The federal Liberal government at the time, led by Malcolm Fraser, made offers of compensation to Tasmania, however, they were not successful in stopping the dam's construction.

Section 51(xxix) of the Australian Constitution gives the federal parliament the power to make laws with respect to external affairs, a nebulously defined provision.

In his judgement, Justice Murphy said that in order for a law to have an international character, it is sufficient that it: It is important to note that the decisions of UNESCO in designating World Heritage Sites have no binding force upon any government.

Section 51(xx) provides that the federal government has powers to make laws regarding foreign, trading and financial corporations.

Tasmania argued that this head of power could not apply to its Hydro-Electric Commission since it was in effect a department of the Tasmanian government, and not a trading corporation.

However, as the HEC was engaged in the widespread production and sale of electricity, and had a degree of independence from the government, it was held to be a trading corporation.

Justice Brennan said however that Tasmania had no proprietary rights over the site for the proposed dam (that is, it was not private land), and therefore it had not been deprived of any property.

A four to three majority of the seven members of the High Court held that the federal government had legitimately prevented construction of the dam, and that the World Heritage Act was authorised under the "external affairs" power.

Large parts of Australia's main national environmental law, the Environment Protection and Biodiversity Conservation Act 1999 (Cth),[14] depend for their constitutional validity on the decision in the Tasmanian Dam Case regarding the external affairs power.

In 1998 Justice Merkel held in Shaw v Wolf that Aboriginal descent is "technical" rather than "real" – thereby eliminating a genetic requirement.