THE UNIVERSITY OF MELBOURNE

CENTRE FOR CORPORATE LAW AND SECURITIES REGULATION

SEMINAR ON THE COURTS AND CORPORATE LAW

MELBOURNE 31 OCTOBER 1996

AUSTRALIAN CORPORATIONS LAW IN CONTEXT

The Hon Justice Michael Kirby AC CMG ¹

It is important to see the developments of Australian Corporations Law, examined in this seminar, in the international and national context. Only if this is done will we understand the large movements which are occurring and their likely future directions.

So far as the universal developments are concerned, the following are clearly important:

1. Globalisation: Corporations today are increasingly affected by the globalisation of the corporate enterprise and of the capital markets which supports it. International competitiveness is a factor of special importance to a relatively small economy such as Australia's. The Australian Competition and Consumer Commission has acknowledged this consideration ² . Its Chairman has expressed guarded support for the view that competitiveness in a domestic market is the key to success in international markets ³ . However that may be, the real world in which the modern Australian corporation operates is increasingly affected by the growth of regional and international markets which, in the past, tended to involve only the largest corporations. This means that corporations today must increasingly operate in a variety of legal jurisdictions. They are subject to capital markets typically outside the control of Australian regulators.

2. Harmonisation: These developments have inevitably resulted in international pressure towards the harmonisation of laws and policies affecting corporations. The World Trade Organisation may, at some time in the future, adopt a common competition law. It may even grow into an enforcement agency ⁴ . The OECD already plays a harmonisation role by bringing about agreements between countries through information exchange. The OECD provides a forum for debate about the principles of competition policy. It is a force for convergence in the policies (and hence the laws) of the developed countries which make up the OECD. According to Professor Fels, it "sets the actual framework for some aspects of competition policy around the world" ⁵ .

3. Institutional investors: One feature of the international capital market to which I have referred is the growth of the importance of institutional investors. Huge funds are now moved around the world by Fund Managers. Their great power challenges some of the assumptions upon which corporations law has developed until now. They will typically have no particular sense of loyalty to, or involvement in, the corporation or its officers and staff. Their concern will typically be to attract the best return with maximum safety. Their capacity to shift large funds quickly not only between corporations but between different countries radically alters some of the hypotheses about shareholder conduct which previously existed. The idea of the shareholder as a small capitalist is still true. But that kind of shareholder is of less significance today than in the past. The institutional investor, with international interests and perspectives, is increasingly important to the corporation of today.

4. Technology: Economic pressure and changing technology are resulting in continuing pressure for the "down-sizing" of employment in corporations. This is not a new phenomenon. But it grows apace with international pressure. It is another factor affecting the human relationships which exist within corporations and which the law seeks to reflect and to protect.

5. Governmental corporations: Throughout the world, there is a fairly consistent move to privatise former government business corporations. Critics may suggest the limits which should be imposed upon the surrender by governments of their "core functions". But the old notion of government business enterprises dominating the "commanding heights" of the economy is now discredited. The complex question now presented is the extent to which privatised activity of a governmental character is, or should still be, rendered subject to remedies of public law ⁶ . The answer to this question will typically depend upon the investment of public funds in the business of the privatised former government corporation and the extent to which public officials continue to play a part in their activities.

Within the Australian scene, there are some additional, local factors which affect the debates about the future directions of corporations law. They include:

6. Corporate crime: The sorry record of the high profile corporate offenders in the 1980s, which brought such discredit to corporate activity in Australia is still remembered. The events of the 1980s, still being unravelled, tend to discourage, in Australia, the most radical solutions of corporate law reform and suggestions for the withdrawal of the regulators from this area of economic activity. The challenge remains that of retaining the entrepreneurial spark which is essential to the success of the corporation in the marketplace but under conditions of corporate honesty to the general community and fidelity to shareholders. Whilst the memory of the corporate offenders is still so vivid in Australia, it is difficult to argue for significantly increased withdrawal from the regulation of corporations, at least in respect of the risks of dishonesty and breach of trust.

7. The courts: The reports of the Federal Court of Australia continue to demonstrate the shift of business in corporate law matters from the State Supreme Courts to the Federal Court ⁷ . Some competition between courts may be good for the corporation consumer. State Supreme Courts have certainly begun to fight back to retain, or regain, the corporate law work. One result of this bifurcation of courts is the bifurcation of appellate authority. This produces the risk of disharmonious decisions in the corporate law area. Such decisions add to the difficulty of administering already complex legislation which, in the view of many, is over-detailed and over-technical.

8. Appellate decisions: Even within the Federal Court, there have been inconsistent decisions which have led to suggestions for reform of various kinds ⁸ . A simple solution would be the adoption of administrative arrangements within the Federal Court to ensure, both at first instance but especially on appeal, that judges with specialised knowledge in corporations law play a major part in at least substantial cases involving that law. The High Court has itself made a contribution to uniform decisions by suggesting the desirability of uniformity and techniques by which appellate courts, below the High Court, may achieve that end ⁹ . The long-term solution to the problem of inconsistent appellate decisions may be the establishment of a national appellate court, under the High Court, to decide the bulk of appeals in private disputes which cannot be accepted for hearing in the High Court.

9. Regional issues: There is an increasing understanding amongst Australian lawyers of the importance of the law of trading partners in our region. In this respect the legal profession is simply reflecting and following the shifts in corporate activity directed to the region. The most recent issue of the Australian Journal of Corporate Law contains essays on anti-trust law in Thailand ¹⁰ ; companies and securities legislation in Hong Kong ¹¹ ; the new banking law regime in China ¹² ; securities and investment law in China ¹³ ; economic reform in Viet Nam ¹⁴ ; and an analysis of the insolvency law of six Asian legal systems: China, Hong Kong, Indonesia, Malaysia, Singapore and Taiwan. In some ways the corporations laws of the countries of the region are undeveloped and the "economic miracle" of the region has occurred despite, not because of, law. However, there are undoubted lessons for Australia to learn in the region. This is undoubtedly where our economic future lies ¹⁵ .

10. Empirical research: The analyses of the Asian legal systems in the essays just mentioned were based upon empirical research supported by the National Centre for Corporate Law and Policy Research at the University of Canberra. The Centre for Corporation Law and Securities Regulation at the University of Melbourne has likewise emphasised the necessity of empirical research to understand the actual operation of corporate law and securities regulation on the ground. I strongly support that approach. My decade in the Law Reform Commission taught me the importance of studying more than the language of legislation. It is necessary to understand what actually happens in the boardrooms of our corporations. That cannot be achieved by confining research to legal texts or legal practitioners. It is essential to involve corporate officers, in dialogue with legal experts, to derive lessons from their experience. Doubtless they will complain, with some reason, about complexity. Perhaps they will say that risk-taking is becoming impossible for fear of legal suits aimed at distributing losses to bankers, brokers, accountants, lawyers, indeed anyone in sight. If these are their complaints, it is important that lawyers and law-makers should understand them. I would suggest that future seminars of this kind should include an equal number of company directors to speak to the lawyers and the judges, candidly, about how they see our discipline at work in what, after all, is their domain. The days of legal self-congratulations have passed. In the corporate sphere particularly, Australia finds itself in the harsh world of international and regional competition. It is essential that lawyers and law-makers should listen to the voices of the corporations, and not just to corporate lawyers and otherswho share our legal culture. I commend that approach for the future.

1	Justice of the High Court of Australia. Formerly Chairman of the Law Reform Commission and President of the New South Wales Court of Appeal.
2	A Fels, "Competition Policy and Law Reform: Asia/Pacific" (1996) 6 Aust J Corp L 143 at 153.
3	Ibid, at 153.
4	Ibid, at 151.
5	Loc cit.
6	M Seddon, in Government Contracts- Federal, State and Local , Federation, Sydney 1995, noted (1996) 70 ALJ 498.
7	Federal Court of Australia, Annual Report 1995.
8	GFK Santow and M Leoming, Australia's Appellate System and Enhancing its Significance in our Region (1995) 69 ALJ 348.
9	Australian Securities CommissionMarlborough Gold Mines Ltd (1993) 177 CLR 485 at 492.
10	S Supanit, "Anti-Trust Law in Thailand" (1996) 6 Aust J Corp154.
11	Arjunan and Chee, "Companies and Securities Legislation: Hong Kong" (1996) 6 Aust J Corp L 161.
12	O'Hare, "Regulation of the Securities Industry: Hong Kong FFC (1996) 6 Aust J Corp L 178.
13	Srivastava, "China's New Banking Law Regime" (1996) 6 Aust J Corp L 201.
14	Xi Qing Gao, "Developments in Securities and Investment Law: China" (1996) 6 Aust J Corp L 228. Lee Dang Doanh, "Economic Reform in Viet Nam" 91996) 6 Aust J Corp L 289. R Tomasic et al, "Insolvency Law: Six Asian Legal Systems" (1996) 6 Aust J Corp L 248.
15	Cf. R Pritchard (ed), Economic Development, Foreign Investment and the Law , Kluwer, 1996 noted (1996) 70 ALJ 852.