Attorney General for the State of NSW v Now.com.au Pty Ltd [2008] NSWSC 276 | Case summary

5129/06 - ATTORNEY GENERAL FOR THE STATE OF NSW on the relation of PHARMACY GUILD OF AUSTRALIA v NOW.COM.AU PTY LTD JUDGMENT 1 HIS HONOUR: These proceedings are brought by Her Majesty's Attorney General as plaintiff on the relation of the Pharmacy Guild of Australia in order to obtain declarations and orders with respect to the conduct of a pharmacy by Sydney Drug Stores Pty Ltd (referred to in the evidence and in these reasons as "SDS"), a company of which the defendant is currently the sole shareholder. 2 The basal problem which is presented to the court revolves around the true interpretation of s 25 of the Pharmacy Act 1964 (the Act) as currently in force on the facts which I will shortly relate. 3 That section, so far as is relevant, reads as follows: " 25 . Persons other than pharmacists not to have interest in pharmacists' businesses (1) A person (not being a pharmacist), a corporation or a body of persons unincorporated shall not carry on, as owner or otherwise, the business of a pharmacist in a pharmacy or otherwise have a pecuniary interest, direct or indirect, in the business of a pharmacist carried on in a pharmacy. (1)(A) … (2) Subsection (1) does not prevent: (a) an individual from being employed in the carrying on of the business of a pharmacist, or (b) … or (c) an individual, a body corporate or an unincorporated body from having such an interest in circumstances prescribed by the regulations. (3) Any person or corporation who or which contravenes any provision of this section shall be guilty of an offence against this Act. … " 4 "Pecuniary interest" is defined by a definition added by Act No 59 of 2006 in s 3 as follows: "Pecuniary interest means a direct or indirect monetary or financial interest and includes: (a) a proprietary interest (including a proprietary interest as a sole proprietor, partner, director, member or shareholder, or trustee or beneficiary), and (b) any interest that is prescribed by the regulations as constituting a pecuniary interest for the purposes of this Act, but does not include the following: (c) (except in clause 6 of Schedule 1) any interest in a business of a pharmacist that a person has by virtue of the person being: (i) … (ii) … (iii) a member of a body corporate … that carries on or has a pecuniary interest in such a business under section 25(2)(c), but only if the person was a member of the body corporate before the commencement of this definition, (d) any interest that is prescribed by the regulations as not constituting a pecuniary interest for the purposes of this Act." 5 Section 40A which is headed Savings Provision regarding New Definition of "Pecuniary Interest" also added in 2006 reads as follows: "Section 25 does not prevent a person who lawfully had a pecuniary interest in a business of a pharmacist before the insertion of the definition of 'Pecuniary Interest' into section 3 by the Pharmacy Practice Act 2006 from continuing to have that interest after the commencement of that definition." 6 The facts as pleaded and as to which there is no contest are as follows. 7 SDS has been recorded since about 14 December 2005 as the owner of a pharmacy at Silverwater and at all material times since that date has carried on, and indeed continues to carry on, the business of a pharmacist in that pharmacy. 8 Prior to 31 March 2006, all the shares in SDS were owned by a registered pharmacist, a Mr Brown (or perhaps by Mr Brown and his wife, but no point was taken about this). On that day Mr Brown (and his wife) transferred all the shares to the defendant. The defendant is not a pharmacist. It is a single business company, all the shares of which are owned by Coles Myer Ltd (Coles), a well-known company which operates chains of supermarkets and other stores, and all the shares of which are currently owned by another company, Wesfarmers Limited (Wesfarmers), whose shares, in turn, are held by the public. That is perhaps a slight over-simplification, but will suffice for present purposes. 9 I will go into the contentions of each side in more detail shortly, but essentially the plaintiff says that this is a clear case where the defendant has a pecuniary interest in a pharmacy and is not a person who is exempted by any of the provisions of the Act and so is acting contrary to the law. 10 The defendant denies this allegation. It says that on the proper construction of the Act it is operating lawfully. It further says that if that contention be wrong, this is not a proper case for the court to make any declaration or injunction. 11 The proceedings were heard before me on 21 February 2008, Mr B W Walker SC and Mr T Bradley appearing for the plaintiff and Mr C M Scerri QC and Mr A I Tonking SC appearing for the defendant. Both sets of counsel submitted written submissions in advance of the hearing, and addressed them concisely and precisely orally on that day and I am indebted to all of them for their assistance. 12 Before dealing with the contentions in detail, I need to paint the background picture of pharmacy legislation in New South Wales since the Pharmacy Act 1897 (1897 Act) came into force. I am assisted in this task by MI 11 which is the defendant's analysis of the legislation. 13 Section 18 of the 1897 Act required a registered pharmacist to superintend personally the carrying on of any pharmacy business carried on in an open shop. Section 18A was added to the 1897 Act by the Pharmacy (Amendment) Act 1940, which, with certain exceptions to give protection to what might be called "grandfather" pharmacists, provides that no corporation or unincorporated association not being a partnership, was permitted to carry on the business of a pharmacist in an open shop. Section 18B, again with a grandfather clause, prohibited a person who was carrying on the business of a pharmacist in an open shop from carrying on such business in more than one open shop. 14 The 1897 Act was repealed and replaced by the Act. Initially, s 25(1) of the Act carried on the prohibition of anybody other than a practising pharmacist carrying on business as a pharmacist in open shop. 15 Various amendments were made prior to the Pharmacy (Amendment) Act 1989 (1989 Act), which do not concern the present dispute. The 1989 Act recast s 25, omitted any reference to an open shop and continued the general prohibition of anyone other than a registered pharmacist from having a pecuniary interest direct or indirect in the business of a pharmacist carried on in a pharmacy. 16 I should complete the survey of legislation by referring to clause 21 of the Pharmacy (General) Regulation 1998 (the Regulation) as amended by the Pharmacy (General) Amendment (Exceptions) Regulation 2002 which was made on 11 December 2002. It reads as follows: " 21. Savings for pecuniary interests before 5 October 1990 (section 25) (1) For the purposes of s 25(2)(c) of the Act, an individual, a body corporate or an unincorporated body is not prevented from having a pecuniary interest in a pharmacy business if: (a) the interest is an interest that the individual, body corporate or unincorporated body had immediately before 5 October 1990 and that was lawful pursuant to section 25(2)(b), (b1), (c), (d), (e) or (f) of the Act (as in force immediately before that day), and (b) the interest is the same interest in the same pharmacy business as the individual, body corporate or unincorporated body had immediately before 5 October 1990, and (c) the pharmacy business is carried on … either the shop in which that business was carried on immediately before 5 October 1990 (referred to in this clause as the original shop) or a shop in the prescribed area for the original shop." 17 The only evidence tendered was details of ministerial speeches and announcements by Coles and correspondence between that company and the relator. 18 There is in evidence a news release by Coles of 31 March 2006 that Coles had acquired SDS which operated a retail shop in western Sydney for $48 million including merchandise. 19 The relator, the Pharmacy Board, asked for details. It was told (see Exhibit AX07) that in December 2005, Mr Brown offered to transfer the pharmacy to SDS, a company in which Mr Brown and his wife were then the sole shareholders, this included the business assets and operating liabilities of the pharmacy. The Pharmacy Board approved that transfer on 14 December 2005 whereupon SDS traded. 20 On 18 April 2006, the Pharmacy Board wrote to the solicitors for SDS seeking information about the acquisition. A response was written, on 1 May 2006, by the General Counsel for Coles, who purported to be authorised and able to respond on behalf of SDS. 21 The Pharmacy Board wrote to Mr Brown a letter of 15 June 2006. Mr Brown was asked questions it would seem both in his role as the former shareholder of SDS and also because he was one of the pharmacists in whose "charge" the defendant had placed business of SDS. 22 On 29 June, the reply to this letter was provided by Coles by a woman who signed it describing herself as "General Counsel-Retail Brands". 23 There is also in evidence the annual report of Coles Myer Ltd for 2006. Mr Walker drew attention to a page of that document headed "A Successful Journey, An Exciting Future" which contained the following paragraph: "We have worked hard at building one team, with one performance-based culture in which we reward leaders with incentives based on Group outcomes. We have developed common Groupwide values and behaviours - integrity, respect and recognition, passion for excellence and working together - developed by over 2,000 team members. We have reduced the number of workplace injuries through a Groupwide safety program. We have reduced duplication and costs as the platform for further integration and simplification of the Group." 24 Later on the same page, it was noted that progress of the group was made in developing or implementing "common merchandising and forecasting systems across food, liquor and fuel". 25 The Coles' Board Corporate Governance Charter confirms the control of operating and capital budgets, the reporting and monitoring requirements for the businesses within the group, which since 31 March 2006 has included the SDS pharmacy business. 26 The following item is within the Annual Report 2006 relied on by the defendant: " Group results and monitoring The Board [of Coles] has overall responsibility for the appropriate reporting of the CML Group results. In order to effectively carry out this function, the Audit and Risk Committee [of the Coles' Board] monitors the effectiveness of the Group's systems and internal financial controls. The Group's performance is monitored on a monthly basis through annual operating and capital budgets which have been established by the relevant business heads and approved by the Board." 27 Mr Walker relied on this material as showing that what had really happened was that despite the legislation, a pharmacy at Silverwater was now part of a group of stores nationwide which had a common culture and involved large scale merchandising, something quite inconsistent with the Act which required no person with a pecuniary interest other than a registered pharmacist from operating a pharmacy in New South Wales. 28 The plaintiff says that this material demonstrates the controlling role of the parent shareholder in the business being conducted by SDS. Indeed it puts that even the bundle of rights held by the defendant as the sole shareholder in SDS, referred to above, is sufficient to give the defendant a pecuniary interest in the pharmacy business of SDS. 29 There were some confidential documents tendered in the case. However, in my view they have little to do with the case and in due course I will hand them out on the basis that they are to be returned to the court if there is any appeal, because security requires they be held by the parties rather than the court in the meantime. 30 The only relevant material in that confidential material was what is set out in paragraph 14 of the plaintiff's confidential written submissions which sets out the power of the controlling shareholder over the operations of SDS. 31 As I have mentioned, the plaintiff seeks declarations and an injunction. During the argument I pointed out that a convenient course may be for me to decide the question of principle and indicate what declarations I was prepared to make, if any, and if the result of that exercise was that the plaintiff was entitled to some relief, I should then stand the matter over to consider whether I should make any injunctive orders. That suggestion was embraced by both parties. Accordingly, I will deliver these reasons and then stand the matter over, either for directions to be given for the future conduct of the case, or alternatively, to allow time for a party to approach the Court of Appeal for leave to appeal. 32 I now turn to the respective contentions. 33 The defendant submits that the interest which it holds as a shareholder of SDS does not constitute a pecuniary interest in the pharmacy business carried on by SDS. The reasons to back this submission are set out in the succeeding paragraphs. 34 First it is put that under the undoubted principles of company law, which are not displaced by the Act, the defendant as a shareholder has no legal or equitable interest whatsoever in the assets or property of SDS. It is put that if this were not so, there would be produced significant practical and legal difficulties. 35 This is because it is put that, if the defendant has a pecuniary interest in the business carried on by SDS, so too must the defendant's holding companies, including its ultimate holding company, Wesfarmers, as well as each of the latter's tens of thousands of shareholders (and the shareholders of any corporate shareholders), exposing all of them to criminal liability. 36 The defendant puts that its opponent's attempt to circumvent this point by introducing an "extraneous and imprecise concept" of a "controlling interest", which the plaintiff makes no effort to define is fatuous. 37 I do not share that view. In any event, the plaintiff's case is not so much that there is a "controlling interest" as that a financial interest exists if the facts of a particular case show that the shareholder, because of its shareholding is in fact exercising strong influence over the generation of profits from the business. 38 The term "pecuniary interest" must mean more than a "proprietary interest" as s 25 itself states that a proprietary interest among others is included amongst the sorts of interests which may constitute a direct or indirect monetary or financial interest. 39 I should note here that there are in fact cases which have decided in appropriate contexts that the mere shareholding in a corporation which has a profitable contract with a local authority is sufficient to disqualify that shareholder from being a member of the authority because he or she has a direct or indirect interest in the contract; see eg Todd v Robinson (1884) 14 QBD 739 and City of London Electric Lighting Company Ltd v London Corporation [1903] AC 434. 40 I do not consider, however, that those cases give guidance in the present matter, nor did Mr Walker submit otherwise. 41 Mr Walker at T16, put that when considering the principal question in cases such as the present where a person owns all the shares in a corporation, which carries on a pharmacy business in the circumstances of that person exercising active control of its subsidiary's trading activities, there are two elements involved: "The first is the nature of a pecuniary interest read in this statute, that is by the combination of the ordinary English of that expression in the context including 'the perceived purpose of the statute'. The second is what, if anything, does the phrase 'direct or indirect' add to the scope of cases, that is, the category of circumstances which will be encompassed within 'having a pecuniary interest'. … Pecuniary as an epithet refers in our submission essentially to the monetary, financial or, most particularly for this case, the capitalist nature of the connection or relationship between the person in question and the other personal activity in question." 42 He went on to say at T17-18: "One must be careful, indeed, one must avoid, simply taking off the shelf judicial utterances about the meaning of pecuniary benefit from another legislative scheme, let alone from other factual circumstances, and bolt it into this statute. … On the other hand, when one applies a mandated, that is, by common law and statute, purposive approach it is clear that it is intended that the prohibition on pecuniary interest, as the words of the section make clear, is something which could go beyond what I will call ownership." 43 In these submissions Mr Walker stressed that this case should focus not only on the fact that the defendant was the sole shareholder in SDS, but also that the surrounding circumstances showed that it was not a mere passive shareholder, but was actively involved in the policy and trading of the business as part of its group culture. 44 It seems to be that this approach is consistent with what Barwick CJ said in quite a different connection in Re Webster (1975) 132 CLR 270 at 287: "it must be accepted that ... a shareholder may have a pecuniary interest in some agreements made by and with the company of which he is a member. … a shareholder does not have any legal or equitable interest in the assets, including agreements, of the company … . But of course, it may be that due to particular circumstances the shareholder may have such an interest. But in that case the pecuniary interest will arise out of those circumstances." 45 I agree with this approach and cannot see how it can fairly be described as either "extraneous or imprecise". 46 Indeed the concept is one commonly employed in general law. 47 Thus, in the area as to whether a landlord has a financial interest in his or her tenant's business, it is usually not enough that the landlord receives rent which rent is generated by the tenant's business, but, if there is a further factor involved, a court may be justified in finding that the landlord has such an interest. 48 The cases in this area are not all completely consistent one with another. Earlier cases, such as Pearce v Brooks (1866) LR 1 Ex 213 held that the hirer of a carriage to a prostitute could not recover even though he may be paid out of the prostitute's legitimate money. 49 However, there is a general trend of authority that merely because a person receives rent from a tenant which conducts a business on the leased premises, the landlord does not have a financial interest in the tenant's business. However, when one adds other factors such as a percentage of turnover or some active involvement, then the fact that one person is the landlord of the premises can be added to those other factors to show that there is a financial interest in the tenant's business. 50 Thus, in R v Thomas [1957] 1 WLR 747 the English Court of Criminal Appeal held that a person who lets a room to a prostitute at a grossly inflated rate for the express purpose of letting her ply her trade is acting as a coadjutor of the prostitute and is living off the earnings of the prostitute. Such a person is in quite a different position to, say, a shopkeeper who sells the prostitute food knowing what she does for a living and how she is paying for the food. In other words, in the case of the landlord and tenant, the one party is actively involved in the pecuniary sense in activities of the other. 51 This case was considered and developed further by the House of Lords in Shaw v Director of Public Prosecutions [1962] AC 220. That case concerned the publication of a book called the "Ladies' Directory" which contained the names and addresses of prostitutes. Mr Shaw's avowed purpose in publishing the book was to help prostitutes to ply their trade after the Street Offences Act 1959 prevented them from soliciting on the streets. The House of Lords held that a person who is paid by a prostitute for goods or services supplied by him to the prostitute for the purpose of prostitution, which goods or services he would not supply but for the fact that the customer is a prostitute, is living in whole or in part on the earnings of prostitution. Such a person clearly has a pecuniary interest in the customer's business beyond the mere supply of goods or services. 52 In Tasker v Fullwood [1977] 1 NSWLR 688, Sheppard J at 693 held that a lessor had a pecuniary interest in a liquor business where "the amount of the rental to be received by the lessor was, subject to the provision requiring payment of a minimum rental, directly dependent upon the turnover of the business". 53 Although in Tasker v Fullwood [1978] 1 NSWLR 20 the Court of Appeal allowed the appeal against that decision, the appeal judges agreed with Sheppard J on the present point. 54 I made a similar finding in Hunt v Pascoe (1990) 21 NSWLR 10, a case concerning a covenant by a vendor of a motel against being interested in a competing motel. I said at 15 that merely being a landlord does not amount to having an interest in a tenant's business, but that "it may be, from a consideration of all the aspects of the relationship between the parties, that the court may conclude that the person who is the landlord does have such an interest." 55 Indeed, the same flavour comes through the few cases which have dealt with the present statute. Thus in White v District Court of NSW (1998) 45 NSWLR 313, the Court of Appeal held that where a pharmacist paid a service company a management fee based on a percentage of turnover, the service company had a pecuniary interest in the pharmacy. 56 In White's case at 317 Handley JA (with whom Beazley and Stein JJA agreed) derived some indication of the width of "pecuniary interest direct or indirect" from the exemptions in subsection 25(2) for contracts of employment and bills of sale. If pecuniary interest were confined to a legal or equitable interest in the business, there would be no reason specifically to exempt an employee and a chargee under a bill of sale from the prohibition. 57 In Gophir Diamond Co v Wood [1902] 1 Ch 950, Swinfen-Eady J held at 953 that whilst an ordinary employee on a fixed salary could not be said to have a pecuniary interest in his or her employer's business, the case would be different where the employee's remuneration depended on the profits or the gross returns of the business. 58 I now pass to consider authorities dealing with what are pecuniary interests under the Act. 59 In Chappuis v Filo (1990) 19 NSWLR 490, Priestley and Handley JJA said at 510 that s 25(1) of the Act "does not strike at normal contractual arrangements whereby a pharmacist obtains the use of real or personal property owned by a non-pharmacist. Of course such arrangements which entitle a non-pharmacist owner to a share of profits or a share in the turn-over of the business of a pharmacist would almost certainly be struck at by s 25(1)." 60 Although not quite on the present point, I should, for completeness mention the decision of Barrett J in Pham v Doan (2005) 63 NSWLR 370, where his Honour at [90] described the purpose of subsection 25(1) as: " ensuring that individual pharmacists are the only persons involved financially in the operation of pharmacies so that non-pharmacists (including companies) should not enjoy the financial benefits of pharmacy operations." 61 The plaintiff then points to the words "direct or indirect" in s 25(1) and puts that those words have a significant part to play in its construction. 62 At the very least, it is put, one should not impute to the legislature an intention to create the result which might be described as a counter-intuitive anomaly; where financial control of a pharmacy business, including its revenues and profits could be acquired and the general legislative prohibition could be avoided by the simple interposition of a wholly-owned subsidiary company. 63 Mr Walker cited a series of cases decided under s 50(1) of the Trade Practices Act 1974, and pointed out that, while not all the cases were consistent, the predominant view was that the prohibition against acquiring "directly or indirectly" shares or assets in contravention of that legislation may be breached by a parent company where the acquisition is by a subsidiary company, that being considered an indirect acquisition by the parent; see eg Australia Meat Holdings Pty Ltd v Trade Practices Commission (1989) 11 ATPR 50,082 at 50,094 and Trade Practices Commission v Gillette Company (No 2) (1993) 118 ALR 280 at 291. 64 It was put by the plaintiff that whilst merely being a shareholder would not be sufficient to constitute the shareholder as having a proprietary interest in the operating company's business, in the present case, when one saw the extent of the shareholder's participation, one can see that this particular shareholder does have a financial interest in the pharmacy business. 65 The factors to which the plaintiff refers are that as a shareholder, the defendant also has rights and obligations arising from the statutory contract embodied in the company's constitution and from the Corporations Act 2001 (Cth). Relevantly, the defendant has the right: (a) to receive dividends out of profits earned by SDS, as determined by the board of directors; (b) to vote on the appointment and removal of directors and on any other matters placed before a general meeting, including the company's decisions about financial and operating policies of SDS; and (c) upon winding up of SDS, to participate in the distribution of any surplus assets. 66 The plaintiff puts that the defendant's right to receive dividends from SDS and any surplus on its winding up are rights of a financial nature, which may be measured in monetary terms and are reflected in the tradable value of the shares. He puts that these rights give the defendant an involvement in the financial operation of the pharmacy business of SDS and an entitlement to financial remuneration dependent upon the profits of the business. It is submitted that this interest is a pecuniary interest in the pharmacy business of SDS. 67 I do not accept these submissions insofar as it is put that these matters alone necessarily mean that such a shareholder must be held to hold a pecuniary interest. 68 However, I do accept that with the additional material from the exchange of letters and extracts from the Coles Group Report considered with the ordinary rights of a shareholder to receive dividends, to vote for the directors or to participate in a winding up are sufficient to constitute a financial interest in a business being conducted by the company. 69 However, I agree with the proposition of Mr Walker that when one looks at the other involvement of the shareholder and when one sees that that involvement is as an active controller of the business, then that may amount to a shareholder having a pecuniary interest. That pecuniary interest is not limited to proprietary interest is clear from the wording of the section. It is a question of fact and degree as to whether in any particular case a person who is involved in arrangements with a pharmacy business does have a pecuniary interest. 70 A shareholder in a position to control a single business subsidiary company and whose conduct indicates an intention to do so to its probable financial benefit holds a pecuniary interest in the subsidiary's business 71 I also agree with the submission of Mr Walker at T18 that the legislative scheme does operate so that a person is considered as having a pecuniary interest in the business of a pharmacy "if he or she has a sufficient number of shares with the appropriate rights attached to them which presently provides the potential and may from time to time actually provide a flow of money generated by the activity to the person in question." 72 Even if this proposition is too wide, it is certainly correct within limits, including where, as here, the evidence shows that the shareholder has control in such a way as to be able to dictate the policy of the pharmacy and as to how it will generate profits which profits will flow through to it. 73 To make my finding quite clear, if an investor on the Stock Exchange buys a Wesfarmers' share and all that that person obtains is a dividend or perhaps a dividend and some bonus shares from time to time, and that the source of some part of the moneys which went to pay the dividend derive from a pharmacy in New South Wales, it cannot be said that that shareholder has a pecuniary interest in the pharmacy. The mere holding of a share in the holding company of a company which owns the pharmacy business does not constitute holding a pecuniary interest in a pharmacy. Indeed, I do not consider that the plaintiff submits to the contrary. 74 There are cases in the area of recovering proceeds of crime which focus on whether funds or property are under the "effective control" of the criminal. Such cases make it clear that the law will not stop at seeing where the proprietary interest is held, but rather whether the criminal had the capacity to control, use, dispose of or otherwise treat the property as his own. A recent decision to this effect is Solicitor-General v Bartlett [2008] 1 NZLR 87. 75 Bartlett's case followed Director of Public Prosecutions v Walsh (1989) 98 FLR 175; [1990] WAR 25; (1989) 43 A Crim R 266, where Seaman J had to consider the operation of ss 9A and 28(3) of the Proceeds of Crimes Act 1987 (Cth) allowing the court to deal with property under the "effective control" of the prisoner. In that case the prisoner had no proprietary interest in the property but his influence over his wife and sister (who at law were directors or trustees of the entities holding the relevant properties) was such that he was able to treat the properties as his own. Thus he was in effective control of the properties even though he had neither any proprietary interest in them, nor had the means of coercing his wife or sister. 76 I consider that this line of authority reinforces the broad approach that I consider should be taken with similar expressions in statutes passed to protect the public interest. 77 It follows from what I have said that the peak operating company which, in the sense I have spoken, has a financial or pecuniary interest in the business of SDS. 78 A fortiori all companies under the control of that entity through which it exercises its power over the business must also be persons with a financial or pecuniary interest in that business. 79 However shareholders in the peak operating company who merely receive dividends from it do not have a pecuniary interest in SDS's business. 80 Coles would appear to be the peak operating company in the present case. It is not a party to the proceedings, thus I use the word "appear" advisedly. 81 The defendant is a subsidiary of Coles which appears on the evidence to do its bidding. It follows that in all the facts and circumstances the defendant has a pecuniary interest in the business of SDS. 82 Accordingly, I reject the first tranche of the defendant's submissions. 83 The defendant then puts that the statute deals with control of a pharmacy business in ss 24C and 27 by restricting who may own and be in charge of a pharmacy business, and from what premises such a business may be conducted. 84 It is put that, in relation to "control", the defendant's interest in SDS clearly does not constitute control of a pharmacy within the contemplation of Part 5 of the Act, which provides the context in which s 25 is to be construed. 85 However, s 25 is within Part 5 of the Act, the Part governing control of pharmacies and I cannot see why it is to be excluded from the provisions which together regulate their control. 86 The legislation as to who can be involved in a pharmacy has changed markedly since 1897. It is clear that whenever there was a significant change, provisions were put in place to protect vested interests which are often referred to as grandfather provisions. 87 The defendant put that, since 1940 "grandfathered" corporations, including SDS, have been permitted to carry on the business of a pharmacist, pursuant to an exception to the general prohibition on corporations conducting or having a pecuniary interest in such a business. 88 Plainly each of those corporations had shareholders, but it has never been suggested that the Act required all shareholders in such companies to be registered pharmacists. This is consistent with the undoubtedly correct view that, on proper construction of s 25, the shareholders in such companies do not themselves have a pecuniary interest in the grandfathered company's pharmacy business. Significantly the Pharmacy Board, which is the statutory authority charged with enforcing s 25, has not proceeded against the defendant or its shareholders. 89 It is then put that as at the acquisition date, the Act contained no definition of "pecuniary interest". A definition was inserted by schedule 7.12 of the Pharmacy Practice Act 2006 (Amending Act) which commenced on 7 September 2006. The defendant put that the new definition of "pecuniary interest" should be disregarded in construing s 25 at the relevant time. However s 40A of the Act, inserted by schedule 7.12 of the Amending Act, is relevant. 90 The argument is developed by saying that SDS carries on the business of a pharmacist, which it owns. This is lawful because the Regulation excepts from the prohibition in s 25 the holding by a corporation of a pecuniary interest that was lawfully held before 5 October 1990, if certain conditions are satisfied. 91 It is put by the defendant that it was common ground that SDS acquired its interest in the relevant pharmacy business before 5 October 1990, and that it otherwise satisfies the requirement of the Regulation. This does not appear to be so. As Mr Walker noted in his reply (T52) SDS only seems to have acquired the pharmacy business at Silverwater at the end of 2005. 92 Putting that little problem to one side for the present, I will continue to consider the submissions. It is put that, while the scope of operation of a statute cannot be determined by reference to regulations made under it, it remains relevant to the defendant's argument to consider the consequences, in terms of the Regulation, of the construction contended for by the plaintiff. 93 The defendant notes that the Regulation does not refer to any pecuniary interest held by any shareholder of a corporation that held a pecuniary interest before 5 October 1990. Every such corporation would have had shareholders. The Regulation did not stipulate that the shareholders in an excepted corporation must not be corporations, or that they must be registered pharmacists. It is clear that the assumption underlying the exception was that the shareholders in the excepted corporation did not need to be excepted. Otherwise the exception of the corporation would have been meaningless unless there was an express exception of the shareholders. 94 It is further put that, while sub-clause 15(5) of the Regulation requires notification of changes of directors, it contains no requirement for notification of changes in shareholding. To sustain its argument the plaintiff would need to contend that subclauses 15(1) and (2) of the Regulation (which refer to changes in pecuniary interests) fulfilled this function, with the consequence that every dealing in Wesfarmers' shares would have to be notified to the Pharmacy Board within 14 days under pain of a fine of 2 penalty units. The defendant contends that the reason this construction is unsustainable is that it is plain that the shareholders in the excepted corporation do not themselves have any pecuniary interest (whether direct or indirect) in the pharmacy business of the corporation. 95 There are, to my mind, many defects in this submission. However the principal answer to this is that SDS may well be entitled to carry on the business of a pharmacy. However, the question here is whether in all the circumstances, the defendant has a pecuniary interest in the pharmacy. It is not alleged that a mere shareholding would be sufficient, but that a shareholding with the added features as in the present case, would be a pecuniary interest. 96 It will be remembered that paragraph (c)(iii) of the definition of "pecuniary interest", which provides an exception to the general prohibition, is as follows: "(iii) a member of a body corporate … that carries on or has a pecuniary interest in such a business under s 25(2)(c), but only if the person was a member of the body corporate before the commencement of this definition," 97 The plaintiff says that, although paragraph (c)(iii) of the definition excludes pre-amendment shareholdings, the ordinary principles of statutory interpretation apply to the definition so that only a shareholding lawfully held before the commencement is excluded by that paragraph. 98 Then the plaintiff cited Holden v Nuttall [1945] VLR 171 at 178; Woodcock v South Western Electricity Board [1975] 1 WLR 983 at 987; Thompson v Groote Eylandt Mining Co Ltd [2003] NTCA 05 at [31]-[35] in support of that proposition. These provide very weak support for it, but this is of little moment as s 40A in any event produces this result. 99 If, as is submitted, the defendant acquired and held the SDS shares in contravention of the Act, paragraph (c)(iii) of the definition ought not to be interpreted to reward the defendant as a result of its unlawful conduct. 100 The plaintiff says that it follows that the insertion of the definition of pecuniary interest on 7 September 2006 did not have the effect of making lawful the defendant's previously unlawful pecuniary interest. The grandfather clause was not an amnesty. 101 The general prohibition in subsection 25(1) is subject to the exceptions in subsections 25(1A) and 25(2) of the Act. 102 The exemptions in paras 25(2)(a) and (b) do not apply to the defendant's circumstances. The only possibly relevant exemption is in para 25(2)(c) which excludes from the prohibition: "an individual, a body corporate or an unincorporated body from having such an interest in circumstances prescribed by the regulations." 103 The regulations referred to in para 25(2)(c) are found in clause 21 of the Regulation, which was made on 11 December 2002 which I have already set out. 104 Counsel for the plaintiff point out that paras (a), (b) and (c) of this Regulation are cumulative. Accordingly, for the exception in the Regulation to apply the shareholder must have held that interest before 5 October 1990. The plaintiff puts that as the defendant did not hold any shares in SDS until 31 March 2006, it cannot obtain the benefit of the exemption provided by the Regulation and s 25(2)(c) of the Act. 105 The defendant says that as SDS acquired its interest in the relevant pharmacy business before 5 October 1990 and that it otherwise satisfies the requirements of the Regulation, the Regulation does give protection and the fact that the shareholders have changed since then does not affect the situation. 106 Paragraphs (a), (b) and (c) of subclause 21(1) of the Regulation are cumulative. If a shareholding in a company carrying on a pharmacy business is a direct or indirect pecuniary interest in the pharmacy business, then the shareholder who is now claiming exemption, must have held that interest before 5 October 1990 to bring it within the circumstances prescribed in paragraph 21(1)(a) of the Regulation. 107 The defendant did not hold any shares in SDS until 31 March 2006. It follows that the defendant cannot obtain the benefit of the exemption in para 25(2)(c) of the Act. 108 Thus, subject to any discretionary defences, the plaintiff is entitled to the basic relief he seeks by way of declarations. 109 Mr Scerri puts that the present case is one involving a criminal offence and it is not appropriate for the court to make a declaration that a person has committed a criminal offence. 110 That proposition is basically correct, but in the last 30 years or so, where the offence is a regulatory offence and not a malum in se and there is a genuine dispute as to the proper construction of a statute even though that statute imposes a penalty for breach, the courts prefer people to bring the question of construction to a superior court rather than have a test case prosecution before a local court and then have appeals all the way through the system. 111 I dealt with this sort of matter in Corporate Affairs Commission (NSW) v Transphere Pty Ltd (1988) 15 NSWLR 596, 603 and noted that this method of proceeding had at least the implied sanction of the High Court when it dealt with Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (1981) 148 CLR 121. I adhere to what I said in Transphere. 112 Thus, the plaintiff is entitled to the appropriate declarations. 113 As I indicated earlier in these reasons, I will publish these reasons and then stand the matter over for three weeks to enable them to be digested and for the parties to consider what is the next step to be taken. If formal orders by way of declaration are to be made at this stage, then these should be formulated by the plaintiff so that they can be considered on the next occasion. 114 Accordingly, all I will do at this stage is to deliver these reasons and stand the matter over to be listed for mention before me at 9.30am on Thursday 24 April 2008. However, if my Associate is notified the week before, this date can be changed and I would appreciate my Associate being informed if the parties are likely to require more than 10 to 15 minutes on the date fixed for the mention.

Attorney General for the State of NSW v Now.com.au Pty Ltd

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Judgment (10 paragraphs)

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Legislation Cited (2)

Cases Cited (10)

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