Weinstock and Anor v Beck and Anor

[2012] HCATrans 283

[2012] HCATrans 283

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S266 of 2012

B e t w e e n -

AMIRAM DAVID WEINSTOCK

First Appellant

HELEN WEINSTOCK

Second Appellant

and

TAMAR RIVQA BECK

First Respondent

LW FURNITURE CONSOLIDATED (AUST) PTY LIMITED

Second Respondent

FRENCH CJ
HAYNE J
CRENNAN J
KIEFEL J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 14 NOVEMBER 2012, AT 10.15 AM

Copyright in the High Court of Australia

____________________

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friend, MR J.O. HMELNITSKY, for the appellants in S266 – that is, the winding up matter.  (instructed by Baker & McKenzie Solicitors)

MR R.G. McHUGH, SC:   May it please the Court, I appear with my learned friend, MR D.J. BARNETT, for Ms Beck, whom I will be referring to as Tami, in the first of the matters as the respondent – that is, the winding up matter.  (instructed by McCabes Lawyers Pty Limited)

FRENCH CJ:   There is no appearance for the second respondent in the first matter or for the third respondent in the second matter.  Yes, Mr Jackson.

MR JACKSON:   Your Honours, the Court asked us to agree on which appeal should go first and we have agreed that the winding up appeal, S266, should go first.  That is the matter in which we are the appellant.  Your Honours, may I just mention something about the materials in that.  They consist of the special leave application book and the supplementary appeal book and that is pursuant to the order made at the time of the grant of special leave.

Your Honours, the appeal in this matter gives rise to what is, in our submission, a quite narrow but important issue and, in essence, that concerns the ambit of the power conferred on courts pursuant to section 1322(4)(a) of the Corporations Act.  I will come to that provision in a few moments, if I may.  But it is a case where our submission is that the approach taken by the majority – that is, Justice Young and Justice Sackville in the New South Wales Court of Appeal – unduly narrows the ambit of the power and that the view of the minority judge, Justice Campbell, in that court and of the primary judge, Justice Barrett, at first instance should be preferred.  May I take your Honours briefly to the underlying circumstances.

The underlying circumstances of the company are set out in our submissions in-chief in this matter at paragraphs 6 to 10.  Your Honours will see from paragraph 6 that the appellant and the first respondent are brother and sister and the company was incorporated in 1971 by their parents.  It had a share capital of five issued “A” class shares, at paragraph 8, they were non‑voting shares, and then, your Honours, the shareholding will become more significant in the other appeal.

Your Honours, the provisions dealing with shares – if I could take your Honours to them for a moment – in the company’s articles are to be seen in Article 3 which is set out in the supplementary appeal book at page 63.  Your Honours will see at page 62 of the supplementary appeal book, the provision in Article 3(1) for there to be the capital of the company. 

You will see then that the “A” class shares are dealt with by Article 3(2) and the “C” class shares are dealt with by Article 3(4).  But, you Honours will see commencing at the bottom of page 65, and you will see particularly Article 3(4)(d) which provides for redemption of the “C” class shares on the death of the holder and that is the matter that gives rise to the issue in the preference appeal.

Now, your Honours, could I go then to the circumstances giving rise to the present appeal and which we contend enliven the power under section 13224.  Your Honours, one starts with the provisions of the articles of association dealing with the directors and in this regard if I could take your Honours to page 84 of the supplementary appeal book.  Your Honours will see that article 65 provided for a minimum of two directors and the quorum of directors was to be two.  Your Honours will see that at page 88 of the supplementary appeal book in article 86. 

So there was to be a minimum of two directors and the quorum of directors was to be two.  Now, your Honours, if the number of directors fell below the quorum the continuing director could appoint another director to make up the quorum.  That is provided for by article 87, again at page 88, and your Honours will see that article 87 provided:

The continuing directors may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to the Articles of the Company as the necessary quorum of directors, the continuing directors or director may act for the purpose of increasing the number of directors to that number or of summoning a general meeting of the Company, but for no other purpose.

Your Honours, the immediately preceding article of course had provided for the quorum as two in number.  As appears in the appeal book – if I might call it that – at page 84, your Honours will see from paragraph 1 that the original two directors of the company were Leo, the father, and Hedy, the mother – or the current protagonists, if I can put it that way.  There was no dispute that they had been validly appointed as such in 1971.  Both the first appellant and the first respondent were themselves appointed directors in 1973, on 29 June.  However, it was held in the proceedings that they ceased to be directors immediately prior to the annual general meeting in December of that same year.

FRENCH CJ:   That was just on the construction of the articles?

MR JACKSON:   Yes, your Honour.  Your Honours will see that at page 33 of the appeal book in paragraph 103.  Your Honours, those matters are no longer in dispute and the primary judge’s conclusions in respect of them are summarised at paragraphs 113 to 122 of his reasons at pages 36 and 37 of the appeal book.  Your Honours, so the position was that we had ceased to be – when I say that, I mean the appellant had ceased to be a director in 1973, but, your Honours ‑ ‑ ‑

FRENCH CJ:   This is within the meaning of the articles?

MR JACKSON:   Yes, your Honour, ceased to be a director.

FRENCH CJ:   There was a subsequent holding about that?

MR JACKSON:   Yes, your Honour, I am just about to come to that, your Honour.  However, he had in fact continued to act as a de facto director for the following 30 years.  Your Honours will see that at page 145 of the same book at paragraph 150.  And your Honours will see that in the judgment in the Court of Appeal, Justice Campbell, he was no stranger to the affairs of the company, he had ceased to hold office in 1973, but by the time of the purported appointment – that means the appointment of his wife as a director – he had been acting as a director for the entire time, from his initial appointment for a period of over 30 years, and your Honours will see the remainder of that paragraph which reflects, your Honours, what had been said by the primary judge at page 52, paragraph 167.

HAYNE J:   Did that circumstance engage Article 92 of the articles or not?

MR JACKSON:   Your Honour, may I put it this way:  that proposition has not been contended for.

HAYNE J:   Yes.  We are to put it out of our mind, are we?

MR JACKSON:   I am sorry, your Honour?

HAYNE J:   We are therefore to put it out of our mind?

MR JACKSON:   Your Honour, yes.  Could I just say in relation to it that it is not an issue which has not been considered, as I understand the position of various points in the matter, but the view taken is the one that I expressed.

Your Honours, could I just say then, as appears at page 93 in paragraphs 41 and 42, the father died on 29 July 2003 and his wife was incapable of continuing as a director because of her mental illness and your Honours will see, if one looks at Article 73(d), which is set out in the supplementary application book at page 85, that her office as a director became vacant because of her mental condition.  She had suffered from Alzheimer’s.  That left the first appellant as the only purported director and, your Honours, believing he was a director and had been for the last 30 years, he purported to exercise the power under Article 87 – if I could take your Honours to that; it is at page 88 in the supplementary appeal book – to appoint a new director, his wife.

I took your Honours to Article 87 before, but the purported exercise of power can actually be seen in the appeal book at page 93, paragraph 43.  Your Honours will see it is there set out in the reasons that the minute book contains the document purporting to be the meeting of director and then your Honours will see under the heading “BUSINESS” the company was notified of the death of the father and of the condition of the mother.  Then on the next page, under the heading “APPOINTMENT OF DIRECTOR”:

It was RESOLVED in accordance with clause 87 of the Articles –

which is then recited, and then your Honours will see the appointment in the last five lines of that quotation.  Your Honours will see that the resolution referred specifically to Article 87.  Could I note, your Honour, because one is using the application book as distinct from an appeal book, that it contains the submissions that were made on the application for special leave.  There is one error that perhaps I should just mention – page  16, paragraph 23 of the applicant’s submissions.  The error is that it refers to Article 69.  It should be to Article 87.

The problem, of course, in relation to the appointment was that it was held that he was not a director at the time he purported to appoint his wife a director.  That circumstance, your Honours, was identified in this litigation because the original appointment had been under Article 69 and continued only to the start of the next annual general meeting and so he had not continued in office automatically pursuant to Article 67.

Your Honours, although it was held that he was not lawfully a director at the time when he purported to appoint his wife a director, as appears from paragraph 150 at page 145, to which I took your Honours earlier, he had acted as a director for over 30 years and he honestly believed he had the power he purported to exercise.

Could I also add then, your Honours, that, as appears from the originating process that one can see in page 2 of the supplementary appeal book, there had been a claim made under section 233 and based on a core section, 232 of the Corporations Act, based on oppressive conduct.  Your Honours, that claim was withdrawn at trial; it was abandoned at trial.  Your Honours will see two references to that – one at page 85 of the appeal book in paragraph 5.  Your Honours will see, in the fourth and fifth lines on the page, for a time she also sought relief under the provisions of section 233, but that claim was abandoned at the trial.  The nature, or the issue of the trial, was explained more fully by the primary judge at page 6, paragraph 5.

Your Honours, may I come then to section 1322?  Your Honours will see that section 1322(4) is a provision which empowers a court to make an order of the nature set out in subsection (4)(a).  The opening words of subsection (4) make it clear that an order under that provision may be made unconditionally or subject to conditions imposed by the court.  The matters to which section 1322(4)(a) is applicable fall into several categories which, so far as presently relevant, are, first of all, acts, matters or things purporting to have been done in relation to a corporation and any proceedings purporting to have been instituted or taken in relation to a corporation. 

The term “proceeding”, your Honours, is itself defined by subsection (1)(a) in such a way that it does not refer only to legal proceedings.  Now, your Honours will see that the order contemplated by the provision is one which operates in relation to – to put it shortly:

an act, matter or thing purporting to have been done [first of all] . . .  in relation to a corporation –

Now, your Honours, there could be little doubt, in our submission, that the attempt to appoint Helen as a director of the corporation was something which satisfied that criterion, namely something purporting to be done in relation to a corporation, and that was accepted by the Court of Appeal.  May I indicate where that was done, your Honours?  It is in the application book at page 144 in paragraphs 147 through to paragraph 150, and your Honours will see that view taken there.  Then, your Honours, at page 194 in paragraph 220, in the last sentence of that paragraph by Justice Young, and then at page 196 in paragraph 231, Justice Sackville, where he said the critical issue is whether the purported appointment was invalid, et cetera.

Now, your Honours, the appointment also was one which was, in our submission, invalid in terms of the usage in 1322(4)(a), your Honours will see the words “is not invalid”.  It was invalid because first of all it purported to be made in the exercise of a power conferred by Article 87, your Honours have seen the terms in which it was purported to be exercised.  That article, in terms, required that the appointment be made by a director and the first appellant was not, for the reasons to which I have referred, a director.  That gave rise to the question which the majority regarded as critical.  That can be seen, your Honours, in paragraph 231 at page 196, where – your Honours, I went to this a moment ago – the critical issue was:

whether the purported appointment . . . was invalid “by reason of a contravention of a provision of this Act or a provision of the constitution of a corporation”.

Now, your Honours, there are, in our submission, very strong arguments in favour of the view that there was such a contravention and, your Honours, they are set out in the reasons for judgment of Justice Barrett at first instance and of Justice Campbell in the Court of Appeal.  May I go first to Justice Barrett at page 47?  I want to refer to paragraphs 149 to 154, and may I identify for your Honours the parts that are particularly significant?  If one goes to paragraph 194 in the first sentence, his Honour described the true characterisation of the events relevant ‑ ‑ ‑

FRENCH CJ:   It is 149, I think.

MR JACKSON:   I am sorry, 149, your Honour.  I should have said that:

The true characterisation of the events relevant to the matter is that a person who was not validly in office as the company’s sole extant director purported to do something that, if it were to be validly and regularly done, had to be done by the person who was, at the time, validly in office as the company’s sole extant director.

His Honour went on to say in paragraph 150 in the first sentence:

There was, in my view, a “contravention” of the constitution in that the person who purported to make the appointment allowed by the constitution did not formally and regularly occupy the position of director necessary to make the appointment a valid appointment.

Your Honours will see that – I have taken your Honours to the other parts of paragraph 150 earlier, but he refers to the fact that he had been “a de facto director for some thirty years”.  In paragraph 151, your Honours will see that his Honour adopted the view that:

there was, in these circumstances, a “contravention” of the constitution –

by reference to what had been said by Justice Lehane in a passage which is recited at the top of page 48.  Your Honours will see, if I go to about the fourth line of that quotation:

proceed on the basis that if something is done which has not been properly authorised because, for example, appropriate resolutions have not been passed or because there is in office no validly elected board of directors, the doing of it without authority –

and your Honours will see the remainder of that paragraph.  Then, in paragraph 152 your Honours will see the comment by Justice Barrett, in particularly the first three lines of that paragraph, and then the comment upon it in the remainder of that paragraph.  Finally, if one looks then at paragraphs 153 and 154, your Honours will see that his Honour said in 153 that the effect was a matter of substance rather than formal procedure:

Its effect was not that there was a defective appointment but that there was no appointment at all.  That raises the question whether the remedial force of s 1322(4) is available in a case of nullity.

Your Honours will see that his Honour said:

The section itself readily provides the answer.  The court is given power to declare “not invalid” that which is in truth “invalid”, so that a case of nullity is clearly covered.

FRENCH CJ:   Now, there is a degree of focus on the concept of contravention but the collocation is not invalid by reason of any contravention.  So, is it right to say, the effect of an order – a declaration made under this section is to, as it were, set aside the vitiating operating of any contravention, however broadly defined?  Does one then have to find that vitiating operation, having been set aside, a legal support for validity otherwise?  

MR JACKSON:   Well, your Honour, the answer is, in a sense, yes.  I say in a sense because what is being set aside is something done first of all in relation to a company – that is the earlier words – and that really brings with it a relationship with the company, its constitution and the matters provided for by the Act and the constitution, of course.  What I was going to say though was that if one looks then at saying it is something valid, your Honours, one would expect that in most cases the validity would be something that brings about a situation that regularises the situation of the company. 

Now, one is speaking of course in a context where the premise upon which the provision comes into play is that there has been a contravention of either the Act or the constitution of the company and, in the ordinary course of events, the making of the order would be one that would put the company into a situation where the effect of the contravention is removed and the removal is relevantly, in our submission, by putting into place a person or persons who occupy the office of directors in the particular case, although not appointed in the appropriate way.

HAYNE J:   Why should one confine attention to the bare moment of appointment?  The contravention of the constitution and the articles relevantly is perhaps better seen as both the appointment and subsequent acting as director, and on any view I would have thought that the exercise of power purportedly as a director – well, I wait with interest to see how it can be said that that is not a contravention of the articles.

MR JACKSON:   Well indeed, your Honour.

HAYNE J:   The point I want to raise with you is whether the competing view depends upon a particularly narrow and confined identification of the matter that is to be dealt with by a 1322 order.

MR JACKSON:   Your Honour, of course, as your Honour might expect, we would say that the approach taken by the other side adopts too narrow a view of the ambit of the power.  One concentrates in a sense, or why our argument would concentrate on the purported appointment under article 87, because if that is validated then the validation would mean that Helen was a director of the company from the time of her appointment as such. 

Perhaps there might be arguments to the contrary, but it would have the effect that any conduct in which she engaged – and your Honours will have seen from the passages to which I have referred that the actual conduct as such is not challenged – that that would have the effect that her acting as a director and being a de facto director, as held at paragraph 171, was conduct that does not need further validation.

Your Honour, I do not know that I can take it beyond that, with respect.  Your Honours, what I was going to say – staying with paragraphs 153 and 154 at page 48 just for the moment – we would submit that the views expressed by Justice Barrett are in relation to nullity, we would submit with respect, are correct.  If the Court is declaring something not invalid, surely it is saying this is a nullity because the constitution of the company – or in appropriate cases the Act – requires it to be done in a particular way.  It was not done in that way and, thus, is of no effect and is, therefore, something that can be cured.

FRENCH CJ:   The declaration is not that it is not invalid.  The declaration is not invalid by reason of any contravention, is it not?

MR JACKSON:   Yes, your Honour, yes.  Your Honour, I accept that.  Well, your Honour, I think what I was saying, in a sense, sought to encapsulate that by saying that saying it is a nullity is saying it is a nullity because the constitution of the company requires it to be done in a particular way and it was not done in that way.  That is the contravention.

Your Honours, to similar effect, are the reasons for judgment of Justice Campbell.  They commence, relevantly, at page 137, paragraphs 129 to 139.  Could I just again take your Honours to some passages from that, particularly?  At page 137, paragraph 129, in the middle of the paragraph, his Honour said:

there is no justification for imposing a limitation of the kind –

submitted for by the other side.  And, then, in paragraph 130, said:

There is ample authority that s 1322 is a remedial provision which is to be applied with liberality.

But, he recognised, at the end of the paragraph, that liberality –

does not necessarily mean it is to be applied with unbounded liberality.

Then paragraph 131, he said:

Even if one were approaching the construction of s 1322 without any reliance on previous authority concerning the section itself, there is ample High Court authority that provisions conferring jurisdiction or granting powers to a court are not to be read by making implications or imposing limitations which are not found in the express words.

Now, your Honours, many cases are referred to in that regard.  I am going to go to two of them a little later, if I may?  One of them being John Grant in this Court, which is, we think, the only decision in this Court which deals with section 1322(4) and then in a very brief, but relevant, way.  Your Honours, if one goes then from there and see his Honour’s discussion and moves on, your Honours, to paragraph 139 on page 141.  His Honour said:

There is nothing in the text of s 1322 that suggests that in the context of that particular section one should not accord “contravention” in s 1322(4) its full meaning.

And, your Honours will see some discussion of related provisions.  Then in the last five lines of the paragraph says:

All that is required for there to be a “contravention” of the constitution is that something [has] happened that is different to what the constitution of the corporation requires.  For Ami to appoint Helen as a director, when he had no power to do so, is a contravention in this sense.

Your Honours will see in paragraph 140 that his Honour reflected, in the second sentence:

There are a multitude of ways, impossible to specify in advance, in which the administration of the company might come to transgress legal boundaries, or be different to what the Act or the constitution of the company required, or where the operation of the company in accordance with what would ordinarily be the applicable legal requirements has become either impossible, or commercially undesirable.

He referred to the manifest purpose of the provision to allow wide discretion.  Your Honours will see he continues with that until the fourth line on page 142 and goes on to say:

The wording of s 1322(4)(a) is wide enough to empower the court to rescue a company from a situation in which its administration has become paralysed.

Then, your Honours, in paragraph 141, the first eight lines of the paragraph we would refer particularly to, and that concludes – so the first eight lines of that paragraph particularly.  Could I go then, your Honours, to the view adopted in the Court of Appeal by the majority?  It commences, essentially, at page 201, in paragraph 239, in Justice Sackville’s reasons.  The heart of the reasons is really the first four lines of paragraph 239 where his Honour said:

It is one thing to apply s 1322(4)(a) of the Corporations Act to the purported acts of an invalidly appointed director and another to apply the provision to the purported acts of someone who has never been validly appointed as a director and cannot be so appointed.

HAYNE J:   What is the distinction being drawn there?

MR JACKSON:   I am sorry, your Honour?

HAYNE J:   How would you amplify that distinction that is being drawn there?

MR JACKSON:   We have some difficulty, your Honour.  What we would seek to say about it in the first place is that it really commences by imposing an incorrect test in the sense that the statutory question first posed by 1322(4)(a) is whether the act, matter or thing purporting to have been done was done in relation to a corporation.  If it was, if that question is answered in the affirmative, one then comes to ask the question:  why was that invalid?  It is possible – and I say this to put it to one side – that conduct engaged in could be invalid by reason of something such as a statute, not the Corporations Act, not the articles of the company or the constitution of the company, which said that conduct of this kind cannot be engaged in and proscribed it.

Leaving aside that sort of case, your Honour, almost any other instance of invalidity would be likely to arise because of a contravention of either a provision of the Corporations Act or of the company’s constitution.  Your Honours, if one goes back to what is said at the start of paragraph 239, where his Honour says it is one thing to apply it to the purported acts of an invalidly appointed director and another to apply it to the purported acts of someone who cannot be validly appointed, it is difficult, with respect, to see precisely why that distinction is drawn and how it is valid.

The answer to that question, in a sense, seems to be what the judge goes on – in the same paragraph – goes on to say by way of expansion.  Your Honours will see at the end of the fourth line he starts to elaborate on the distinction by saying:

If, for example, the appointment of a person as director was invalid because the meeting which resolved to make the appointment was not properly convened, a fresh appointment could be made at a duly convened meeting and the acts of the de facto director ratified.

Your Honour, so be it.  That plain enough one would think falls within the provision.  But, his Honour then goes on to draw the distinction in the remaining part of that paragraph by saying if the person:

cannot validly be appointed, the purported act of that person, even if performed when he or she was a de factor director, cannot in my view be described as invalid by reason of a contravention of the articles or of the Corporations Act.

Your Honours, we would say in relation to that, that is simply taking a very, very narrow view of the ambit of the power, and one without, if I may so with respect, drawing a principle distinction referable to the provisions of the provision itself.

HAYNE J:   What content would you understand to be given to this notion of “cannot be so appointed”, “cannot be validly appointed”?  I could understand its application in a case where it was said, go back to World War II times, Enemy Aliens Act or something, and you could not validly appoint an enemy alien as a director of a company or some supervening disqualification of that kind.

MR JACKSON:   Yes, that is a matter I was setting aside, your Honour.

HAYNE J:   Leave that aside.  Cannot be validly appointed?  Why not?  How?  Why not?

MR JACKSON:   Well, the why not is because, in a sense, of the very thing that one might think 1322 is directed at, and what I mean by that is to say, it is said that Helen could not be validly appointed because there was no one who could validly appoint her, her husband not being a true director.  Now, your Honours, how one derives that criterion from the words of section 1322(4)(a) is difficult with respect to see, difficulty to explain, with respect.

KIEFEL J:   Is his Honour taking the words “purported act” to mean capable of correction under the articles, and his Honour is then drawing the distinction that the section does not extend to a contravention upon a contravention, in effect?

MR JACKSON:   Well, your Honour, that is the effect of what he says, yes.  But, your Honour, one could see even if one goes back to the example that he chose in the fifth line of paragraph 239:

If, for example, the appointment of a person as a director was invalid because the meeting which [purported] to make the appointment was not properly convened –

Then the action of the director, so invalidly appointed, would be those which amounted to contravention upon contravention in any event.

GAGELER J:   Is another way of putting what his Honour was saying that the section only applies where you first find authority in the company’s constitution to do an act, the purported exercise of which is then rendered invalid by reason of a contravention, so that under the provision you relieve against the contravention, leaving the authorised act in place?

MR JACKSON:   Something along those lines his Honour is trying to say, I think. 

CRENNAN J:   He is really distinguishing between two species of lack of authorisation.  He seems to have in mind that there is a particular want of authorisation that would not amount to a contravention for the purposes of 1322.

MR JACKSON:   He seems to be saying, your Honour, if I could pick up an expression that one of your Honours used, that if you have got, in effect, a double contravention – and I am speaking double in the serial sense, really –then section 1322 does not extend to fixing it up.  Now, one can put that in various ways, but it is a serious limitation on the ambit of the provision.

FRENCH CJ:   It comes back to this notion I put to you before of the collocation not invalid by reason of any contravention.  You make a declaration which has the effect of, as it were, setting aside or nullifying the invalidating operation of a particular contravention.  Then you ask, that problem being put to one side, upon what basis is the act valid.  Maybe there is another contravention lurking in the wings, which also has a vitiating effect.  So that on its proper construction all that this does is to cure the effect of the contravention to which it is directed, but I am not sure that his Honour is really looking at that kind of problem in paragraph 239.

MR JACKSON:   No.  Your Honour, what his Honour seems to be saying is in two places, really, the first four lines and then the last five or six lines – I am sorry; perhaps the last 10 lines – where he says:

where a person has never been appointed a director . . . and cannot be validly appointed, the purported act of that person . . . cannot in my view be described as invalid by reason of a contravention of the articles . . . Nor can it be said that the de facto director’s purported acts are invalid by reason of a failure to take advantage of a provision of the constitution –

HAYNE J:   Why is not the purported act of that person, who is by hypothesis not a director, invalid by reason of the operation of the articles where the articles say that certain powers are to be exercised by the directors?

MR JACKSON:   Your Honour, that is the proposition which we advance and, really, in the simplest form.  If one comes directly to the Act in question here, a person who has acted for a long time as a de facto director, in terms of the definition of director, says, “I exercise a power under Article 87, which is given to directors”.  As events turn out, he is not a director.  So he has purported to exercise a power that only a director can have.  Your Honours, that, with respect, we would say, is elementarily a contravention of the terms of the constitution.

Now, your Honours, could I just go back to the section for a moment?  In relation to the question of the ambit of the term “contravention”, your Honours will see that 1322(4)(a) I have referred to so far.  That provision itself is referred to in 1322(4)(c) where it is provided that one of the orders that may be made is:

an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a) –

Your Honours, it is right to say that 1322(4)(a) does not itself use the word “failure”, but if one looks at 1322(4)(a) in combination with (4)(c) which directly applies to (4)(a), then it appears plain enough that it is speaking of a contravention or failure to comply with the provision of the constitution.  If one goes to subsection (5), one sees similar language being used:

An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence.

Your Honours, could I just say this, also?  Referring to the reasons for judgment of Justice Sackville at paragraph 239 that I went to before at page 201, the concept to which he refers there does suffer from the difficulty that in section 9 of the Corporations Act it includes in paragraph (b) of the definition of “director”:

a person who is not validly appointed as a director if:

(i)they act in the position of a director –

Now, your Honours, one might think that the legal reasoning underlying a conclusion that a person was not validly appointed as a director in terms of the definition of director was that the person had not been so appointed in a manner provided for by the Corporations Act or by the constitution of the company.  And, your Honours, one might think in passing that one of the purposes of section 1322(4)(a) was to permit the validation of the actions of the person who had acted as but had not been “validly appointed as a director” of the company, or the validation of the purported appointment of the de facto director.

HAYNE J:   Most especially where those actions may have bound the company to third parties.

MR JACKSON:   Quite, your Honour, yes.

HAYNE J:   And the indoor management rule, the whole purpose of the indoor management rule is to avoid inquiry into such matters and if you have one regime applying to third parties, well, what are you going to do about the internal management?

MR JACKSON:   Yes.  Your Honours, may I go for a few moments to some matters raised in our learned friend’s written submissions.  Your Honours will see that a great deal of the argument on behalf of the respondent relies on Article 69, rather than Article 87.  Your will see that in paragraphs 9 and 10 of those submissions and, particularly, where it is said in the third and following lines of paragraph 10, that the relevant question was whether the attempt to appoint Helen can be characterised as a purported act which is invalid by reason of the contravention of Article 69.  And, that appears to be tied up with, your Honours, a contention in paragraph 6 of those submissions, that Article 87 was not itself a grant of power. 

Your Honours, the difficulty with those propositions, we would submit, is that the terms of Article 87 prevented the exercise of power under Article 69 in circumstances where the number of directors was reduced below the quorum.  In consequence, the only power which could be exercised was that of appointment under 87 to make up a quorum, and that was the power which, in fact, was sought to be exercised.  Your Honours have seen the extract from the document.

Your Honours can see the reliance on Article 69, set out again in paragraphs 16 and 17 of those submissions.  We would submit that if one looks, as paragraph 17 suggests one should, at the form of order made by the primary judge – and you will see that, your Honours, at page 68 of the appeal book, order 2 – the language, we would submit, makes it apparent enough.  No paper is wasted in this form of order.  Your Honours will see that order 2 is expressed in a form which appears to pick up the wording, or the content, of Article 87.

Now, your Honours, the second matter I wanted to refer to is that the first respondent relies on a supposed ordinary meaning of the term “contravention”.  You will see that referred to in paragraph 15 and paragraph 25 of those submissions.  But, your Honours, “contravention” has a wider meaning than merely infringement, or violation, of a positive rule or restriction.  We would submit, it also means doing something inconsistently with a rule or restriction. 

That was, in a sense, the way it was used in an early decision of the Court in Charles v Grierson (1908) 7 CLR 18. Your Honours, that was a case in which the relevant provisions of the Liquor Act in Victoria was set out at page 21 by Chief Justice Griffith and at a time when the licensed premises were not to be selling liquor, to put it shortly.  Then, unless you were a bona fide lodger, you were not supposed to be on the premises.  Your Honours will see at page 22, his Honour said about halfway down the page:

if the words “in contravention” are limited to meaning “in breach of some positive provision,” they are quite inoperative, for there is no independent provision in the Acts which makes mere presence on licensed premises at the times specified an offence, although some offences, which can only be committed on licensed premises, of course involve the presence of the offender.

Your Honours will see then at page 23 at the top of the page his Honour said:

I think that an attempt to commit any such offence would be “in contravention” of the Act in the ordinary acceptation of that term, especially if no other interpretation would give effect to the provision.

Then in the next paragraph he said:

It follows that, since the only way to give any effect to the intention of the legislature to create a new offence, established by mere presence unexcused, is to construe the words “in contravention of” as meaning “in prosecution of a purpose inconsistent with observance of the provisions of the Act,” that construction ought to be adopted –

et cetera.  Of course, it is just a case dealing with the meaning of the term ‑ ‑ ‑

FRENCH CJ:   Are you content with the ordinary meaning adopted by Justice Campbell at paragraph 138 of his judgment?

MR JACKSON:   I am sorry, your Honour?

FRENCH CJ:   Paragraph 138 of his judgment, I think it is at page 140 of the appeal book.

MR JACKSON:   Yes, your Honour.  Your Honour, could we also say that the provision – 1322 I am referring to of course - is also concerned with a rather more than mere violation of positive requirements, and I say that because if one goes to paragraph 23 of the respondent’s submissions, one sees in the fourth line:

Civil liability cannot, however, flow from a person’s not doing of something which that person had neither the power nor the obligation to do.  In that situation, there is no “failure” –

One then goes to paragraph 51 and the last five lines:

An attempt by a person to exercise a power which he or she has not been given does not result in civil liability.  The law does not impose upon a person a duty to do something which that person has no power to do.  Nor ‑

et cetera.  Now, your Honours, a person of course can incur civil or criminal liability from doing an act that he or she has no power to do and the section is concerned to relieve against liability from that.  The contravention, in our submission, needs to be read in a way that includes cases such as this where an act is done other than in accordance with the company’s constitution.

Your Honours, could we refer to what was said in relation to the ambit of the term “contravention” in the decision in Sheahan v Londish in the New South Wales Court of Appeal (2010) 80 ACSR 337? I wanted to refer to Acting Justice Lindgren’s observations at page 367 where he said, in the last couple of lines, the expression, contravention, et cetera:

has been liberally construed, and the word “contravention” in the provision has not been confined to its orthodox meaning of “infringement”.

The preceding paragraph referred to the fact that the provision has been widely construed.  Your Honours will see at the start of paragraph [234] there is a reference back to what Justice Young had said in the same case in paragraphs [161] and [162] – they are at page 356 – where he said in paragraph [161]:

To my mind, the barrier to making an order under s 1322(4)(a) is whether the words “contravention of a provision of this Act” are satisfied when the company does not infringe the Act –

he was speaking about the Act, of course –

but merely fails to take advantage of a provision of the Act.

He said he considered the problem in Gould and considered:

that the word “contravention” should be given a wide meaning . . . The extended meaning would cover the instant case.

Your Honours, one should bear in mind, of course, and we have set this out in our written submissions in‑chief in this case at paragraphs 30 to 34 – I am sorry, your Honours, I just lost my place for a moment – paragraphs 30 to 34 of our written submissions, where we refer to the fact that it is “a grant of power to a court” the nature of which is obviously remedial.  There are two overlapping principles:

it should not be read subject to any limitations not found in the express words of the grant –

Your Honours, we say in paragraph 33 that the provision:

should be “applied with liberality” because it is a remedial provision.

Could I take your Honours for a moment to two decisions in this Court dealing with those provisions?  One of them is the decision in David Grant & Co v Westpac (1995) 184 CLR 265. In that case, your Honours, the members of the Court agreed with the reasons of Justice Gummow at page 275, 276. Your Honours will see at the bottom of page 275 that his Honour made an observation about 1322(4)(a). He said it:

confers upon the court a broad authority to declare –

Then he paraphrased it.  He said at the last sentence on the page:

As a general precept, it is inappropriate to read provisions which confer jurisdiction or grant powers to a court by the making of implications or imposition of limitations not found in the express words of the legislative provision.

And His Honour cited a number of cases.  Could I refer also, your Honours, to what really was the first, in a sense, line of modern cases setting out the same provision, and that is in Knight v FP Special Assets (1992) 174 CLR 178. I wanted to refer to two passages. One is at page 185 in the joint reasons of Justices Mason and Deane, which contains some observations particularly germane to cases like the present. Your Honours, it is the paragraph that commences halfway down page 185 where their Honours say – they speak in the first four lines about the particular provision in issue and then go on to say:

The jurisdiction and the discretion thereby conferred are not limited.  Because they are not limited it is easy to postulate a variety of circumstances where an exercise of the jurisdiction against a non‑party –

as was the case in the present case –

would be extravagant and unjust.  However, the existence of that possibility provides no justification for the imposition by the courts, by way of implication, of an arbitrary limitation upon the general jurisdiction conferred by the rule.  To do so would, as will appear, deny power to the Court to order costs . . . The inevitable answer to arguments directed to limiting curial jurisdiction based on the supposition that the jurisdiction might lend itself to abuse is that the court will and should develop principles governing the exercise of the discretion which will ensure that the jurisdiction is not exercised in such a way as to give rise to abuse.

Now, your Honours, at page 205 one sees Justice Gaudron’s reasons, which set out the general principle in terms which have been followed in a large number of cases.  Those cases were referred to in the present case in one of the paragraphs to which I have already taken your Honours.  Could we say, your Honours, that the approach taken by the majority in the Court of Appeal, in our submission, reduces significantly the utility of section 1322(4)(a). 

HAYNE J:   Does that approach adopted by the majority depend upon, or at least proceed from, a premise that contravention is to be understood as limited to contravention of some norm or rule?  I can understand contravention of the Act commonly would involve a departure from a norm of conduct prescribed by the Act.  Contravention of a company’s constitution, though, may have to deal with the observation that the constitution, memo and articles will provide grants of power, often grants of power conditioned upon particular criteria, and exercise of the power in circumstances where the criteria are not met, which seems to be a way of looking at the present case, would fall outside the view of the majority on the footing that well no norm of conduct has been broken.

MR JACKSON:   Your Honour, may I say two things about it.  That seems to be, in a sense, perhaps more a consequence of the view taken by the majority in the Court of Appeal and I will come back to that in a moment.  But, it also is really much of the argument that is put by the respondent.  So much of their argument depends on a narrow concept of contravention. 

If one goes to the majority in the Court of Appeal, it really seems to come down to the notion that you cannot have something that requires – and I am putting it briefly and inaccurately – a double validation, that validates two stages, where the underlying stage is one that is something that cannot, as a matter of fact, be done at the particular time.

HAYNE J:   That would suggest that you could not validate the acts of a de facto director.

MR JACKSON:   Yes, your Honour.

HAYNE J:   The whole of the law relating to de facto directors seems to run contrary to that.

MR JACKSON:   Your Honour, the concept of de facto directors involves a number of elements – questions of dealings with third parties, dealings with shareholders and a lot of things.  The very concept of having a de facto director on the one hand and a power to validate things that are contraventions – and inherently being a de facto director involves conduct which does not comply with the terms of the constitution of the company.

FRENCH CJ:   This is sort of an “as if” power, I suppose, in the sense that when the court makes a declaration under 1322(4) if it is, for example, the act of a person not validly appointed, or whose term of office as a director has expired.  It is to treat what has been done as if it had been done validly by that person, as if that person had been in power.

MR JACKSON:   Yes, your Honour.

FRENCH CJ:   Now, there may be a range of people who fall into the category – a whole universe of people – who have not been validly appointed as directors.  So the court, in exercising its discretion under 1322(4), is looking at the particular factual circumstances, including the fact that this person has acted, effectively, as a director for 30 years and so forth.

MR JACKSON:   Yes.  Your Honour, it is one thing to direct attention, as one must, because of the statutory terms of the provision, to the question of contravention, but, there is, of course, the anterior question that the conduct that is sought to be validated has to be conduct in relation to the company.  Of course, I am not going to put up bizarre examples of things that a person

having no actual relationship with a company might seek to do.  In reality, as the passage from Justice Mason and Justice Deane, to which I referred, suggests, bizarre examples are not really going to survive the more acid rain of the courtroom.

Your Honours, could I say finally this, that the relevance of the resolution of this aspect of the matter we have set out in our written submissions in‑chief in paragraphs 17 to 26 of our submissions.  I will not take your Honours to the detail of that, unless your Honours wish me to, but may I just say finally that the orders that we seek in the proceedings, your Honours, are as per paragraph 51 of our written submissions.  The notice of appeal is set out in the supplementary appeal book at page 207.  Could your Honours excuse me for just one moment?

HAYNE J:   You said, I thought, Mr Jackson, there was something in Grant v John Grant that bore upon this.  Am I mistaken?

MR JACKSON:   No, your Honour.  All I wanted to point to in Grant v John Grant was the passage in the passage I referred to earlier.  At the bottom of page 275 and the top of page 276, Justice Gummow’s general observation about section 132 ‑ ‑ ‑

HAYNE J:   Not David Grant.  I thought you mentioned Grant v John Grant in 82 CLR.

MR JACKSON:   No; I am sorry, your Honour.

HAYNE J:   I am mistaken.  Forgive me.

MR JACKSON:   Yes, your Honour.  My own mind goes to that case as well, but in fact it is David Grant 184 CLR.

FRENCH CJ:   Yes, thank you, Mr Jackson.  Mr McHugh.

MR McHUGH:   Your Honours, I am going to work from the outline provided this morning as speaking notes and follow the scheme of the argument set out there reasonably closely.  But before I set off into that I want to take up a point your Honour Justice Hayne raised a moment ago about de facto directors because it feeds very much into what is the central point of distinction between the parties in this case, and that is the significance of the words “by reason of any contravention”.  As your Honour Justice Hayne put the question, the issue is whether or not this section is capable of validating the acts of a de facto director.  The question, of course, posed by the section is:  what is the reason why the person was not a director?

If the person happens to be a de facto director in circumstances where there was a purported appointment and the purported appointment failed for something which is properly characterised as a contravention, either of the articles or of the Act, then of course, yes, the section can be used to remedy the problem.  If, on the other hand, the reason why the person is a de facto director is because they were never appointed at all, or, as in this case, because their appointment was made in 1973 and came to an end on 31 December 1973 in accordance with the articles, then there is no contravention and one cannot call in aid the section because the relevant reason for the invalidity of whether the act is of that person is not by reason of a contravention; it is by reason of the fact that the person was never appointed at all.

Your Honours, there are two themes that I am going to be developing where there are distinctions of substance between the position advanced by my friend and my position.  One concerns the meaning of the word “contravention”.  The other concerns the significance of the words “by reason of”, and of course they have to be read together.  In that context I will need to return to the matter that your Honour the Chief Justice was taking up with my friend and the matter your Honour Justice Gageler, I think, in a similar connection was taking up with my friend about happens where one can cure an invalidity, but is there otherwise some basis to say that the act was a validly done act?  In my submission, in the example I gave before where the person was never validly appointed, whatever other difficulty there may be by way of contravention, the person simply never had power on any version.

CRENNAN J:   You are adopting that distinction of Justice Sackville, which was under discussion earlier, are you?

MR McHUGH:   No.  I need to come back to that at the end.

CRENNAN J:   Or are you going to come to that?

MR McHUGH:   The problem with what happened in the Court of Appeal – and I need to come back to paragraph 239, but I will do it right at the end of my argument – is that it all turned on the very expansive meaning given to “contravention” in a case called Sheahan v Londish, to which my friend just took your Honours.  Your Honours will have seen that Justice Young in that case said that contravention extended to a failure to take advantage of a provision.  That was a very broad view of it, in my submission, broader than the words can support.  Then in this case the difficulty was there was no available provision, and that is what the discussion in paragraph 239 is all about.  I will take your Honours and show that to be the case later, but I would rather leave that until after I have done what I think it is the appropriate thing, which is to start with the words of the section.

HAYNE J:   But your base proposition is, if a person was not validly appointed as a director, that appointment cannot be validated under 1322?

MR McHUGH:   No, your Honour, my base question is:  were they not validly appointed because they were not appointed at all – there was not even a purported appointment – or were they not validly appointed because there was a purported appointment which suffers from a defect which is a contravention?  My friend says those two cases are in fact the same. 

My friend does not admit of the possibility of the first case because he says that whenever somebody purports to exercise a power under the articles conferred on the directors, if somebody who is not a director purports to exercise the power, that is in itself a contravention.  That is what I need to get into the heart of the meaning of that word. But I will need to come to that as I go on and come back to your Honour Justice Hayne’s distinction between a norm of conduct and what otherwise might be the position under the articles.

If I could start with the first proposition which is directed to the two sets of words “by reason of” and “any contravention”, the proposition in the second paragraph is one which goes without saying.  I do not need to take your Honours to the decision of the majority – it might have been the plurality – in Project Blue Sky in which your Honour Justice Hayne, among others, gave the reasons for judgment of the Court.  But the important point is that every word has to be given effect and one of the consequences of my friend’s construction, as your Honours will discover when you go through it, is that on my friend’s version any invalid act is automatically one that is caught by this section.  Whether or not it is by reason of a contravention adds nothing, on my friend’s construction, so long as it is in relation to a corporation, which is one of the other requirements under the section.

At paragraph 3 in the outline, the first question is:  what is the specific provision by reason of the contravention which is said to be invalid?  Your Honours will find that the references that I have given here to SAB, which is the supplementary appeal book, are to the retyped version of the constitution.  I should just point out to your Honours what has happened. 

In the supplementary appeal book your Honours have, commencing at about page 53, the memorandum and articles as originally executed and reproduced, but there has been a problem with the reproduction where words have dropped out.  What your Honours will find, starting at page 103, is a retyped version of the exact same document, which is clearer.  There is no difference between them that we have been able to find.  I have been working off the one that starts at 103, but the corresponding provisions are of course in the original one, just in a different typescript.  It will not make any difference.  It may be that it is inconvenient to your Honours that you have already been taken to one and I am referring to the other, and I will do my best to give your Honours both references.  The first question is:  what is the specific provision?  If your Honours go to Article 69 in the first instance, which is on page 84 in the version that my friend has already been taking your Honours to, your Honours see:

The directors shall have power –

which is the grant of power on a class of persons –

at any time and from time to time to appoint any person to be a director either to fill a casual vacancy or as an addition to the existing directors –

and then there is a condition –

but so that the total number of directors shall not at any time exceed the number fixed in accordance with these Articles.

That is a distinction I will return to later on.  Importantly, in the next words of the article:

Any director so appointed shall hold office only until the next following annual general meeting –

which in this case was the whole reason why both Ami and Tami ceased to be directors on 31 December 1973.  My submission is that is the only power that could have been purportedly exercised by Ami, although, in the end, it probably does not make much difference but if your Honours come through to ‑ ‑ ‑

HAYNE J:   Why?  Why was that power exercised by Ami?

MR McHUGH:   I am about to tell your Honour.  If your Honour comes through to page 88, your Honour sees:

86.      The quorum necessary for the transaction of the business of the directors may be fixed by the directors, and unless so fixed shall be two.

Clearly, that is a restriction on the exercise of power by the directors.  If they do not have “two” they cannot exercise the powers that they otherwise have under the constitution.

87.      The continuing directors –

or in this case continuing director – purportedly, that is Ami –

may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to the Articles of the Company as the necessary quorum of directors –

that is a reference back to the “two” in 86 –

the continuing directors or director may act for the purpose of increasing the number of directors to that number or of summoning a general meeting of the Company, but for no other purpose.

My submission is that the way 87 functions is as an exception to the limitation on power in 86 – that is, 86 says you need to have a quorum; 87 says, well, if you have got fewer than two directors you can act but only for a limited purpose.  The word in the fifth line there, “may act”, means may act to exercise the power you otherwise have.  The reason why reading the article as a whole that must be right is that, if one makes an appointment under 87 in this situation, how long does that appointment last?

Article 69 makes clear that an appointment only lasts until the next general meeting, if it is made by the directors.  Article 87 says nothing about that and the reason for that is that it is clearly referring back to the power that one has under Article 87 – I am sorry; 69.  That is the way in which I submit ‑ ‑ ‑

HAYNE J:   What?  It is referring back to 69.  For limiting a term I can understand, but ‑ ‑ ‑

MR McHUGH:   Where Article 87 says:

the directors or director may act for the purpose of increasing the number of directors –

that is a reference to the power in 69 to appoint a director casually.  That is the only conferral of power on directors to appoint directors.  Now, it does not make any difference, your Honour.  The reason why I put the submission – I do not know if your Honour followed what I was putting a moment ago, if I went through it too quickly – is that there is no limit on the term of an appointment if this does give a power in 87 of a director. 

The director would be there in perpetuity, which is very much contrary to the scheme of the earlier articles.  That is why I say it has to have been an appointment under Article 69.  But the reason why it does not make a difference in this case is that one way or the other, whether the power is under Article 69 or 87, it is a power conferred on directors and only on directors, people described in 87 as the continuing directors.

The question, of course, is whether or not Ami, when he was not a director but purported to exercise the power, be it under 69 or 87, can be said to have exercised the power in a fashion which constitutes a contravention of the Act, and it therefore makes the appointment of his wife, Helen, invalid by reason of a contravention of the Act.  So in each case the issue is whether or not a power conferred in those terms upon directors is ‑ ‑ ‑

CRENNAN J:   Do you redirect the subject to the definition in section 9?

MR McHUGH:   The difficulty with the definition in section 9 is that paragraph (b) of that section, which is the one that refers to de facto directors and so on, is read subject to a contrary intention as the context requires.  So, it does not really take one very far in the context of trying to remedy something that is done by a person.  But the question for the purposes of 1322, is always simply whether or not there is a contravention, and these articles, I submit, cannot be read in light of the definition in section 9 of the Act.  That is a definition for purposes of the Act, but not for purposes of the articles.  It does not take the position any further.

FRENCH CJ:   Does not the exercise of the power under 1322(4) to give valid effect to the Act of a de facto director, notwithstanding the want of power under the articles, have a degree of coherence with the legislative scheme, with respect to de facto directors and the extended definition of director?

MR McHUGH:   Your Honour, it does in the second of the two cases I identified when I rose to my feet.  That is, where there has been a contravention, which gives rise to the fact that the person is a de facto, as opposed to a de jure director.  It does in that situation, but not in the situation where the person is not, on any view, a director because they were never appointed at all and there was no contravention.  Your Honour, the concept of coherence may have some role to play, but it does not enhance in any way the task your Honours have of having to construe the words “invalid by reason of a contravention of any provision of the articles or of the act”, but that those are the words your Honours keep having to come back to.

Now, as I say, whether it is the power in Article 69 or, alternatively as my friend says, a power in 87 it is a power conferred on directors to appoint casuals.  That brings me to the proposition in paragraph 4, which is the power is only conferred on directors, whichever article one says it is, and it would be an absurd reading of the article – whether it is 69 or 87 – to read it as conferring power on the whole world to do something, but then saying that that is subject to limiting the class of persons who may exercise the power of the directors.  That is just not the way the article reads at all, and that is relevant to the way in which Justice Barrett formed his order, as I will come to a little bit later on.

Paragraph 5 takes me to the ordinary meaning of contravention as infringement violation or transgression.  Your Honours have been provided this morning with a copy of the online version of the full Oxford English Dictionary and your Honours will see that is in two or three pages.  It is the printout as the website was accessed on 17 September this year.  As to the definition of “contravene”, the verb ‑ ‑ ‑

FRENCH CJ:   It is good to know we have got an up to date definition.

MR McHUGH:   Your Honour, the definition in the first instance is:

To go counter to; to transgress, infringe (a law, provision, etc.); to act in defiance or disregard of –

Your Honour, in my submission, that is the ordinary meaning and it is very much in my favour.  2 is to similar effect:

To run counter to, be contrary to –

Then 3 clearly, in the context of disputation is not the relevant one for present purposes and nor is 4, incurring a charge.  Then when your Honours come over to the definition of “contravention”:

The action of contravening or going counter to; violation, infringement, transgression.

Now, that is the ordinary meaning and that that is so is borne out by the very case to which my friend took your Honours, which is Charles v Grierson.  Might I take you back to 7 CLR because my friend, no doubt in the interests of expedition, cut into this judgment a little bit too late.  If I might take your Honours first to page 21 in the reasons of the Chief Justice.  Your Honours need to understand the very unusual scheme that applied under the licensing regime in Victoria.  Your Honours see at the top of the judgment the case concerns section 76(2), which is set out about ten lines further down.

Every person found on any licensed premises at any time when such premises should not be open for the sale of liquor to the public –

Those words are important, “should not be open” ‑

shall unless he satisfies the Court that he was at the time when he was so found a bonâ fide lodger . . . or that his presence on such premises at such time was not in contravention of the provisions of this Act be liable to a penalty –

Those words “in contravention of” are obviously the key ones, but the word is not “a contravention” but “in contravention of”.  Now, as the Chief Justice goes on in the next paragraph to make clear, the second paragraph created a new offence consisting of being found on licensed premises when they should not be open for the sale of liquor.  At the foot of the page there is a paragraph that begins:

The words “in contravention of any of the provisions of the Licencing Acts” occur also in sec. 73 . . . In that section I think they must have their natural meaning of violation of a positive provision.

Section 99 also uses the word “contravention” and there –

the word “contravention” has the same meaning.

That is, “violation”.

And, if the latter part of the second paragraph of sec. 76 were itself an incriminatory provision, I am disposed to think that the words “in contravention” as there used should be construed in the same way.

That is, natural and ordinary meaning.

But there are some difficulties [in the particular case] . . . The scheme of the enactment is that mere presence is unlawful unless excused.  The provision is, therefore, for the benefit or exculpation of the person found in the place.

If your Honours come down a little bit further, there is a line that begins with the word “public”.

The word “contravention” is, therefore, apparently used in a sense which would regard the opening of the premises for that purpose –

that is, for sale –

as a contravention of that Act, although no penalty is provided for doing so.

Then the passage my friend took your Honours to:

Further, if the words “in contravention” are limited to meaning “in breach of some positive provision,” they are quite inoperative –

in the circumstances of that statute.  So, this is a case that turns on the problem that the words had no meaning in the context unless they were given a meaning very different from the natural and ordinary meaning.

KIEFEL J:   But, the meaning of – putting questions of statute aside, well, perhaps one should – the meaning to be given to “contravention” must surely take from its context, the fact that it appears in articles of a company which are concerned with the grant of power or authority.

MR McHUGH:   It appears in a section that refers to articles, yes.

KIEFEL J:   Yes, the subject of articles, yes.

MR McHUGH:   And, your Honour, I accept that entirely.

KIEFEL J:   So, we are not going to be seeing infringement in relation to prohibitions expressed in Article 69 as appears from your outline?

MR McHUGH:   Well, one might well find many instances where there is a prohibition or a condition.  That is the point I made before.  It is a natural ‑ ‑ ‑

KIEFEL J:   This is your search for a negative but that is not how the Act would contemplate articles usually operate, and it would be concerned with a contravention which is to do something that is unauthorised.

MR McHUGH:   Well, it depends on what the thing is that is done and whether or not it is properly characterised in that fashion.  Put it this way, if your Honour decides the case on the basis that contravention means any act which is not authorised, then I must lose.  It is as simple as that, I think, ultimately.  My submission is that the word – “contravention” – does not go as far as that and that that is not the natural and ordinary meaning of the word at all, and that if your Honour takes that construction of paragraph 4(a) of 1322, then the words “by reason of any contravention” add nothing to the concept of invalidity. 

The section does not stop at the words “any Act which is invalid and declaring it to be valid”.  The words go on to say “by reason of any contravention of the Act or a provision of the articles”.  And, to come back to your Honour’s point about the fact that articles are there to confer power, that is the point I was making about Article 69 and the condition.  The condition in Article 69 is conferral of power on the directors and then – I am back at supplementary appeal book 84 – and then in the third line: 

but so that the total number of directors shall not at any time exceed the number fixed in accordance with these Articles.

Now, assume for a moment a board is properly and regularly in office – has been appointed – has power under 69, but purports to appoint an extra director in breach of that condition “but so that the total number of directors shall not at any time exceed the number fixed”.  That would be a contravention of what amounts to a prohibition.  It is a power conferred on them but they are not to exercise it to exceed the number fixed by the constitution.  That would come entirely within the ordinary meaning of “contravention” as I am putting it to your Honours.

KIEFEL J:   One of the problems with the use of the word “contravention” in section 1322 is that it is used both with respect to statutory regime where one would expect prohibitions and, also, in relation to the constitution of the corporation where one may not.  So, it is meant to cover both circumstances, is it not?

MR McHUGH:   Well, your Honour, with respect, your Honour is assuming the conclusion in putting it in that way and saying it is ‑ ‑ ‑

KIEFEL J:   No, I think that is a starting point to construction.

MR McHUGH:   Well, it is meant to encompass both constitutions of companies – I accept that – and provisions under the Act – I accept that.  But, whether or not one can go as far as saying it is intended to capture everything which is invalid under the articles, is a very large step.  That is the point I was making before.  If it was intended to do that, the section would stop at the word “invalid” and it would not go on to say “by reason of any contravention”.  So, in the end, we come back to this question of what does a contravention mean? 

Now, my friend relied on Knight’s Case – and I do not need to take your Honours back to it – but in the joint judgment of Chief Justice Mason and Justice Deane, the very paragraph my friend took your Honours to, started with the natural and ordinary meaning of the words.  The position was the natural and ordinary meaning of the words went as far as was required in that case, and the issue was whether or not the words should be read subject to some unnatural, or unexpressed, limitation.

HAYNE J:   The essence of your so‑called natural meaning is expressed in 6A of your outline, is it, “failure to comply with a positive requirement”?

MR McHUGH:   It is in 5, your Honour:

The ordinary meaning of “contravention” is . . . “transgression” of some negative prohibition or positive requirement.

KIEFEL J:   Which you take up I think in paragraph 8.

MR McHUGH:   And I do.  I come back to that later on in the particular circumstances of the case.

FRENCH CJ:   A contravention is something which has to have an invalidating effect which is set aside by a declaration under 1322(4), is it not?

MR McHUGH:   Yes.

FRENCH CJ:   It may be that a contravention has an invalidating effect because by reason of the contravention there is want of power.

MR McHUGH:   Yes.

FRENCH CJ:   Now, the question is then, where does one draw the line between that kind of case and a case where – or where does one, as it were, draw a boundary between different kinds of cases in which want of power may arise?  So you have want of power because there has not been a valid appointment or want of power because the appointment expired at a particular time prior to the purported act of the director.

MR McHUGH:   The statute affords the criterion.  The word is “contravention”.  It may well apply in situations where there is a want of power.  An example would be if the purported director failed to have the requisite qualification of shares that was required under the articles.  That would be an example where there was a failure and the person had been appointed to the position of director not holding the requisite shareholding qualification, that would be a contravention.  But your Honour, with respect, is starting with the conclusion, that is, that it does apply in situations involving no power, and then saying where is the criterion?

My submission is, one has to start with the word “contravention”.  It is always necessary to identify a contravention at the outset.  That will then be the explanation for why it was that the thing was invalid and at that point the section is engaged.  But really what your Honour I think is putting to me is, because the field of operation of the section is invalidity, in some sense, then it appears to be artificial to divide up different kinds of invalidity.  My submission is that is exactly what my friend has encouraged your Honours to do in his submissions, but that reverses the proper approach.  Your Honours have to start with the word “contravention”, identify one ‑ ‑ ‑

CRENNAN J:   You are dividing up the want of power, certain kinds of lack of power, on the thesis that you are proposing, which will fall within the contravention basket when they lead to results that are covered by the section.  But others – and I think your example is never validly appointed –

MR McHUGH:   That is no purported appointment at all.

CRENNAN J:   No purported appointment at all, you have got that as a want of power which you say can never give rise to a contravention.

MR McHUGH:   Did not involve a contravention, and it may be that the field that I am talking about that your Honour is raising with me is a very narrow one indeed, and that may explain why, as Justice Campbell accepted below, and all of their Honours accepted below, the particular situation that arose in this case has never arisen before.  What was sought to be done and what Justice Barrett did in this case went beyond every other decided case ‑ ‑ ‑

HAYNE J:   Well, every other reported decided case, Mr McHugh, which is radically different, because 1322 applications and predecessors were common and garden in every corporation’s list around this country.

MR McHUGH:   Your Honour properly corrects me – beyond every other decided case, but also beyond every other case that any of the people appearing in this case was able to put their hands to with the wonders of modern internet research.

We were not able to find a single case that goes this far.  Coming back to your Honour Justice Crennan, the reason for that may well be that the area of inapplicability here is a very narrow one, and it may be it is confined really to cases like this exact one.  That is why I keep coming back to, what were the facts here?  Here was a man, Ami, appointed validly.  His term as director expired in accordance with the constitution.  It was sought to validate his being a director at all, and that was found by Justice Barrett and accepted all the way through that that could not be fixed.  He was appointed; his term came to an end.  That did not involve any contravention at all.

KIEFEL J:   But, the contravention occurs when he acts without authority.

MR McHUGH:   Well, that is the question, and my submission is the question is why does he lack authority?  If he lacks authority because of something which is a contravention, the section applies.  If he lacks authority because he was never appointed at all, not even purportedly, it is the difference between a purported appointment of him which was defective in one of any number of different ways, and an appointment of him which never happened at all.

HAYNE J:   We are concerned, are we not with the appointment of Helen?

MR McHUGH:   We are, and the reason for its invalidity.

HAYNE J:   Only with the appointment of Helen.  Was her appointment to be validated or not?

MR McHUGH:   Well, the question the section asks is:  what was the reason why it was invalid?

HAYNE J:   Invalid because the appointing authority had no authority to make the appointment?

MR McHUGH:   Exactly, and I submit that is not a contravention.

HAYNE J:   Why is it not a contravention without depending upon the imposition of an a priori dichotomy which examination may well reveal to be false between positive and negative requirements?

MR McHUGH:   It does not turn on that distinction at all, and my submission made clear that it does not matter whether it be a positive or negative requirement.  My distinction is, what is the reason why the person lacks authority?

HAYNE J:   Thus if the power to appoint directors were given to the company in general meeting rather than the board and the board appointed, that is an appointment that could never be validated because the board has no power to make the appointment, is that right?

MR McHUGH:   It would be one which could not be validated because it did not involve a contravention.

HAYNE J:   Section 1322 would not apply to any exercise of power by the wrong organ of the company?

MR McHUGH:   It always depends on the reason why they are the wrong organ.

HAYNE J:   Because the constitution of the company confers powers on one organ rather than the other, that can never be fixed up under 1322.

MR McHUGH:   It would always depend on what was the particular act that was sought to be done and whether it could be characterised as an act done by the other organ.  This very case, as it happens, is an example of the opposite of what your Honour has put to me, where it did not involve 1322 at all.  There was a purported act of the members in general meeting – this is back in the early 1970s – where Ami and Tami were originally appointed.  Justice Barrett held that that appointment, although purportedly done by the members, was in fact done by the directors. 

So, one can often, in a practical way, get around it.  But, the question is – and I keep coming back to this – one has to ask what is the reason for the invalidity?  Every time your Honour Justice Hayne puts a question to me at a high level of generality, I am always wanting to go back to the level behind it and ask what is the reason why there was a lack of power?

The answer here is that the reason why there was a lack of power in Ami was because he had never been relevantly appointed a director at all.  Or, viewing it differently, he was appointed a director in 1973 and, in accordance with the constitution, his time as a director came to an end – ergo no contravention.

KIEFEL J:   Does your argument proceed upon a premise that his position as de facto director is capable of validation under the articles?  That there is some sort of capability of validation. 

MR McHUGH:   Well, that is the issue that came up in the Court of Appeal and I need to come back to that when I get to that in a minute.

KIEFEL J:   You do not embrace that?

MR McHUGH:   I do not have to embrace it.  I do have it as a fall back which is if one goes as far as the Court of Appeal went in saying that the word “contravention” can be construed as including the situation where one fails to take advantage of a provision, then it must be a provision which was available in some sense – in a real sense.  In this case, there was no available provision because there were no directors.  There were no voting shareholders.  There was nothing that could be done and so there was not a provision which was available.

KIEFEL J:   Is the approach of the Court of Appeal, in that regard, akin to there being no causal nexus because it is one removed from the contravention of which – the “by reason of” argument, I suppose.

MR McHUGH:   That may well be in the fact of any particular example a fair way of characterising it.  But, that does not seem to be the way in which they have reasoned.  It is a different point.  And, in fairness to the Court of Appeal, I must say Sheahan v Londish was the authority very recently decided by the Court of Appeal, and the case was argued below on the footing that if Sheahan v Londish is the law, then it extends to the situation where there has been a failure to take advantage of a provision of the constitution.  Our case, which was accepted by the majority, was that there had not been a failure to take advantage of a provision because there was no available provision, because there was nobody who could act.

But, to come back to the question about power and lack of power, if one has what is, on the face of it, a resolution – purporting to be a resolution of the directors of a company doing something – it will, undoubtedly, be on my friend’s case in relation to a corporation.  That is one of the limbs required by 1322(4)(a).  After that, my friend says it does not matter why the person has no power.  It is enough that it is invalid.  So, if that resolution was purportedly signed by my two-year-old son, on my friend’s construction, it would come within the section. 

It would be in relation to a corporation.  It would be invalid and the two-year-old boy lacks authority and, therefore, we are within the section.  Now, my submission is that that is the effect of my friend’s construction.  What I have just put to your Honours must be right, on my friend’s construction, and that means no work is left to be done by the words “by reason of any contravention”.

So, I keep coming back to natural and ordinary meaning of “contravention” and, indeed, as I said to your Honour Justice Kiefel a little while ago, if I am wrong on that, then I am in terrible trouble.  If it is enough that there simply be a lack of authority – whatever the reason for it – then I am in real trouble.

FRENCH CJ:   And one could take the view that, given the immense range of circumstances which might give rise to invalidity, that a broad construction leaving it to the court to make its judgment whether declaration under 1322(4) is appropriate, avoids all kinds of metaphysical distinctions between various categories’ want of authority, dependent upon how widely, or narrowly, you define “contravention”.

MR McHUGH:   That may well be right as a matter of policy and the question is, is it the policy that was adopted by the legislature when it chose these words and conditioned the power on the words “by reason of any contravention”?

FRENCH CJ:   A broad remedial provision, you accept that much?

MR McHUGH:   I certainly do and there is no dispute about that.  It is a broad power, it should be interpreted liberally.  It has to be given the full width of the words, and my submission is the word “contravention” does not go far enough.

KIEFEL J:   Speaking for myself, I am still struggling to understand why one has to search for the reason why he is not a director to come within this section?

MR McHUGH:   For this reason.  If one goes to the section, it first of all requires one to identify something that is an act, matter or thing purporting to have been done or a proceeding.  Now, in this case, the act, matter or thing was the purported appointment of Helen.  Justice Barrett characterised that as a proceeding, being a meeting at which Ami purported to appoint Helen, but that is the thing.  Undoubtedly it was invalid, everyone accepts that now.  Not invalid by reason of any contravention of a provision of the Act.  So the question has to be, why is it that the purported act of Ami was invalid in appointing his wife? 

My submission is the reason why that act was invalid was simply because he was not a director at all.  There was no defect in an appointment of him to the office of director.  Equally, there was no situation where a validly appointed director breached, for example, the condition in the second‑half of Article 69, which was a limitation on the power.  He simply was in no different position, as I said a moment ago, from a two‑year-old boy in this regard.  He had no power under the constitution.  So, that is why I keep coming back to those words.  Now, I have gone some way ‑ ‑ ‑

FRENCH CJ:   The constitution in form says – or the Act in form says, “In order to validly appoint somebody as a director you must be a director.”  Then somebody makes an appointment, but they are not a director.

MR McHUGH:   Purports to.

FRENCH CJ:   So there is a non‑compliance with a condition of the power created by the constitution or the Act, as the case may be.  Why cannot that thought fit into the notion of a contravention, a stranger to the corporation purporting to exercise power?

MR McHUGH:   If that were the provision, then I have to accept that it could be a contravention.  But the problem is, is that a proper construction of the power in Article 69 or, in my friend’s case, the power in 87?  My submission, as I have put – I made this point quite early – in paragraph 4 is that is just a completely artificial way of construing it, to say anyone can do it but you have to be a director.  That is not what it says.  It says directors have power, and this man was not a director.  Now, the example your Honour ‑ ‑ ‑

CRENNAN J:   There is a difference between a de facto director and a stranger to the company’s business.

MR McHUGH:   Not for these purposes.  It would be highly relevant to discretion.  As my friend makes the point, it explains why, in the circumstances of this case, this was in relation to a corporation.  Undoubtedly the man thought he was a director, he was acting in relation to the corporation.  But the question of de facto or de jure director has no relevance at all to the crucial words “by reason of a contravention”.

CRENNAN J:   In a sense, you have to have two contraventions, on your argument.

MR McHUGH:   No.

CRENNAN J:   The anterior one in relation to not being – well, you are saying the section will only apply if a director is not validly appointed because he has been purported to be appointed and something has gone wrong there, then you can use the section for relieving purposes or remedial purpose if, pursuant to that invalid appointment, that director has done something.

MR McHUGH:   If the immediate reason why the act of the purported director – if the immediate reason why that person fails is because they are not a director, which is the case here, one has to ask, does the fact that they are not a director have anything to do with the contravention?  In that situation, your Honour is quite right.  But we are dealing then with the universe of cases where the reason why the act is invalid is because the director was not in office.

There are a whole lot of other situations, of course, where there will be directors who are validly in office who will purportedly do things which are contraventions.  For example, if in this situation Ami had been a validly appointed director and there was a shareholding requirement that only a shareholder could be appointed a director, that would be a contravention.  The second article, Article 69, if there were too many directors that would be a contravention.

There are no end of cases.  And the fact is that the cases that are considered in the reasons of the Court of Appeal involve many situations of the kind I have described, in large measure of the kind I have just identified.   But where the reason why the act of the person, or the purported act of the person, is not valid is because they are not a director, then you have to ask why are they not a director?  Is the reason why they are not a director because of a contravention?  That is the process of reasoning. 

So, that does not involve two contraventions, it simply says this person had no power.  We all accept that is why it was invalid.  Query:  why did they have no power?  That is the way I put my argument.  Your Honours will see that that is the way I have put it in paragraph 11, “The question is always the reason for the invalidity of the purported act”.

Paragraph 11 sets out in form the argument I have just put to your Honour Justice Crennan.  I have gone a long way off where I was.  My friend always shows much better discipline than me in sticking to his path.  If I can make the point I wanted to make finally – I am sorry, was there a question your Honour wanted to take up with me?

GAGELER J:   Perhaps I just wanted to echo the argument so I understand it.  You say the repository of the power, whether it be under Article 69 or 87, is a director and then you say that the absence of a director results in an absence of power, not a contravention of the provision, is that the way you put it?

MR McHUGH:   That is right, and then one has to ask, why is it that the person is not validly a director?

GAGELER J:   Why?  That is going back to an earlier step, is it not?

MR McHUGH:   No, because one would still be able to say that ultimately that was by reason of a contravention at some earlier stage.

GAGELER J:   But then you would be seeking to cure a different contravention, would you not?

MR McHUGH:   No, not necessarily.  It would be – and this is the point I have made at paragraph 11 – one could do it either directly or indirectly.  One could either cure the earlier appointment of that person, which was by reason of a contravention, and that would effectively – one can do it retrospectively – that would cure their act, or one could directly cure the act that they purported to do on the basis that it was by reason of a contravention – the invalidity was by reason of a contravention.

I think I am going to need to start that again, because your Honour has fairly summarised what the argument is.  Your Honour puts to me that purported act, act invalid because lack of power, that was as far as your Honour put it to me.  At that point clearly there is an invalidity, and the question that I am advancing really in favour of a liberal construction of the section is, if one can say that the reason why there was no director was because of a contravention, then ultimately one can say that the invalidity of the purported act of that person was by reason of an earlier contravention.  So that expands the scope.  But if when one gets to the point your Honour identified, lack of power, one cannot go behind the lack of power to find any other contravention anywhere, then we are in the situation in this case, and that is exactly the distinction I am drawing.

To finish the point about Charles v Grierson, I will not take your Honours through it all, but I will say only that the way in which the majority judges in that case - Justice Griffith, Justice Barton and Justice Isaacs - all reasoned was that it was only by giving this very unusual meaning to the word “contravention” that it was possible to give any sense to the statute at all.  So, the submission is only it does not assist my friend at all.  To the contrary, the natural and ordinary meaning identified by the Chief Justice very much assists me.  Now, that means – I think I have been through most of what is here already.  I have not taken your Honours to the argument that appears at paragraph 6 of my outline, which is the one to do with paragraph (4)(c).  My friend in his oral submissions and also in writing made something of the point that your Honours see in paragraph (4)(c).  It says:

an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a) –

My friend latches onto the words “or failure” as support, he says, for the proposition that a failure to take advantage of a provision comes within the meaning of “contravention” in paragraph (a).  My submission simply is it does not go that far.  When one is dealing with relief from civil liability, after all, what one must be dealing with is contravention in a more immediate sense.  That is, that there has been some norm of conduct that has been contravened.  Whether it was a requirement that one do something and there has been a failure to do it, or whether there was a prohibition and somebody has done something, that would give rise to a liability.

So paragraph (c) on any view of things must be narrower as a subset than paragraph (a), and we have set out in – this is my paragraph 6(b) of what your Honours see on the outline.  We have set out in the written submissions – and I need not go back to it – how the previous iterations of the legislation went through and how those words come to be there and in the circumstances of the history of the legislation it does not add anything because the words “contravention or failure” were originally in paragraph (a) as well, and “or failure” was dropped out of (a) when the statute was tidied up, but it does not change the meaning in any substantive way.

HAYNE J:   You accept, do you, that 1322 does not constrict powers earlier given by earlier iterations of the Act?

MR McHUGH:   In respect of paragraph (a), what I submit is that the change in language which changed the words which were – I will need to take your Honours to the submissions to show the particular change I am talking about.

HAYNE J:   I just want to know whether you say that 1322 is different from and more restrictive than power given under earlier forms of the legislation.  Yes or no, Mr McHugh?

MR McHUGH:   It is not narrower than the form that was in the 1981 code which was section 539(4)(a).

HAYNE J:   I understand the submission.

MR McHUGH:   I cannot speak for the earlier ones; I just have not researched them, your Honour, and I do not think any of us has.  So, that is dealing specifically with that point.  There is one thing I should clarify.  My friend made a point about my paragraph 51, and I have to accept this, your Honours, that the third last sentence in paragraph 51overstates the proposition, but not in a way that changes the argument from my point of view.  That is that the sentence that begins:

An attempt by a person to exercise a power which he or she has not been given does not result in a civil liability.

That sentence overstates the matter but it does not change the important point, which is the one in the following two sentences.  So, your Honours, that is what I wanted to say about paragraph (4)(c).  I have addressed, I think, the issue in paragraph 7, which is the idea that a failure to comply with a condition imposed by the constitution would be a contravention, and that is what many of the cases concern.

HAYNE J:   In that regard is Article 65 relevant?

MR McHUGH:   If your Honour will pardon me, I will turn it up.

HAYNE J:   There should be not less than two directors.

MR McHUGH:   Yes.  That is exactly an example of a condition, and then there is the exception to the condition in Article 87 that we have seen a minute ago.  That is that, even if there are less than two, the director who remains can act for the purpose of summoning a meeting or appointing an additional director.  But, that would be an example, yes, your Honour.  Now, paragraph 8, I have addressed.  He did not fail to observe any requirement of Article 69.  He did not fail to comply with any condition on the exercise of the power.  Clearly, I submit, there was no contravention.

Paragraph 10, your Honours have already been taken to the order and I do not need to take your Honours back to it now, but it really does show how very artificial the construction is that is put on the statute, because it amounts to the construction your Honour the Chief Justice was putting to me a moment ago, in substance, to construe the Article as creating a requirement that the person be a director.

Now, there is no requirement that the person be a director, it is simply that power is only conferred on directors.  To say there was a requirement that the person be a director would amount to saying, power was conferred on everyone, save only subject to the condition that the person be a director, and I submit that is a very strange way of construing the articles.

Paragraph 11, I have already dealt with in the course of the argument.  Paragraph 12, I have dealt with, that is that Ami ceased to be a director as a result of the operation of the constitution, not contrary to it, and so coming back to your Honour Justice Gageler’s question, that that is precisely the situation that I identified as the one where one finds a lack of power because no director. 

One then asks, why is this man not a director?  The answer is, because the constitution made him not a director.  Article 69, pursuant to which he had been appointed, operated until the next annual general meeting.  He was not reappointed at the next annual general meeting and so his term in office expired at the end of 1973, and that is why there is no contravention at all in Ami not being a director.

GAGELER J:   Adopting Sheahan v Londish, could it be said that the failure to reappoint him was a contravention?

MR McHUGH:   Well, I am about to come to that in the Court of Appeal context.  If one accepts that a failure to take advantage of a provision is a contravention – which is the Sheahan v Londish position – then prima facie it might be.  But the question would be, can one talk about a failure to take advantage of a provision when there were no voting shareholders who could have done it?  That is clear, no voting shares were ever issued in this company, as your Honours are about to hear about in the next matter, and there were no directors validly in office.  There was no‑one who had power who could have done it. 

It would really be necessary, on the version your Honour puts to me, to say way back in the 1970s the people who were directors – which were the parents, Leo and Hedy – contravened the constitution by failing to reappoint Ami, pursuant to Article 69.  Now, in my submission, the language of contravention cannot support that.  They did not attempt to appoint him.  It cannot be, in my submission, construed as a contravention at that point, to fail to appoint him back in the 1970s.

Now, that brings me to the point in 15 that I have been trying emphasise.  One has to start with the concept of a contravention – well, start with the actual act, work out why it is invalid and then ask if it is by reason of a contravention.  And, my friend’s submissions – as your Honours will see the references there – in particular in the third line of my paragraph 15, my friend’s reply submissions at 10, 12 and 13.  They really are consistent with the idea that provided that the act is one in relation to a company, the power always applies.  As soon as there is invalidity and an act in relation to the company, on my friend’s case, there is nothing left for those words by reason of a contravention to do.

I have addressed the point in paragraph 16.  As I say, it is an accident that Ami was a de facto on the facts.  It does not have any bearing on the question of by reason of a contravention.  That leads me into discussion of Justice Lehane’s decision.  I do need to take your Honours to Nece v Ritek.  Your Honours will find that reported in ACSR 24, starting at page 38.  Because, my friend puts great weight on it, particularly given the authority and the respect accorded to Justice Lehane, as did Justice Campbell and Justice Barrett below, and I need to show your Honours that the case does not go nearly as far as my friend needs it to. 

If your Honours turn to page 40 of the report and under the heading “Background facts”, the first paragraph that appears there, the situation was that there was a company that was divided as to the shareholding – 50 per cent to one side and 50 per cent to the other side.  If your Honours come down to the end of the next paragraph, just before the quotation, Mr Sidney was to be the first managing director under a shareholders’ agreement and, at the very foot of the page, there was a clause in the agreement that required various things to be done, only by resolution of the board and one of them was commencement of litigation.  The issue in the case was whether or not a solicitor had been validly retained.  If your Honours come down on page 41 to line 16 on the page:

It is common ground that Mr Sidney was pointed managing director of Nece but that no board resolution was passed conferring upon him any particular powers, particularly any powers to instruct solicitors –

When your Honours come through to the substance of the argument in relation to 1322 at page 45, your Honours will see at the top, immediately under the heading, what it was that Mr Sidney sought.  It was that:

the appointment of Gilbert & Tobin to act as solicitors for Nece in the proceeding is not invalid –

Then when your Honours come down to about line 34 on the page ‑ ‑ ‑

FRENCH CJ:   I am sorry, which page again is it?

MR McHUGH:   I am sorry, on page 45, your Honours.

FRENCH CJ:   Thank you.

MR McHUGH:   This is the important point, or one of the important points, at line 34 or 35:

It is correct, I think, to describe the acts, taken without authority (but capable of authorisation if the appropriate procedures under the articles were followed) as “invalid” for the purposes of the section –

Now, that, of course has a resonance with what happened in the majority decision but what his Honour was not dealing with, on any view here in making the statement that he makes here and across the page, was the situation where it could not be fixed because of a want of power.  At line 45, his Honour accepted the remedial character of the provision and then at the top of the next page his Honour accepted that it would be a very serious situation to leave the company in deadlock between the 50 per cent shareholders but, notwithstanding, your Honours, the remedial force of the section and that serious consequence his Honour could not validate it and as your Honours see at the top of the next paragraph:

However that might be, my difficulty with the argument on behalf of Mr Sidney is principally with the question of contravention of Nece’s constitution.  It is true –

and this is the passage my friend relies on –

that cases such as North Sydney Brick & Tile and Omega Estates proceed on the basis that if something is done which has not been properly authorised because –

and that is his Honour picking up on the words in the statute “by reason of” –

for example, appropriate resolutions have not been passed or because there is in office no validly elected board of directors, the doing of it without authority may be regarded as a contravention –

I focus on those words “no validly elected board of directors” because that clearly contemplates the situation where there is a board in place, or purporting to be in place, but where there has been some defect in the election, for example, a failure of notice given to the shareholders for a meeting to elect them or perhaps because of a shareholding qualification.  The problem in this case, however, is that there is not merely a contravention, there is deadlock.  The reason there is no authority is that it is not given because one of the parties is refusing to vote.  It could hardly be said where lack of authority resulted from a positive decision, that it was by reason of a contravention.  So, what his Honour was doing was focusing on the reason why there was a lack of power or why something could not be done consistently with the statute.  This case is not authority for the proposition that every time there is a lack of authority one can invoke the section to cure.

I will need to deal with some matters that arose in the course of argument by my friend.  The first of them is a matter your Honour Justice Hayne raised about Article 92.  Article 92, your Honours will find at appeal book 114 – that is, application book 114 - the conclusion of the debate in the Court of Appeal about that.  It starts a good deal earlier but your Honours will see at page 114, the last sentence in Justice Campbell’s decision:

Article 92 does not validate Ami’s purported appointment of Helen as a director.

The reason for that was an acceptance the page before at paragraph 81 of the submission that I put in the Court of Appeal that it was not applicable to that situation.  I should say, your Honours, my friend and I both appeared in the Court of Appeal and neither of us appeared below, at first instance, as to the way the case proceeded and that is true in the other matter as well, but that was the submission put the Court of Appeal and it succeeded with Justice Campbell.

Then when your Honours come through to 193 your Honours will see Justice Young agrees with Justice Campbell on the first three issues and without taking your Honours back to it, Article 92 is the second of the issues.  Then Acting Justice Sackville at the top of 196 in the second bullet point that is the issue and your Honours will see from the foot of the page before that Justice Sackville at paragraph 229 agreed with Justice Campbell, in relation to Article 92.  So that is why your Honour was correct to say that this Court need not be troubled by it, it was an issue resolved below and not taken up in this Court.

Your Honour the Chief Justice articulated the issue early on in the argument as whether it is – and this is probably a bad note of it – but whether it is still necessary to find some legal basis for the act once one cures the invalidity, whether it is still necessary to find some legal basis for the act and my submission is yes.  You need to find that there otherwise would have been power if you can cure the contravention.  Your Honour Justice Hayne raised the question whether the contravention may be the subsequent acting as a director.

The answer to that is yes in some situations it may be, but the issue in this case was whether the company should be wound up because there was no director in place.  Your Honours will see that from application book 6 at paragraph 5 my friend referred to this, but I should probably show your Honours the way in which the case was constructed.

The contention advanced on behalf of my client is that the company had to be wound up because it had no directors and none of its members had any right or power to vote at a general meeting, so there was a complete absence of corporate governance.  What was sought in my friend’s client’s interlocutory process was an order validating the appointment of Helen, relevantly. 

There was no other particular act of Helen sought to be validated.  The only issue that was before the Court was whether or not, among many anterior issues, but relevantly, the only issue was whether or not the purported appointment by Ami of Helen could be remedied and so that is why the argument is structured in the way in which your Honours find it.

Next, I need to deal with Sheahan v Londish.  Your Honours have seen in the decision of Justice Young at page 356, his Honour’s construction at paragraph [161].  My submission is – this is my primary submission, there is a fall back to it – but the primary submission in relation to [161] is that the words “contravention of a provision of this Act” are not satisfied:

when the company does not infringe the Act, but merely fails to take advantage of a provision of the Act.

But, your Honours need to see those words there, failure “to take advantage of a provision”, in order to understand what happened in the Court of Appeal in this decision.  If I can take your Honours to paragraph 239 in Justice Sackville’s decision, that is at 201.  I will start on the page before at 200.  Your Honours will see in the last sentence of the first paragraph on the page, 235:

Thus there was no mechanism available to the Company, whether in general meeting or otherwise, to appoint Ami as a director.

At 236:

It does not assist the Company that “contravention”  . . . has been construed to extend to a failure to take advantage of a provision in the articles of a corporation.

Clearly a reference to Sheahan v Londish.

There is no provision in the Articles of the Company to which Ami could have taken advantage . . . it is stretching language –

in that situation to say that his –

act was ineffective (or invalid) because he contravened  . . . the Articles or the Act.

Then coming over to 238, your Honours see in the last sentence of 238:

Whether acts performed by a de facto director are invalid for that reason –

that is, by reason of a contravention –

must depend on the reasons why the de facto director was not a lawfully appointed director and the nature of the acts he or she has purported to perform on behalf of the corporation.

That is the point I was taking up with your Honour Justice Gageler.  Then we come into 239.  Perhaps I will skip to the last sentence of it and then go back.  My friend did not take your Honours to this, but this is the important one:

Nor can it be said that the de facto director’s purported acts are invalid by reason of a failure to take advantage of a provision of the constitution of the corporation or of the Corporations Act.

Again, that is the Sheahan v Londish construction.  Putting all of those things together, there is the sentence at the end of 235:

Thus there was no mechanism available –

What happens in 239, when your Honours go through it and see the references to “cannot be so appointed” and whether or not she could be appointed and whether it “cannot be validly appointed”, those are all examples of his Honour wrestling with the idea of a failure to take advantage of a provision.

What is occurring there is his Honour is saying, in a situation where there was no mechanism available, it cannot be said that one has failed to take advantage of a provision.  If it could not be done, one cannot be said to have failed to do it and, that being so, even on the Sheahan v Londish construction, one could not say there was a contravention.  That was the way the case was constructed below.

My friend says, and I have to accept it is a fair point, that this distinction between something that could be done and could not have been done does not emerge from the text of 1322(4)(a), and the answer to that is that is perfectly true.  What it emerges from is the problem that in Sheahan v Londish the court went too far in construing contravention, gave it a much wider meaning than its natural and ordinary meaning and then had to wrestle with the consequence of the gloss that the court had already put on the section in Sheahan v Londish.

The better approach is the one that I have put to your Honours as my primary argument:  contravention has its natural and ordinary meaning of violation and so on.  One does not get into this problem on that version.  But if your Honours accept that a failure to take advantage comes within the meaning of “contravention” then I embrace the reasoning that your Honours have here at paragraphs 235 to 239 as my fall back, but even on that wide view my friend cannot come within the case.  Your Honours will also see at paragraph 223, back on page 194, in Justice Young’s decision, his Honour proceeded in the same way at 223 in the second sentence:

As I understand it, the approach of Sackville AJA is along the lines that the impugned action must be able to be achieved under the Act or constitution.  If this is the case, then . . . it may be validated under the section.  However, if it is not possible to attain the result under

the Act or constitution, the section cannot assist. . . . I consider that this is the proper approach to the section.

So, that was the way in which the issue came up in the Court of Appeal.  If your Honours would just pardon me for a moment.  There is one other matter I should draw attention to.  In the notice of appeal the appellant seeks an order, your Honours will see at 162, as to costs in prayer 6 that:

The first respondent pay the appellants’ costs in this Court, and the costs . . .  in the Court of Appeal –

As to the costs in this Court, my submission is, of course, they should follow the event. As to the costs of the appeal to the Court of Appeal, even Justice Campbell, dissenting, would have given my client 80 per cent of the costs of the appeal in that court because of the number of issues upon which my client won and because of the necessity of the remitter.  Your Honours should find that, I think, at 175 in the appeal book through to 178.  Starting at 208 and at 210 in the second sentence there:

In light of the matters that I have mentioned, I would order the Respondents –

that is, my learned friend’s client –

to pay 80% of the combined costs of the Appellant of the appeal and of the cross‑appeal.

Your Honours will see in the notice of appeal that order 5 in my friend’s notice of appeal is substantially what was going to be order 3 proposed by Justice Campbell at page 178 of the book, namely, there had to be a remitter to see that the company be wound up.  So for that reason, in my submission, even if I am unsuccessful in this Court and my friend succeeds in his appeal, at best the cost order that should be made in his favour in relation to the Court of Appeal is the one that Justice Campbell proposed at paragraph 210.  Your Honours, unless there is anything further with which I can assist, those are the submissions of the respondent.

FRENCH CJ:   Thank you.  Mr Jackson, is it convenient to reply now?

MR JACKSON:   Certainly, yes; thank you.  Your Honours, may I start first with my learned friend’s reference to the terms of the Oxford English Dictionary.  If one looks at what it actually says, your Honours will see that meaning 1 is “To go counter to” and “to act in defiance or disregard of”.  Meaning 2 is “To run counter to, be contrary to, come in conflict with”.  All those meanings seem to contemplate, or seem to encompass, something done not in accordance with the constitution of the company.

Your Honours, the second point we would seek to make is that if one goes to section 1322 itself, what your Honours will see is that one starts with the concept of “an act, matter or thing purporting to have been done”.  So that one is looking at the act, matter or thing purporting to have been done and then one asks, in relation to that act, matter or thing:  is that not valid by reason of a contravention of a provision of the constitution?  So it is the act in question to which one looks, and if one looks, in this case, at the appointment of Helen, which purported to be made pursuant to Article 87 by a director of the company and it was something purporting to be done in accordance with the constitution of the company, but not done, because one of the requirements of Article 87 – namely, that the person purporting to make the appointment be a director – was not complied with.  Now, your Honours, that, in our submission, is really a clear case of something that is capable of falling within subsection (4)(2).

Your Honours, could we also say this:  that our learned friend’s argument says that our contention means that you treat the provision as if it says nothing about contravention and so on.  The argument is, in effect, that the provision could finish with the words – or the words after “by reason of” add nothing.  Well, your Honours, in the first place, it means that one is limited to circumstances that are contraventions of a provision of the Corporations Act – not any other Act – or provisions of the constitution of the company. 

So, other reasons for invalidity are excluded – other occasions for invalidity are excluded.  So, that is one purpose of the addition of those words.  Another purpose is that one looks to see what it is and different considerations would apply if the contravention were a contravention of a provision of Act from those which would apply if they are a contravention of a provision of the constitution. 

Now, my learned friend’s argument says no single case goes so far.  Well, your Honour, that is on the assumption that this is a case that does go far.  It may be right to say that there is reported case that has exactly the same facts in it but, your Honours, this case really seems, in our submission, to fall, in a sense, within the heartland covered by the section where it involves regularising something done by someone who for 30 years has been a de facto director of a company.

And, your Honours, in circumstances where – and I have taken your Honours to the passages – that had been not attacked for a very long time, perhaps I can put it that way rather than saying acquiesced in, but where he conducted it for a very long time and there is nothing in the case to suggest that the behaviour has been inappropriate.

Your Honours, could I also say that if one looks at section 1322(4), the ambit of it, of course, is one which is wide but the control of doing things towards the edge, if I can put it that way, is brought about by, amongst other things, the words either “unconditionally” or “subject to such conditions as the court imposes” and, your Honours, also by the quite severe restrictions that are set out in subsection (6) of the provision which, if I could take your Honours to those for just a moment, 6(a), in the case of an order under 4(a) the court has to be satisfied that the act, matter or thing, or proceeding, is essentially of a procedural nature  ‑ ‑ ‑

FRENCH CJ:   Except it has to be satisfied of any one of those things.

MR JACKSON:   Yes, your Honour, of course, I was about to say that.  The possibilities are first of all that one satisfies the three requirements of (6)(a) and then one has (6)(c):

in every case‑that no substantial injustice has been or is likely to be caused to any person.

Your Honour, our learned friend’s argument says there is no difference between a two-year-old doing this, but let us assume an adult otherwise unconnected with the company.  Could we just take your Honours to paragraph 150 at page 47 of the application book, in the fourth line, where it is said:

It cannot be said that there was no action or that the person acting was a mere interloper.

Your Honours, that is explained in the succeeding part of the paragraph.  Your Honours will see in our learned friend’s outline of submissions, they say in paragraph 16 Ami makes much of the fact that he was a de facto director, but that is a mere accident on the facts.  Well, your Honours, it is not a mere accident on the facts, they are the facts, this is the case.  Your Honour, one cannot say this is a mere accident; this is the case, and if that is not a case to which the provision applies, it does not seem to have a particularly useful ambit. 

Could I say, your Honours, our learned friends referred to the decision in Nece.  Could we just say the reason for reference to the case is to the principle to which it refers, not to the application to the facts, which was a fairly clear application.  Your Honours, finally, apart from the question of costs, the reference to Sheahan v Londish and to the reference to failure to take advantage of, that is not the only test.  Failure to take advantage of really mutes and reduces the ambit of section 1322(4)(a) if one treats that as being the ambit of it apart from questions of compliance.

Your Honours, as to the question of costs in the Court of Appeal, I can only give your Honours an answer to that when the Court resumes, because it is a matter which I would like to discuss with those instructing me.

FRENCH CJ:   Yes, all right.

MR JACKSON:   Subject to that, your Honour, that is all I have to say.

FRENCH CJ:   Thank you.  The Court will adjourn until 2.15.

AT 12.52 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM

FRENCH CJ:   Mr Jackson.

MR JACKSON:   Your Honour, in relation to the question of costs in the Court of Appeal, we do not wish to say anything against the proposition that if we were successful in the appeal, the costs in the Court of Appeal – the costs order in respect of the Court of Appeal should be that suggested by the dissenting judge in the Court of Appeal.

FRENCH CJ:   Thanks, Mr Jackson. 

AT 2.16 PM THE MATTER WAS ADJOURNED