On June 17 1999 the High Court handed down a decision striking down as unconstitutional the cross-vesting laws under which the Australian Corporations Law had operated for over a decade.

To explain, the Corporations Law does not operate for the most part as federal law, as the Australian constitution gives only limited powers to the federal parliament to regulate in the companies, securities and investment areas. Rather, it operates as a cooperative scheme through identical legislation enacted by each federal and state parliament, the latter having wider legislative powers in these areas. The cross vesting laws were an integral part of this scheme, purporting to vest state judicial power in the Federal Court (so that it had jurisdiction to hear matters arising under the Corporations Law of the States), and vice versa for the state courts.

The High Court, however, has decided that the first half of this is impermissible. Taking a traditional approach, a majority of the court held that the Australian constitution simply did not permit state jurisdiction to be conferred on the Federal Court in this way.

Immediately after the decision was handed down, the Federal Government announced on behalf of itself and the Australian States that legislation would quickly be enacted to ensure that Federal Court decisions under the Corporations Law in state matters over the past decade would remain effective.

But the long term consequences of the High Court's decision will be harder to overcome, namely that disputes arising under a Corporations Law of a state will now have to be heard in the state supreme courts, not in the Federal Court.

This will have two practical consequences. The first is that the consistency of decision making on Corporations Law matters will be eroded. And the second is that the expertise developed by the Federal Court bench in this area will be largely wasted. In fact, the Federal Court has often been the forum of choice for Corporations Law litigation in the recent past, particularly in the high-stakes area of takeovers, with a number of Federal Court judges being renowned for their experience and skill at dealing with such matters on an expedited basis. For this reason alone, the High Court's decision is disappointing.

A permanent solution will, however, be difficult to find, with possibilities including a referendum to amend the Australian constitution or the state parliaments formally ceding their power to legislate in the area to the Federal Parliament. As these courses of action are notoriously problematic, the likelihood of the matter being resolved any time soon is as remote as ever.

For further information on these topics please contact Danny Simmons or Mark Pistilli at Atanaskovic Hartnell by telephone (+61 2 9777 7000) or by fax (+61 2 9777 8777) or by email ([email protected] and [email protected]).

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