Constitutional impediments and Commonwealth-State rivalry prevent Australia having effective
national, corporate regulation
Topic
�Constitutional impediments and Commonwealth-State rivalry prevent Australia having effective
national, corporate regulation.�
Is this statement an accurate description of the situation in Australia today? Discuss, in the light of recent
reforms to the regulatory scheme and problems which may arise in the future.
Introduction
Australia is otherwise known officially as the Commonwealth of Australia. Australia is a
federation of six states and several territories. The country formed a federation in 1901 after the
adoption of a new federal constitution and has since functioned as a federal parliamentary
democracy under a constitutional monarchy. The federal system of
government formed in 1901 has three branches namely the legislature, the executive and the
judiciary. Executive power is vested with the sovereign (the British monarch) who exercises it
through the Governor-General The Governor-General is appointed by
the monarch at the advice of the Prime Minister. The Governor-General can dismiss the Prime
Minister if there are substantial grounds to do so. The Commonwealth of Australia has a
legislature that is made up of a senate and a house of representatives. Each state in the federation
has its own state constitution that guides that state’s legislature, judiciary and executive. These
state constitutions however are required to be read subject to the federal constitution
( www.comlaw.gov.au ).
The impact of constitutional impediments and Commonwealth-State rivalry on effective
national corporate regulation
The Australian constitution has a lot of safeguards that provide amble space for an
effective national corporate regulation. The constitution provides that any state regulation that is
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inconsistent with any law that has been passed by the Commonwealth parliament is invalid to the
extent of that inconsistency. This therefore ensures that no state regulation can be enacted that
will hamper or hinder the functions of corporates from other states and free flow of goods and
services This ensures therefore that all regulation is applicable
throughout the commonwealth states without discrimination. The Commonwealth constitution
prohibits establishment of taxes and custom duties among states. This ensures that taxes are
uniform throughout the Commonwealth and tariffs are also uniformly set by the federal
government pursuant to acts of parliaments enacted by the Commonwealth parliament and
approved by the Governor-General. The Federal constitution also provides for free trade among
states and prohibits any discrimination among states (
According to Chapter IV of the Constitution (sections 81–105A), the constitution
contains provisions to regulate trade and commerce throughout the Commonwealth states of
Australia. Provisions in the current Australian constitutions enable the country to have a single
trade area. The constitution ensures that custom duties are uniform and abolishes protectionist
policies between states (MURRAY and PEETZ, 2013). This ensures that corporate regulation is
applicable uniformly in all states in the realm. Section 88 of the constitution prohibits state
parliaments from imposing custom duties while at the same time empowering the
Commonwealth parliament to impose uniform customs duties. The same section of the
constitution provides that trade among states in the Commonwealth of Australia shall be
completely free. These provisions ensure that national corporate regulation in Australia is
effective since it could be applied uniformly in all states ( http://www.uclaw.com.au/home/ ).
The composition of the senate and House of Representatives is drawn from all the states
that make up the Commonwealth of Australia. In the event of corporate regulation debate in the
Commonwealth parliament each state is able to give its input equally through its elected
representatives. Laws enacted must be passed by the senate and must be approved by the
Governor-General. The monarch can also set aside a law if it is not in the interests of the national
government. All these checks and controls ensure that corporate regulation is effective
throughout Australia. The Commonwealth parliament has powers conferred by the constitution
to make laws on a wide variety of issues that could impact on corporate regulation
). These touch on taxation, bounties on the production or export
of goods, borrowing money on public credit of the federal government, postal, telegraph,
telephone, seaways, airways etc. Commonwealth parliament has powers to make banking laws
that are applicable in all states. These powers are aimed at making uniform legislation that makes
interstate trade uniform, free and fair. National corporate regulation is also anchored on these
provisions
However, there are some impediments in the constitution that may make effective
national corporate regulation impossible to achieve. The first constitutional impediment appears
to be in separation of powers between the executive, the legislature and the judiciary. The
Constitution in Chapters I, II, and III confer the legislature the power to make laws, confer the
executive the power to administer these laws and carry out the business of government through
government institutions and confer the judiciary the power to determine legal disputes through
established court processes There is however no strict
demarcation between executive and legislative powers despite the structures set by the
constitution. Sometimes the legislature delegates its legislative power to the executive but may
thereafter disallow regulations that the executive makes. This causes confusion and is an
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impediment that prevents the country from having effective corporate regulation
The next impediment is that even though the constitution confers power on the
Commonwealth Parliament to make laws, this power is limited to particular subjects which
include defense, external affairs, interstate and international trade, taxation, foreign trading and
financial corporations, marriage and divorces, arbitration, interstate industrial conciliation and
arbitration. This limitation places an impediment on the country in making effective national
corporate regulation since it excludes such important areas as criminal law, education,
environment etc. Some of these important subjects are handled exclusively by state constitutions
which may vary depending on the state in focus ( http://www.uclaw.com.au/home/ ). This hinders
uniformity and may create confusion in its application. Under the federal system created by the
Australian constitution, it guarantees the continuous existence of each state and preserves each of
their constitutions. A state parliament is allowed to make laws on any subject whether corporate
or not which is specific to that state and this creates an impediment to effective corporate
regulation in Australia. This is because each state can modify or add to its existing corporate
regulation and thus make it markedly different from what exists in other states. This would create
confusion and make corporates undergo different pieces of regulation on similar issues
depending on the state they choose to operate in ( http://www.asic.gov.au/ ).
Unlike the Commonwealth parliament, it has been noted that state parliaments can pass a
wide range of laws on the subjects of criminal law, education, roads etc. which would impact on
corporate regulation in each state differently. It should be noted however that Commonwealth
parliament has been regarded generally as superior to state parliaments. According to Section
109 of the federal constitution, if a valid Commonwealth law is inconsistent with a state
parliament law then the Commonwealth law is operational and the state law is inconsistent and
invalid to the extent that inconsistency As far as laws that are made
by Commonwealth parliament is concerned, there is no conflict with state parliament laws as a
result. The danger arises though where state parliaments make laws on subjects that
Commonwealth parliament does not deal with and which have a bearing on corporate regulation.
Such laws will impact corporates differently if they are different from one state to the next
(TUSHNET, 2013).
Laws touching on corporate regulation have to be approved by the senate and House of
Representatives before it is made an act of parliament by the Governor-General. This provides
for a lengthy process which may make amending unfavourable acts hard to achieve. Again, state
rivalry may work against pieces of legislation drafted by professionals from different states. In
situations where legislation is viewed as potentially benefiting corporates from one state and
potentially able to give it a big lead in terms of resources, other states might gang up to oppose it
even if it is potentially a nice piece of regulation that could benefit Australia as a whole in the
long run
Actions of the judiciary have also made effective national corporate regulation a mirage.
Recent judgments by the High Court have posed a challenge to federal structure of corporate law
in Australia. Even though Corporate law in Australia has for many years been viewed as a
federal law, it is a widely held view by many legal minds in Australia that corporate law is
essentially made of up of laws specific to each state with some federal features. Each state
therefore has a distinctive corporate law that has some features from the federation
The High Court judgement in the case of New South Wales v
Commonwealth (1990) 169 CLR 482 necessitated the requirement that states enact their own
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Corporations Acts but include some aspects of federalism. In this case the High Court considered
section 51 of the federal constitution as an attempt to enact Corporations Act that would be
applicable nationally. In this case the court held that matters to do with incorporation of
companies are not one of the mandates of the commonwealth parliament and the power to deal
with such matter lie with parliaments of each state. This judgement made it impossible to have
a national corporate regulation
An attempt by the Commonwealth parliament to institute national corporate regulation in
late 1980’s and early 1990’s (including incorporation of companies) was faced by persistent
problems which included lack of a uniform administration by National Companies and
Securities Commission and the Corporate Affairs Commissions of each state. It was also felt
that the structure lacked adequate national government enforcement mechanisms. This problem
led to negotiations between various state governments and the national government which saw
each state being allowed to enact its own Corporations Act but required to add several
federalizing features. Some of the federalizing features included enactment of the Australian
Securities and Investments Commission as the national regulator
Administrative Appeals tribunal and the Commonwealth Ombudsman were mandated to be
corporate regulators at the federal level. Australian Securities and Investments Commission, the
federal police and the Commonwealth director of public prosecutions were given the mandate to
investigate and prosecute offences under the various state Corporations Acts. Matters arising
under the various state Corporations Acts were to be determined by the federal court. Even
though the Commonwealth parliament in the High Court judgment in case of New South Wales v
Commonwealth implied that it did not have the power to deal with the incorporation of
companies a lot of effort in the form of federalizing features were put in place to have national
corporate regulation in place
However, the authority of the federal High Court to determine cases involving Corporate
regulation was thrown out in the case of Re Wakim (1999) 31 ACSR 99;17 ACLC 1,055
( http://www.asic.gov.au/ ). In this case the High Court struck down the mandate given after the
New South Wales v Commonwealth case which gave federal court cross vesting legislation to
determine corporate regulation matters. In the Re Wakim case, the high court held that it was
unconstitutional for the Federal High Court to hear such matters as brought forward in this case
under Chapter III of the Australian constitution. This position was held despite the fact that all
state and commonwealth governments had agreed that the Federal court play a role of
determining disputes arising under the State Corporations Acts. After this case state governments
had to pass emergency validating legislation that upheld previous judgments made by the Federal
court since they stood the risk of being declared unconstitutional and therefore null and void
The High Court decision in the Re Wakim (1999) 31 ACSR 99; 17 ACLC 1,055. Case
had profound and far reaching consequences. All corporate regulation cases pending in the
federal court had to be transferred to their respective state high courts with far reaching financial
implications. Many state courts were at a loss as to what jurisdiction still remains with the
federal court post Re Wakim case. Expertise which the federal court had acquired over the years
was lost after this case. The Re Wakim case is not the only case that proved that constitutional
impediments have continued to hamper effective national corporate regulation (RAMSAY,
2000). In the case of Bond v The Queen, the High Court held that the Commonwealth director of
public prosecutions had no power to appeal against a state courts sentence for breach of the states
corporations Act under the constitution. The only power that the Commonwealth director of
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public prosecutions, as regards to a sentence imposed for a breach of a state Corporations Act is
to initiate and institute prosecutions for such breaches (LI, 2011). Another case in focus is the
case of The Queen v Hughes. The high court judgement in this case received extensive coverage
by the media. In this case prosecuted by the Commonwealth director of public prosecutions the
Federal High Court found that Hughes by obtaining $300,000 from investors had breached the
Corporations Act of Western Australia. The high court held that appropriate commonwealth
legislation needs to be enacted that will be applicable to all states. Hughes was only able to be
prosecuted because he had dealt internationally by investing money in the United States of
America (LANSLEY, GIBSON and FOGARTY, 2002).
Conclusion
It is evident by reading the federal constitution that adequate clauses have been enacted
which provide for uniform application of corporate laws throughout the states of Australia. The
constitution clearly stipulates that states constitutions are to be read subject to federal
constitution and any inconsistencies found in state constitutions are to be invalid to the extent of
the inconsistencies. There are some clauses that can be misread and misinterpreted. One of
which is the separation of powers which does not easily put a demarcation between executive
roles and legislative roles Some recent court cases have also added
into the confusion. The Re Wakim case is one such case in which the prosecutorial powers of the
Commonwealth director of public prosecutions were put into curtailed. Several strategies have
been advanced to resolve this mess. This includes holding a referendum to amend the
constitutions to give the Commonwealth director of public prosecutions powers to initiate and
institute prosecutions on breach of state Corporations Act (HUMPHRYS, 2013). The next
method is by instructing state courts to refer such corporate regulation cases to the federal court
for determination. This referral is allowed in the current constitution and is also tested and tried
in the United States of America and found to be workable. The final method would be putting in
place a split regulation that separates prosecutorial powers between the state governments and
the Commonwealth director of public prosecutions. For instance the state courts could handle
mergers, acquisitions, etc whereas the federal court handles cases arising from state Corporation
Acts (HUMPHRYS, 2013).
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References
HUMPHRYS, E., (2013). THE BIRTH OF AUSTRALIA: NON-CAPITALIST SOCIAL
RELATIONS IN A CAPITALIST MODE OF PRODUCTION? The Journal of
Australian Political Economy, (70), pp. 110-129.
