Section 51(xx) of The Constitution of Australia - Characteristics of Trading and Financial Corporations

Characteristics of Trading and Financial Corporations

Whether a corporation falls within the group of "trading or financial corporations" has been the focus of much attention and debate. The dominant issues revolve around the type of corporation and the nature of the activities that characterize it as falling within s. 51(xx). In that regard:

• a constitutional corporation can be a "trading corporation" and a "financial corporation" at the same time
• a "trading corporation" is one where trading is a substantial or significant part of its activities, and that determination is irrespective of the purpose for which the corporation was formed (Quicken v O'Connor)

• a trading corporation can be found to exist on the basis of the nature of its established activities (the "activities test"), or with respect to the objects for which it was incorporated (the "purpose test")
• "trading activities" are those which involve some form of buying and selling and which generate revenue, regardless of whether it is carried out at a profit (R v Federal Court of Australia; Ex parte WA National Football League ("Adamson's case"))
• the type of ownership is not material—a State corporation established to generate electricity has been held to be subject to regulation (Tasmanian Dam case)
• where a corporation has not yet commenced trading (ie, a shelf company), it can still be subject to regulation based on its objects of incorporation (Fencott v Muller)
• however, the High Court, in a controversial ruling, has held that a municipal corporation was to be distinguished from a trading corporation, notwithstanding the fact that it carried out trading activities (R v Trade Practices Tribunal; Ex parte St George County Council )

• a "financial corporation" is one which engages in substantial financial activities or intends to do so, but it is not necessary for such activities to be predominant or characteristic of it—however, a corporation which carries on substantial financial activities in the course of carrying on its primary business will be classified as a financial corporation (State Superannuation Board of Victoria v Trade Practices Commission)