Australian Broadcasting Corporation v Redmore Pty Ltd

In due course, Redmore instituted proceedings for declaratory relief and damages in the Supreme Court of New South Wales. The A.B.C. denied liability on a variety of substantive and technical grounds. It denied that any concluded agreement had been purportedly made. If such an agreement had been purportedly made, it denied the authority of the officer who had dealt with Redmore on its behalf. It claimed that any such agreement was, in any event, unenforceable by reason of the combined effect of the provisions of s. 54A(1) of the Conveyancing Act 1919 N.S.W. and s. 66A(1) of the Lands Acquisition Act 1955 Cth. It asserted that the alleged agreement would have involved expenditure by it of more than $500,000 and was therefore either beyond the powers of the A.B.C. or unenforceable for the reason that it had failed to obtain the prior approval of the responsible Minister as required by the provisions of s. 70(1)(a) of the Australian Broadcasting Corporation Act 1983 Cth ("the Act").

At first instance in the Supreme Court, Redmore succeeded. The learned trial judge (Bryson J.) rejected all of the A.B.C.'s defences. He made orders declaring that there had been a binding agreement and that the A.B.C. had repudiated it. He referred the matter to a Master to inquire into and certify the amount of damages sustained by Redmore as a result of that repudiation by the A.B.C. The A.B.C. appealed from his Honour's judgment and orders to the New South Wales Court of Appeal. The Court of Appeal (Samuels and McHugh JJ.A.; Kirby P. dissenting) dismissed the appeal. The present appeal is from the decision and orders of the Court of Appeal.

The only issue on which the learned President of the Court of Appeal differed from the other members of that court was that raised by the A.B.C.'s defence based on s. 70(1) of the Act. That is the only issue which remains alive on the appeal to this Court. That being so, the present appeal falls to be determined on the basis that, subject to the effect of s. 70(1) of the Act, there was a concluded and enforceable agreement between the parties resolving the former dispute and providing for a new tenancy of the premises. It is now common ground that, under the terms of that purported agreement, the A.B.C. became liable to pay to Redmore an amount (in total) exceeding $500,000. It is also common ground that the A.B.C. purportedly entered into the agreement without having obtained the approval of the responsible Minister. It is not suggested by the A.B.C. that Redmore had knowledge, either actual or constructive, of the A.B.C.'s failure to obtain that approval. The question for determination on the appeal is whether s. 70(1) of the Act is, as Bryson J. and the majority of the Court of Appeal held, merely directory (to the A.B.C.) in character or whether it operates to confine the actual powers of the A.B.C. or to render illegal or unenforceable any contract of the type to which it refers which is entered into by the A.B.C. otherwise than in accordance with its terms.

(1) The Corporation shall not, without the approval of the Minister -

(a) enter into a contract under which the Corporation is to pay or receive an amount exceeding $500,000 or, if a higher amount is prescribed by the regulations, that higher amount; or

(b) enter into a contract or arrangement with another person under which the other person agrees to acquire real or personal property to be leased, or let on hire, to the Corporation.

(2) Paragraph (1)(a) does not apply in relation to the receipt by the Corporation of an amount for the sale or other disposition of broadcasting programs or television programs.

As the judgments in the courts below demonstrate, the question whether s. 70(1) should be construed as confining power or as directory of the manner of its exercise is a finely balanced one. The words of the sub-section are not compelling either way. In strict terms, they are directory. They speak of the exercise ("shall not enter into a contract"), rather than the existence, of power. Their direction is to the A.B.C. and not to an innocent outsider having contractual dealings with the A.B.C., who would be likely to act on the basis that the A.B.C. would have complied with any statutory duty to obtain the approval of its responsible Minister before purporting to enter into a contract of a kind which required such approval. In that regard, it is relevant to note that the sub-section neither requires that the Minister's approval be in writing nor establishes any procedure by which a person dealing with the A.B.C. can ascertain whether the Minister has given his approval to the precise terms of a particular contract. Nor do the words of s. 70(1) either spell out the effect on third parties of a failure by the A.B.C. to observe its statutory duty to obtain the Minister's prior approval or speak in terms which would be appropriate to refer to a purported or ineffective entry into a contract. If the statutory direction to the A.B.C. not to enter into a contract of the specified kind without the approval of the Minister has the effect either of confining the actual powers of the A.B.C. or of invalidating any contract with an innocent outsider entered into otherwise than in compliance with its terms, it must be by reason of a legislative intent to be discerned in the words of the sub-section construed in the context of the Act as a whole.

As a matter of general structure, provisions of the Act which in terms confer or confine the actual powers of the A.B.C. are collected in Pt IV which is headed "Powers and Duties of the Corporation". In particular, s. 25(1) (with which Pt IV commences) provides that the A.B.C. "has power to do all things necessary or convenient to be done for or in connexion with the performance of its functions" and particularizes a variety of specific powers including the power "to enter into contracts" (s. 25(1)(a)), the power "to acquire, hold and dispose of real or personal property" (s. 25(1)(b)) and the power "to act as an agent for other persons" (s. 25(1)(e)). Section 25(1)(h) provides that the A.B.C. has power "to do anything incidental to any of its powers". Sub-sections (2), (3) and (4) of s. 25 confine the grant of powers contained in s. 25(1) by expressly identifying a number of matters which are beyond the powers of the A.B.C. Thus, s. 25(2) provided, at relevant times, that the A.B.C. "does not have power to borrow moneys" while s. 25(3) provides that, subject to certain qualifications, the A.B.C. "does not have power to accept any payment or other consideration for the broadcasting or televising of any announcement, program or other matter".

Section 70 of the Act appears in Pt VI which is headed "Finance". That Part contains no express reference to the grant or confinement of powers. To the contrary, and putting to one side s. 70 itself and s. 69(2), Pt VI is plainly concerned with the provision of funds and the institution of a system of governmental controls, checks and supervision in relation to the expenditure by the A.B.C. of those funds in the performance of its functions and the exercise of its powers as defined and conferred by provisions in other parts of the Act. Thus, s. 67 provides for payment to the A.B.C. of moneys appropriated by the Parliament in such "amounts" and at such "times" as the Minister for Finance may direct. Section 68 provides that the moneys of the A.B.C. shall be applied only in or in connexion with "the performance of its functions or the exercise of its powers" or in making other payments authorized by the Act. Section 69(1) requires the Board of the A.B.C. to prepare estimates of expenditure. Section 71(1) exempts the A.B.C. from taxation. Section 72 subjects the A.B.C. to the provisions of Pt XI of the Audit Act 1901 Cth imposing financial restraints upon, and dealing with accounts to be kept by, public authorities.

Section 69(2) is framed in terms of direction which are comparable with those used in s. 70(1). It provides that the moneys of the Corporation "shall not" be expended otherwise than in accordance with the estimates of expenditure approved by the Minister. That direction could not, however, sensibly be construed as concerned to confine power or invalidate the otherwise lawful expenditure of money by the A.B.C. It would, for example, border on the absurd to construe s. 69(2) as having the effect that no supplier of goods or services to the A.B.C. could know that he had a lawful or valid claim to payment unless he first ascertained that the purchase price, however small, came within the four corners of the detailed estimates of the A.B.C. in the form (possibly unpublished or unavailable to him) in which they had been approved by the Minister.

It can therefore be seen that both the general structure of the Act and the context provided by the other provisions of Pt VI, particularly s. 69(2), support a construction of s. 70(1) which sees the sub-section as directory (to the A.B.C.) about the manner of exercise of powers conferred and confined by other provisions and as not concerned to confine the actual content of those powers or to invalidate or render unenforceable contracts with innocent outsiders made in the exercise of them. That construction of s. 70(1) is also supported by the legislative history of the sub-section.

The words of the present s. 70(1) are to be contrasted with the provisions of s. 62 of the Broadcasting and Television Act 1942 Cth ("the former Act") which was repealed by the Broadcasting and Television Amendment Act 1980 Cth ("the 1980 Amendment Act"). Section 62 was in a Division (Pt III, Div. 3) of the former Act dealing with the "Powers and Functions" of the former Commission. It provided as follows:

Notwithstanding anything contained in this Act, the Commission shall not be empowered to enter into any agreement involving any expenditure by the Commission in excess of Twenty thousand pounds, or extending over a period of more than five years, unless the approval of the Minister thereto has first been obtained (Emphasis added). The 1980 Amendment Act repealed s. 62 and introduced a new section (s. 70B) among the provisions of the former Act dealing with finance. That new provision, like the present s. 70(1), spoke in terms of direction or command ("The Commission shall not, without the approval of the Minister, enter into a contract ") and not in terms of power.

It follows from the foregoing that the preferable construction of s. 70(1) is that which was favoured by Bryson J. at first instance and by a majority of the Court of Appeal. That construction of s. 70(1) does not reduce the sub-section to the status of a pious admonition. The sub-section imposes a statutory duty upon the A.B.C. and its officers which the A.B.C. Board is required to enforce (the Act, s. 8). Failure to observe the directive of s. 70(1) could, depending upon the circumstances, constitute misconduct for the purposes of disciplinary proceedings under Pt V Div. 4 of the Act (see s. 64(10)(f)(i)) and would, at the least, call for a report by the Auditor-General to the responsible Minister whose approval to the relevant contract had not been obtained. On that construction of s. 70(1), the failure of the A.B.C. to obtain the prior approval of the Minister did not have the effect that the making of the contract was ultra vires the A.B.C. Nor did it have the effect that the contract was illegal or unenforceable. That being so, the courts below were correct in resolving the remaining issue in the appeal against the A.B.C.

This appeal arises out of circumstances which we need not set out; we gratefully adopt their description in the judgment of Mason C.J., Deane and Gaudron JJ. The Australian Broadcasting Corporation ("the A.B.C.") is a corporation continued in existence by the Australian Broadcasting Corporation Act 1983 Cth ("the Act"). It is a corporation without corporators whose affairs are managed by a Managing Director acting in accordance with policies determined and directions given by a Board of Directors: ss. 5, 7, 9, 10. The A.B.C. is charged with the functions of providing public broadcasting and television services within Australia, transmitting appropriate broadcasting and television programmes to countries outside Australia, and encouraging and promoting musical, dramatic and other performing arts in Australia: s. 6. The A.B.C. is funded by moneys appropriated by Parliament for its purposes (s. 67(1)) and its moneys must be applied as s. 68 prescribes, that is, for the statutory purposes of the A.B.C. The A.B.C. may not expend its moneys otherwise than in accordance with estimates approved by the Minister: s. 69. Section 70, the provision material to this case, reads:

(1) The Corporation shall not, without the approval of the Minister -

(a) enter into a contract under which the Corporation is to pay or receive an amount exceeding $500,000 or, if a higher amount is prescribed by the regulations, that higher amount; or

(b) enter into a contract or arrangement with another person under which the other person agrees to acquire real or personal property to be leased, or let on hire, to the Corporation.

(2) Paragraph (1)(a) does not apply in relation to the receipt by the Corporation of an amount for the sale or other disposition of broadcasting programs or television programs.

At the material times, no regulation prescribed a higher amount than the $500,000 specified in s. 70(1). At the present time regulations have increased that limit to $2,000,000: see Statutory Rule No. 112 of 1988. By s. 72 the A.B.C. is declared to be a public authority to which Div. 3 of Pt XI of the Audit Act 1901 Cth applies.

The contract on which the respondent ("Redmore") sues is a contract falling within s. 70(1)(a) into which the A.B.C. entered without the approval of the Minister. There is no evidence that Redmore laboured under any mistake of fact as to the obtaining of ministerial approval nor that anything was said or done on behalf of the A.B.C. to induce any such mistake. Presumably Redmore either did not advert to s. 70(1)(a) or regarded the direction it contains as affecting merely the internal management of the A.B.C. If the A.B.C. was mistaken in that view, the mistake was a mistake of law, not a mistake of fact. Redmore does not allege any misrepresentation or breach of warranty relating to ministerial approval. It is not necessary to consider whether an action might lie for breach of a collateral warranty, for negligent misrepresentation or even for deceit: see Burrows v. Rhodes [1] . The only question for determination is whether a contract with the A.B.C. falling within s. 70(1)(a) which does not have ministerial approval is void, that is, ineffective to create any obligation enforceable by law.

The A.B.C. submits that s. 70(1) limits the contractual power of the A.B.C. so that a contract which is entered into in breach of the directions it contains is ultra vires and void. That argument was rejected by the Court of Appeal (Samuels and McHugh JJ.A., Kirby P. dissenting). McHugh J.A. pointed to the express grant of power to enter into contracts for the performance of its functions (s. 25(1)(a)) and held that s. 70(1) "merely regulates the use of the power". We respectfully agree. The powers of the A.B.C. are granted by Pt IV of the Act - which includes s. 25 - and the directions to the A.B.C. contained in Pt VI ("Finance") - which includes s. 70 - are directions as to their exercise, not limitations on the grant. If s. 70 were expressed as a limitation on power to enter into contracts (as a similar provision in an earlier Act was expressed), it would be construed together with the provision granting the power and would operate as a limitation on the grant. As s. 70 is not so expressed, the A.B.C. cannot escape liability under the contract on the ground that it had no power to enter into it. If the contract be void, it is because s. 70(1) prohibits the contracts therein described which are entered into without prior ministerial approval. The principle which the A.B.C. must invoke is that stated by Parke B. in Cope v. Rowlands [2] :

It is perfectly settled, that where the contract which the plaintiff seeks to enforce, be it express or implied, is expressly or by implication forbidden by the common or statute law, no court will lend its assistance to give it effect. 1. (1836) 2 M. & W. 149, at p. 157 [150 E.R. 707, at p. 710].

Prima facie, when a statute prohibits the making of a contract, the making of it is both illegal and criminal (Marks v. Jolly [3] ) and, being illegal, is void: Bassin v. Standen [4] ; Bradshaw v. Gilbert's (Australasian) Agency (Vic.) Pty. Ltd. [5] . However, s. 70(1) does not expressly create an offence and it can hardly be implied that the sanction for contravention of s. 70(1) by the A.B.C. should be a pecuniary penalty payable out of public funds or some other penalty which would be a burden on the performance of the public functions of the A.B.C. If contravention of the direction not to enter into contracts of a particular class is not punishable as an offence on the part of the party to whom the direction is given, can the direction be construed as a prohibition of contracts of that class? A statute may render a contract void without creating an offence of entering into or performing the contract, just as a statute may create an offence of entering into or performing a contract without rendering the contract void. But when a statute directs a party not to enter into contracts of a particular class without creating an offence of entering into contracts of that class and without expressly declaring contracts of that class to be void, the question arises whether the statute prohibits contracts of that class. In Yango Pastoral Co. Pty. Ltd. v. First Chicago Australia Ltd. [6] Mason J. pointed out that Cope v. Rowlands and the cases which followed it "do no more than demonstrate that the question whether a statute prohibits contracts is always a question of construction turning on the particular provisions, the scope and purpose of the statute".

1. (1938) 38 S.R. (N.S.W.) 351, at p. 357. 2. (1945) 46 S.R. (N.S.W.) 16, at pp. 18-19. 3. (1952) 86 C.L.R. 209, at pp. 218-219. 4. (1978) 139 C.L.R. 410, at p. 425.

It was submitted on behalf of Redmore that the scope of s. 70(1) is limited by being directed solely to the A.B.C. and that the direction it contains is irrelevant to the rights of a party with whom the A.B.C. enters into a contract in contravention of s. 70(1). But the direction cannot be construed as affecting only one party. Entry into an executory contract is the bilateral or multilateral act of all parties to the contract and a prohibition against one party entering into a contract is a prohibition against the doing of the act which alone can bring that contract into existence. Thus in Montreal Trust Co. v. Canadian National Ry. Co. [7] , a statute which prohibited a director from being interested in a contract with his company was held to prohibit a contract entered into by the company in which a director had an interest. In an action brought against the company, the company successfully relied on the contravention of the statute to avoid liability.

Prima facie, a statutory direction to one party not to enter into contracts of a particular class must be construed as having some legal effect. If contravention of the direction is not an offence and if there be no other penalty for contravening the direction, the only legal effect which can be attributed to the direction is that contracts entered into in contravention of the direction are void. If it were otherwise, the parties could with impunity enter into the contract with full knowledge of the contravention and the contract would none the less be valid. The direction would be nugatory. Of course, if the contract is rendered void by the statute and one of the parties is innocent of any personal contravention of the statute, it is or will often be unjust to that party to allow the other party to avoid his obligations under the contract: see Glanville L. Williams, The Legal Effect of Illegal Contracts, Cambridge Law Journal, vol. 8 (1942), p. 51 and R. A. Buckley, Implied Statutory Prohibition of Contracts, Modern Law Review, vol. 38 (1975), p. 535, esp. at pp. 539-540 . There is a natural reluctance to attribute an unjust operation to a statute which does not expressly prohibit a contract of a particular class when a party who enters into such a contract in breach of the statute relies on the statute to avoid his contractual obligations. Whether the statute has that operation depends on its purpose. If the purpose of prohibiting entry by a party into contracts of a particular class is the protection of the public interest and if the purpose would be frustrated by giving effect to contracts of that class, the statute sterilizes those contracts. The public interest prevails over the private interest of the contracting parties. In such a case, the rule is as stated by Lord Hodson speaking for the Judicial Committee in Chai Sau Yin v. Liew Kwee Sam [8] :

If the contracts were prohibited by law and the prohibition was made in the public interest, no claim can be entertained: "The court must enforce the prohibition even though the person breaking the law relies upon his own illegality": see In re Mahmoud and Ispahani [9] . Thus, in Chai Sau Yin , an unlicensed buyer of smoked sheet rubber was sued for the price by the seller. The buyer set up his lack of a licence and relied on a statute which prohibited a person from purchasing rubber if he did not hold a licence. It was held that the contract of sale was prohibited in the public interest. The buyer was entitled to rely on his own illegality in entering into the contract without a licence and he thus avoided liability under the contract. 1. [1962] A.C. 304, at p. 311. 2. [1921] 2 K.B. 716, at p. 729.

The purpose of s. 70(1) is, in our opinion, to ensure that obligations or benefits of the measure or kind referred to in that sub-section should not be incurred or acquired without prior ministerial approval when the burden of the obligations will fall on moneys appropriated by the Parliament or when the benefits will go in relief of the need to draw upon those moneys. The purpose of s. 70(1) is the protection of public funds against affection by large contractual obligations or benefits incurred or acquired without prior ministerial approval.

Of course, public funds can be protected in various ways. Redmore submits that the Act and the Audit Act together contain a system of financial control which provides appropriate administrative sanctions for the enforcement of provisions governing the incurring of obligations and the expenditure of money. In particular, s. 63M of the Audit Act - one of the provisions in Div. 3 of Pt XI - provides for the Auditor-General to report to the Minister on the annual financial statements of the A.B.C. and for copies of that report and the financial statements to be laid before each House of the Parliament. This is a powerful consideration especially when it appears that the Act furnishes no machinery for a party intending to enter into a s. 70(1) contract with the A.B.C. to be assured that ministerial approval has been given. But the administrative sanctions in the Act and the Audit Act relate to the administrative control of expenditure; they are incapable of protecting the funds of the A.B.C. against affection by large contracts entered into without prior ministerial approval. Expenditure is governed by s. 68 and is amenable to scrutiny and report under the Audit Act, but scrutiny or report under the Audit Act does not affect a contractual obligation once it is incurred. Thus, in the present case, if s. 70(1) does not prohibit the contract on which Redmore sues, s. 68(a) will authorize the expenditure of the moneys needed to discharge the contractual obligations incurred, though they were incurred in contravention of the direction contained in s. 70(1)(a). Scrutiny and report are ineffective to carry out the policy of s. 70(1).

Moreover, even if s. 70(1) were construed as containing a purely administrative direction, there is no enforceable duty to observe it. True it is that s. 8(1)(d) imposes on the Board a duty -

to ensure that the Corporation does not contravene, or fail to comply with -

(i) any of the provisions of this Act or any other Act that are applicable to the Corporation; or

(ii) any directions given to, or requirements made in relation to, the Corporation under any of those provisions.

However, that is a duty of a peculiar kind, for s. 8(3) provides - Nothing in this section shall be taken to impose on the Board a duty that is enforceable by proceedings in a court. No doubt a member of the Board or of an officer of the A.B.C. might be removed from office for a breach of s. 70(1) for which he has been responsible, but disciplinary action of that kind does not fulfil the purpose of s. 70(1), though it diminishes the prospect of further breaches. If the direction contained in s. 70(1) were purely administrative and the validity of contracts entered into in contravention of that direction were unaffected, the direction would have no legal effect. On that hypothesis, the public funds of the A.B.C. would be exposed to the burden of an obligation incurred in contravention of s. 70(1) and in frustration of its evident purpose. Given that the purpose of s. 70(1) is the protection in the public interest of the funds of the A.B.C., that purpose is not carried into effect unless that sub-section is construed as prohibiting contracts entered into in contravention of the direction it contains. However unjust it is to a party to such a prohibited contract to allow the A.B.C. to raise its own contravention of s. 70(1) as a defence, the public interest prevails.

As we would hold the contract on which Redmore sues to have been prohibited by s. 70(1) and to be void, we would allow the appeal.