Franca & Ors v The W.A. Teachers Financial Society Limited

[1989] HCATrans 24

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Perth No P2 of 1989

B e t w e e n -

HUGO DELLA FRANCA

First Applicant

CARLO DELLA FRANCA

Second Applicant

FRANK DELLA FRANCA

Third Applicant

JOSEPH DELLA FRANCA

Fourth Applicant

and

THEW.A. TEACHERS FINANCIAL

SOCIETY LIMITED

Respondent

Application for special leave

to appeal

Della

BRENNAN J GAUDRON J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

FROM PERTH BY VIDEO LINK TO CANBERRA

ON FRIDAY, 17 FEBRUARY 1989, AT 3.31 PM

Copyright in the High Court of Australia

C2T44/l/JM 1 17/2/89

MR M.J. McPHEE:  May it please Your Honours, I appear

for the applicants in these proceedings with my learned friend,MS F.C.E. DAVIS.

(instructed by McPhee and Meyer)

MR M.J. McCUSKER, QC:  May it please Your Honours, I

appear for the respondents in these proceedings

with my learned frien~ MR B. DHARMANANDA.

(instructed by Mallesons Stephen Jaques)

BRENNAN J: Yes, Mr McPhee.

MR McPHEE: This is an application for special leave to

appeal from a decision of a majority of the

Full Court of Western Australia on 23 December 1988

and by which the court dismissed an appeal
against a summary judgment granted by Master White

on the application of the respondent to these proceedings in August 1988. I have not filed

an outline of argument, Your Honours, but I would

respectfully take you to the affidavit in support

of the application for special leave of my

friend, Felicity Davis. Just before I touch on

the facts, I take you to page 160 of the appeal

book where submissions are made as to the questions

of law raised by this application.

The first one deals with the question of:

Whether the issue of a Certificate said

by legislation to be conclusive evidence in

relation to all matters precedent and

incidental to the incorporation of companies,

credit unions or financial societies is

exempt from examination even if the issue of

such certificate was irregular and beyond

the power (express or implied) of the State

official who issued the Certificate;

Secondly:

Whether such a Certificate has the effect of	giving validity to an act or thing which the
law does not allow;

(Continued on page 3)

C2T44/2/JM 2 17/2/89

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MR McPHEE (continuing): Thirdly, and I think this is really a

consequence of the complaint about conclusive

certificates,is:

Whether the issue of such a Certificate in

the exercise by a State official of a power to

impose "conditions and requirements" -

as here in the relevant sections and I will take you

to them in a moment -

can have the effect of allowing a State official

to direct an acquisition by a State Government

of assets of private citizens (in this case the

members of W.A. Teachers' Credit Society Ltd) -

which members, in passing, I mention, Your Honours,

included my clients -

without the consent of any of such persons or

the authority from an Act of the State

Parliament expressly authorising such acquisition.

Finally:

Whether the principles in MORTON V UNION STEAM SHIP

CO ..... are limited to delegated legislation

or extend to the power to impose "conditions or

requirements" contained in a substantive enactment.

Your Honours, the facts of this situation are set out

in the judgment of Mr Justice Rcwland, concisely at

page 123 and with your permission I will go through

them briefly:

W.A. Teachers Credit Society Limited

lent money to the present appellants from about

1985.       By December 1987, the terms pursuant to

which the money was lent had been breached by

the appellants and each appellant, and all

appellants, were in arrears, and formal demand

in terms of the loan documents had been made and
had been ignored.	By 7th December 1987, all loans

were then overdue and immediately payable.

On 17th August 1987, pursuant to section 97

of the Act, the Commissioners of the R&I Bank
were appointed administrators of the Credit

Union "to conduct the affairs of the Union".

By section 97(2), the Registrar, before

appointing administrators, had to certify that

grounds existed under section 101(3) (other than

under subsections (c) or (d)) which would

warrant the winding-up of the Credit Union.

By section 97(5), the administrators were given

all the powers of the directors.

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If I could just pause there for a moment, Your Honours.

Pursuant to section 97(5) of the CREDIT UNIONS ACT

in Western Australia, an administrator may be

appointed and he is given all the powers of the

board of directors of the credit society.	He is not
in any way, shape or form a liquidator.	He has
management powers and management powers only.	And the

rules of the credit union, which are in the book, and

I will refer you to if you require, stipulate the

the management powers of the board of directors. Section 101 of the CREDIT UNIONS ACT, deals with situations - I think I have sent over to you a copy of

the legislation, Your Honours.

BRENNAN J:  But before we get involved in the internal

management of the society, the problem is this, is it

not, that there is a debt which was owing by the

applicants to the credit society?

MR McPHEE:	Yes, Your Honour.
BRENNAN J:	And what has purportedly happened is that the

credit society has been converted into the financial
society. And the question is whether the financial

society is the creditor?

MR McPHEE:  Yes.

BRENNAN J: There is no doubt but that if the credit society

has not been converted into the financial society,

the credit society is still in existence?

MR McPHEE:	I think before the Full Court counsel for the applicants was not prepared to concede that point
simply because the applicants here, the appellants in
the Full Court, do not know the situation entirely. I
am not prepared to suggest,  on the other hand, that
the credit society has fallen into a black hole or has
disappeared. Certainly, as found by Master White, I suppose, that if the submissions made by the
applicants about irregularities are right, then the
whole procedure was irregular and the credit society
remains on foot.  And I think that is the likely
scenario. But the fact remains, Your Honours, in my
respectful submission, that the credit society has not
sued these - - -

BRENNAN J: That depends on whether the present plaintiff is

the credit society?

McHUGH J:	Why is it not a misnomer?
MR McPHEE:	I have said this to myself many times, Your Honour,

as to whether a rose by any other name would smell as

sweet, but I do not think it is a simple misnomer

because there is no relationship of th~ shareholders
between the old society and the new - save the direction

of the registrar and his certificate.

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MR McPHEE (continuing): There is no consent of the old

members. There is no court order as would be

required in a liquidation. The companies are

quite different.

In my submission, if the financial society

is in existence, its only claim to recover-
entitlement to the funds owed by my client, are

the acts of the registrar, the directions and the

certificate and - - -

BRENNAN J: Mr McPhee, if one looks at section 24C, which is

the transmogrification section, it provides that:

Where a credit union is registered as a

financial society ..... it shall cease to be
registered as a credit union but its identity

shall not be affected.

Now, it either has been registered under 24B

or it has not. If it has been registered under 24B,

then that is the end of the matter so far as you

are concerned. If it has not been registered under

24B, then the credit union continues in existence
and the mistake is that the title of "financial
society" is wrongly applied because it has not come
into existence at all and the entity which it was

intended to be is the entity which still enjoys the

name of "credit society".

MR McPHEE:  I think, Your Honour, that, on first reading, is

undoubtedly right, with respect, but if we look at

the question of registration and the effect of

registration - - -

BRENNAN J:  But why should we look at that if the dichotomy

is complete and on either side of it you are liable?

MR McPHEE: Well, presume that the dichotomy is complet~. If

the registration has not been affected, I go back

to my submission that the credit society, the

original societ½has not sued.

BRENNAN J: That rather begs the question, does it not, rather

than answer it? The questimis: has the credit

society sued?

MR McPHEE:  Well, in my submission, clearly it has not. The

only connnon ground between the actions or the potential

actions of the credit society and the financial society

is the fact that it has a connnon board of directors in

the form of the administrator, the R & I Bank.

C2T46/l/SH	5	17/2/89
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Now, if the R & I Bank has powers for the

credit society, it also has powers, if their defects
are effective and the credit society still exists, it
also has powers for the financial society, if it

exists but the fact that there is a common board of

directors, in my respectful submission, does not

mean that the two entities are the same and that

we are caught on the other side.

GAUDRON J: But there are not two entities. There is one only.

Under 24C there can only be one entity.

MR McPHEE:  Yes, Your Honour, but perhaps if we tested it this

way - and I do not wish to beg the question: if, upon payment of the amount in issue, the question

might be asked as to who would receive the benefit

of the· payment. The R & I Bank, no doubt, would

be responsible as the board of directors but to who

would the money be paid and who would receive the

money? Eventually, the benefit of the money would go

to the shareholders. The shareholders of the purported

financial society are four, who are nominees of the

government.

BRENNAN J: That is of no concern to the debtor, surely? The

debtor's concern is only to find the creditor and if

there is only one entity it does not matter by what

name it is known, so long as it pays it.

(Continued on page 7)

C2T46/2/SH	6	17/2/89
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MR McPHEE:  Certainly, sir, that the debtor's concern is

to find the creditor. None the less, he is

entitled, in my submission, to look to the person
who claims to be the creditor in this case, and if
he does not accept the proposition that the person
who claims to be the creditor is the creditor and
cannot find the proper creditor, is he not entitled
to say to the person who he does not believe to be

the appropriate credit society, "Come along as the

appropriate plaintiff and you will be paid", but as

things stand at the moment he is faced essentially

with a claim from a phantom, a company or a society

that claims to be the previous society but, if

the arguments about irregularies are correct,

is not the previous society, and that perhaps the
other side of the coin is near enough is good enough

and so long as he pays the person who claims to be

the society he will be discharged from his debt.

But that may not be so, if in fact these actions

were taken without authority or consent of the

members.

It would remain to be seen, I suppose, in the

end of the day, that if a payment was made to the

R & I Bank, as administrator of one or the

other - - -

GAUDRON J:  It would not be, though, would it? The payment

would be made on this proceeding to the financial

society, the Western Australian Teachers' Financial

Society Limited, would it not?	It would not be paid
to the R & I Bank.

MR McPHEE:  Certainly, Your Honour, but if the financial

society is a phantom and - - -

BRENNAN J:	What does that mean?
MR McPHEE:	It never properly came into existence.

GAUDRON J: It is not a question of its having come into

existence. It is a question of the effectiveness
of registration.	That is what section 24C is
posited on.	Even if the registration was ineffective

there is still that which is calling itself the

financial society is the credit society.

(Continued on page 8)

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MR McPHEE:  On the records as it stands at the moment, on the

public record, the credit society has,to use my

colloquialism, disappeared into a black hole. It has

been deregistered and cannot sue. That is in the

papers. As one of the effects of the formation of

the financial society, you have had the deregistration

of the credit society and, by virtue of section 22

of the Act, a credit society only has power to

sue upon registration. Now, it may be at the end of

the day that if the arguments about irregularities
are correct, that the record can be rectified and
the credit society formally reconstituted and

formally take action in other proceedings but, in

my respectful submission, it is not the case here.

What these defendants are faced with in these

proceedings is an association called a financial

society which purports to be the same as the credit

society but which is not.

McHUGH J:  But it is the same society. Is that not the hypothesis?

upon which 24C operates? Its identity shall not be

affected and it shall continue as the same entity

under its name as changed? It is just the name that

has changed, is it not?

MR McPHEE:  In my submission, the section 24C presupposes that

all the things necessary to be done for registration

are done and that the registration is effective. If.

it is not effective; if the financial society was

never registered and that the certificate of registration

is a nullity then section 24C has no effect at all; it

is irrelevant; it does not come into play. What you

have is a situation where a company claiming to be

owed the money is taking action but has no title to

the funds.

BRENNAN J:  It is not that it has no title;on that hypothesis.

it has no existence.

MR McPHEE:  Yes.

BRENNAN J: Well now, do you not come back to this: there is

either one entity or there has been only one entity

or there has been, and maybe still is, two.

(Continued on page 9)

£~It~/l/VH 8 17/2/89

MR McPHEE:  Yes, I think the second, with respect, Your Honour,

is possible, although I am not quite certain. I

think Mr Justice Rowland in his decision indicated,

when you look at the certificate of incorporation

of the financial society, that it is registered

and the ~ertificate confirms its registration.

It does not say where it comes from.

BRENNAN J:  Then if the certificate is effective - and I think

ARIFF's case would probably support it - to establish

conclusively that the financial society exists

as an entity - it does not matter where it came from

but just simply that it exists - then looking at

the statute there is only one way in which it could

have come into existence, and that is under 24C.

Now that is not going to advantage your case very

much because on that footing the credit society has

ceased to exist under that name but its identity has

persisted in the form of the financial society.

If, on the other hand, the financial society has

never come into existence and the certificate is

meaningless, then the credit society is here, in

this action, masquerading under a name of a non-existent

body and it is a misnomer and if it is a misnomer

again, one would have thought, you are not much

further along the track?

MR McPHEE:  There is no precedent for this type of situation

where a company is purported to be registered by

virtue of administrative actions within the company

which are not properly done, save for the line of

cases finishing in ARIFF, corrrrnencing in PEEL's case

and BARNED's case in 1867. We come, in my submission,

again, to the first point of the application for special leave as to what is the effect of such a

certificate. If the words which were imported into

the legislation in 1900,that the certificate is

conclusive evidence of all things precedent or

incidental, if that is conclusive and cannot

be examined on any basis, whether it be administrative

law mala fides or anything else - and that would

seem to be the basis of it - then in my respectful

submission it has astonishing results.

(Continued on page 10)

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MR McPHEE (continuing): It would create dangerous

precedents for the community. As I have

mentioned in the affidavit, you have got a

situation here where a registrar can direct

the acquisition of property rights and make
those property rights immune from any investigation

by the grant of a certificate calling it conclusive.

The other line of cases, however, which

are not company cases, commencing in BARONESS

WENLOCK and the FEDERATED ENGINE DRIVERS' cases,

would say, and I think Mr Justice Rowland saw

this distinction, such a section giving the

registrar the power only to do that which he

is authorized to do by law. Now, if I am right

in my submission that the registration of the

Financial Society was ineffective, and that it

is a nullity, the credit society may well still

be able to be brought back into formal existence.

But as things stand at the moment, it does not

exist; it is deregistrered. The record may well

be able to be made good, but it is not good at

the moment.

The danger of the precedent is that the

payment to the Financial Society here gives effect

to what we would say is the unauthorized act of

the registrar and for these applicants to simply

say, "Well, it doesn't matter. I have to pay

somebody and it will all be okay", in my submission,

does not really get to the point of this case as

to whether or not a government functionary can use these regulatory powers to authorize or to bring about an orderly reconstruction of the

society to effect an acquisition of property

by the government. Because, when all is said
and done, unless the defence is good, the payments

made on this proceed:ing and in all proceedings

brought by the Financial Society against debtors

will go to the government.

(Continued on page 11)

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MR McPHEE (continuing):  I think that can be inferred from

the evidence because the four shareholders hold

them as nominees for the government and, in my

submission, that is just an astonishing result. It

would put at risk all the body of law in relation to
substantive implied ultra vires if, in relation to

these sorts of companies, the property rights can

be effectively transferred and be made immune from

prosecution or examination by the simple use of the words "conclusive evidence for all things precedent

and incidental".

In the FEDERATED ENGINE DRIVERS' case,

Chief Justice Griffiths indicated that such a result,

if it allowed the registrar to do something which would

otherwise not be allowed, would be prima facie

improbable. Now, in opposition to the arguments on

this case throughout the line of the argument, the

feeling has been that my clients owe somebody

something and it does not really matter who they

pay. In my submission, that is plainly wrong.

The matters at principle which, in my respectful

view, call out for consideration by this honourable

Court are the ones that I have just been through;

namely, that administrative officials cannot get

past substantive questions of law about their

powers by giving themselves certificates which are
said to be conclusive of all matters precedent.

Your Honours, I know time is short. There is only one other matter that I think should draw our

attention and that is in relation to the question of

power itself. Mr Justice Nicholson, in his judgment,

limited the application of the principles of MORTON's

case to delegated legislation and that is, I think,

at page 148. The principle of MORTON's case, of

course, was that when you have a wide ambit power

given in a delegated legislation, that the Act of

Parliament sets out the field of operation of that

ambit power.

(Continued on page 12)

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MR McPHEE (continuing):  In my submission and, as I think,

accepted by Mr Justice Roland, the same sort of principle applies in relation to powers granted

in substantive enactments themselves. It is the

same sort of principle that governs cases like

PARRAMATTA CITY COUNCIL V CAMPBELL and WERRIBEE

SHIRE COUNCIL V KERR, that if powers are given

they must be used for the purpose for which they

are given. The powers here, in my submission, the

powers of the Registrar to impose conditions and

requirements in relation to the transfer of a credit

society to a financial society, should be used

within that context of what the thing was before

the power was exercised and what it was to be

after the power was exercised.

Although it is difficult to find exactly what

the difference between a credit society and a

financial society is, in my submission, the clues

are thrown up by the legislation itself and, in

particular, the Amending Act 120 of 1987. By

section 45(5) now, this can be seen on the amending
book that I sent you,on page 40 of the book of

amendments, the crucial difference between a

financial society and a credit society is that a

financial society has the power by a change in its

rules to issue:

non-withdrawable -

I am looking at 5a(c) on page 40 -

non-withdrawable shares that, subject to this Act,

entitle the holder to one and only one vote in

respect of each share at a meeting of the

financial society.

Now, this is a crucial development in the field of credit unions in Australia and I think there is no

like provision in any other State.	The fundamental
thing about a credit union, as I understand it, is its co-operative nature and this is given effect	in the substantive legislation by section 79(8) of
the Act which says that irrespective of the number of shares held by a member of a credit society the holder of those shares will only have one vote.

(Continued on page 13)

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MR McPHEE (continuing):  So, for a credit society to

raise fixed capital, in the old scheme of

things, was difficult because a person investing

shares would not have more than one vote, even

if he bought 20 per cent of the capital of the

place.

BRENNAN J: These are problems of internal management,

are they not?

MR McPHEE:  Sir, I think they are more than that. I

think they are problems of defining the ambit

of the power of the registrar in granting

conditions, because you have got a situation

where people own property on an equal basis.

BRENNAN J: That may be so, but the problem which you face

is that of a creditor and a debtor and finding

the creditor to pay.	Have you anything further
to say on those points?

MR McPHEE:	No, sir, thank you.
BRENNAN J:	Do you wish to add anything, Mr McPhee?
MR McPHEE:	No, thank you, sir.
BRENNAN J: We need not trouble Mr Mccusker.	In our view

the decision below was plainly correct and

the application should be refused.

MR McCUSKER:  May it please Your Honours, may I ask for

an order for costs?

BRENNAN J: Yes. Have you anything to say to that,

Mr McPhee?

MR McPHEE:  I have nothing, Your Honours, thank you.

BRENNAN J: Special leave will be refused with costs.

The Court will adjourn.

AT 4.01 PM THE MATTER WAS ADJOURNED SINE DIE

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