its memorandum of association has power to do
shall be the decision of the company '.
These primary rules of attribution are obviously n ot enough to enable a company to go
out into the world and do business. Not every act on behalf of the corporation could be
expected to be the subject of a resolution of the board or a unanimous decision of the
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63 Ibid 501.
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 732.
2011 Does the Corporations Power extend to Re-constituting Corporations? 85
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shareholders. The company therefore builds upon the primary rules of attribution by
using general rules of attribution which are equally available to natural persons, namely,
the principles of agency.67
Moreover, Lord Hoffmann emp hasised, the releva nt statute may, on its tr ue
construction, impose a spe cific attribution rule which differs from bo th of the above.
Three points should be noted about Lord Hoffmann's judgment. First, the actions
under consideration were committed below board level (by 'chief investment
managers'). Hence his comments that the actions of boards are attributed to companies
through the 'primary' organic principle are strict ly obiter. Second, neither the
replaceable rule in Australia, nor the default rule in the new United Kingdom model
constitution, state explicitly that decisions of the board are decisions of the corporation.
Both provisio ns co uld equally and acc ording to o ur interpretation of the cas e law
should be interpreted as the board managing the business of the corporation as
agent (with unlimited authority, subject only to fiduciary duty and to the shareholders'
limited power to act as 'principal'). Third, and perhaps most imp ortantly, Meridian
Global was a response to the difficult question of which human being's state of mind
should be attributed to the corporate entity for the purposes of criminal liability. There
is no necessary reason to assume that this limited doctrine should be applied more
generally to the law of corporate governance.68
THE LIMITATIONS OF CORPORATE LAW AND THEORY
Ultimately, the precise nature of the legal relation between the board and the legal
entity is unlikely to arise for determination in the ordinary course of corporate
litigation. Whether it is an agent or an organ, the board has full internal management
power under the default rules. Third parties dealing with a British corporation can rely
upon s 40 of the Corporations Act 2006 (UK), which states that 'the power of the
directors to bind the company, or aut horize others to do so, is deemed to be free of any
limitation under the co mpany's constitution.' This appears to anticipate that the power
of the board to b ind the corporation might be restricted under its constitution; which
might provide furt her support for the argumen t that the board is an agent rather than
an organ, since the decisi ons of an organ automatica lly become decis ions of the
corporation and therefore cannot be restricted. As we saw above, the Australian
Corporations Act 2001 (Cth) allows a company to execute a document if it is signed by
two directors, and permits outsiders to rely on such a document. In an appropriate
case it might be possible to argue that this provision merely relates to formal authority,
and that the question of substanti ve authority to enter the transaction must also be
addressed. However, this is unlikely t o arise in practice since those dealing with
companies in large transactions (for which board approval would be required) will
invariably insist on seeing a board resolution approving the transaction or giving very
_____________________________________________________________________________________
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).
86 Federal Law Review Volume 39
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wide authority to an individual agent.69 The cumulative effect of these considerations
is that the legal status of the board is unlikely to arise for determination in private
litigation. Perhaps ironically, then, if the organ or agent question is ever to be directly
considered by Australian courts, it is likely to be in the context of the corporations
power under the Constitution.
Resolving the board 's status in corporate law could provide a potential pathway to
addressing the extent of the national Parliament's power to re-constitute the
corporation. If the board is an organ, there is an argument that it is an irred ucible
incident of corporate existence, and once a corporation is incorporated under law
derived from State power, the identity, composition and function of those organs
cannot be regulated by the national Parliamen t. Alternatively, if the constitution makes
the board an agent of the corpora tion, then the argument that s 51(xx) permits
regulation of the board is much stronger, since it is then nothing more than the means
by which the corporation exercises its capacities.
Realistically, however, corporate theory may never re solve our constitutional
question definitively. Both agency and organic theory have their ph ilosophical
limitations unsurprisingly since there is no necessary ontology or essence to an
artifice such as a corporation. The orga nic approach, insofar as it applies to the
shareholders in general meeting, has deep roots in company law history. As we have
shown, there is little or no explicit case-law supporting the idea that the board of
directors is an organ. There is no compelling reason why this historical re mnant should
be expanded and used to explain the relationship between the board and the
corporation. As we have suggested, the agency appr oach has certain attractions
because it draws on a well-established principle from contract and commercial law. It
may have been sensible to think of the board as an agent or delegate for the
partnership and may n ow be sensible to treat the board as an agent of the corporation.
Alternatively, and given the fictional status of the corporate principal, it may still be
preferable as both Davies and Gower, and the contemporary Ford's Princ iples insist
to treat the board as a n organ of the company and thereby reinforce dire ctors'
decisional autonomy from the general meeting (if only until the shareholders' next
opportunity to vary the constitution or remove the board).
More importantly, the language which is used to describe the law's attribution
process should not be conclusive. Both the corporate body and its orga ns are legal
fictions which serve depictional ra ther than definitive purposes. The concept of agency
is invoked, but the principal is a mere legal person. All these terms are simply labels
for the la w's existing policy that shareholders should be placed and maintained a t the
centre of corporate governance, but w ith their liability limited and their personal
property insulated from the risks of the business venture . The constitutional question
for any court looking at this issue is whether it is implicit in the Constitution that the
shareholders' status as decision-makers must be maintained free from interference by
the national government, or whether the issue of control a nd power within
corporations is an economic and political question of the greatest importance to be
resolved by the government of the day in pursuit of their version of the public good.
_____________________________________________________________________________________
69 And can then rely on Corporations Act 2001 (Cth) s 129(7) to assume that the board
resolution is genuine.
2011 Does the Corporations Power extend to Re-constituting Corporations? 87
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THE HIGH COURT ON S 51(XX) AND THE CORPORATION
If corporate law theorising can offer no clear solution to the questio n of whet her the
corporation has an irreducible core, constitutional law is no more definitive, since the
question has received little dire ct discussion in constitutional precedent. There is, of
course, the Incorporation Case, to which we will shortly turn, although strictly speaking
it only discussed the question of 'formation' in the sense of creation, and it is far from
clear whether 'formation' includes the division of powers under the constitution.70
Since the question of 'formation' was also discussed in Huddart Parker, that case will be
discussed as well. In particular Isaacs J's judgment deserves attention since it is the
closest any judge has come to giving an y sustained attention to our question. The other
two cases whose entrails bear examination happen to be amongst the greatest in
political magnitude and judicial prolixity in the High Court's history. These are the
200 pages of judgments in the Bank Nationalisation Case of 1948 and the almost 400
pages of judgments in the WorkChoices Case of 2006. We will now turn to these four
cases, keeping in mind they are at best a source of suggestive dicta on whether the
corporations power extends to the corporate constitution.
Huddart Parker71
This 1909 case concerned the reach of the corporations power over corporate activities,
in particular anti-competitive activities. In the course of their judgments however, all
the members of the High Court agreed that s 51(xx) does not empower a national law
for the creation of trading or financial corporations. Our interest is in ho w the judges
understood the notion of the 'creation' of a corporation.
Griffith CJ said that the Commonwealth would have power to regulate the
operations of corporations in specific fields, but not their capacity to act. As he put it:
I think that pl xx empowers the Commonwealth to prohibit a trading or financial
corporation formed within the Commonwealth from entering into any field of operation,
but does not empower the Commonwealth to control the operations of a corporation
which lawfully enters upon a field of operation, the control of which is exclusively
reserved to the States.72
Not much weight however can be put on statements like this in considering
whether the Commonwealth could regulate the identity of those groupings (such as
board and general meeting) exercising corporate capacity. The capacity discussi on in
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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 r ise 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 107.
71 Huddart Parker (1909) 8 CLR 330.
72 Ibid 354.
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Huddart Parker was infected with assumpti ons about reserving regulatory control of
corporate activities to the States.
Barton J's judgment similarly sheds no light on our question. He simply agreed t hat
'formed' meant 'already in being' and that regulation of intra-state trading was
reserved to the States. None of these dicta shed any light on whether the Sta tes'
exclusive right to 'creation' encompasses an exclusive right to regulate the corporate
constitution.
O'Connor J went a little further in this d irection. Like Griffith CJ, O'Connor J cited
Westlake's Private International Law to the effect that
[t]he regulation of any artificial person, in matters concerning only itself or the relations
of its members, if any, to it and to on e another, must depend on the law from which it
derives its existence. Th at law is its personal law, or in other words it is domiciled in the
country of that law.73
He then held that the power was confined to 'corporations already created, or to
use Westlake's expression, "artificial persons" already in being.'74 Without argument, he
concluded that
[s]peaking generally, therefore, the power of creating corporations, that is, the power to
give them legal ex istence and to regulate their form, their incidents, the relations of their
members to the corporation and to one another, is left to the States.'75
Higgins J emphasised that he was not 'givin g any final or exhaustive definition' but,
like his fellow judges, concluded that s 51(xx) 'does not give any power to incorporate
companies.'76 Any Commonwealth power to deal with incorporation is 'implied, not
express, not direct and independent, but ancillary, incidental to its other powers.'77
This would allow the national Parliament to
regulate such companies as to their status, and as to the powers which they may exercise
within Australia, and as to the conditions under which they shall be permitted to carry on
business … The Federal Parliament can, in my opinion, prescribe what capital must be
paid up, probably even how it must have been paid up (in cash or for value, and how the
value is to be ascertained), what returns must be made, what publicity must be given,
what auditing must be done, what securities must be deposited.78
On this basis, the 'Federal Parliament controls as it were the entrance gates… the
right to do business and continue to do business in Australia'.79 This view is not at
odds with a law regulating the corporate constitution.
It was left to the dissenting judgment, of Isaacs J, to give opinions closest to the
question we are considering. Notoriously, his judg ment was informed by the belief
that the adjectives 'trading' and 'financial' guided the interpretation of s 5 1(xx):
Just as their incorporation distinguishes them from natural individuals, so their trading
or financial capacities distinguish them from other corporations, and it is as necessary to
give effect to the words 'trading' and 'financial' as to the word 'corporation.' A power to
alter their internal management would not give that effect, but would cross the line of demarcation
_____________________________________________________________________________________
73 Ibid 3701.
74 Ibid 371.
75 Ibid.
76 Ibid 412.
77 Ibid.
78 Ibid 4123.
79 Ibid 413.
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between these and other corporations as plainly as a general criminal law would obliterate the
distinction between corporate bodies and ordinary individuals.80
In similar vein:
The power does not look behind the charter, or concern itself w ith purely internal
management, or mere personal preparation to act; it views the beings upon which it is to
operate in their relations to outsiders ...81
Isaacs J's ultimate conclusion that corporate a ctivities were within power is more
modern than that of his brethren. Indeed he alone realised that the majority approach
in Huddart Parker rendered s 51(xx) a 'mere shadow.'82 Nevertheless, Isaacs J shared the
Court's view that s 51(xx) only covered already existing corporations. More relevantly
to our question, he argued that the word 'formed'
would be meaningless if the power of creation, either in the first instance, or by way of
adding capacities were included. Indeed, this follows from the nature of a corporation. It
is entirely a legal conception. Nowhere is the notion better stated than in the celebrated
Dartmouth College v Woodward, where Marshall CJ said: 'A corporation is an artificial
being, invisible, intangible, and existing only in contemplation of law. Being the mere
creature of law, it possesses only those properties which the charter of its creation confers
upon it, either expressly, or as incidental to its very existence.'83
Accordingly, by the ti me the national Parliament comes to consider what it may do
with s 51(xx) corporations
[i]t finds the artificial being in possession of its powers, just as it finds natural beings
subject to its jurisdiction, and it has no more to do with the creation of the one class than
with that of the other.84
Perhaps the key passage of Isaacs J 's judgment is his argu ment that 'internal
administration [was] a subordinate power to that of creation', so that s 51(xx) only
covered 'a corporation as a completely equipped body ready to exercise its faculties
and capacities'.85 He there fore rejected the idea t hat the Commonwealth c ould
prescribe wages and hours or require directors to have certain qualifications, on the
grounds that these are 'purely internal management and equipment '.86
Isaacs J went on to also reject the view that
the Constitution has handed over to the Federal Parliament … the body of company law.
That would include all the prohibitory and creative provisions contained in the State
Statutes; it would also include the pow er to alter the conditions of a company's existence,
which is equivalent to creation, and to annihilate the corporation altogether which I
think is, equally with creation, outside the region of federal competency.87
A strong organic theory is reflected in Isaacs J's idea that 'the power to alter the
conditions of a co mpany's existence ... is equ ivalent to creation'. Yet once more
_____________________________________________________________________________________
80 Ibid 3978 (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 3945.
90 Federal Law Review Volume 39
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assertion is involved rather than argument. It is far from obvious that dissolution is
necessarily the mirror image of creation.88
Isaacs J concluded that s 51(xx) was
a power to act upon certain beings, w hich are found and remain in actual existence,
possessing a fixed identity, a defined ambit of potentiality, having certain capacities and
faculties una lterable by the Commonwealth, beings ready to act within their sphere of
capabilities in relation to the people of the Commonwealth.89
Isaacs J's ultimate concern to protect 'internal management' was tainted by the pre-
modern search f or limits to the corporations power. A few later judges, notably Gibbs
CJ, took up the idea that 'trading' or 'financial' were magic words capable of sensibly
delimiting Commonwealth power. 90 But that approach is now dead; as is the
correlated search for a distinction between 'internal' and 'external' a ffairs.
The passages we have quoted from Isaacs J are redolent of the organic view, but
encompass a significant metaphorical slippage. The corporation is, in one breath an
artifice, impliedly in need of organs. Yet in the next breath it is assimilated with
'natural beings', who have inherent qualities, determined by evolution and physical
fact, which predate any law. Even if the organic view is necessarily true, it is never
explained why the organs must be f ixed so that Commonwealth power would not
extend to re-forming them. Perhaps t his is why the metaphorical slippage is re quired:
Isaacs J wants us to imagine the corporation as a natural person. Tinkering with the
organs someone was born with conjures a sense of danger or a god-like attempt to
reinvent the person.91 Yet the metaphor is at best partial: the organs are artificial to
begin with and subject to human rather than natural law.
The judgme nts in Huddart Parker are probably guilty of failing to take sufficiently
seriously the separate legal personality of the company. Isaacs J, in particular, assumes
that the q uestion of whether capacity exists and the question of the identity of t he
actors or organs who decide how a corporation should exercise that capacity are
inseparable. It could equally be argued that corporate capacity is an incident of
incorporation, while the manner in which that capacity is to be exercised is a question
of the entity's ongoing operation. O'Connor and Barton JJ did not go as far as this,
confining themselves to the observation that the Commonwealth could not regulate
the relations between mem bers. Griffith CJ stopped considerably short of this position,
insisting only that capacity is a question for the State of incorporatio n. Thus for him the
question of ultra vires (or a corporation ex ceeding its constitutional capacity) remained
a matter for the States; whether he intended this to encompass not only the objects of
_____________________________________________________________________________________
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, 1167 (Gibbs CJ).
91 Except of course if the organs are failing.
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the company, but also the identity a nd composition of the entities capable of making
decisions on behalf of the company, is unknowable.
Higgins J's position is the most ambiguous: he suggests that the national Parliament
can make laws in relation to capacity, status and the conditions for carrying on
business. This would seem to imply that Parliament can regulate the corpora te
constitution including the composition of its organs. E ven Isaacs J would allow this if it
were 'necessarily incidental' to the control of cor porate activity in relation to
outsiders.92 This would arise where a regulatory strategy over internal governance is
needed to achieve a particular outcome, like the protection of t hird parties. An
example is where command and control regulation is incapable of achieving
regulatory goals, for example where transaction costs are prohibitive or the regulatory
context complex and differentiated. Indeed it has been recognised, at least since Stone's
Where the Law Ends, that the most viable way to ensure corporate responsibility is via
the corporation's internal mechanisms.93
To summarise Huddart Parker, none of the judges ruled out the prospect that the
national Parlia ment could intervene in t he corporate constitution. But none, with the
possible exception of Higgins J , appears to have condoned it. On the contrary, Isaacs J
attempted to erect barriers to such regulation by implicitly invoking an organic theory
of the corporation. Yet, as we noted earlier, shorn of Isaacs J's assumptions that
'trading' or 'internal' affairs limit s 51(xx)'s scope, on a ny literal reading of s 51(xx) the
Commonwealth would have power to re-constitute corporations once formed. Mining
Huddart Parker, a century on, remains a difficult exercise, since much of the reason ing is
infected with approaches now overruled. T he case also arose barely three years after
Cuninghame, at a time when it was still not clearly established that the board was not a
mere agent of the shareholders.94
The Bank Nationalisation Case95
The Bank Nationalisation Case thwarted the Chifley government's attempt to nationalise
the banking sector, by forbidding private banks from operating or compulsorily
acquiring them. The attempt foundered constitutionally, on findings that the
compensation mechanism was not 'just' and, more crucially, on the then fashionable
view that interstate trade was guaranteed as a matter of individual right. 96 The case is
of prese nt interest since th e Commonwealth sought to defend the nationalisation via
the corporations power. While the nationalisation Act centred o n activities, it
effectively sought to eradicate a type of corporation (the private banks) and provided
for the dissolution of their boards and appointment of government officials in their
stead.
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92 Huddart Parker (1909) 8 CLR 220, 396.
93 Christopher Stone, Where the Law Ends: the Social Control of Corporate Behavior (Harper &
Row, 1975).
94 See above, text accompanying nn 448.
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 appea l procedure and
the width of s 92's guarantee of freedom of interstate commerce.
96 Cf Cole v Whitfield (1988) 165 CLR 36 0. The Commonwealth today could nationalise not just
banking, but a host of other corporate-dominated sectors, if only it could afford just terms.
92 Federal Law Review Volume 39
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Latham CJ, after noting debate about the defensibility of Huddart Parker, stated that
[t]he one thing that is clear ... is that [the corporations power] assumes the existence of
corporations ... If the corporation is already formed, it derives its existence and its
capacity from the law which provided for its formation. ... [T]he existence and the powers
and capabilities of any corporation to which s 51(xx) applies depend upon some law
other than a law made under that provision.97
The stateme nt is hardly emphatic. 'Existence' could be read as merely referring to
the corporation having been formed as a separate legal entity, consistent with the
agency view. Alternatively, 'existence' may have some irreducible core, as implied by
the organic theory.
A clearer suggestion of post-formation limits to the cor porations power is contained
in the joint judgment of Rich and Williams JJ:
It was contended that the power was sufficien tly wide to enable the Commonwealth
Parliament to prohibit [constitutional] corpor ations carrying on business at all in
Australia. But the pow er operates on such corporations as existing entities ... it would be
inconsistent with a power to legislate depending on such a basis to construe the power as
wide enough to authorize [prohibition of carrying on business at all] It was also
contended that [the power] would authorize the Commonwealth Parliament to legislate directly to
alter the regulations of [constitutional corporations], but since the power is with respect to
existing corporations and the regulations are part of their formation, such legislation would be
beyond power.98
While Rich and Williams JJ did not define what they meant by the 'regulations' of a
corporation, they presuma bly envisaged essential features of the memorandum and
articles of association. A corporation's board and gene ral meeting might comprise the
minimum entities needed for the corporation to be self- governing. While little can be
gleaned from this Delphic reference as to the scope of these 'regulations', their Honours
seem to be endorsing Isa acs J's view that some irreducible aspects of i nternal
governance are reserved to State power.
A fourth judge, Starke J, made tangential but possibly suggestive comments the
other way. In discussing the banking power, he drew a distinction between regulating
activities (banking) and entities (corporate structure). The banking power, he argued,
did not drill so deep that the Commonwealth could 'ignore the internal structure and
regulation of the trading banks and shape that structure and those regulations as it
pleases. Legislation of that character would relate to companies or corporations … and not to
banking.'99 This remark could suggest that the corporations power includes a power to
regulate corporate 'internal structure and regulati on'. But it could also be consistent
with Rich a nd Williams JJ 's suggestions that the constitution of a corporation, once
formed, is outside Commonwealth power.100
Ultimately, the Bank Natio nalisation Case's significance for s 51(xx) is limited, since
all the judges assumed that the banking power ca rved out its own space, such that the
corporations power was inapplicable to the attempt to regulate banking
_____________________________________________________________________________________
97 Bank Nationalisation Case (1948) 76 CLR 1, 202.
98 Ibid 2556 (emphasis added).
99 Ibid 315 (emphasis added).
100 Indeed like Starke J (ibid 315), Rich and Williams JJ (at 2578) a rgued that the banking
power was not a power to regulate the structure of banks already formed under State law.
2011 Does the Corporations Power extend to Re-constituting Corporations? 93
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corporations.101 After many days of hearings, centred on intricate disputes about the
banking power, just terms and interstate tra de, a conservative bench, clearly minded to
strike down a socialist law, was barely focused on the corporations power.102 Even if
the passages we have cited were not a ll obiter, they would be thin gruel. In addition,
the case was decided in Huddart Parker's shadow. By contrast, the Incorporation Case
dealt with the concept of 'formation' at a time when Huddart Parker's very narro w view
of 'what affairs' fall within the corporations power had been hosed away.
The Incorporation Case103
This case considered the constitutionality of a national law, made under s 51(xx), for
the inc orporation of trading and financial corporations, an issue foreshadowed in an
academic exchange in 1974.104 The High Court majority concluded that the power did
not extend to bringing into 'existence the artificial legal persons upon which laws made
under the power can operate.'105 The majority relied heavily on a literal or
grammatical argument that 'formed' was a 'past participle',106 in the sense 'which have
been formed'. The majority also relied on its reading of Convention Deba tes and drew
a distinction between recognising the 'status' of an existing corporation and creating
new corporations. It felt this argument was buttressed by the presence of the class of
'foreign corporations' in s 51(xx).
The majority thus endorsed the unanimous opinion in Huddart Parker that s 51(xx)
was not a power to crea te corporations. But unlike Huddart Parker, the judges were
wary of straying into obiter discussions of the extent of the power. If the issue of the
power t o re-constitute corporations entered their minds, their Honours chose to stay
silent. They gave no detail about what it means to legislate for the crea tion of
corporations, and no guidance as to whether the limit against creating corporations
extends beyond the mere act of granting personality to a legal f iction. The closest they
came was to cite Huddart Parker's rejection of a Commonwealth power to create
corporations based on a textual (rather than reserved powers) analysis, and to quote
Isaacs J's view that s 51(xx) 'finds the artificial being in posses sion of its powers, just as
it finds natura l beings'.107 The issue of where the line is to be drawn between creation
and regulating the corporate constitution should not however have been overlooked.
By 1990 there was clear momentum to read s 51(xx) as a plenary power.
_____________________________________________________________________________________
101 Contrast how the WorkChoices Case denied that the specific industrial disputes power in
s 51(xxxv) meant that the corporations power could not suppor t a general industrial
relations law for corporations. Explicit limits in one power however may a pply 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) 103.
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 119 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 407, denied such power.
105 Incorporation Case (1990) 169 CLR 482, 498.
106 Ibid.
107 Ibid 499 500.
94 Federal Law Review Volume 39
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In co ntrast to the rather declamatory but narrow target approach of the majority,
Deane J's dissent gave greater consideration to the scope of the power, including the
scope for federal intervention in internal management. He began with the notion that
'[i]ncorporation mean s the acquisition or conferral of corporate personality under the
law.'108 However he rejected a narrow interpretation of s 51(xx) rooted in the word
'formed'. Instead, he offered a rival literal meaning:
[Reading] the phrase 'formed within the limits of the Commonwealth' in
contradistinction to 'foreign', the w ord 'formed' is properly to be understood as [a] past
participle as part of an adjectival phrase which is without temporal significance.109
That is, 'formed' merely meant 'formed within Australia' as opposed to 'foreign'.
The States could form corporations, but once the Commonwealth enacted a law
permitting incorporation of a trading or financial entity, that la w overrode State laws
on the topic.
Deane J confronted the judgments in Huddart Parker head-on, including that of
Isaacs J. As regards Isaacs J's conclu sion that t he power does not extend to laws about
the corpora tion as such, merely its external conduct, Deane reasoned that '[a] careful
examination of Isaacs J's judgment discloses no acceptable reason for such a strangely
distorted construction' of s 51(xx).110 Isaacs J's conclusion that 'laws with respect to the
internal management of local trading or financial corporations' were beyond s 51 (xx),
was, Deane J claimed, 'largely left as a matter of assertion'.111
In particular, Deane J argued that Isaacs J's notion that corporations exist only in
contemplation of the law should 'support an expansive rather than a restrictive
construction of a legislative power conferred "with respect to" such corp orations.'112
That is, the fact that corp orations were purely creatures of the law was no reason to
adopt a restrictive reading of s 51(xx). On the contrary, to Deane J a broad reading of
s 51(xx) was consistent with the post-Engine ers approach to interpreting
Commonwealth powers broadly:
To deny that laws dealing with the capacities, the capital, the internal management or the
liquidation of local trading or financial corporations fall within the scope of a leg islative
power with respect to such corporations seems to me to involve a denial that the words
of the constitutional grant of legislative power mean what they say. Once that conclusion
is reached, Isaacs J' s judgment offers no acceptable support for a conclusion that the
legislative power conferred by par (x x) does not extend to incorporation. To the contrary,
much of his Honour's judgment is concerned with demonstrating the impracticability of
separating legislative powers with respect to the powers, internal management and
liquidation of corporations from a legislative power with respect to incorporation.113
Of course Deane J's judgment is in a minority of 6:1. The Incorporation Case leaves us
with a clear ruling that the Commonwealth has no general power over incorporation,
yet no guidance from the majority as to the width of that ruling. In contrast, Deane J's
judgment presents a lone, but clear, even totalisi ng, internal logic, which won
_____________________________________________________________________________________
108 Ibid 504 5.
109 Ibid 506.
110 Ibid 509.
111 Ibid 509 10.
112 Ibid 510.
113 Ibid 510 1.
2011 Does the Corporations Power extend to Re-constituting Corporations? 95
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endorsement from commentators.114 His vie w that 'internal management' issues were
not beyond s 51(xx) have since been effectively endorsed in the WorkChoices Case,
which rejected any internal/external distinction.
The WorkChoices Case115
This case involved the Howard governme nt's use of s 51(xx) to underpin a general
industrial law. The government sought to bypass both the State industrial relations
systems and the historical reliance on the industrial disputes p ower. This legislative
gambit was upheld, in a joint, five judge opinion. In short, in answering the 'what laws'
question, the majority jettisoned the narrower 'distinctive character' in favour of a
'discriminatory operation' test (thereby repudiating Isaacs J's approach). The
'distinctive character' test focussed on whether corporate 'trading' was significantly
implicated by the law; the 'discriminatory operation' test merely asks whether the
legislation addresses or singles out corporations as a type of juristic person.
In formulating its test fo r the question of 'what' corporate affairs are within
Commonwealth power, the majority relied heavily on earlier judgments of Gaudron J,
in cases involving less fa r-ranging industrial laws. 116 In particular, they 'adopted' her
1995 understanding, in Re Dingjan, that the corporations power extends 'at the very
least to the business functions and activities of constitutional corporations and to their
business relationship s.'117 The WorkChoic es majori ty approvingly cited her
amplification of this in Re Pacific Coal, according to which s 51(xx):
extends to the regulation of the activities, functions, relationships and the business of a
[constitutional] corporation, the creation of rights, and privileges belonging to such a
corporation, the imposition of obligations on it, and in respect of those matters, to the
regulation of the conduct of those through whom it acts, its employees and shareholders
and, also, the regulation of those whose conduct is or is capable of affecting its activities,
functions, relationships or business.118
This statement reads compendiously, reiterating a mantra of corporate 'activities,
functions, relationships or business'. It is u nclear, however, whether these categories
encompass the organ or organs of a corporation; although 'rela tionships' and 'those
through whom it acts' might be interpreted as encompassing the corporation-bo ard
and perhaps even the corporation-shareholder relationship.119 Gaudro n J, in 1995,
made clear that her definition was inclusive, not exclusive: the power exte nded 'at the
very least' to corporate activities, functions, relationships and business. 120
_____________________________________________________________________________________
114 Geoffrey Kennett, 'Constitutional Interpretation in the Corporations Case' (1990) 19 Federal
Law Review 223; James Crawford, 'The High Court and the Corporations Power' (1990) 3
Australian Corporation Law Bulletin 32.
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, 1145, 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 512.
120 Re Dingjan (1995) 183 CLR 323, 365.
96 Federal Law Review Volume 39
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On the one hand, Gaudron J's definition seems to envisage that the Commonwealth
can regulate the conduct of agents ('the conduct of those through whom it acts', to
which she expressly adds 'shareholders'). On the other hand, the term 'co nduct' could
impliedly exclude such prior questions as the identity or composition of the board or
the shareholders' power to elect directors. This a pproach might be consistent with
Isaacs J's argument that the company does not have capacity and therefore meaningful
existence without organs. But again, we are in the realm of speculation.
Commentary following the WorkChoices Case has depicted it as painting a limitless
vista as to 'what' corporate affairs lie within the corporations power. Admittedly, the
majority avoided endorsing the phrase 'plenary power', which had pe ppered the
judgments of Justices Mason, Deane and Murphy in earlier cases. However it also
avoided setting any limits to the power, other than those already established.121 The
majority sensed the plaintiff States were groping to argue that it was 'necessary to limit
the reach of the power' conceived otherwise as a 'power with res pect to persons'.122
The majority dismissed that sense of necessity as resting on two related heresies about
the consequences of readin g Commonwealth powers broadly. One was an illegitimate,
reserved powers approach to the federal -state balance. The other was a fear of a
rampant centralist government enacting laws that were not only ba d, but far-
reachingly bad. The majority pooh-poohed t his, denying that constitut ional
interpretation should be inhibited or spooked by 'extreme examples or distorting
possibilities'.123
In the end, nothing in the dicta or judgments to date suggests that the question of
who represents the company as agent lies outside the federal power. (Indeed, those
who can bind the company to third parties falls squarely within what Isaacs J assumed
was the purpose of the power.) Informed by a reading of Gaudron J's dictum in Re
Dingjan, the endorsement of Gaudron J's definition in WorkChoices is quite consistent
with the national Parliament having power over the composition of corporate boards.
Indeed if, as Gaudron J suggested in a later passage in Dingjan, her interpretation
implies tha t the power extends to 'the persons by and through whom they carry out
those functions and activities',124 the use of the word 'by' could even suggest that the
regulatory power extends to the identity of the corporate organs.
TEXTUAL AND PRACTICAL CONSIDERATIONS
The case law leaves us with a curious disjuncture. The corporations power, freed of the
heresies of Huddart Parker, has been read broadly and literally. However the plenary
trajectory of the power must accommodate the limitation in the Incorporation Case.
From there, the reservations of Isaacs J in Huddart Parker re-emerge as possible
limitations. The term 'formed ' invites speculation as to what the irreducible core of a
corporation may be, if anything. Yet literal and textual considerations give little
guidance. Sometimes it is argued that 'foreign corporations', also within s 51(xx)'s
purview, have a taken-for-granted status. It would make little sense for the national
Parliament to try to re-co nstitute the board or voting powers within a corpo ration
_____________________________________________________________________________________
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.
2011 Does the Corporations Power extend to Re-constituting Corporations? 97
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domiciled in, say, Delaware. But that is more a brute fact of the limitations of extra -
territorial law- making so that s 51(xx) must necess arily focus on foreign corporate
activity in Australia125 than it is a guide to any limitation on power over local
corporations. As the majority in WorkChoices recognised:
Treating the character of the corporations mentioned in s 51(xx) [foreign, trading or
financial] as the consideration on which the power turns produces awkward results. Why
should the federal Parliament's power with respect to Australian corporations focus upon
their activities, but the power with respect to foreign corporations focus only upon their
status?126
Zines has reasoned instead that since the Incorporation Case grants to the States the
'sole authority to crea te' most trading and financial corporations, 'it is not a n
unreasonable argument tha t those matters part and parcel of crea ting a corporation
and without w hich the corporation would be an empty shell, incapable of functioning
as a juristic person at all, are similarly outside Commonwealth power'.127 As Joseph
and Castan note, 'it is d uring the process of incorporation that companies set out'
internal management rules.128
These views seem to encompass the organic view of the corporati on. To Zines, there
are 'policy and logical arguments for limiting' Commonwealth laws over corporate
'internal organisation'.129 When Winterton and others replied that Zines' claim of logic
was 'overstated', though to be fair Zines had admitted his opinion was 'not, of course,
conclusive'.130 Zines was also, however, making a claim from practicality. It might
appear inefficient or meddlesome if a corporation formed under State law could have
its constitution altered by federal law. In Zines' lament, there is always a risk that the
High Court will opt for 'abstract a nd conceptual reasoning', rather than taking 'social
results or the efficiency of the governmental structure into account'.131
Is recognising a national power over corporate constitutions an y less practical,
however, than denying s uch power? In his contemporary commentary on the
Incorporation Case, Crawford assumed that the precedent went no fur ther than denying
the national Parliament a general power of incorporation: it could still deal with
'internal administrat ion, and schemes of arrangement, management and voluntary or
involuntary wind ing up. '132 Given the vital place occupied by questions of corporate
governance in the nation's economic and social life, there are good policy arguments to
ensure a national power over such key questions as the composition of the corporate
board.
If there is a concern with Commonwealth law meddling in the constitution of local
governments, universities and other 'public' corporations, the answer may be to rein in
_____________________________________________________________________________________
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, 4 th ed, above n 16, 106. Compare Kennett, above n 114, 226, countenancing a 'plenary
power' covering, inter alia, 'how companies are constituted'.
130 George Win terton et al, Australian Federal Constitutional Law: Commentary and Materials
(LBC, 2nd ed, 2007) 302; 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.
98 Federal Law Review Volume 39
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the expa nsive interpretation of the 'who' side of the scope of the power. That would
involve revisiting the need for limits on the types of 'trading corporations' cau ght by
s 51(xx), so as to exclude entities for whom trade is merely incidental to their public or
charitable purposes. This would still leave s 51(xx) as the key national economic power
including ensuring a national power over the constitution of profit-making
corporations, regardless of State referrals.
THE SCOPE OF THE CORPORATE 'CONSTITUTION'
So far we have avoided giving any definitive scope to the 'core' or 'constitution' of the
corporation. It is not something addressed by the High Court, except in va gue terms
such as 'internal management' and 'regu lations'. At the opening of this paper we
mapped the potential terrain in these terms: Can the federal Parliament legislate under
s 51(xx) to regulate the formation, composition, operation and dissolution of key
corporate mechanisms such as boards of directors or general meetings?
If a broad approach were taken to s 5 1(xx), founded in a view of the corporation as
a legal shell, a definition of the corporate constitution would barely be needed. All
trading and financial corporations incorporated in Australia would be subject to 're-
formation' under s 51(xx),133 except for a few purely formal matters suc h as their name,
number or seal in the original register of incorporation.134 The composition of boards
and even voting rights of shareholders would all be treated a s aspects of the ongoing
operation and governance of the corporation, no less susceptible to the corporations
power than say CEO remuneration clearly is, post WorkChoices.
But assuming such a clean but ex pansive approach did not find judicial favour,
there is a need to define which aspects of the corporate constitution are off-limits to the
national Parliament. (And the suggestions from both Huddart Parker and the Bank
Nationalisation Case are that it would not find favour.) Isaacs J talked vaguely of the
corporation as a 'completely equipped body ready to exercise its faculties and
capacities'.135 O'Connor J talked of corporations and their 'form, t heir incidents, the
relations of their members [ie shareholders] to the corporation and to one another'.
Rich and Williams JJ wished to protect the 'regulations' of the corporation. There is a
whiff in such phrases of t he standard conception of the written constitution of an
association as a contract between members.
It would be letting private law dictate constitutional law, however, to imagine that
whatever the memorandum and articles of association may potentiall y contain is off-
limits to the Commonwealth under s 5 1(xx). It would be formalistic as well, since those
documents have long ceased to be the product of some foundational compromise
between the associating members of a company. Rather they are today merely a
default set of replaceable rules designed to appeal to most businesses and, as such,
commonly adopted. It would also make no sense when it comes to a public corpo ration
established under Sta te law, such as a university or utility. The State legislation
_____________________________________________________________________________________
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.
2011 Does the Corporations Power extend to Re-constituting Corporations? 99
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founding such bodies typically covers many issues, including activities such as trad ing
that are clearly regulable by the federal Parliament under s 51(xx).
The term 'constitutio n' has a public law flavour, and we might look to that body of
law for a n essence to the concept. In public law the 'constitution' suggests an
irreducible core of governance structures and orga ns, without which there is no state
as such, and whose overthrow is a treasonable offence. In Australian Sta te
constitutional law there is also a well worn phrase 'the constitution [meaning
composition], powers and procedure of the Parliament'.136 Rules within that phrase
can be entrenched. By analogy, the composition, powers and procedure of the general
meeting and board of directors would fall outside s 51(xx). Political science also gives
us the concept of the 'thin constitution': this conceives of the essential constituti on as
limited to the composition and election of parliament. In corporate law, this could be
analogised to the rules about the qualifications and election of the board of directors,
particularly through the 'franchise' of the shareholders in general meeting.
But these public law analogies break down when one realises that there is no
overriding principle such as the universal franchise in corporate law or culture: some
shares have voti ng rights, others do not; the voting power of shareholdings can be
diluted through new issues, and so on. Further, the general meeting serves roles that
have no analogue in public law: for example, electors do not set parliamentary salaries,
whereas in listed companies general meetings have some control over increases in non-
executive directors' fees and termination benefits for employees, as well as an advisory
vote on executive payments.137 Nevertheless, a law regulating the setting of executive
remuneration is clearly valid under s 51(xx), following WorkChoices. Just as we cannot
anchor our understanding of modern commercial corporations in vi sions from old
company or associations law, nor can we map public law visions onto them.
Zines follows Issacs J in invoking the terminology of 'internal management' or
'organisation'.138 (At first gl ance such phrases may seem tautological: is not all
'management' internal? But they usefully distinguish autonomous management from
'external management' by a court appointed liquidator or administrator.) Can terms
from organisational theory help delimit the reach of s 51(xx)? Corporate governance
and management are certainly terms of art within corporate practice; however their
meaning in that parlance is much wider than Zines or Isaacs J appear to imply by
'internal management'. For ex ample, there is no more important management or
governance decision for a board of directors than the hiring or firing of the
corporation's key employee, the managing director or CEO. Yet WorkChoices i mplies
not merely that CEO remuneration and c onditions ar e firmly within the corporations
power, but so too would be laws regulating CEO qualifications and the manner of CEO
recruitment, selection and dismissal. A law requiring each board to establish a
recruitment sub-committee or for the board to unanimously agree the terms of hiring,
for instance, would be incidental to such affairs and hence within the corporations
power. Unless, that is, a Court decided to view the 'procedures' of the board as
essential elements of the corporation as formed. What then of a law regulating the
CEO's ability to sit on the board of directors? That could equally be characterised as a
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136 Dating to the 19 th 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.
100 Federal Law Review Volume 39
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law about the composition of the board and a law about the duties of the CEO. In
short, terms like 'internal management' may mask, rather than resolve, the problem of
defining any restriction on Commonwealth power to re-constitute corpora tions.
CONCLUSION
The question of Commonwealth power over the constitution of corporations is an
important one in several respects. At an abstract level it has significant intrinsic
interest. It invites us to reflect on the nature of a corporation. Textually, it forces us to
reconsider such deceptively simple-looking terms as 'formed' and 'corporation' i n
s 51(xx). And practically, corporate governance and social responsibility debates
suggest a variety of situations where a national Parliament mig ht wish to regulate the
corporate 'c onstitution', particularly in relation to the qualifications, composition and
remuneration of the board of d irectors. More specifically, legislative interve ntion
might be required in situations where the regulatory object ru ns counter to the
shareholder interest, and therefore falls outside the scope of the ASX Principles of
Corporate Gov ernance. At a political level, it is possible that a State will, in the future,
withdraw its referral of power in whole or part, thereby tempting a Commonwealth
government once again to test the reaches of the power.
We have covered a wide terrain of potential arguments in search of an answer to
the questio n of the scope of the Commonwealth's power over the corporate
constitution. Some High Court dicta (mostly of Isaacs J) seem consonant with the
'organic' theory of the board of direct ors. But ultimately, neither dicta nor corporate
law theory are conclusive. The dicta are tainted by the no w discredited
'internal'/'external' approach to the scope of the corporations power. Further, as we
have demonstrated, corporate theory cou ld just as well conclude that the board was an
agent, rather tha n an organ, of the incorporated entity. Some may argue that it is only
logical that the Incorporation Case barr ier to Commonwealth law to 'form' corporations
must extend to protecting some essential governance structures or mechanisms. But
they will need to define what is and is not protected: the composition of the general
meeting, or its process as well? And what of the composition and qualifications of the
board?
One practical adva ntage of recognising a barr ier against Commonwealth laws
affecting the 'constitution ' of incorporated bodies, is that it avoids the spectre of
Canberra 'meddling' in the governance of State owned or not-for-profit bodies.
However, that result cou ld also be reached by modifying the definition of 'trading
corporations', to focus on for-profit corporations established with the central purpose
of trading.139 It may otherwise be impractical to deny a national power to regulate the
corporate constitution, particularly the composition of boards, given their centrality to
corporate governance.
If and when the question arises for judicial determination, neither doctrine nor legal
theory will determine the answer. Here, we have presented a smorgasbord of
arguments each way. Our position is that the corporations power should be read
broadly, to include a power to reconstitute corporations. Zines, as we noted, has
lamented a general judicial tendenc y to favour abstract over policy reasoning. Not
dissimilarly, Hanks has argued that it has been a conceit to see questions of
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139 As to which see criticisms of the 'trading activities' test, above n 14.
2011 Does the Corporations Power extend to Re-constituting Corporations? 101
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characterising Commonwealth power as depoliticised. 140 Besides the pol itics of
federalism, in judging the validity of legislation there are inevitably values oriented
questions of the proper rol e of governments and markets. The Bank Nat ionalisation Case
is an obvious exa mple; but so too would be any use of the corporations power to
regulate the corporate constitution, whether it covered commercial board s or
university senates.
In the end, an answer to this question cannot be found within legal doctrine
because the corporation is a legal construct which reflects the dominant values of a
society. We would argue that the courts should recognise that constit utional principles
inevitably shift over time in line with dominant ideas about the proper balance
between regulation and market forces. It is far from convincing to argue that the
Constitution contains a fully formed model of corporate governance dating back to the
time it was drafted . Even if it did, that model would be unlikely to be suitable for a
twenty-first century system of globalised capital. An elected government might decide
to use regulation to alter the allocation of power within corporations, to solve a
perceived market failure or to addre ss socially important goals: for ex ample by
regulating excessive pay, addressing failures to take account of non-shareholder
interests or by mandating levels of expertise or gender balance on corporate boards. In
that situation, the courts should be wary of interfer ing with that decision, whether they
do so on the basis of legal doctrine or metaphysical allegories.
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140 Peter Hanks, 'The Political Dimension of Constitutional Adjudication' (1987) 10 University
of New South Wales Law Journal 141.

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