Ms JULIE BISHOP (10:25 AM) —This is an historic package of bills. As the Minister for Financial Services and Regulation noted in his second reading speech, it is most appropriate that the legislation to bring about a single national governance scheme for Australia's firms is to be debated in the very year during which we are reflecting on the centenary of our nation's federation. The federal nature of our Commonwealth has evolved over that century in terms of the role of the federal government as envisaged by our Constitution and the reality of Australia's contemporary power centres. Federalism has given rise to levels of cooperation between Commonwealth and state governments in a range of political and economic activities.

The Commonwealth's involvement in the regulation of corporations can be traced to the corporations power, section 51 (xx) of the Constitution which states:

This relatively restricted power in relation to corporate governance and the role played by the states in relation to corporate governance has, since Federation, placed Australian corporations in a position of potential risk and uncertainty. In turn, the states and the Commonwealth have sought to create cooperative legislative and regulatory structures to minimise that potential risk and uncertainty. As a consequence, in the early 1960s we saw the passage of a uniform Corporations Act based upon the law in the state of Victoria by all the states and by the Commonwealth—and on behalf of the then Australian territories of Papua New Guinea, the ACT and the Northern Territory.

In the following years the uniformity of this scheme was sorely tested by the ad hoc amendment at the level of the individual states and by the recommendation of the 1974 Senate Select Committee on Securities and Exchange that a Commonwealth regulatory body be charged with responsibility for the securities industry at the national level. By the end of the 1970s the demand was for a return to federal-state cooperation on corporate regulation, a demand that was met by the establishment of the cooperative scheme by which the Commonwealth enacted a Corporations Law for the ACT and, in turn, the states passed legislation giving effect to that ACT law within their own jurisdictions.

While the cooperative scheme ensured uniformity of text it failed to ensure uniformity in enforcement and administration and, to meet these additional concerns, the Hawke government, somewhat ham-fistedly, sought to establish an overriding national corporations law based on the Commonwealth powers under section 51(xx). Disabled by the High Court, the Commonwealth was forced to seek some accommodation within the states and the Northern Territory. This was achieved at the time by incorporating the Commonwealth desired regulatory scheme into legislation that would again apply in the ACT. This would be done through the constitutionally more secure terms of the Commonwealth's territories power. The states and the Northern Territory again agreed to adopt that law within their own jurisdictions. However, this agreement was later superseded in 1997.

In recognition of the importance of unified enforcement and administration, the Commonwealth organisation, the Australian Securities and Investments Commission, was charged with the enforcement of state corporations laws so Corporations Law, in fact and in legalities, was a series of state acts passed in like form. This evolving system of interconnected Commonwealth and state acts was by no means pretty, although it was a fair example of the kind of cooperative federalism superior to traditional Commonwealth-state jurisdictional conflict as epitomised in the referenda of 1911, 1913, 1919, 1926, 1944 and 1946. Nonetheless, the shaky constitutional foundations of this arrangement, above which Australian businesses could feel the twitches and the tremors, were dented by two judicial decisions in relation to corporate governance.

The first of these decisions, commonly known as the Wakim case, related to cross-vesting—that is, the practice by which different courts in different jurisdictions could exercise each other's jurisdiction and provide for transfers and removals so as to ensure that cases were heard in the most appropriate fora in terms of legal expertise, convenience and cost. Cross-vesting was legislated for through the Jurisdiction of Courts (Cross-Vesting) Act 1987. While the Wakim case concerned four different proceedings, each was related to the central question of whether the courts of the Commonwealth could exercise jurisdiction that had been conferred by state or territory acts of parliament.

For those constitutionally minded or for the protagonists for the states, it is of some interest to consider the approach of the High Court in Wakim. In essence, the High Court decided that the federal courts could not be given a general power to hear state matters, and consequently the provisions which attempted to do so were invalid. Specifically, the court found that the state legislatures have power to invest state jurisdiction or judicial power in federal courts but this will have no effect unless the federal courts can give effect to it, and this depends upon what the Commonwealth law provides. The Commonwealth Constitution does not permit the Commonwealth parliament to consent to the vesting of state jurisdiction in federal courts. Chapter 3 of the Constitution exhaustively defines, according to the High Court, the matters that may be the subject of the judicial power of the Commonwealth and exhaustively defines the matters that the parliament of the Commonwealth may invest in the federal courts it creates. The majority said—and I quote from the reasons of Justices Gummow and Hayne:

Their Honours went on to say:

The Chief Justice said:

Even more pointedly, Mr Justice McHugh said:

So the High Court found, by a majority of six to one, that the courts of the Commonwealth could not exercise jurisdiction with regard to state jurisdiction. While the Commonwealth's courts could exercise jurisdiction with regard to the territories and the state courts could exercise jurisdiction conferred by the Commonwealth, a large hole had emerged in the cross-vesting system. As a result, the Federal Court has, since June 1999, generally been unable to hear matters relating to state corporations acts and it is fair to conclude that the expertise built up by these courts has been lost. Cases before the Federal Court have had to recommence in the already overloaded state supreme courts. Despite remedial legislation enacted by both the states and the Commonwealth, the situation has remained most unhelpful.

The second of the two cases to dent the system of national corporate governance was the Hughes case—again, before the High Court. This case centred upon the extent to which the Commonwealth Director of Public Prosecutions was authorised to prosecute offences under the Corporations Act of Western Australia; the wider question for settlement therefore being the extent to which the Commonwealth could accept functions and powers conferred to it, or its officers, by state parliaments. Hughes's case against his original indictment on charges under Western Australian law failed. However, the unanimous decision of the court did not bolster the existing legal structure; rather, it brought it spinning to the ground. By failing to enforce the existing structure, the judgment brought into question not merely the Corporations Law but all the national schemes that involved Commonwealth officers carrying out functions originating in state law—for example, the Competition Code, the Price Exploitation Code and even the National Crime Authority.

In short, the High Court found that, for the Commonwealth to legitimately accept such functions, it would have to demonstrate connection to a clear head of power provided for in the Commonwealth Constitution. This was Mr Hughes's obstacle for, as his offences related to investments in the United States, the Commonwealth could be seen to have acted appropriately both in relation to the trade and commerce power and the external affairs power of the Constitution.

The High Court also hinted at the potential utility of the Commonwealth's banking power, executive power and corporations power, but it did not explore the matter any further. So, post Hughes, the Corporations Law landscape is littered with metaphorical traps and mines, with the very constitutionality of the Commonwealth's involvement in incorporation of companies now in question. For example, there was clearly a need for leadership on the part of the Commonwealth. That leadership was provided by the Attorney-General and the Minister for Financial Services and Regulation. It is embodied in this legislation that is before the Main Committee.

Close and exhaustive discussions between the states and the Commonwealth have brought forth these bills, which can now come before the House following a referral made by the government of New South Wales. For a time, it was feared that we might not reach this point, although the joint meeting of the Standing Committee of Attorneys-General and the Ministerial Council on Corporations in August last year agreed in principle to the referral of powers by the states to allow the Commonwealth to enact the Corporations Law and the ASIC Act. In relation to incorporation, regulation and the financial sector, a consensus on the details just could not be reached. Further meetings have brought all parties back to the table and have given this legislation the opportunity to ensure a degree of stability in Australian corporate life through the referral to the Commonwealth, under section 51(xxxvii) of the Commonwealth Constitution, of powers from the states.

This preferred option will achieve the common goals of resolving the matter speedily, restoring confidence immediately, avoiding complexity, involving the states in the Corporations Law and restoring the previous jurisdiction of the Federal Court. I am particularly pleased that the important role of the states will continue. Such a cooperative system is not merely workable; it is desirable. Under these reforms the states will continue to be consulted and will continue to exercise voting rights. In fact, the reforms will enhance these rights in relation to proposed amendments to the system. Where the approval of the ministerial council is required, the necessary number of states favourable to change will now increase from two to three. These changes have been achieved without imperilling flexibility or accountability.

While the Minister for Financial Services and Regulation, who I see is in the chamber, has observed that some states have noted their wish for an opt-out clause that would allow certain states to reject further amendments applying to their jurisdictions, I am glad to see that this wish has not been acceded to and that the system will remain uniform in content and application. Much more appropriate is the provision in these bills that will allow four states to vote to effectively veto the reference of an amendment. Where an individual state does seek to develop a different system, it will simply cease to be a referring state and it will exit the system entirely.

It is also pleasing to observe that, with the unobstructed passage of these bills through the Commonwealth parliament, the government will have done much to ensure the consistency and fairness of Australia's corporate governance, the maintenance of our essentially federalist nature as a nation and, indeed, the smooth and efficient running of our courts. As the member for Wills said, there are still issues outstanding in relation to cross-vesting, although there has been legislation at the Commonwealth and state levels to consider that issue. Of course, interestingly, this has brought into discussion the nature of our federalist system again, in the year of the Centenary of Federation.

With respect to the resolution that has now been reached with the attorneys and the Minister for Financial Services and Regulation, I particularly want to direct this to the Minister for Financial Services and Regulation as he did take a lead in this matter. I also direct my comments to the other ministers concerned at both the Commonwealth and the state level. We certainly owe them our thanks for finding a resolution to the gaping hole that had been created as a result of the Wakim case and the Hughes case. With this now firmly under way, and with thanks to the ministers concerned, I am able to commend these bills to the Main Committee.