Osborne v First Credit Union
[2017] NZHC 2806
•16 November 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE WHANGANUI-Ā-TARA ROHE
CIV-2016-485-989 [2017] NZHC 2806
IN THE MATTER of an appeal under s 151 of the Friendly
Societies and Credit Unions Act 1982
BETWEEN
WYN OSBORNE, CRAIG GOLD AND BRUCE BHIKHU BHANA AS TRUSTEES, FOR THE TIME BEING, OF THE NEW ZEALAND ASSOCIATION OF CREDIT UNIONS Appellants
AND
FIRST CREDIT UNION Intervener
Hearing: 16 October 2017 Counsel:
D J Friar and B J Ward for Appellants
D M Hughes and J V R James for Intervener
H B Rennie QC for Registrar of Friendly Societies and Credit
Unions, assisting the CourtJudgment:
16 November 2017
JUDGMENT OF THOMAS J
Table of contents
Introduction ............................................................................................................. [1] Background.............................................................................................................. [5] Member and business services ............................................................................ [12] The Rules ............................................................................................................... [15] Evidence ................................................................................................................. [17]
Benefits to members from provision of services to associates and
third parties ......................................................................................................... [24] NZACU Rules ...................................................................................................... [32] Proposed legislative change................................................................................ [34] Complaints to the Registrar ................................................................................ [35]
RE NEW ZEALAND ASSOCIATION OF CREDIT UNIONS [2017] NZHC 2806 [16 November 2017]
Can NZACU provide “business” services to anybody other than
its members? .......................................................................................................... [38]
Objects and powers ............................................................................................. [45] Section 143 .......................................................................................................... [54] The meaning of “incidental” .............................................................................. [76] Conclusion .......................................................................................................... [82] Result ...................................................................................................................... [84]
Introduction
[1] Since 1994, the New Zealand Association of Credit Unions (NZACU)1 has had its rules (the Rules) approved by the Registrar of Friendly Societies and Credit Unions (the Registrar) allowing it to provide services to associate members and, since 2003, to third parties.2
[2] The Registrar’s approval of the Rules is required pursuant to the Friendly Societies and Credit Unions Act 1982 (the Act).3 Following complaints made by two of its (now former) members, Westforce Credit Union (Westforce) and First Credit Union (FCU), the Registrar determined by decision dated 18 November 2016 (the Decision) that the Rules allowing associate members to purchase NZACU business services, and allowing NZACU to provide them, were inconsistent with the Act and
therefore invalid. An associate member is an organisation which, in the opinion of the Board of NZACU, shares a community of interest with the aims and aspirations of the credit union group.4
[3] NZACU has appealed the Decision.5 The Registrar, while not a respondent, has filed a notice of appearance and a report to the Court. Westforce was given leave to file an appeal, but subsequently abandoned it. It filed evidence in this appeal confirming it disagrees with the Decision but was not represented at the hearing. FCU was given leave to intervene.6 It filed affidavit evidence and was represented at
the hearing.
1 Originally called the New Zealand Credit Union League, later the New Zealand Association of
Credit Unions and currently trades as Co-op Money NZ.
2 New Zealand Association of Credit Unions Rules 2003, r 6.1(o).
3 Section 146.
4 New Zealand Association of Credit Unions Rules1994, r 6.1; and New Zealand Association of
Credit Unions Rules 2012, r 20.3(a).
5 Section 151.
6 Bleakley v Registrar of Friendly Societies and Credit Unions [2017] NZHC 471.
[4] The issue to be determined in this appeal is whether the Registrar was correct that s 143 of the Act means NZACU can provide wholesale banking and financial services to members of NZACU only. If so, NZACU cannot continue to provide these services to associate members of NZACU or any third party.
Background
[5] The credit union movement in New Zealand dates back to the 1950s when small groups of people came together to form credit unions which were owned and controlled by the members of the group. The credit unions were cooperatives and returned any surplus to their members.7 In the early 1960s a number of these credit unions formed the New Zealand Credit Union League, now NZACU. Believing lack of statutory recognition was inhibiting the growth of the sector, NZACU and other
credit unions lobbied for statutory recognition. This was achieved by the passage of the Act in 1982.
[6] Credit unions are now subject to a trustee supervision regime, regulated and monitored by the Reserve Bank as non-bank deposit holders under the Non-bank Deposit Takers Act 2013 and the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, and are subject to the Financial Markets Conduct Act 2013 and Financial Advisers Act 2008.
[7] Credit unions today compete with the large for-profit banking sector, offering a wide range of banking and related services to customers. For example, FCU offers loans, savings accounts, transaction accounts, investment services (such as term deposits), eftpos and debit cards, foreign exchange services and insurance products. Individual members access and manage their accounts through branches, telephone banking, mobile phone apps, internet banking and ATM machines.
[8] Credit unions have consolidated over time. In 1975, NZACU had 157 credit union members, whereas today there are 12 active credit unions, of which 10 are full members of NZACU. FCU, who following the Decision has withdrawn its
membership, is one of the larger credit unions, with 11 branches, 63,000 members
7 Gordon McLaughlin, New Zealand Credit Unions: The First Forty Years (Auckland, Four Star
Books, 2002) at ch 1 and 117–118.
and $339 million in assets. The largest member of NZACU is now NZCU Baywide, which has 16 branches, 28,000 members and $282 million in assets.
[9] NZACU is the only active association of credit unions in New Zealand. Membership of NZACU is voluntary and limited to credit unions registered under the Act. It is governed by a Board of Directors elected directly by its members, requires 75 per cent of members’ approval to any major transaction, and is funded by its members who invest in base capital notes. It is a cooperative and returns any surplus to its members.
[10] NZACU operates under its Rules as required by the Act.8 Rules are approved or amended by members by special resolution at an annual or special general meeting.
[11] Currently, one credit union and three building societies are associate members of NZACU. Associates pay dues and purchase services from NZACU but do not have the same rights as members, for example, they cannot vote at an annual general meeting, invest capital in NZACU, or share in any surplus. They are charged differently for services.
Member and business services
[12] NZACU provides what it calls “member services” and “business services”.9
Member services are educational and advocacy, for example: guidance on legislative changes; compliance support services; advocacy and lobbying with government regulators; forums; and conferences. Member services are provided to both members and associates, part-funded by annual dues paid by members and associates.
[13] Business services are the wholesale banking and financial services NZACU
provides. They include core banking and bureau services; treasury and settlement services; ATM services; eftpos and debit card services; anti-money laundering
8 Section 145(2).
9 The Act does not distinguish between member services and business services.
services; insurance services;10 and other services such as compliance support and IT infrastructure services. As well as providing business services to members, NZACU provides some of these services to associates. In addition, some are provided to third parties by a related company, FACTS Limited, trading as Co-op Services NZ.
[14] The Registrar appears to accept that NZACU is able to provide member services to associates but considers business services must be expressly limited to members.
The Rules
[15] The rules of NZACU found invalid by the Registrar are:
20.3 Associateship
…
(e) Associates may purchase NZACU Business Services in accordance with Rule 30.2.
30. NZACU BUSINESS SERVICES
…
30.2 Services to Associates
NZACU may provide any or all of NZACU Business Services set out in
Rule 30.1 to Associates.
[16] One of NZACU’s powers is r 3.2:
(d) to offer, whether directly or indirectly, products or services to such other organisations as the Board may determine from time to time;
This power was not subject to the Registrar’s consideration but, if the Decision stands, it follows that NZACU’s ability to offer services to third parties must also be restricted.
Evidence
[17] The evidence was by affidavit.
10 Through Credit Union Insurance Limited trading as Co-op Insurance NZ.
[18] Particularly relevant evidence came from Henry Lynch, Chief Executive of NZACU. He explains NZACU seeks to provide services to its members on the best possible terms and at the lowest possible prices. His evidence is that the best possible terms and prices are the result of using NZACU’s surplus capacity, expertise and experience to provide some of the same services to associates and third parties. He says a number of services would not be available to some of the smaller members if NZACU did not provide them. Members with small membership bases would not be of sufficient scale to purchase those services directly from commercial providers.
[19] None of the services NZACU provides to associates and/or third party customers are designed for, or provided to, only associates or third party customers. They are services designed and provided for members but NZACU has surplus capacity or expertise and experience in relation to those services which allows it also to provide the services to associates and third parties. Mr Lynch produces a very useful table which demonstrates that each service is provided to almost all members
and there is no service which is not provided to all or most members.11
[20] In 2016, only approximately seven per cent of NZACU’s total revenue came from associates and third parties. According to Mr Lynch, this emphasises that NZACU’s primary focus is and will remain providing services to members.
[21] Mr Lynch gives evidence of the process undertaken by NZACU before it determines whether to provide a new service in order to ensure it is viable and is in the interests of its members. In 2016, the Board adopted a formal policy setting out the basis on which NZACU could provide business services to associates and third parties (the Third Party Parameters) and these are generally followed when considering whether to provide business services to associates and third parties.
[22] NZACU has offered to amend Rule 30.2 to reflect the Third Party Parameters to say:
NZACU may provide any or all of NZACU Business Services set out in Rule 30.1 to Associates and other organisations if, in the opinion of the Board, the provision of those services:
11 Accounting support is currently provided only to a third party, although has been previously provided to members.
(a) would promote the interests of and/or strengthen co-operation among
Members;
(b) would be acting on behalf of its Members; and/or
(c) would be directly in pursuance of NZACU’s objects or incidental to
them.
[23] Although not mentioned in the Decision, Rule 3.2(d) (which allows NZACU
to provide services to third party customers) would also be amended as follows:
(d) to offer, whether directly or indirectly, products or services to such other organisations as the Board may determine from time to time in accordance with rule 30.2.
Benefits to members from provision of services to associates and third parties
[24] Mr Lynch explains that NZACU looks for opportunities to leverage its existing investment in providing services to members to obtain additional revenue from those services which it would not otherwise receive. This allows NZACU to reduce the cost of business and member services to members and/or provide business and member services to members which might otherwise be uneconomic. The services which are provided to associates and third parties either have surplus capacity over what is required by members or additional capacity which can be provided to associates or third parties at a lower marginal cost, thereby reducing the establishment and operational costs to members.
[25] NZACU’s pricing is based on its aim to provide the best pricing and terms possible for members, relatively less advantageous pricing for associates, and market pricing for third party customers.
[26] Furthermore, not every service provided to members produces net revenue for NZACU and therefore services which are “revenue positive” help subsidise other uneconomic services provided to members below cost. Mr Lynch provides specific examples of this.
[27] Mr Lynch says, if additional revenue from associates and third parties were no longer available, NZACU would have to make up that shortfall in other ways, including increasing fees currently charged to members. Therefore, NZACU
considers it promotes the interests, and is on behalf, of its members to provide both business and member services to associates and third parties.
[28] In summary, Mr Lynch says the provision of services to associates and third parties enables NZACU to provide those services to members at the lowest rates possible and/or help pay for other services which are otherwise uneconomic.
[29] Five members and two associates filed affidavits in support of NZACU’s
position.
[30] The benefits as articulated in Mr Lynch’s affidavit evidence were not
disputed by the evidence filed on behalf of FCU or Westforce.
[31] The evidence therefore demonstrates that NZACU’s members derive
significant benefit from services provided to associates and third parties.
NZACU Rules
[32] Mr Lynch stresses that, as long ago as 1994, the Rules allowed it to provide services to associates and from 2003 to third parties. The Registrar was aware of this, accepting the Rules, which had been passed unanimously, for registration. As an aside, he points out both Westforce and FCU approved the Rules.
[33] Annual reports have been filed by NZACU to the Registrar over many years which identify the provision of services to members as well as other financial institutes.
Proposed legislative change
[34] NZACU has been seeking amendments to the Act which, if passed, would obviate the need for this appeal. A Private Member’s Bill received unanimous support at its first reading and was referred to the Finance and Expenditure Select Committee. It is anticipated there will be a formal resolution to continue the Bill’s progress to allow a second reading.
Complaints to the Registrar
[35] Westforce made a complaint to the Registrar in February 2016. Shortly thereafter, it ceased membership of NZACU. Westforce currently receives services from NZACU under a transitional services agreement as a credit union customer and this cannot continue if the Decision is upheld. Westforce has vacillated in its approach to the appeal. Although Westforce was the party to complain to the Registrar, by its evidence it disagrees with the Decision. Westforce’s Chief Executive expresses the view that NZACU can provide services to non-credit unions and non-member credit unions where there is a direct benefit to members of NZACU in providing those services. Westforce’s objection is limited to circumstances in which there is only an indirect benefit.
[36] FCU’s affidavit evidence expresses concern about the provision of services to third parties where they are not for the benefit of members. By its legal submissions, FCU has taken the position that s 143 of the Act specifies what powers NZACU has. FCU draws a distinction between member services and business services on the basis the provision of member services does not put members’ capital at risk, whereas the provision of core banking services does. For this reason, FCU says the Act does not allow those business services to be provided other than to full members.
[37] NZACU’s evidence suggests motives for Westforce’s and FCU’s complaints, primarily relating to relationship issues. I put that evidence to one side as it is not relevant to the interpretation of the Act.
Can NZACU provide “business” services to anybody other than its members?
[38] The Decision said as follows:
The powers given by section 143 of the Act are to be exercised solely for the actions (objects and business services) of an Association on behalf of and to its “component members”. Subsection (4) makes it even clearer that those business services which an Association might provide may only be provided to its “component members”. “Component members” must mean those credit unions that have been admitted as a member of the Association. This restriction is reflected in rule 20.1 of NZACU rules, which states that membership of NZACU is limited to registered Credit Unions.
NZACU is an unincorporated association which takes its existence from the provisions of the Act. It is a “quasi corporation” reliant on the Act for its powers and confined to those powers. In consequence actions under s 143 are limited to the powers the Act provides.
[39] The meaning of s 143 must be ascertained from its text and in light of its purpose.12 The Court must also have regard to the immediate and general legislative context.13 The stated purpose of the Act is not particularly illuminating as far as the issue under appeal is concerned, saying the Act is:
… an Act to consolidate and amend the law relating to friendly and certain other societies, to make better provision for the formation and administration of credit unions, and to provide for matters related thereto.
[40] Under the Act, a credit union includes an association of credit unions.14 An association is an association of credit unions registered as such under pt 3 of the Act. NZACU is registered under pt 3 of the Act.
[41] Part 3 of the Act applies to credit unions but certain provisions do not apply to associations, including s 101(1).15 Section 101(1) sets out the objects of a credit union.16 Section 101(2) does apply to associations and provides:
(2) A credit union shall have no power to take any action or do anything unless that action or thing is directly in pursuance of its objects or incidental to them and is authorised by its rules or this Act.
[42] Section 143 sets out what are to be the objects of an association as follows:
(3) The objects of an association shall be such of the following, as may be authorised by the rules of the association—
(a) to promote the interests of and strengthen co-operation among credit unions:
(b) to render services to, and to act on behalf of, its component members in such ways as may be specified in or authorised by the rules of the association:
(c) to encourage the formulation, adoption, and observance by credit unions of standards and conditions governing the carrying on of their business:
12 Interpretation Act 1999, s 5(1).
13 Commerce Commission v Fonterra Cooperative Group Ltd [2007] 3 NZLR 767 at [22].
14 Section 2, definition of “credit union”.
15 Section 146(3)(a).
16 Section 2, definition of “association”.
(d) to supervise and examine the affairs of its component members, as may be provided for in the rules of the association:
(e) to provide any other services specified in subsection (4). (4) Specified services for the purposes of subsection (3)(e) are—
(a) receiving deposits or subscriptions (other than subscriptions solely of an annual or periodic nature to be used for the association’s purposes) from its component members for purposes specified in its rules: (b)
making loans to its component members:
(c)
establishing and maintaining a central funding scheme for the benefit of its component members:
(d)
levying its component members the amount or amounts for purposes and in the manner specified in its rules:
(e)
providing, or administering any scheme providing, fidelity insurance, savings insurance, or loan protection insurance:
(f)
undertaking training or education programmes for its component members or members of credit unions or the public:
(g)
providing advisory services for its component members:
(h)
arranging, providing, or co-ordinating data processing or computer services for its component members.
[43]
Therefore,
the objects of an association are as set out in s 143(3),
supplemented by specific objects in s 143(4) relating to s 143(3)(e). By operation of s 101(2), an association has the power to do only any act or thing directly in pursuance of those objects or incidental to them and authorised by its rules or the Act.
[44] The Decision confined its analysis to s 143 and does not appear to have considered or addressed s 101(2).
Objects and powers
[45] There is a need to distinguish between the objects of an association and its powers. The objects of any organisation are its purposes, intentions, reasons for being. Its powers are different. Its powers are what it can and cannot do.
[46] Parallels can be drawn between the objects of associations under the Act and those previously required of companies and those presently required of incorporated societies under the Incorporated Societies Act 1908. Companies were previously required to have objects stated in their constitutions.17 Directors’ powers were constrained by those objects,18 to the point where actions taken other than for the purpose of achieving them were not enforceable.19 The requirement to have a
constitution containing objects was removed in 1984,20 presumably because the
range of statutory, common law and equitable rules were considered a sufficient
constraint on directors’ actions.
[47] Incorporated societies are required to make rules which state the objects of the society.21 Statutory powers of a society, such as the ability to enter into contracts and compromise between creditors and members,22 are limited by s 19 of the Incorporated Societies Act 1908. That provision allows the Registrar to order that a society refrain from stepping outside its objects and to impose fines if it does. The
courts have held that a society may not exercise its powers outside those objects and such actions will be void and unenforceable.23 Unlike companies, societies are still required to have objects.
[48] The objects of incorporated societies, and of companies prior to 1984, are set by the bodies themselves. Although the objects of an association are sourced in the Act, the relationship of objects and powers is nevertheless analogous. The conclusion one can draw from those analogies is that objects are designed to set the purpose of an organisation, which then limit the organisation’s powers.
[49] I agree with the Registrar that NZACU, as an association under the Act, takes its existence from the provisions of the Act, including objects as specified in
s 143(3). Its powers are interpreted by reference to s 101(2) which, rather than
17 Companies Act 1955, s 14(1)(b).
18 See Peter Watts Directors Powers and Duties (Wellington, LexisNexis, 2009) at [5.3.1].
19 This proposition is noted as a possible analogy to incorporated societies by Cooke J in Finnigan v New Zealand Rugby Football Union Inc [1985] 2 NZLR 159 (HC) at 178.
20 Companies Act 1955, s 14A, inserted by the Companies Amendment Act No 2 1983, s 4.
21 Incorporated Societies Act 1908, s 6(1)(b).
22 Sections 15, and 23A respectively.
23 See for example O’Neill v Pupuke Golf Club (Inc) [1932] NZLR 1012 (SC); Police v Hawke’s Bay and East Coast Aero Club (Inc) (1948) MCD 454; and Cabaret Holdings Ltd v Meeanee Sports and Rodeo Club Inc [1982] 1 NZLR 673 (CA) at 676.
specifying what an association is able to do, stipulates what an association cannot do, and that is anything not directly in pursuance of its objects, or incidental to them, and authorised by its rules or the Act.
[50] It is, therefore, incorrect to describe s 143(3) as setting out NZACU’s powers. It does not. Section 143(3) sets out its objects. This distinction can be demonstrated by considering the position of a credit union.
[51] The objects of a credit union as set out in s 101(1) are:
(a) the promotion of thrift among its members by the accumulation of their savings; and
(b) the use and control of the members’ savings for their mutual benefit;
and
(c) the training and education of the members in the wise use of money and in the management of their financial affairs; and
(d) at the discretion of the credit union and as a minor adjunct to the other objects set out in this subsection, the welfare of its members and the making of donations for charitable, cultural, benevolent, or philanthropic purposes.
[52] These objects are worded very widely. They express intentions, ideals, what credit unions are to seek to achieve: for example, promotion of thrift amongst members and the wise use of money. These matters are not powers. That is the reason for s 101(2), which provides that credit unions have no power to do anything except in direct pursuance of or incidental to those objects and so authorised by the credit union’s rules or the Act.
[53] The issue in this case is whether the Registrar was correct in deciding that rr 30.2 and 20.3(e) of the Rules are inconsistent with the Act and therefore invalid. The Rules allow NZACU to offer its business services to associate members and allow associate members to purchase them. The fact specific objects as set out in s 143(4) might predominantly refer to providing services to members does not preclude an association offering those same services to others provided in so doing it is acting directly in pursuance of its objects, which focus on the interests of its members, or incidental to them, in accordance with s 101(2). It is wrong conceptually to interpret s 143 as meaning NZACU does not have the power to offer
any services to associates or indeed the public. The question is whether the provision of any such services is directly in pursuance of or incidental to those objects and authorised by the Rules or the Act. That is a question of fact. The Rules themselves are not inconsistent with the Act.
Section 143
[54] This approach means there is no real need to deal with the submissions as to the correct interpretation of s 143 as they were in the context of a power analysis rather than an objects analysis. Nevertheless, as FCU has interpreted s 143 as inherently providing a restraint on NZACU’s powers because of the way in which services are prescribed in s143(4), I will address the arguments.
[55] Section 143 is relatively unusual (and problematic) because it sets out the objects of an association by including a list of specified services in subs (4). It begins by providing that the objects of an association are such of those listed in (a)-(e) “as may be authorised by the rules”. Under subs (3)(b), this includes rendering services to and acting on behalf of component members “in such ways” as may be covered by an association’s rules. Section 143(3)(e) includes as an object the provision of any other services as listed in subs (4). Subsection (4) then contains a list in (a)–(h) of specified services, all of which refer to “component members”, apart from (e), providing for insurance schemes, and (f), relating to training and education programmes for component members, members of credit unions or the public.
[56] So, s 143(3)(b) refers to the provision of services in general terms by reference to an association’s rules whereas the specified services in subs (4) are, as the word “specified” suggests, specific. Therein lies fertile ground for dispute. FCU’s position is that NZACU is specifically precluded from providing services to a wider class of recipients than those specified in s 143(4). However, its analysis, taken to its logical conclusion, would restrict the actual services NZACU is able to offer and that does not appear to be the position taken either by FCU or the Registrar.
[57] I agree with Mr Friar that for NZACU to interpret the Act as advanced by
FCU would effectively “fossilise” the Act. The rapidly changing technological
advances in the banking environment could not be accommodated if NZACU were limited to the constrained and literal words of s 143(4).
[58] The history of s 143 is important to understanding how this unusual situation has arisen. Section 143(3)(e) was amended on 22 November 2006. The repealed provision read as follows:
To provide such of the other services specified in subsection (4) of this section as the Minister, either generally or in respect of any particular Association or Associations, may from time to time authorise, but subject to such terms and conditions as the Minister may impose.
[59] Mr Rennie QC, appearing on behalf of the Registrar to assist the Court, submitted that change was fundamental. Any extension of permitted objects was previously constrained by the Minister, reflective, in his submission, of members’ concern about risk.24
[60] Mr Friar suggested that when the legislation was amended in 2006, s 143(3)(e) and (4) could simply have been deleted entirely, given the broad provisions of s 143(3)(b). He speculated this did not occur in order to avoid any suggestion the specific services could no longer be provided.
[61] FCU maintains that NZACU can provide what services it deems are within its objects but the provision of these services is always subject to the restrictions contained in s 143(4). Its position stems from its submission that the services to be provided by NZACU should be interpreted in the context of the need to protect members and their investment by way of base capital notes, noting that whether to repay the base capital notes of a departing member is at the sole discretion of
NZACU.25
[62] In Mr Hughes’ submission on behalf of FCU, there is a fundamental
difference between member services and business services because the provision of
member services does not put members’ capital at risk whereas the provision of core
24 There was an issue as to whether the Minister had approved any such specified services in respect of NZACU. In 1984 a letter from the then Registrar to NZACU which referred to s
143(3)(e) as it then was, noted that “the Minister has given his consent as evidenced by the registration of the rules”.
25 New Zealand Association of Credit Unions Rules 2012, r 30.6.
banking services is inherently riskier and therefore inevitably puts members’ capital at risk. That argument does not bear close analysis, however, given the Act neither distinguishes between the two types of services nor limits insurance schemes to members. Insurance is inherently a risk business.
[63] Mr Friar and Mr Hughes engaged in a duel of Latin maxims: expressio unius est exclusio alterius and generalia specialibus non derogant versus ex abundanti cautela. In English, the prevalence of a particular over a general provision and the presumption a detailed list of items is exhaustive, as Mr Hughes submitted, as against Mr Friar’s position that the objects in s 143(4) were included out of an abundance of caution.
[64] In interpreting s 143, the Court of Appeal’s observation in Waitemata City
Council v Auckland Regional Authority is particularly apt:26
What is of some importance, we think, is that there are various minor differences and apparent inconsistencies in the wording, which suggest that this Act is something of a patchwork, not necessarily marked by a scrupulous professional draftsmanship. One has to be on guard against undue literalism in interpreting such an Act.
[65] The Supreme Court of Canada made similar observations as long ago as
1929.27 As that case has some parallels with the present case in interpreting specific as against general provisions, it is worth including a relatively long extract from the judgment which also neatly encapsulates a review of the Latin maxims:28
The argument arises upon the interpretation of s 75 of The Bank Act, and it is said that, inasmuch as clause (c) of subs 1 expressly mentions certain securities, including “bills of exchange, promissory notes and other negotiable securities,” upon which the bank may lend money and make advances, it could not have been intended that the next following clause (d), of the same subsection, should extend to securities not included in the preceding specific description. But that is practically, and unnecessarily, to limit the generality of the comprehensive power separately defined by clause (d) so as to exclude the lending powers which appertain to banking.
The words of the clause are these: The bank may * * *
26 Waitemata City Council v Auckland Regional Authority [1982] 2 NZLR 136 at 139.
27 Turgeon v The Dominion Bank [1930] SCR 67
28 At 70–71.
(d) engage in and carry on such business generally as appertains to the business of banking.
The maxim, expressio unius est exclusio alterius, enunciates a principle which has its application in the construction of statutes and written instruments, and no doubt it has its uses when it aids to discover the intention; but, as has been said, while it is often a valuable servant, it is a dangerous master to follow. Much depends upon the context. One has to realize that a general rule of interpretation is not always in the mind of a draughtsman; that accidents occur; that there may be inadvertence; that sometimes unnecessary expressions are introduced, ex abundanti cautela, by way of least resistance, to satisfy an insistent interest, without any thought of limiting the general provision; and so the axiom is held not to be of universal application.
[66] Similarly, to interpret s 143(4) as contended would unnecessarily limit the generality of s 143(3). Section 143(3)(e) refers to other services. This must mean those services as specified in s 143(4) are in addition to anything which falls within s 143(3)(a) and (b).
[67] The way in which the Court of Appeal approached its decision in Automobile Assoc (Wellington) Inc v Daysh is also of some assistance.29 The rules of the Automobile Association included the following:
(a) To encourage motoring generally by tours, lectures, discussions,
meetings, and by any other suitable and proper means …
(d) To protect members against unreasonable legislation and charges and
to protect the lawful rights and privileges of members …
(g) To provide amenities, information and facilities for members and visiting motorists whether of a personal nature as motorists or in connection with their motor-vehicles and the use thereof.
(h) To enter into any contract for agency of or with the NIMU Insurance
Company …
(q) Generally to all such other things as may be incidental or conducive to the attainment of the above objects or any of them.
[68] The Automobile Association entered into a contract with the State Fire
Insurance Office. It was argued that the Automobile Association did not have the
29 Automobile Assoc (Wellington) Inc v Daysh [1955] NZLR 527 (CA).
power to enter into that contract, given the express reference in its rules giving it the power to enter into contracts with NIMU.30
[69] The Court of Appeal ruled that the general provisions at cls (a), (d), (g) and (q) allowed the Automobile Association to enter into the contract with State and the specific reference to NIMU did not preclude it. The Court said “[t]he objects of such a body are to be construed in a fair and reasonable way”, saying:31
It was strongly urged upon us that cl (h) precludes us from holding that the appellant may enter into such a contract as this with any insurance organization other than the NIMU Insurance Company, on the principle that expressio unius est exclusio alterius and on other similar principles. This submission did not commend itself to the learned Chief Justice. We think that, apart from any other possible answer, there is a conclusive answer to this argument in the final paragraph of the rule as quoted above [cl (q)]. Such a clause, notwithstanding the criticism of its use contained in Cotman v Brougham and In re Cole Ltd, means what it says for the purposes of determining whether any particular transaction is ultra vires.
In our opinion, the contract was within the powers. The objects of such a body are to be construed in a fair and reasonable way. Unless expressed with objectionable and meticulous redundancy, they will necessarily be expressed in somewhat vague and general terms, and considerable reliance will be placed on the well-established rule that objects are to be read as including what is reasonably necessary for their attainment.
[70] In the present case, the Act contains an analogous provision to cl (q) in s 101(2).
[71] It was also argued that the contract with State was for the benefit of the Automobile Association (to make a profit) rather than for the benefit of members. The Court rejected this, saying:32
… a mixture of motives is permissible, provided always, that the mixture includes a bona fide desire to confer some appreciable benefit on members. Within reasonable limits, the Association must be left to judge whether any particular “facility” will be of value to its members: and, if it acts reasonably and in good faith, the Court will not interfere.
30 In the Supreme Court, Barrowclough CJ noted the draftsman regarded objects and powers as synonymous and said that practice had been “castigated” in the courts: Automobile Assoc (Wellington) Inc v Daysh [1955] 520 (SC) at 523.
31 At 532 (citations omitted).
32 At 533.
[72] Likewise here, the specific reference to providing services to members in the Act does not preclude NZACU from providing services to associates under its power to take action pursuant to its general objects or its incidental powers.
[73] To me, it is clear that s 143(4) has taken an ex abundanti cautela approach. By specifying services in subs (4), the Act makes it clear that the objects of an association include the provision of specified financial services, including receiving deposits and loans and establishing a central funding scheme, as well as educative and advisory services. That the specified services focus on the interests of members is hardly surprising. The fact members are not referred to in subs (4)(e) (insurance) and that members of credit unions and the public are specifically referred to in subs (4)(f) (training or education) does not mean the other services as specified cannot be provided to other parties. To so limit NZACU’s powers is reading too much into s 143(4), attributing too much weight, in my assessment, to draftsmanship.
[74] An interpretation which would allow NZACU to offer an insurance scheme to members of the public but not use its excess capacity to provide a banking service to an associate member cannot, on a purposive analysis (including protecting members from risk), make sense.
[75] If it were intended that an association could offer services only to members, it is reasonable to think the Act would have so stated. That an association’s powers in s 101(2) allow it to do anything incidental to the objects or directly in pursuance of them means services can be provided to associates and third parties.
The meaning of “incidental”
[76] The Court of Appeal considered “incidental” powers in the context of a local authority in Attorney-General v Lower Hutt City and this continues to represent the
current approach.33 McCarthy J stated:34
33 Attorney-General v Lower Hutt City [1964] NZLR 438 (HC and CA). See also B v Waitemata
District Health Board [2016] NZCA 184 at [31].
34 Attorney-General v Lower Hutt City, above n 33, at 462 (citations omitted).
[I]n deciding what can fairly be regarded as incidental to express powers, the Courts do not think narrowly. They bear in mind the public nature of the obligations of a local body and the requirements of its community, and they take a liberal view of the power under consideration. … if the act done is within a discretionary power of the corporation, the Courts will not interfere if the discretion has been exercised reasonably and bone fide.
It is important to bear these directions in mind, for the conclusion one reaches in this case depends largely, it seems to me, on the spirit in which one approaches the interpretation of the statutory provisions on which the respondent relies …
[77] The House of Lords adopted these comments in Re Northern Ireland Human Rights Commission.35 In that case, the Commission had among its express functions the obligation to “promote understanding and awareness of the importance of human rights in Northern Ireland”.36 It proposed to intervene in an inquest to make submissions on human rights principles. The coroner considered the Commission had no power to intervene. The House of Lords held that such an intervention was within the Commission’s incidental powers.
[78] After reviewing a number of authorities, Lord Hutton considered that a liberal rather than a strict approach should be applied.37 He endorsed the observations of McCarthy J and the comments of McGregor J in the High Court, who said:38
I agree with the submissions of counsel for the defendant that the object in entrusting authority to a public body such as the defendant is to enable it to provide services to the public, and the statute should receive a fair, large and liberal construction in accordance with its objects. In the case of powers conferred by the Act the Court should be liberal in deciding what matters are fairly incidental to or consequential upon the express authority conferred.
[79] Whether the services NZACU provides to associate members (or third parties) are within NZACU’s powers is fact-dependent. At the time of the Decision, approximately seven per cent of NZACU’s business was so derived. It has forecasted an increase to approximately 13 per cent, in part because of Westforce’s decision to cease its membership. At what point the provision of services ceases to
be directly in pursuance of the objects set out in s 143(3) or incidental to them will
35 Re Northern Ireland Human Rights Commission [2002] UKHL 25 at [56].
36 At [10] citing the Northern Ireland Act 1998, s 69(6).
37 At [53] and [58].
38 Attorney-General v Lower Hutt City, above n 33, at 440–441.
then require consideration. Submissions on behalf of the Registrar were to the effect that the Registrar was not concerned with merit or business risk but solely with statutory compliance. That is clearly correct. In fairness to NZACU, the evidence of what it has done and why was in an attempt to demonstrate that its actions were directly in pursuance of the objects in s 143(3) or incidental to them.
[80] On a liberal and fair interpretation and on the basis of the evidence which shows NZACU has acted reasonably and in good faith, the current provision of business services to associates (and third parties) is within NZACU’s powers. It promotes the interests of its members. Alternatively, the provision of business services to associates is clearly incidental to NZACU’s objects.
[81] The Rules are passed by members of NZACU and members can change them. The Board of Directors is answerable to members. In this way, members have control over the actions of NZACU and, if any member is unhappy, it can leave.
Conclusion
[82] The objects of NZACU are prescribed by s 143(3) of the Act. Pursuant to s 101(2), NZACU has the power to take any action or do anything directly in pursuance of those objects or incidental to them, provided that action is authorised by the Rules or the Act.
[83] In order to provide any services to associate members or third parties, the Rules must allow NZACU to do so. The Rules at issue allow NZACU to provide services to associate members. Whether provision of those services is directly or indirectly in pursuance of NZACU’s objects is then a question of fact. The evidence provided in support of NZACU’s position is to the effect that the offering of business services to associates does fall within the objects and powers. Whether that continues to be the case will again be a question of fact.
Result
[84] For the reasons given, the appeal is allowed. The Act sets out the powers of this Court on appeal. Pursuant to s 151(5), the Decision is reversed.
[85] Costs are reserved. Any submission as to costs is to be filed and served within 28 days, with any response 14 days thereafter. Costs will be decided on the papers.
Thomas J
Solicitors:
Bell Gully, Auckland for Appellants
Anthony Harper, Auckland for Intervener
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