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Wednesday, 6 June 2001
Page: 27470

Mr KELVIN THOMSON (9:58 AM) —Firstly, I wish to acknowledge the assistance I have received from Diane Brown and Gordon Noble in the office of Senator Conroy, the shadow minister for financial services and regulation, and also Jo Fox from the office of the manager of opposition business. They have provided procedural and substantive assistance regarding the content of the Corporations Bill 2001 and a number of other bills. In his remarks, the member for Bruce referred to our electorate staff and their conditions of employment. Unfortunately, often we do not recognise and sufficiently acknowledge the work of our back-up staff. I am aware that some opposition staff are up at 6 a.m. assisting us with various aspects of parliamentary business. When I have had occasion to come into the parliament on a Sunday afternoon before a sitting week, quite a few opposition staffers have already been hard at work—dare I say it?—making life difficult for the government in the week ahead. I thank them for their assistance.

We have before us a package of bills which deal with the Corporations Law, and I will endeavour to address each bill. The Corporations Bill 2001 re-enacts the current Corporations Law as a single federal law of national application. Similarly, the Australian Securities and Investments Commission Bill 2001 re-enacts the Australian Securities and Investments Commission Act 1989 as a Commonwealth act capable of operating throughout Australia. Both bills form part of a package of bills that respond to the High Court's decisions in re Wakim and the Queen v. Hughes. Those cases raise doubts as to the constitutional foundations of the current Corporations Law scheme.

Although the bills can be applied nationally, they will apply only to those states referring the requisite powers to the Commonwealth under the relevant section of the Commonwealth Constitution. Those states are known as the referring states. New South Wales has referred the requisite powers to the Commonwealth, the Victorian parliament's lower house has passed referral legislation—indeed, Victoria may now have passed the legislation completely—and Queensland and Western Australia have agreed in principle to make the same referral. It is the government's intention that the bills commence on 1 July.

The Commonwealth is not attempting to change the substance of the Corporations Law—there are not any provisions which go to substantive Corporations Law issues—but simply to address issues about the constitutionality of the national Corporations Law system. The current Corporations Law scheme commenced on 1 January 1991. Under that scheme, Corporations Law is contained in an act of the Commonwealth parliament, the Corporations Act 1989, and is enacted for the Australian Capital Territory. Laws of each state and the Northern Territory then apply the Corporations Law of the Australian Capital Territory as a law of that state or of the Northern Territory. That is, the scheme was designed to operate as a single national scheme, but it actually applies in each state and the Northern Territory as a law of that state or territory.

The current scheme is also supported by the Corporations Agreement, an intergovernmental agreement to which the Commonwealth, the states and the Northern Territory are parties. The agreement requires consultation and, in some cases, voting on amendments to the Corporations Law and related schemes legislation, including the Australian Securities and Investments Commission Act, by the ministerial council. However, recent decisions of the High Court in re Wakim and the Queen v. Hughes have cast doubt on the constitutional foundations of important elements of the current Corporations Law scheme.

The enactment of the Corporations Law as a single federal law of national application is facilitated by referrals from the states under section 51(xxxvii) of the Commonwealth Constitution. The referral of powers rectifies the constitutional flaws in the current scheme and overcomes the constitutional uncertainty surrounding the current Corporations Law scheme. The states have referred—or it is our expectation that they will refer—to the Commonwealth matters to which the Corporations Bill 2001 and the ASIC Bill relate, as well as a power to amend those bills, once enacted, in relation to the formation of companies, corporate regulation, and the regulation of financial services and products. That referral is for a period of five years unless it is extended by proclamation. The referring legislation also has an object clause to the effect that the referred powers cannot be used for the purpose of the Commonwealth in regulating industrial relations.

The Commonwealth and referring states will also enter into a new corporations agreement. The agreement will differ from the existing agreement in the following ways. It will provide that, where the approval of the ministerial council is required for an amendment to the Corporations Law, the required number of jurisdictions favourable to a proposed amendment will increase from two approvals from six states to three approvals from six states and the Northern Territory. It will also provide that, if four states vote to terminate the amendment reference, all referring states will terminate that reference. The bill itself provides that, if any state individually terminates the amendment reference, that state will cease to be part of the new scheme. It will also have prohibition of the use of the referred powers for the purposes of regulating industrial relations, the environment, or any other matter unanimously agreed on by the parties to the agreement.

Further, four states are able to reject an amendment that they agree is for a purpose outside the scope of the reference. That is designed to make sure that the Commonwealth is not able to misuse a national corporations power to achieve objectives that most of us would see as being of a non-Corporations Law kind. It was certainly a concern that Minister Reith, when he was Minister for Workplace Relations and Small Business, fanned with suggestions that a national Corporations Law could be used to pursue the government's industrial relations agenda. Obviously, that was something that stood in the way of getting agreement about national Corporations Law issues.

The Joint Parliamentary Committee on Corporations and Securities has examined this legislation. The submissions and evidence received by the committee indicate that the existing Corporations Law scheme has worked well and that Australian business has benefited greatly from the stability and uniformity that the Corporations Law has provided. It is a matter of widespread agreement that we are served well by having a national Corporations Law scheme.

The Law Council of Australia confirmed that, although they reflect compromises between the Commonwealth and the states, the bills overcome the constitutional uncertainty surrounding the Corporations Law scheme and should enable business to continue to have confidence in and benefit from a uniform system of corporate regulation. However, the committee heard that business would have preferred that the referral was for a period longer than five years, and as a result the government must continue to work to find a long-term solution.

It is also important to note that the referral from the states does not remedy the consequences arising from the decisions in re Wakim and R v. Hughes for other national cooperative schemes such as those which operate in the areas of price exploitation, cross-vesting of jurisdiction between state and federal courts, gas pipelines, administrative review, regulation of gene technology, and indeed even in respect of the National Crime Authority and the Australian Sports Drug Agency. The fact that the government has not remedied uncertainties that exist in these other important areas is something that we note and believe needs to be addressed.

To the extent that the bills overcome the constitutional uncertainty surrounding the current Corporations Law scheme, they should be supported. While the agreement that the Commonwealth has negotiated with the states has resulted in a small increase in the voting power of the states in relation to certain proposed amendments to the Corporations Law, a national system of corporate regulation greatly facilitates business in Australia. We urge the government to continue discussions with those states that still have not agreed to refer powers; to commit to finding a long-term solution to a national system of corporate regulation; and to rectify the constitutional uncertainties surrounding other cooperative schemes.

We are also debating other bills: the Corporations (Fees) Bill 2001, the Corporations (Futures Organisations Levies) Bill 2001, the Corporations (National Guarantee Fund Levies) Bill 2001, the Corporations (Repeals, Consequentials and Transitionals) Bill 2001, and the Corporations (Securities Exchanges Levies) Bill 2001. They are part of that replacement legislative foundation to which I have been referring, and the impact of those bills is essentially to update cross-referencing, address transitional arrangements and update the Corporations Law following the Treasury Legislation Amendment (Application of Criminal Code) Act 2001.

I turn now to some of the provisions in a bit more detail. In relation to commencement, as I said, it is intended that the new regime will come into effect from 1 July, which is very soon. The purpose is essentially to substantially re-enact the existing Corporations Law of the ACT as a Commonwealth act applying throughout Australia. In order to understand the situation properly, it is worthwhile considering a brief history of corporate regulation in Australia.

The Commonwealth's power to legislate in relation to corporations comes from section 51(xx) of the Constitution, which empowers the Commonwealth 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:

That means that the power of section 51(xx) is not unlimited. There are some limitations and the Commonwealth has not been able to use corporations powers to comprehensively regulate corporations.

Prior to Federation, all the colonies had legislation based on the English Companies Act of 1862. Despite the common origins from that English statute, variations developed in companies law around the country and it was not until the late 1950s that some momentum towards uniform national companies law began to build. A uniform Companies Act was passed in 1961 and in 1962 by the various states, but they still were not coordinating amendments to their companies law. Some real momentum developed in 1974 when the Senate Select Committee on Securities and Exchange recommended the establishment of a Commonwealth regulatory body with responsibility for the securities industry and the signing of the inter-state corporate affairs agreement in 1974 by Victoria, New South Wales and Queensland. That was followed by the establishment of a cooperative scheme in 1978. Under that scheme, the Commonwealth parliament enacted companies and securities legislation applying in the ACT and the states passed legislation giving effect to the Commonwealth law in their jurisdictions. The Commonwealth also established the Companies and Securities Commission to oversee and coordinate that scheme.

In 1989, the Commonwealth passed legislation to establish a national scheme of companies and securities regulation based on the corporations power. That scheme was subsequently struck down by the High Court and the Commonwealth began negotiations with the states and the Northern Territory to try and salvage the scheme. In June 1990, agreement was reached under which the Commonwealth's legislation was amended to apply as a law of the ACT. The Corporations Law is contained in section 82 of the Corporations Act 1989 and, under the national scheme, each state and the Northern Territory also has a uniform Corporations Act.

I want now to consider some of the issues that have been raised by the High Court decisions. The first issue is the question of cross-vesting. Cross-vesting is a term used to describe legislative arrangements which allow federal, state and territory courts to exercise each other's jurisdiction and which provide for transfers and removals to ensure that cases are heard in the appropriate court. The general cross-vesting scheme was established by the Jurisdiction of Courts (Cross-vesting) Act 1987 and by reciprocal legislation in the states and territories. Prior to re Wakim, the effect of the legislation was that, generally speaking, a litigant was able to institute a civil action in any superior court in Australia. The matter could then be transferred to another court if that was appropriate, and that scheme was pretty successful.

In June 1999, the High Court ruled in the re Wakim case that cross-vesting was invalid to the extent that it purported to invest federal courts with state jurisdiction. There was not a problem the other way around, with the Commonwealth conferring its jurisdiction on state courts. As a consequence of that decision, the Federal Court can generally no longer hear matters arising from the state Corporations Act. The expertise built up by Federal Court judges in these Corporations Law matters has been, presently at least, lost to the community. In addition, cases that commenced in the Federal Court have had to be recommenced in the state supreme courts. That, of course, results in increased delay, costs and inconvenience for litigants and an increased workload for the state Supreme Court. In fact, the Federal Court workload in the Corporations Law area dropped off markedly after the decision in re Wakim.

With respect to the way in which the Commonwealth has been endeavouring to respond to this, the states passed some remedial legislation of their own, but the Commonwealth enacted the Jurisdiction of Courts Legislation Amendment Act 2000, which provides, in relation to the Corporations Law and the other cooperative schemes, for the vesting of jurisdiction in—and the transfer of proceedings between—state, territory and federal courts within constitutional limits. The act provides generally for the cross-vesting of certain proceedings involving decisions by Commonwealth officials and state law, and it preserves the Federal Court's exclusive jurisdiction concerning proceedings with respect to the competition and price exploitation codes of the territories involved. But that was not able to generally restore the jurisdiction of the Federal Court in Corporations Law matters.

The other High Court judgment which generated constitutional concerns was the case of The Queen v. Hughes. While Wakim was concerned with the ability of federal courts to exercise jurisdiction conferred by the states, Hughes was principally concerned with the capacity of the Commonwealth to accept powers and functions conferred on its officers and authorities by state parliaments. In The Queen v. Hughes, the court observed that a state could not unilaterally invest functions in officers of the Commonwealth. A state law that purported to grant a wider power or authority than the acceptance of which was prescribed by Commonwealth law would, to that extent, be inconsistent with the Commonwealth law and invalid under section 109 of the Constitution. That had some substantial implications for Corporations Law. Indeed, there have been subsequent legal cases on the back of that, endeavouring potentially to play further havoc with Corporations Law.

There has been a need for a Commonwealth response. One of the options open to the Commonwealth has been the question of a referendum and a constitutional change—an attempted constitutional change, let me say, as we all understand how difficult constitutional change is and how few referendums are actually successful. The Commonwealth has been discussing this matter with the states through the Joint Standing Committee of Attorneys-General.

In August of last year the Standing Committee of Attorneys-General and the Ministerial Council for Corporations reached an agreement to refer the substance of the Corporations Law scheme and the powers to enable ASIC to administer and enforce the scheme. There has been a blip on the way caused by an address to the National Press Club in March 1999 when the former workplace relations minister suggested these powers might be able to be used for industrial relations ends. Notwithstanding that little roadblock, in December last year the Commonwealth, New South Wales and Victoria reached agreement on the basis that the Corporations Agreement will contain a provision stating that the referred powers are not to be used for the purposes of workplace relations laws, and that the objects clause of the referral legislation states that the referred powers are not to be used for the purposes of industrial relations systems. The parties have also agreed that no state will be able to unilaterally terminate the reference of power to amend the corporations legislation and remain in the scheme. Based on that, we have seen the New South Wales and Victorian parliaments passing referral legislation.

In addition to the Corporations Law, we have had the other seven bills to which I have referred. The ASIC Bill was introduced on 4 April, and the other bills on 24 May. What we get out of this as a package, essentially, is restoration of the regulatory regime for corporations to its Wakim and Hughes status. So, while the bill corrects a number of anomalies and updates the drafting style, it does not involve substantial policy change.

The constitutional basis for the legislation we can find set out in clause 3, and the principal powers that the Commonwealth is relying on to have the constitutional validity of this upheld are as follows. In the referring states, the act is based on the powers of the Commonwealth under section 51 of the Constitution and powers as a result of the referral legislation; in the ACT and the Northern Territory, the act is based on the territories' power as well as the powers under section 51; outside Australia, reliance is additionally made on the external affairs power—that is to say, section 51(xxix)—and, where a state is not a referring state, the act will still apply to the extent allowed by the Constitution. Given that that is problematic in light of the decisions in Wakim and Hughes, it is clearly an undesirable state of affairs and you want all the states to refer their Corporations Law powers to enable business to be sure about just what the legal situation is in the jurisdiction that they are operating in.

The bill has the strong support of the business community as a necessary and relatively immediate solution to the uncertainty which has surrounded corporate law for the past two years. There has been very little support for the idea of a return to state based company law, and it is our understanding that all the states have agreed in principle to the referral and have indicated that their referral legislation is imminent.

In closing, I note that the opposition is not seeking to amend the legislation in any way. Even if we had a view about ways in which it might be improved, there is a real constitutional danger in relation to amending legislation of this character. The Attorney-General's Department has suggested that any amendment would jeopardise the constitutionality of the new scheme. In evidence before the Joint Statutory Committee on Corporations and Securities, an officer of the Attorney-General's Department stated that there would be a very big problem with the Commonwealth parliament amending the bill because each state reference bill says that the Commonwealth parliament may enact these two bills—that is, the Corporations Bill and the ASIC Bill—and it must be in this exact form. So there is a very real danger that, were this parliament to amend the legislation, we would be vulnerable to some fresh constitutional challenge.

The prudent course of action is to enact the bills in their existing form. Given that the intent of the new scheme is to bring certainty to corporate regulation, it would be unwise to open up another potential avenue of constitutional challenge about whether an amendment to the tabled text represented a substantial change and therefore was not supported by the Constitution. Noting that the Joint Statutory Committee on Corporations and Securities has recommended that the bill be passed without amendment, the opposition supports this legislation.