The decision by the Tasmanian government to dam the Franklin River and flood a substantial heritage wilderness area led to a challenge in the High Court by the Commonwealth.
The court ruled that the Commonwealth had the power to prevent construction because Australia was a party to an international convention protecting world culture and natural heritage. The Franklin River was listed on the World Heritage List and, as the Commonwealth held external affairs powers under section 51 (xxix) of the Commonwealth Constitution, it had the power to bind the States to any international treaties to which Australia was a party.
The decision raised another issue for the States. It ruled that statutory authorities such as the Tasmanian Hydro Electricity Commission (which generates electricity to sell) could be trading corporations under Section 51 (xx) of the Commonwealth Constitution and therefore subject to Commonwealth legislation. This permits the Commonwealth to regulate the activities of such trading corporations.
This case opened the door for future Commonwealth regulation because most State economic activities are carried out by trading corporations. The decision gives the Commonwealth power over certain activities that previously have been governed by State laws and policies.