The Commonwealth Actuary has forwarded the following memorandum to me for advice:

You will recall that the question of Capital Issues Control after the war was set down for consideration at the Premiers’ Conference and that the item was withdrawn from the Agenda Paper on the advice of the Attorney-General. I understand that Dr Evatt advised the Treasurer, orally, that in his view there were sufficient powers under the Constitution for the Commonwealth to continue the control after the war.

The Treasurer has asked me to obtain an opinion from you in writing and to inquire whether the powers would include the adoption of uniform Company Law throughout Australia.

I understand that the ‘capital issues control’ referred to in the foregoing memorandum is intended to refer to the provisions contained in Part II of the National Security (Capital Issues) Regulations. I also understand that the expression ‘after the war’ is not intended to relate to what may be called the transition period from war to peace but is intended to relate to a normal peace-time period. This opinion is based on those two understandings.

It will be convenient to deal first with the second question, namely, the power to enact a uniform company law. This question was considered in a memorandum prepared by Sir Robert Garran, under the direction of the then Attorney-General, for circulation at the Conference of Commonwealth and State Ministers on Constitutional matters held during February, 1934. The memorandum deals with the question so clearly and, in my view, accurately, that I propose to quote it in full. I agree with the memorandum and do not think that anything has happened since 1934 which would lead to a conclusion different from that expressed in the memorandum. The memorandum reads as follows:

By section 51 (xx) of the Constitution, the Federal Parliament has power to make laws as to ‘foreign corporations and trading or financial corporations formed within the Commonwealth’.

There was very little debate on this clause in the Federal Convention of 1897–8 but there is good reason to believe that this clause was intended to give the Commonwealth Parliament power in respect of what is known as ‘company law’, that is to say, each legislation as is contained in the Companies Acts of Great Britain and of the several Australian States.

In the draft Constitution of 1891 the clause was worded ‘the status in the Commonwealth of foreign corporations and of corporations formed is any state or part of the Commonwealth’. The omission in the Constitution of the words ‘the status of’ coupled with the retention in substance of the other words of the clause seems to mark the intention that the whole subject of foreign corporations and corporations in Australia was intended to be conferred.

The decision of the High Court in Huddart Parker v. Moorehead (8 C.L.R. 330) has thrown great doubt on the meaning of the clause. This case arose under the Australia Industries Preservation Act 1907. The object of that Act was to prohibit combinations in restraint of trade or unfairly competitive; and by reason of the fact that the Federal power as to trade and commerce is limited to trade and commerce with other countries and among the States the main provisions of the Act are limited to matters in relation to external and interstate trade. An attempt was made, however, to extend its provisions so far as companies were concerned to all trade, including trade within a State. The idea was that this extension could be justified as a law relating to companies.

The High Court, however, (Isaacs J. dissenting) held that the Federal Parliament could not under the corporation power control the behaviour of companies. The real basis of the decision is that such a law is not really a law relating to companies, but a law relating to the subject-matter under which the behaviour comes. That is to say in this particular instance, the law purported to control the behaviour of the company in respect of trade. The law was, therefore, not a law in respect of companies, but a law in respect of trade, and, not being limited to external and interstate trade, it was held to be beyond the power of the
Federal Parliament.

In the course of their judgments, the several Judges expressed views which make the real meaning of the company power a matter of great uncertainty.

In the first place the whole Court agreed that the clause did not confer power to create corporations. Foreign corporations it obviously could not create, and the words ‘trading or financial corporation formed within the limits of the Commonwealth’ implied that the corporations must be formed, or created, before the Federal power attaches. As regards this last point there is, of course, a possible alternative interpretation that the words ‘formed within’ &c, are only intended to describe home corporations as contrasted with foreign corporations; that the phrase is adjectival and not participial in meaning, and that it contains no implication that the corporation mast have been formed prior to the Federal power attaching to it. This view, however, did not find favour with the Court.

As to the power which the clause did confer, the members of the Court differed widely. Griffith C.J. and Barton J. thought it applied to the capacity of companies but not to their behaviour; that is to say, that it enabled the Federal Parliament to forbid corporations formed under State laws from engaging in any particular branch of trade within the State, but did not enable the Federal Parliament to control the conduct of such corporations which lawfully engaged in such trade. O’Connor J. thought that the power was limited to the recognition of the status of corporations as legal entities within the Commonwealth, but did not include power to control their business when they had been so recognised. Isaacs J. thought that the clause did not give the Federal Parliament power to deal with the powers and capacities of corporations, or their internal regulation (matters that properly belonged to the States that created the corporations), but did give the Federal Parliament power to regulate the conduct of corporations in their transactions with or affecting the public. Higgins J. thought that the clause gave the Federal Parliament power to regulate the status and capacity of corporations and the conditions on which they would be permitted to carry on business, but not to regulate the contracts into which they might enter within the scope of their permitted powers.

While this decision stands, it is obviously impracticable for the Federal Parliament to attempt to pass a uniform company law for the Commonwealth. It is true that the personnel of the Court has changed completely since the decision named, and it is also true that since the Engineers’ case (Amalgamated Society of Engineers v. Adelaide Steamship Co. Ltd. 28 C.L.R. 129), there has been an important change in the principles of interpreting the Constitution, but the fact remains that there is so much uncertainty as to what the view of the Court to-day would be on the subject that the Parliament could not take the risk of providing for the creation of companies which might at any time be found not to have been lawfully incorporated.

I turn now to the first question, namely, the post-war control of capital issues. Part II of the National Security (Capital Issues) Regulations contains provisions relating to the following matters:

1. in regulation 6–limitations on the formation of companies;
2. in regulation 7–limitations on the increase of capital of companies;
3. in regulation 7A–provisions relating to syndicates;
4. in regulation 8–provisions relating to applications for the Treasurer’s consent; and
5. in regulation 9–provisions relating to forfeited shares.

The only power under which, in peace-time, the Commonwealth could control what are referred to as capital issues is in placitum (xx) of section 51 of the Constitution. As already mentioned, that placitum authorises the Parliament to make laws for the peace, order and good government of the Commonwealth with respect to foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth.

Several matters require to be noted in connexion with this provision. The first is that it relates to corporations and not merely to companies. The second is that the power with respect to foreign corporations extends to all such corporations, while the power with respect to corporations formed within the limits of the Commonwealth is limited to trading and financial corporations so formed. The word ‘foreign’ is wide enough to apply not only to corporations formed in ‘foreign countries’ in the narrower sense of the term, but also applies to corporations formed in Great Britain and other parts of the King’s dominions, which, for this purpose, may be regarded as ‘foreign’.

Since the power with respect to corporations formed in the Commonwealth is limited to ‘trading or financial’ corporations, it is necessary to consider what corporations answer that description. In this connexion, the following quotation from pp. 606 and 607 of the Annotated Constitution of the Australian Commonwealth, by Sir John Quick and Sir Robert Garran,⁽¹⁾ is in point:

A trading corporation is one formed for the purpose of carrying on trade. To trade ... means to buy and sell; to be engaged in the exchange, barter, traffic, bargain, or sale of goods, wares, and merchandize, or to carry on commerce as a business … This sub-section is intended to give the Parliament power to legislate concerning all ‘financial institutions’ formed within the limits of the Commonwealth. There are financial institutions which are not banks. Among these may be mentioned companies which receive deposits of money for investment and make advances on the security of land, such as land mortgage companies and building societies.

It will be noted that corporations which are not trading or financial corporations are not within the power. A corporation formed, for example, to conduct a broadcasting station, to conduct a transport service, to conduct a cleaning or repairing service, would not be a trading corporation. In this connexion, it is interesting to note that an attempt was recently made in England to obtain from the House of Lords a judicial decision extending the meaning of the word ‘trade’ in relation to trade marks (see Aristoc Ltd. v. Rysta Ltd. (1945) A.C. 68). The headnote to this case reads as follows:

A mark used on or in relation to goods so as to indicate the fact that they have been repaired by a particular person is not a ‘trade mark’ ... and accordingly is not registrable ...

In the case mentioned, the Solicitor-General, appearing in the public interest, sought to induce the House of Lords to give an extended meaning to the word ‘trade’ so as to include other operations such as the repairing of goods. The House of Lords, however, refused to accept the argument of the Solicitor-General and held, in effect, that repairing was not trade. With reference to the words ‘formed within the limits of the Commonwealth’ it must be taken, for the reasons already given in connexion with a uniform company law, that the actual formation of corporations is not within the power conferred.

The next matter to be considered is the scope of the legislation which may validly be enacted with respect to the classes of corporations referred to in placitum (xx). Sir Robert Garran’s Memorandum has pointed out the differences of opinion on this point between the Justices of the High Court who decided Huddart Parker v. Moorehead. It seems likely that Griffith C.J. and Barton & O’Connor J.J. would not regard any of the provisions of Part II of the National Security (Capital lssues) Regulations as within the power. Higgins J. would, I think, have taken a different view. He says, at pp. 412–413:

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.

Isaacs J. would possibly have taken the same view as Higgins J.

In my opinion, the views of the majority of the Court in Huddart Parker v. Moorehead take too narrow a view of the placitum. Corporations are juristic persons and possess qualities or characteristics different from those of natural persons–as, for example, possessing a capital structure. Such matters as these appear to me to be within the power. As Harrison Moore puts it (Commonwealth of Australia, 2nd Edition, p. 471)⁽²⁾ ‘all the inherent qualities which distinguish the juristic from the natural person, would thus be submitted to federal law’. Other writers take a similar view (Wynes’ Legislative and Executive Power in Australia, at p. 148,⁽³⁾ J.D. Holmes, 7 A.L.J. 372 at p. 375⁽⁴⁾).

I now proceed to apply the foregoing principles to the provisions of Part II of the National Security (Capital Issues) Regulations. In the first place, it is clear that regulation 6, which deals with the formation of companies, is not within the power of the Commonwealth. On the other hand, the subject-matter of regulation 7 (increase of capital) clearly falls within the competence of the Commonwealth so far as foreign corporations and trading or financial corporations are concerned. Further, the subject-matter of this regulation could be made applicable to financial corporations which are not companies, such as building societies. The subject-matter of regulation 7A, however, namely, syndicates, is not within the power. The subject-matter of regulation 8 is incidental to the subject-matter of regulation 7 and is within the power to the extent that the subject-matter of regulation 7 is within the power. Regulation 9, dealing with the sale of forfeited shares by a company, is also within the power so far as foreign corporations and trading or financial corporations are concerned.

[Vol. 36, p. 672]

(1) Quick, J & Garran, RR 1901, The annotated Constitution of the Australian Commonwealth, Legal Books, Sydney.

(2) Harrison Moore, W 1910, The Constitution of the Commonwealth of Australia, 2nd edn, Maxwell, Melbourne.

(3) Wynes, WA 1936, Legislative and executive powers in Australia: being a treatise on the legislative and executive powers of the Commonwealth and States of Australia, under the Commonwealth of Australia Constitution Act, 1st edn, Law Book Co of Australasia, Sydney.

(4) Holmes, JD, ‘A Commonwealth Companies Act’ (1934) 7 Australian Law Journal 372.