What is a constitutional corporation?

The Fair Work Act defines a constitutional corporation as ‘a corporation to which paragraph 51(xx) of the Constitution applies’.[1]

The Australian Constitution defines constitutional corporations as ‘Foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth’.[2]

This definition has two limbs that are ‘comprehensive alternatives’.[3] This means that constitutional corporations are either ‘foreign corporations’ or ‘trading or financial corporations formed within the limits of the Commonwealth’. Therefore, a foreign corporation does not need to be formed within the limits of the Commonwealth or be a trading or financial corporation to be classified as a constitutional corporation.[4]

A foreign corporation is a corporation that has been formed outside of Australia.[7]

A corporation which is formed outside of Australia, which employs an employee to work in its business in Australia, is likely to be a constitutional corporation and therefore fall within the jurisdiction of the Fair Work Commission.[8]

Foreign corporation – employer company formed in New Zealand but applicant worked in Australia

Gardner v Milka-Ware International Ltd

[2010] FWA 1589 (Gooley C, 25 February 2010).

Facts
The applicant alleged the termination of his employment was harsh, unjust or unreasonable. The respondent raised a jurisdictional objection as it was a New Zealand Registered, Directed and Owned company; traded in New Zealand only; employed the applicant in New Zealand and paid the applicant in New Zealand dollars into a New Zealand bank account. The applicant however worked in both New Zealand and Australia.

Outcome
The Commission determined that the respondent was incorporated in New Zealand meaning that it was a foreign corporation within the meaning of s.51(xx) of the Australian Constitution and therefore, to the extent that it employed employees to perform work in Australia, it was a national system employer. The Commission had jurisdiction to deal with the application.

Relevance
In this case in the unfair dismissal jurisdiction, the Commissioner determined that the Commission has jurisdiction to deal with applications against foreign corporations in relation to employees employed to work in Australia.[9]

Trading denotes the activity of providing goods or services for payment.[10]

The Commission will consider the nature of a corporation with reference to its activities, rather than the purpose for which it was formed.[11]

It does not matter if trading activities are a corporation’s ‘dominant’ activity or whether they are merely an ‘incidental’ activity, or entered into in the course of pursuing other activities.[12]

A corporation will be a trading corporation if the trading engaged in is ‘a sufficiently significant proportion of its overall activities’.[13]

A corporation can be a trading corporation even if it was not originally formed to trade.[14]

One factor that may be considered is the commercial nature of the activity.[15] When considering the commercial nature of a corporation’s activity, the Commission will look at a number of factors, including:

• whether it is involved in a commercial enterprise; that is, business activities carried on with a view to earning revenue
• what proportion of its income the corporation earns from its commercial enterprises
• whether the commercial enterprises are substantial or peripheral, and
• whether the activities of the corporation advance the trading interests of its members.[16]

A financial corporation is one ‘which borrows and lends or otherwise deals in finance as its principal or characteristic activity...’[17]

The approach taken in deciding whether the activities of a corporation are such that the corporation should be considered to be a financial corporation is the same as the approach taken in deciding whether a corporation is a trading corporation.[18]

Trading or financial corporations

Professional sporting organisation and club

R v Federal Court of Australia; Ex parte WA National Football League [1979] HCA 6 (27 February 1979), [(1979) 143 CLR 190].

Facts
The respondent was a registered football player with the West Perth Club. He moved his residence to South Australia having had an offer to play with the Norwood Club (the Club). Under the rules of the National League, adopted both by the State League and the West Perth Club, the respondent needed a clearance from the National League to play with another club other than the club he was registered with. If the respondent played without clearance, the Norwood Club would lose, or run the risk of losing competition points. The respondent was refused a clearance. He claimed that both the State League and the West Perth Club were trading corporations formed within Australia, bound by the provisions of the Trade Practices Act 1974-1977 (Cth) (the TP Act) and, in relation to the requirement and refusal of a clearance, were in breach of the TP Act.

Outcome
The High Court, by majority, held that the West Perth Club and the league to which it belonged in Western Australia were trading corporations. Their central activity was the organisation and presentation of football matches in which players were paid to play and spectators charged for admission; and television, advertising and other rights were sold in connection with such matches. The Court found that this constituted trading activity.

Relevance
When determining if an organisation is a financial corporation or a trading corporation, it is necessary to examine any trading activity the organisation performs. When trading is a substantial activity of the corporation, the conclusion that the corporation is a trading corporation is open. The commercial nature of an activity is also an element in deciding whether the corporation is in trade or trading.

Trading corporations

Charitable organisation

Orion Pet Products Pty Ltd v Royal Society for the Prevention of Cruelty to Animals (Vic) [2002] FCA 860 (5 July 2002), [(2002) 120 FCR 191].

Facts
The applicants were both corporations registered in Queensland. The applicants manufactured and sold electronic dog collars for the purpose of training dogs. The respondents have historically campaigned and claimed that the making of these products were cruel and instruments of torture. The applicants claimed the respondent’s representations of cruelty, illegality and the effectiveness of the products were false. They claim the respondent had, by making the representations, engaged in conduct, in trade or commerce that was misleading or deceptive or likely to mislead or deceive. The applicants claimed as a result of the respondent’s statements about their products, they sustained significant loss and damage.

Outcome
The Federal Court found the RSPCA (a charitable organisation) to be a trading corporation on the basis that it earned substantial income from trading activities.

Relevance
When determining whether an organisation is a trading corporation, it may not matter that the income from trading activities is used for charitable purposes or if the organisation has many functions that are non-trading or commercial in character.

Metropolitan Fire and Emergency Services Board

United Firefighters’ Union of Australia & Ors v Metropolitan Fire and Emergency Services Board [1998] FCA 551 (20 May 1988), [(1988) 83 FCR 346].

Facts
The principal activity of the Metropolitan Fire and Emergency Services Board (the Board), established as a statutory corporation, was to respond to fire and other emergencies, an activity which it undertook without charge to the public. The Board's Fire Equipment Services activities, which involved the commercial servicing of fire equipment for commerce, industry and the domestic market generated 5.11% of the Board's revenue.

Outcome
The Court found that the trading activities of the Board generated substantial income and were sufficient to constitute the Board as a trading corporation.

Even though the overwhelming majority of the funds received by the Board were derived from insurance companies, municipal councils and the State Government, the Board’s trading activities were nevertheless sufficient for the Board to be considered a trading corporation.

Relevance
In this case, the fact that trading activities generated only a small proportion of the Board’s overall revenue did not prevent the Board from being characterised as a trading corporation where the ‘trading activities formed a significant proportion of the Board’s overall activities’.

Community services organisation - Outcare

Re Ms Marie Pasalskyj [2015] FWC 7309 (Hampton C, 13 November 2015).

Facts
The applicant alleged that she experienced bullying conduct in her workplace, Outcare. Outcare raised a jurisdictional objection that it was not a trading corporation within the meaning of the Fair Work Act due to its activities and nature. As a result, it contended the applicant was not at work in a constitutionally-covered business.

Outcome
The Commission held that a community services organisation that provides a range of services to offenders, former prisoners and their families is a trading corporation. Activities conducted for the purposes of fundraising were found to have the character of commercial transactions. The Commission determined that the trading activities of the organisation amounted to 11% of its income. This was found to be significant, and sufficient to impact upon the overall character of the organisation. In finding that the organisation was a trading corporation a basis upon which to deal with the merits of application was established.

Relevance
In this case, the altruistic intent of the organisation’s activities did not prevent it being a trading corporation in circumstances where those activities were not insubstantial, trivial, insignificant, marginal, minor or incidental.

Community services organisation - Glossodia

Thurling v Glossodia Community Information and Neighborhood Centre Inc. T/A Glossodia Community Centre [2019] FWCFB 3740 (Catanzariti VP, Hamilton DP, Hampton C, 5 July 2019).

Facts
At first instance the Commission found that Glossodia was not a trading corporation and therefore not a constitutionally-covered business and dismissed the employee’s stop-bullying application. The employee appealed with grounds including that Glossodia’s trading activities included providing before and after school child care for which it charges fees and levies administration fees, and rental fees for the hiring of its facilities, and that these activities comprised somewhere between 27.37 per cent and 35.23 per cent of its total income.

Outcome
The Full Bench granted permission to appeal and considered that the submissions made by Glossodia at first instance, as adopted in the Commission’s decision, placed significant emphasis upon the purpose of the association and very little upon the nature of the purported trading activities themselves. The Full Bench found that the program services conducted by Glossodia were consistent with the purpose of the association but were made available at a cost to the individuals in the community who utilise those services. The services and the associated income represented the buying and selling of those services and a trading activity. The Full Bench concluded that these activities were trading in nature and were sufficient to mean that the Glossodia should have been held to be a trading corporation. The Full Bench upheld the appeal and quashed the decision at first instance. Upon rehearing the Full Bench found that Glossodia was a trading corporation and as a result was conducting a constitutionally-covered business.

Relevance
Whilst perhaps not charged at market rates, the program services were subject to charges that are more than nominal and do not represent the gratuitous provision of a public welfare service in the manner described in E v Red Cross. Rather these services are provided at a cost to the users of those services and the income is not peripheral, insignificant or incidental when considered in the context of the funding and operations of the Glossodia CINC. Indeed, the program services represent a significant part of the operations of the association and almost a third of its total income.

Public transport agency

Roads and Maritime Services v Leeman [2018] FWCFB 5772  (Hatcher VP, Colman DP, Spencer C, 18 September 2018).

Facts
At first instance the Commission found that Roads and Maritime Services (RMS) was a constitutionally-covered business because it was a trading corporation. RMS appealed on grounds including that the Commission failed to take into account RMS’s public purposes and functions and relationships to the State of New South Wales in determining whether RMS’s trading activities were sufficient for it to be characterised as a trading corporation, and that RMS was established as a ‘public transport agency’ by the Transport Administration Act 1988 (NSW) (TA Act), that its statutory functions were overwhelmingly public functions conducted for the public good and were not of a commercial or profit-making nature.

Outcome
The Full Bench found that the functions conferred on RMS by ss.53(1)(a) and (b) of the TA Act were clearly concerned with the conduct of trading activities. These functions are not expressed as being subordinate or incidental to any of RMS’s ‘public’ functions, and indeed the words ‘whether or not related to its activities under this or any other Act’ in s.53(1)(a) make it clear that the RMS is authorised to engage in trading activities in their own right. It is even authorised to do so outside of New South Wales, as s.53(2) makes clear. The Full Bench concluded that engagement in trading activity was a statutory function and purpose of RMS.

Relevance
The conclusion that RMS’s trading activities are substantial and of significance permits it to be characterised as a trading corporation. RMS is not deprived of that character by reference to the purposes for which it was established, its closeness to the State of NSW, the fact that it may be subject to Ministerial direction, or the fact that its functions are predominantly for the public good and not commercially orientated.

Financial corporations

Building Society

Re Ku-Ring-Gai Co-operative Building Society (No 12) Ltd [1978] FCA 50 (18 December 1978), [(1978) 36 FLR 134].

Facts
The income of the applicants in this matter, two co-operative incorporated building societies, was derived from interest paid by members upon loans made to them, management fees, fines and discharge fees paid by members and allowances and commissions received from insurance companies. The revenue outgoings of the applicants consisted of interest on the principal of the bank loan, management fees and administrative expenses. The applicants did not conduct their activities for the purpose of making financial profits but, subject to charging a contribution to managerial and administrative expenses and a difference in the calculation of interest, lend to their members at the same rate as that at which they borrow from the relevant bank.

Outcome
The Federal Court found that the fact that this activity was not for profit, and involved the performance of an important social function, was not determinative. The two co-operative incorporated building societies were found to be financial corporations on the basis that they lent money at interest and were therefore engaged in commercial dealing in finance.

Relevance
An organisation may be a financial corporation even if the organisation is not conducted for profit and involves an important social function. Notwithstanding the restricted scope and limited duration of their activities, each applicant in this matter carried on a business. At the heart of that business were the commercial dealings in finance constituted by the relevant applicant's borrowing and lending of money and the subsequent payments and receipt of money pursuant to obligations and rights resulting from those dealings. Each applicant was formed to carry on that business and their activities were confined to carrying it on. The business which each applicant carried on and which it was formed to carry on was a financial business.

Trustee of Superannuation fund

State Superannuation Board v Trade Practices Commission [1982] HCA 72 (14 December 1982), [(1982) 150 CLR 282].

Facts
The State Superannuation Board (the corporation) was a statutory corporation formed to provide superannuation benefits for state public servants. The corporation argued it was not a financial corporation and instead merely the trustee and administrator of the state public servants superannuation funds.

Outcome
The Court found that the corporation was a financial corporation because it engaged in financial activities on a very substantial scale. Even if the Court confined its attention to such aspects of the corporation's investment activities that involved the making of commercial and housing loans, its business in this respect was very substantial and formed a significant part of its overall activities.

Relevance
In this case there was no doubt that the activities were all entered into for the end purpose of providing superannuation benefits to contributors, but this circumstance constituted no obstacle to the conclusion that the corporation was a financial corporation due to the activities in which it engaged.

NOT a trading or financial corporation

District or amateur sporting organisation

Re Kimberley John Hughes v Western Australian Cricket Association (Inc) and Ors [1986] FCA 357 (27 October 1986), [(1986) 19 FCR 10].

Facts
The applicant was a professional cricketer who contended he was disqualified from district cricket consequent upon his participation in a South African cricket tour. The applicant’s disbarment from playing club cricket was said to be from the Cricket Council’s decision following several meetings. There was no provision in the original rule for disqualification following breach of the rule. The original rule was amended by resolution at Cricket Council meetings. Among other things, the applicant sought relief under the Trade Practices Act 1974 (Cth), which required that at least one of the parties to the relevant contract, arrangement or understanding to be a trading corporation.

Outcome
The Court found that the incorporated cricket clubs that were party to the relevant contract, arrangement or understanding were not trading corporations. (Although the Western Australian Cricket Association with which they were associated was found to be a trading corporation, it was not a party to the relevant agreement). The clubs were basically amateur bodies which did not charge for admission to matches and generally did not pay players. Although they engaged in some trading activities, this was not of sufficient significance to allow them to be characterised as trading corporations.

Relevance
None of the clubs carried on the game of cricket as a trade, though the extent of particular activities varied from club to club. Whilst the clubs had activities which were of a trading nature, in particular the provision of bar facilities, this was not found to be so significant as to impose on the clubs the character of a trading corporation. The principal activity of the clubs was the playing of cricket for pleasure rather than reward.

Charitable organisation

Hardeman v Children’s Medical Research Institute [2007] NSWIRComm 189 (24 September 2007), [(2007) 166 IR 196].

Facts
The applicant sought interlocutory relief from the NSW Industrial Relations Commission restraining the Children’s Medical Research Institute (the Institute) from terminating her contract of employment. The applicant also sought relief declaring her contract was unfair, harsh or unconscionable. The Institute contended the NSW Industrial Relations Commission (the NSWIRC) did not have jurisdiction to grant the relief as the Institute was a constitutional corporation.

Outcome
The Institute was found not to be a trading or financial corporation. The trading activities it did engage in were insubstantial and peripheral to the central activity of medical research, generating only approximately 2.5% of its revenue. The NSWIRC also assessed that the Institute's financial activities were not a sufficiently significant proportion of its overall activities. In broad terms they were: the Institute's conscious passivity regarding its investments; the limited financial deliberation or interaction and acts related to finance; its minimal staffing arrangements; and the extensive utilisation of external financial advice and expertise.

Relevance
The trading and financial activities were not sufficiently substantial to render the medical research establishment a trading or financial corporation.

Community based organisation

Re Ms McInnes [2014] FWC 1395 (Hampton C, 24 March 2014).

Facts
Ms McInnes made an application under s.789FC of the Fair Work Act for an order to stop bullying. The workplace concerned was conducted by Peninsula Support Services Inc. T/A Peninsula Support Services (PSS). PSS was a community based organisation providing support to people with psychiatric disabilities and their carers living within the Southern metropolitan region in Victoria.

PSS objected to the application on the basis that it was not a trading corporation within the meaning of Fair Work Act due to its activities and nature and as a result, the worker was not at work in a constitutionally-covered business.

Outcome
The Commission found that the assessment of the nature of the corporation was one of fact and degree. When assessed in context, the income from trading activities, and those that might be considered to be trading activities, was not significant in either relative or absolute terms. Rather, those activities in the overall circumstances evident at PSS could be categorised as being insignificant, peripheral and incidental in the sense contemplated by the authorities.

The Commission was satisfied that PSS was not a trading corporation. Given the absence of any other circumstances that would make the workplace a constitutionally-covered business, there was no jurisdiction for the Commission to deal with the application further. The application was dismissed.

Relevance
Where trading or financial activities are insignificant, peripheral or incidental, the organisation will not be a trading or financial corporation.