Bailey v NSW Medical Defence Union Ltd

High Court of Australia|1995-11-03|Before: Brennan CJ, Gummow JJ, Enderby J, Dawson JJ, Yeldham J

High Court of Australia Brennan CJ Deane, Dawson, McHugh and Gummow JJ Bailey v NSW Medical Defence Union Ltd (S200/1994S205/1994FC 95/043) [1995] HCA 28

Set aside the order of the New South Wales Court of Appeal and in lieu thereof order:

(a) Vary the order of Enderby J in No 17289 of 1980 in the Supreme Court of New South Wales by substituting the sum of $312,000 for the sum of $500,000 in pars 2 and 5 of that order.

Vary the judgment of the New South Wales Court of Appeal by

(a) substituting the sum of $312,000 for the sum of $562,000 in sub-par (1) of par 4 of that judgment;

Declare that payment by the defendant of the said sum of $312,000 be deemed satisfaction of the order of Enderby J in No 17289 of 1980 in the Supreme Court of New South Wales.

The appellant pay the respondent's costs of the appeal.

3 November 1995 Brennan CJ, Deane and Dawson JJ.

These two appeals were heard together. The respondent in the second of them, Mr Crawford, was a patient of Dr Bailey who is deceased and whose executrix is the appellant in the first appeal. The New South Wales Medical Defence Union Ltd (the Union) is the appellant in the second appeal and the respondent in the first appeal. The Union was at all relevant times a company limited by guarantee with a membership which was, speaking generally, confined to members of the medical profession. One of its objects was to protect, support and safeguard the character and interests of legally qualified medical practitioners. Another was to indemnify its members against claims for damages "in any wise affecting the professional character or interest" of such members. Dr Bailey was a member of the Union from 1951 until his death in 1985.

Mr Crawford was treated by Dr Bailey at Chelmsford Hospital in Sydney between 1972 and 1974 and, as a result of the treatment, suffered injuries between December 1973 and January 1974. On 28 November 1980, Mr Crawford commenced an action against Dr Bailey in the Supreme Court of New South Wales claiming damages for the injuries which he had received. He subsequently obtained an extension of the limitation period within which to pursue the action. At first the Union, through its solicitors, acted for Dr Bailey in the conduct of his defence. Subsequently, after Dr Bailey's death and in circumstances to which it will be necessary to refer in more detail, the Union terminated its assistance and instructed its solicitors to file a notice that they ceased to act in the matter. Mrs Bailey, as executrix of Dr Bailey's estate, was substituted as defendant. She requested assistance from the Union. The request was refused on 7 November 1985. As a result the estate cross-claimed against the Union seeking an indemnity against Mr Crawford's claim.

Meanwhile, on 8 October 1985, Mr Crawford sought leave in the same proceedings to make a claim against the Union under s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 NSW. At the same time, the Union sought a declaration in those proceedings that it was no longer an insurer within the meaning of s 6. By an interlocutory judgment delivered on 5 May 1986, Yeldham J refused both the declaration and leave to Mr Crawford to commence proceedings under s 6. The latter decision was reversed by the Court of Appeal on 18 September 1987 and leave was granted [29] . On 28 July 1988, Mr Crawford commenced separate proceedings against the Union pursuant to the leave granted.

Orders were made that both sets of proceedings - the claim by Mr Crawford against Dr Bailey's estate and his claim against the Union - be heard together. On 28 February 1992, Enderby J gave judgment in the first action in favour of Mr Crawford against the estate and in favour of the estate upon its cross-claim against the Union. In the second action he gave judgment in favour of Mr Crawford against the Union under the provisions of the Law Reform (Miscellaneous Provisions) Act.

Both the estate and the Union appealed against the judgments against them. Eventually, after certain vicissitudes which need not trouble us, the Court of Appeal upheld the liability of Dr Bailey's estate to Mr Crawford in damages and the liability of the Union to indemnify the estate. It also upheld the liability of the Union to Mr Crawford in the proceedings brought under the Law Reform (Miscellaneous Provisions) Act.

No appeal is brought against the judgment in favour of Mr Crawford against Dr Bailey's estate. These appeals therefore raise two questions. The first is whether the Union is liable to indemnify Dr Bailey's estate against the damages awarded to Mr Crawford. The second is whether the provisions of the Law Reform (Miscellaneous Provisions) Act afford any right of recovery to Mr Crawford against the Union.

Article 57 of the Union's articles of association required the Union to indemnify each member or the personal representative of a deceased member against liability for damages or costs arising from any claim against him for any act or omission in the course of his practice while he was a member other than an unfinancial or unindemnified member. The amount of the indemnity in respect of all claims arising from any one act or omission was limited to $100,000 or such greater sum as the regulations might provide. Various classes of membership were provided by Art 4, including that of an unindemnified member who did not require indemnity for a period. Under Art 6, an applicant for membership of the Union was deemed to have become a member on receipt by the Secretary of an application for membership and upon payment of the prescribed entrance fee and subscription. Such an applicant was entitled to the benefits of indemnity and assistance conferred by succeeding articles from the date of such payment until the date of his becoming a member or the notification of refusal of his application for membership as the case may be. After an application for membership was accepted, membership, unless terminated, was by Art 7 deemed thereafter to have been renewed for a further period of twelve months from the end of each calendar year unless the member did not desire continuance of membership or the council notified the member that his membership would not be renewed.

The management of the business and the control of the Union was vested in a council by Art 55. The council was empowered by Art 10 to determine different rates of subscription for different classes of members. Each member was required to pay to the Union annually in advance the subscription determined by the council. The council was empowered to expel from the Union any unfinancial member. Unfinancial members ceased, subject to Arts 58 and 60, to be entitled to receive assistance from the council. Under Art 15 a member ceased to be a member of the Union if he died or was expelled and, subject to Arts 57-67, forfeited all the rights and privileges of membership. Article 58 required the Union to indemnify a member or his personal representative to the extent provided for by Art 57 in the event of the member's death.

Notwithstanding the provisions of Article 57 where the action, proceeding, claim or demand is one in respect of which the Union shall give indemnity to a member under Article 57 and all conditions entitling such member to such indemnity have been fulfilled but before such action, proceeding, claim or demand has been finalised such member was expelled from the Union under the provisions of these Articles the Council shall have complete and absolute power and discretion to refuse to indemnify such member or his personal representative in the case of his death either wholly or in part and subject to such conditions as the Council may impose and the Council shall not be required to give reasons for decisions made by it in the exercise of its said power and discretion and any decision so made shall be final and conclusive and binding on all members as well as the member so expelled and the personal representative of such member in the event of his death and such decision shall not be the subject of any question or discussions at any general meetings of the Union. (Emphasis added.) Dr Bailey was never expelled from membership.

In 1972 the limit upon the extent of the indemnity provided by Art 57 was increased to $250,000 in respect of a member who applied and whose application was accepted by the council. The increase was effective upon payment by the member of a surcharge. In 1973 Dr Bailey commenced payment of the surcharge for the increased indemnity. On 1 December 1977 Art 60 was amended by substituting for the words "such member was expelled from the Union" the words "such member ceased to be a member of the Union" and by a further consequential amendment. In other words, Art 60 was by amendment made operative upon a member ceasing to be a member (which, under Art 15 included the death of the member) rather than upon being expelled from membership. In 1979 the indemnity under Art 57 was increased to $500,000 upon payment of a surcharge. In 1980 Dr Bailey commenced payment of the surcharge.

On 4 November 1982 the articles of association were amended by substituting new Arts 57-67. Significant for present purposes were the new Arts 57 and 58 and the new Arts 60 and 61. Those articles provided:

The Council shall investigate all cases in which assistance is sought from the Union by a member.

The Council may in its sole and absolute discretion and either in whole or in part and upon such terms and conditions as to the Council may seem proper determine that the Union will assist a member:

(a) by undertaking the conduct of or assisting in the conduct of or defence of any matter or proceedings whether of a strictly legal nature or otherwise and,

(b) by granting indemnity to such member in respect of any action, proceedings, claim or demand arising in the course of the practice of such member from an event which occurred while he was a member.

The Council may in its sole and absolute discretion terminate any grant of assistance or indemnity and thereafter cease to assist any member in whose favour a determination had been made under Article 58.

Any member who has sought assistance from the Union before 4 November, 1982 shall be deemed to have requested assistance and the Council shall as soon as expedient make a determination under Article 58 in respect of such request.

On 2 December 1982, the council of the Union resolved to afford assistance to Dr Bailey in respect of the claim made against him by Mr Crawford. Dr Bailey died on 8 September 1985. On 3 October 1985 the Council resolved:

That the assistance granted to Dr Bailey in respect of the claim by Mr Crawford (OR1981/8) be terminated;

That the Defence Union's solicitors be instructed to file a Notice of Ceasing to Act in the Supreme Court proceedings;

That consideration of any application for assistance by the legal representative of Dr Bailey be deferred until any such application is made.

As we have said, Mrs Bailey's application for assistance as the executrix of Dr Bailey's estate was refused on 7 November 1985.

Both the Companies Act 1961 NSW and the Companies (New South Wales) Code contained familiar provisions relating to the alteration by a company of its articles and the effect of the memorandum and articles of association as between the company and the members. It is convenient to refer only to the Companies Act 1961 because the relevant provisions of that Act were not relevantly different in effect from those of the Companies (New South Wales) Code. Section 31(1) of the Companies Act 1961 provided:

Subject to this Act and to any conditions in its memorandum, a company may by special resolution alter or add to its articles. Section 33(1) provided: Subject to this Act the memorandum and articles shall when registered bind the company and the members thereof to the same extent as if they respectively had been signed and sealed by each member and contained covenants on the part of each member to observe all the provisions of the memorandum and of the articles.

Whilst the articles of association of a company regulate the relations of the members amongst themselves as members and with the company [1] , they do not preclude a member from contracting individually with the company upon terms which may or may not be defined by reference to the articles. Such a contract has been called a special contract to differentiate it from the deemed covenants to which s 33(1) refers [2] , which regulate the position of a member as a member and not as an individual [3] . Even if the terms of a special contract are to be determined by reference to the articles, an alteration to those articles will not necessarily mean an alteration to the terms of the contract. It will depend upon the intention of the parties to the contract, namely, the member and the company. Thus, a special contract may import as a term one or more of the articles upon the basis that they may be altered by the company and an alteration of the articles in those circumstances will alter the terms of the contract. On the other hand, a special contract may be concluded upon the basis of the articles but with the intention that the terms of the contract are not to be varied by an alteration to the articles. That will not confine the statutory power of the company to alter its articles, but the company in acting upon the basis of an alteration may be acting in breach of contract. That, we think, was what Lindley MR had in mind in Allen v Gold Reefs of West Africa Ltd [4] when, in speaking of special contracts, he said that a "company cannot break its contracts by altering its articles". Put another way, a company cannot unilaterally vary its contracts by altering its articles unless that is the basis upon which the contract was made [5] .

See Australian Coal & Shale Employees' Federation v Smith (1937) 38 SR(NSW) 48 at 54-55 and now Companies (New South Wales) Code, s 78(1) and Corporations Law, s 180(1). See also Beattie v E & F Beattie Ltd [1938] Ch 708 at 721. 2. See Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656 at 672-674. 3. See Hickman v Kent or Romney Marsh Sheep-Breeders' Association [1915] 1 Ch 881 at 899-900. 4. [1900] 1 Ch 656 at 673. 5. See Hickman v Kent or Romney Marsh Sheep-Breeders' Association [1915] 1 Ch 881 at 900.

And where a special contract does import as a term one or more of the company's articles in an alterable form, an alteration to the articles will have the effect of varying the contract prospectively only because, save perhaps in extraordinary circumstances, any other result would be inconsistent with the intention of the parties to the contract. In Swabey v Port Darwin Gold Mining Co [6] the articles of the company provided for the remuneration of the directors. A special resolution was passed reducing their remuneration as from a date prior to the date of the special resolution. It was held that there was a contract between the directors and the company upon terms as to remuneration which were set out in the articles but subject to alteration by an alteration to the articles. It was held that the alteration to the articles reduced the entitlement of the remuneration of the directors under the contract, but did so prospectively only. There could hardly have been an intention that an alteration should vary the terms of the contract to the extent that they had already been performed by one side.

Swabey v Port Darwin Gold Mining Co stands in contrast with Pepe v City & Suburban Permanent Building Society [7] . In the latter case, a member of a building society, who had given notice of withdrawal and who, under the rules as they then stood, became entitled to a sum of money, was held to be deprived of his right to that sum by an alteration to the rules before he had ceased to be a member. In Allen v Gold Reefs of West Africa Ltd [8] , Lindley MR described this decision as going "very far". However, regardless of the view taken of the judgment of Chitty J in Pepe v City & Suburban Permanent Building Society, that case may be distinguished from Swabey v Port Darwin Gold Mining Co upon the basis that it involved no special contract between the member and the company, and the validity of the alteration properly fell to be determined by "those general principles of law and equity which are applicable to all powers conferred on majorities and enabling them to bind minorities" [9] .

[1893] 2 Ch 311. 2. [1900] 1 Ch 656 at 673. 3. See Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656 at 671; Peters' American Delicacy Co Ltd v Heath (1939) 61 CLR 457; Gambotto v WCP Ltd (1995) 182 CLR 432; cf Gra-Ham Australia Pty Ltd v Perpetual Trustees WA Ltd (1989) 1 WAR 65.

In Baily v British Equitable Assurance Co [10] the Court of Appeal held that a special contract existed between a policy holder and a mutual life insurance company with respect to the manner in which profits were, upon the basis of the by-laws of the company, to be divided. The by-laws were amended, but the Court held that a division according to the alteration would amount to a breach of contract. Cozens-Hardy LJ in delivering the judgment of the Court said [11] :

The rights of a shareholder in respect of his shares, except so far as they may be protected by the memorandum of association, are by statute made liable to be altered by special resolution: see Allen v Gold Reefs of West Africa [12] .

But the case of a contract between an outsider and the company is entirely different, and even a shareholder must be regarded as an outsider in so far as he contracts with the company otherwise than in respect of his shares. It would be dangerous to hold that in a contract of loan or a contract of service or a contract of insurance validly entered into by a company there is any greater power of variation of the rights and liabilities of the parties than would exist if, instead of the company, the contracting party had been an individual. A company cannot, by altering its articles, justify a breach of contract.

The decision of the Court of Appeal was reversed in the House of Lords [13] upon the basis that there was no contract between the company and the policy holder that the company's practice in the division of profits would be unalterable, but no doubt was cast upon the passage from the judgment of the Court of Appeal set out above. 1. [1904] 1 Ch 374. 2. Baily v British Equitable Assurance Co [1904] 1 Ch 374 at 384-385. 3. [1900] 1 Ch 656. 4. British Equitable Assurance Co Ltd v Baily [1906] AC 35.

It is clear that where the articles of a company embody a co-operative scheme governing individual members' dealings with the company with respect to such matters as the marketing of the members' produce, the existence of a contract outside the articles with each participating member is more readily discernible. In Heron v Port Huon Fruitgrowers' Co-operative Association Ltd [14] there was a co-operative scheme for the marketing by a company of fruit grown by members of the company upon terms which were to be found in the company's articles. Isaacs J described the relationship between the fruitgrowers and the company as follows [15] :

Here, as already shown, the Company is merely an agency company, and, though the only shareholders are to be orchardists and fruitgrowers yet the business of the Company is selling the fruit of individuals, and, when shareholders and "others" employ the Company to sell their fruit, they stand in the capacity of principals, of clients, of independent contractors, and as such employers, on the same footing. The right to charge for the service is not a charge against him quâ member, but quâ employer. The right to receive the proceeds is not quâ member, but quâ employer. The fruitgrower cannot stand on both sides of the line at once, and be individually both agent and principal. 1. (1922) 30 CLR 315. 2. Heron v Port Huon Fruitgrowers' Co-operative Association Ltd (1922) 30 CLR 315 at 341-342.

In Shalfoon v Cheddar Valley Co-operative Dairy Co Ltd [16] the New Zealand Court of Appeal was concerned with a co-operative dairy company incorporated under the Companies Act 1908 NZ. Salmond J observed [17] :

It is possible, therefore, for a person, on accepting shares from a company, to bind himself by an actual contract, express or implied, to accept at the same time the burden of collateral and accessory obligations purporting to be imposed upon the shareholders by a clause of the articles, even though that obligation is of such a nature that it cannot be imposed in invitos by a regulation as such. Such a contract, however, would differ in essential respects from an obligation imposed upon him by the authority of the regulations of the company as such. In the first place, a contract cannot be altered except by the mutual consent of the parties, whereas a regulation can be altered by the legislative authority of the company even as against dissenters. In the second place, a contract is personal and binds only the party who made it and his executors and administrators; whereas a regulation binds the owners of the shares for the time being, and the obligation imposed thereby is appurtenant to the shares and passes with them to every person who for the time being is the owner of them. Shalfoon v Cheddar Valley Co-operative Dairy Co Ltd was applied in Johnson v Eltham Co-operative Dairy Factory Co Ltd [18] . 1. [1924] NZLR 561. 2. Shalfoon v Cheddar Valley Co-operative Dairy Co Ltd [1924] NZLR 561 at 580. 3. [1931] NZLR 216. See also Black, White & Grey Cabs Ltd v Reid [1980] 1 NZLR 40.

There can be no doubt that during each of the years in which Mr Crawford suffered injury there was a contract of insurance between the Union and Dr Bailey. Nor, in our view, can there be any real doubt that, notwithstanding that its terms were largely to be found in the company's articles, the contract was made individually with Dr Bailey as an insured and was therefore a special or actual contract which was distinct from the covenants which were deemed to arise from the articles under the relevant companies legislation.

Not all members were covered by insurance as a result of their membership, some members being unindemnified under Art 5. The subscriptions payable by members, which were not fixed by the articles but by the council under Art 10, differed according to the class of membership to which they belonged. They were payable annually and plainly included a premium for insurance cover for a stipulated period, namely, one year, where a member wished to be covered. Unfinancial members were not entitled to receive assistance but remained subject to the liabilities of a member. Indemnity for an increased amount was obtainable upon payment of a surcharge. The insurance cover commenced in accordance with Art 6 when Dr Bailey applied for membership and before he became a member. All of these circumstances point only in the direction of an individual contract of insurance with a member, the terms of which were to be found largely, but not wholly, in the articles of the company.

Subscriptions being payable annually, the insurance cover was continued from year to year. There was, of course, no express reference in the articles to any contract of insurance. Hence, the articles were silent as to whether renewal from year to year constituted an extension of the existing cover or a new contract. In the circumstances, the correct conclusion is that each renewal constituted a new contract [19] . Thus in respect of each of the years in which the treatment which caused Mr Crawford's injuries was administered there was a contract of insurance in existence between the Union and Dr Bailey under which Dr Bailey was indemnified in respect of the claims for those injuries subsequently made by Mr Crawford.

See CE Heath Underwriting & Insurance (Aust) Pty Ltd v Edwards Dunlop & Co Ltd (1993) 176 CLR 535 at 546.

There is also, we think, only one answer to the question whether, under an individual contract of insurance such as existed between Dr Bailey and the Union, the terms which were imported into the contract by the relevant articles were alterable merely by means of an alteration to those articles. The relevant articles specified the extent of the indemnity to be afforded to an insured under the contract of insurance. The whole purpose of the contract being the purchase of cover up to a specified limit for acts done and omissions made during a specified period, it is hardly to be thought that the parties to the contract intended that the Union should be able unilaterally to reduce the indemnity in respect of claims arising from such acts or omissions or to refuse it altogether, particularly after the period of the cover had expired. An alteration to the relevant articles would, of course, affect the terms of any contract made after the alteration. But it cannot have been the intention of the parties that insurance cover already purchased upon terms contained in the articles should be diminished by a subsequent alteration to those articles.

Thus, the alteration to Art 60 in 1977 to extend the discretion of the council of the Union to refuse indemnity to a member who had ceased to be a member whether by expulsion or otherwise did not affect the terms of a contract made upon the basis of the article before the alteration. A fortiori, the amendments to Arts 57, 58, 60 and 61 in 1982 were ineffective to vary the terms of any contract previously made upon the basis of the articles in their unaltered form. Those amendments sought to give the council sole discretion whether to grant indemnity at all and were entirely inconsistent with the terms of a contract concluded upon the basis of the articles as they stood before the amendments. It follows that the attempt by the Union to vary the terms of such a contract by means of an alteration to its articles giving its council discretion to terminate any grant of assistance or indemnity to a member who sought assistance from the Union before 4 November 1982 was ineffective.

The result is, in our view, that the Court of Appeal was correct in upholding the liability of the Union to indemnify Dr Bailey's estate in respect of the claim against it. That result also provides an answer to the question arising under s 6 of the Law Reform (Miscellaneous Provisions) Act. It was not argued that if, as we hold to be the case, the alterations to the articles of the Union were incapable of affecting the liability of the Union to indemnify Dr Bailey or his estate, s 6(1) of the Act did not impose a charge upon all insurance moneys that were or may have become payable by the Union in respect of the liability of Dr Bailey or his estate to Mr Crawford. However, as the proper construction of s 6 appears to have given rise to difficulty and as the matter was argued, it is appropriate that we express our agreement with McHugh and Gummow JJ upon the effect of that provision.

An amendment to Art 57(3) in 1972 raised the maximum indemnity level under the insurance contract between Dr Bailey and the Union to $250, 000. In 1979, the maximum was again raised, to $500,000. Dr Bailey took advantage of each increase. But the level of indemnity which existed between 1973 and 1974 was only $250,000. It being common ground that the insurance cover afforded by the Union was upon an "occurrences", rather than a "claims made", basis, the judgment in favour of Mr Crawford against the Union should have been $250,000 (for the brain damage) and $62,000 (for the footdrop), totalling $312,000.

On 8 December 1994, this Court granted special leave to the estate of the late Dr Harry R Bailey to appeal against orders made in the Court of Appeal in favour of the Union. The appeal became Matter No S200 of 1994. The leave granted was leave to appeal "from part of the judgment and orders of the Court of Appeal of New South Wales in Matters No 40134 of 92 and 40128 of 92". This did not reflect the intention of the parties in seeking special leave or of the Court in granting special leave. The order granting special leave should be amended to read: "to appeal from part of the judgment and orders of the Court of Appeal of New South Wales in Matter No 40127 of 92." On the same day, this Court granted special leave to the Union to appeal against orders made in the Court of Appeal in favour of Mr Crawford. The appeal became Matter No S205 of 1994. In that instance, leave was correctly granted to appeal "from part of the judgment and orders of the Court of Appeal of the Supreme Court of New South Wales in Matter No 40128 of 1992".

In these two matters, which are the matters before the Court, the following relief should be granted:

Matter No S200 Marjorie Jocelyn Bailey (as Executrix of the Estate of the Late Dr Harry R Bailey) v New South Wales Medical Defence Union Ltd

Set aside the order of the New South Wales Court of Appeal and in lieu thereof order:

(a) Vary the order of Enderby J in Matter No 17289 of 1980 in the Supreme Court of New South Wales by substituting the sum of $312,000 for the sum of $500,000 in pars 2 and 5 of that order.

(c) The appellant, New South Wales Medical Defence Union Ltd, pay the respondent's costs of the appeal to the Court of Appeal.

Matter No S205 New South Wales Medical Defence Union Ltd v Maxwell Duncan Crawford

Vary the judgment of the New South Wales Court of Appeal by

(a) substituting the sum of $312,000 for the sum of $562,000 in sub-par (1) of par 4 of that judgment;

Declare that payment by the defendant of the said sum of $312,000 be deemed satisfaction of the order of Enderby J in Matter No 17289 of 1980 in the Supreme Court of New South Wales.

The appellant pay the respondent's costs of the appeal.

These appeals were heard together. Mrs Bailey is executrix of the estate of the late Dr H R Bailey (the Estate). Dr Bailey died on 8 September 1985. From 1951 until his death, Dr Bailey was a member of the New South Wales Medical Defence Union Ltd (the Union), a company limited by guarantee. Mr Crawford was born in 1947. Mr Crawford claimed that, in late 1973 and early 1974, while he was Dr Bailey's patient at the Chelmsford Hospital, Sydney, he suffered injuries, including profound brain damage, by reason of treatment received from Dr Bailey. This had involved what was called "deep sleep therapy".

On 8 July 1992, judgment was entered in the Supreme Court of New South Wales after the hearing by a judge of that Court (Enderby J) of two proceedings. They had been heard together. The first proceeding had been commenced by Mr Crawford against Dr Bailey in 1980 and continued after his death against the Estate. It had been instituted by Mr Crawford against Dr Bailey after an order was made on 17 December 1980 pursuant to s 58 of the Limitation Act 1969 NSW. The order extended until 25 December 1980 the limitation period in respect of causes of action in negligence and trespass to the person pleaded by Mr Crawford against Dr Bailey.

The second proceeding was commenced in 1988 by Mr Crawford against the Union as insurer of Dr Bailey and in reliance upon s 6 of the Law Reform (Miscellaneous Provisions) Act 1946 NSW (the Law Reform Act). Mr Crawford sought to enforce, by action directly against the Union as insurer of Dr Bailey, the charge said to be created by s 6 in favour of Mr Crawford on all insurance moneys payable by the Union in respect of the liability of Dr Bailey to Mr Crawford.

In the first proceeding, the Estate cross-claimed against the Union, seeking indemnity in respect of the claim against the Estate. This was on the footing that the claim arose out of acts or omissions on the part of Dr Bailey whilst he was a member of the Union and that there was a contract between the Union and Dr Bailey for indemnity by the Union in respect of such claims.

In the first proceeding Enderby J ordered (1) the Estate to pay Mr Crawford damages in the sum of $586,196 and (2) the Union, as cross-defendant, to pay $500,000 to the Estate, as cross-claimant. In the second proceeding, his Honour ordered the Union to pay Mr Crawford $500,000. Payment by the Union to Mr Crawford of that sum was deemed to be satisfaction of order (2) in the first proceeding. Alternatively, payment by the Union of the sum in order (2) to the Estate was deemed to be satisfaction of the order in the second proceeding that the Union pay Mr Crawford. The Union would not have to pay twice, to the Estate and to Mr Crawford.

Of the total damages awarded against the Estate of $586,196, the primary judge attributed $524,196 to brain damage and schizophrenia and $62,000 for injury to Mr Crawford's leg. The entry of judgment against the Union for $500,000 was a slip for $562,000. This latter sum reflected the circumstance that there were two relevant acts or omissions in respect of each of which there was a limit in liability under the insurance to $500,000. The slip was rectified in the orders by the Court of Appeal.

The orders of the primary judge were entered on 8 July 1992. Earlier, on 28 February 1992, Enderby J, in the Protective Division of the Supreme Court, had declared Mr Crawford to be incapable of managing his affairs and ordered that the management of his estate be committed to the Protective Commissioner under the Protected Estates Act 1983 NSW.

The second proceeding had been instituted on 28 July 1988 by Mr Crawford, pursuant to leave granted under s 6(4) of the Law Reform Act, by orders of the Court of Appeal. The Court of Appeal allowed an appeal against refusal of such leave. Its decision is reported [20] . The first proceeding, as we have indicated, had been commenced in 1980 by Mr Crawford against Dr Bailey and continued after his death in 1985. On notification by Dr Bailey of the action against him by Mr Crawford, the Union had resolved to indemnify Dr Bailey and had taken over the defence of the action. However, on 3 October 1985, after his death, the Union resolved to terminate assistance to the Estate. It was this turn of events which led Mr Crawford to seek and to obtain leave to commence the second proceeding directly against the Union in reliance upon the Law Reform Act.

Oswald v Bailey (1987) 11 NSWLR 715. An application by the Union seeking special leave to appeal to this Court was refused on 19 February 1988.

From the orders made by Enderby J on 25 June 1992, the substance of which has been set out above, appeals and cross-appeals were brought to the Court of Appeal and these were heard together. Three sets of reasons were delivered, on 3 September 1993, 30 June 1994 and 23 September 1994. The first of these is reported [21] .

NSW Medical Defence Union Ltd v Crawford (1993) 31 NSWLR 469.

In this Court, the Union appeals against so much of the orders of the Court of Appeal as implemented its holding that Mr Crawford was entitled to enforce the statutory charge under s 6 of the Law Reform Act against the Union. The issue here turns primarily upon the construction of s 6, a matter in which there has been division of opinion in the Court of Appeal.

In the other appeal to this Court, the Estate appeals against the allowance by the Court of Appeal of the appeal against the orders of Enderby J in its favour on the cross-claim against the Union. The Court of Appeal held that the Estate was not entitled to indemnity in respect of the claim brought against it by Mr Crawford. The issue here turns primarily upon the construction of the articles of association of the Union as they have stood from time to time. There is the question of whether what has been called "a special contract" between Dr Bailey and the Union was unaffected by certain changes to the articles which were relied upon to support the refusal to the Estate, after Dr Bailey's death in 1985, of any further assistance or indemnity in respect of the action by Mr Crawford which was then on foot.

At all material times, until 27 May 1983, the Union had authority pursuant to the Insurance Act 1973 Cth to carry on insurance business. On 2 June 1983, and with effect from and including 27 May 1983, the Acting Insurance Commissioner revoked that authority. The revocation apparently followed a request by the Union, pursuant to s 36(1) of that statute, that the authority be revoked and upon the Commissioner being satisfied, within the meaning of the subsection, that the Union had no liabilities in respect of insurance business carried on by it in Australia. The taking of these steps followed the passage on 4 November 1982 of amendments to the articles of association. It will be necessary to refer to these amendments later in these reasons.

The Union appears to have been incorporated under the Companies Act 1899 NSW (the 1899 Act). Its memorandum of association is dated 11 January 1934, that is to say, before the commencement of the Companies Act 1936 NSW (the 1936 Act). The objects specified in the memorandum include the taking over as a going concern and the carrying on of the unincorporated body known as "New South Wales Medical Union"; the protection, support and safeguarding of the character and interests of legally qualified medical practitioners; and the indemnification of members and the personal representatives of deceased members in respect of actions, proceedings, claims or demands made by or against them which, in any way, affect their professional character or interest. In the Court of Appeal, Mahoney JA [22] described the purposes of the Union as multiple, saying that insurance was only one of them.

NSW Medical Defence Union Ltd v Crawford (1993) 31 NSWLR 469 at 509.

The evidence includes the original membership card of Dr Bailey, showing that he made application dated 22 February 1951 which had been accepted on 8 March 1951, and that he had paid an entrance fee. The card also shows payments by Dr Bailey of subscriptions for the year ended December 1952 and succeeding years. In particular, it shows that he made payments at the rate necessary to entitle him to the current highest indemnity cover.

The earliest form of the articles which is in evidence shows them as they stood at an unspecified date after the commencement of the Companies Act 1961 NSW (the 1961 Act) but before 7 September 1972 when the limitation of indemnity to $100,000 was increased to $250,000. That sum in turn was increased on 5 April 1979 to $500,000. The document in evidence is headed:

In Art 1, "Act" is defined as meaning "[t]he Companies Act 1961 as amended of New South Wales". Although the evidence does not include the articles in any other form they may have taken when Dr Bailey first became a member in 1951, in the absence thereof, it should be inferred that there was no material difference from the document in evidence.

The management of the business and control of the Union was vested in the council (Art 55). The council consisted of fourteen members elected by the members, together with such other members, not exceeding three, as might be appointed by the council itself (Art 36).

The 1899 Act (s 72), the 1936 Act (s 20), the 1961 Act (s 31) and the Companies (New South Wales) Code (the 1981 Act) (s 76) all provided for the amendment of articles of association by special resolution. Further, the 1936 Act (s 6), the 1961 Act (s 5) and the 1981 Act (s 5) each treated as a "company" for its purposes an existing company incorporated under a previous corresponding enactment.

In Hunt v Carrier A/asia Ltd [23] , Jordan CJ referred to Shuttleworth v Cox Brothers & Co (Maidenhead) [24] as a case of "an agreement constituted solely by the articles of association themselves, unsupplemented by any external facts, and therefore inherently and necessarily alterable in the manner provided by the Statute". Although the proposition is put in several ways, the substance of the case for the Union is that the contractual rights against it upon which the Estate relies are of this description and therefore liable to abrogation, as it was put "retrospectively", by changes to the articles.

(1938) 39 SR(NSW) 12 at 16; appeal dismissed (1939) 61 CLR 534. 2. [1927] 2 KB 9. See also the discussion of this case by Priestley JA in Oswald v Bailey (1987) 11 NSWLR 715 at 740.

The opposing submission is that, although the contract incorporates certain provisions of the articles, it cannot be said that the agreement for indemnity between Dr Bailey and the Union was constituted solely by the articles unsupplemented by any external facts. The result is said to be that the basic principle against unilateral variation or abrogation of contractual rights applied in this case to prevent changes of the articles having an immediate impact upon the contract. On this approach, which it will become apparent we accept, the interrelation between the articles and the terms of the contract is a matter of construction of the contract in the relevant circumstances of the case.

Against that background, we turn to consider the provisions of the articles as to membership and the reasoning in certain decisions.

An applicant for membership is obliged to sign and deliver to the secretary an application in the form approved by the council of the Union; the applicant "shall therein signify his agreement to be bound by the Memorandum and Articles of Association of the Union" (Art 5). Article 6 states:

Any such applicant shall be deemed to have agreed to become a member of the Union on receipt by the Secretary of an application for membership in the form or to the effect of the application referred to in Article 5 hereof signed by the applicant. Any such applicant (upon payment of the prescribed entrance fee and subscription) shall be entitled to the benefits of indemnity and assistance conferred by Articles 57 to 67 inclusive from the date of such payment until the date of his becoming a member or the notification of refusal of his application for membership as the case may be. Articles 5 and 6 are expressed in a fashion which attracts the reasoning in a passage from Lindley on Companies [25] . A passage to similar effect in Palmer's Company Law [26] was adopted by Myers CJ in Eltham Co-operative Dairy Factory Co Ltd v Johnson [27] . The passage in Lindley was as follows: The articles may express the terms upon which a person may become a member of, or accept some office or employment from, or otherwise contract with the company, and if acted upon, an agreement between him and the company on which either party may sue may be implied partly from the articles, and partly from the conduct of the parties. 1. 6th ed (1902), p 456. 2. 13th ed (1929), p 37. 3. [1931] NZLR 216 at 244.

An example is In re New British Iron Co; Ex parte Beckwith [28] . The claimants had served as directors without any express agreement for remuneration. The articles provided that the remuneration of the board should be an annual specified sum. The directors successfully claimed in the liquidation of the company arrears of fees on the footing that a contract incorporating the terms of the articles was to be inferred.

[1898] 1 Ch 324; see also In re City Equitable Fire Insurance Co [1925] Ch 407 at 520-521.

In Shalfoon v Cheddar Valley Co-operative Dairy Co Ltd [29] , Salmond J said:

[T]here is no legal reason why the terms on which a company proposes to contract either with strangers or with its own members should not be set out in the document known as the articles of association. In such a case, on the existence of the contract being proved aliunde in the individual instance, the articles of association can be referred to as evidence of the terms of the contract. For instance, it is not uncommon for articles of association to provide that the directors of the company shall acquire or possess a certain number of shares as a qualification for their office. Such a clause is not in itself a binding regulation imposing any enforceable obligation upon the directors to acquire such shares; but it is operative as the basis of an express or implied contract made by each director with the company when he accepts office - a contract, that is to say, that he will acquire the qualification shares prescribed by the articles. This rule is illustrated by such a case as Swabey v Port Darwin Gold Mining Co [30] . "The articles," said Lord Esher, "do not themselves form the contract, but from them you get the terms upon which the director is serving." See also In re New British Iron Co [31] ; Isaacs' Case [32] . All depends upon the circumstances of the particular case [33] . 1. [1924] NZLR 561 at 579-580. 2. (1889) 1 Meg 385. 3. [1898] 1 Ch 324. 4. In re Anglo-Austrian Printing & Publishing Union [1892] 2 Ch 158 at 167. 5. In re Standard Salt & Alkali Ltd; Ex parte Lahiff [1934] SASR 168 at 171.

This impression as to the operation of Arts 5 and 6 is confirmed by Arts 7, 8 and 11. Article 7 provides for submission of each application to the council and for admission as a member if three-quarters of the votes cast at the meeting of the council at which the application is considered are in favour of admission of the applicant. Membership then shall be from the date of admission to the end of the then current financial year. Article 7 continues:

Thereafter unless terminated pursuant to these Articles membership shall be deemed to have been renewed for a further period of twelve (12) months from the end of each calendar year unless the member notifies the Council prior to that date that he does not desire continuance of membership or unless not later than three (3) months prior to that date, the Council has notified the member in writing that his membership will not be renewed. Article 11 obliges each new member, within twenty-one days of admission, to pay an entrance fee of such amount as the council may determine and also to pay the annual subscription pursuant to Art 10 or such lesser sum as the council may determine. The membership of a new member is deemed to commence as from the date on which all payments payable upon admission are received by the Union; on that date the name of the new member shall be entered in the register of members (Art 8).

Article 79 empowers the council from time to time by instrument under seal to make regulations upon various matters including entrance fees and annual subscriptions and the limits of indemnity to be granted to members.

Each member is obliged to pay to the Union annually in advance on the first day of January a subscription of such amount as the council may from time to time determine (Art 10(1)). Any member who neglects to pay the subscription before the first day of February in the relevant year ipso facto becomes an "unfinancial member", unless reasonable cause for such delay has been shown (Art 10(2)). The council, in its absolute discretion, by resolution may expel from the Union any unfinancial member (Art 10(3)). Further, Art 10(2) states:

Unfinancial members and unindemnified members shall subject to Articles 58 to 60 hereof cease to be entitled to receive assistance from the Council, but shall remain subject to the liabilities of a member. Any member who does not require indemnity for a period may become an unindemnified member (Art 4(1)(iii)).

A member who, inter alia, has been reprimanded or cautioned by a professional tribunal or body or refuses or neglects to observe the provisions of the memorandum or articles or the regulations made under Art 79 is liable to expulsion from the Union (Art 13). In certain circumstances, the council may expel a member who is absent from New South Wales, the Australian Capital Territory or some other "prescribed area" for a period in excess of two years (Art 14). Further, a member is also liable to expulsion for failure to meet a call upon members to contribute funds for the purposes of the Union (Arts 17-19).

A member may resign by notice in writing given before the end of the current year for which the subscription has been paid (Art 12). A member also shall cease to be a member in the circumstances detailed in Art 15(1). This states:

(b) if he resigns in the manner provided by Article 12 hereof,

(d) if he is expelled from the Union pursuant to Articles 10, 13, 14 or 19,

(e) if he ceases to be a member by reason of any of the provisions of these Articles.

If any member ceases to be a member, then, "subject to Articles 57 to 67", there are forfeited all the rights and privileges of membership (Art 15(2)).

It is convenient now to turn to the articles dealing with professional indemnity for members. These commence with Art 57. This states:

(1) The Council shall investigate all cases in which assistance is sought from the Union.

(2) The Union shall indemnify each member or the personal representatives of a deceased member in respect of any legal liability for damages or costs arising from any claim or claims which may be made upon him or them arising out of any act or omission on the part of such member done or omitted while he is a member other than an unfinancial or unindemnified member in the course of his practice by him or by any person employed by him.

(3) The indemnity under this Article shall be limited in respect of all claims arising from any one act or omission to $100,000 or such greater sum or sums as the regulations may provide.

(4) The indemnity under this Article shall not extend to any liability arising from any act or omission done or omitted to be done in the United States of America.

The sum of $100,000 fixed in Art 57(3) was increased to $250,000 by regulation passed by the council under Art 79 on 7 September 1972. The increase applied in respect of a member who applied in writing and his application was accepted by the council and such increase was effective upon payment of the additional subscription called a "surcharge" payable in advance on 1 January in each year. In 1973, Dr Bailey commenced his annual payments of the surcharge to obtain the higher indemnity limit. By further regulation made 5 April 1979, the limit of $250,000 was increased to $500, 000. In 1980, Dr Bailey commenced annual payments of the surcharge for that higher indemnity limit.

The Estate relies upon the steps taken by Dr Bailey to obtain and retain membership, including the making and acceptance of payments, together with the terms of the articles, particularly Art 57, to support the existence of a contract to provide indemnity in respect of legal liability for damages or costs arising from the claim made in 1980 by Mr Crawford arising out of acts or omissions by Dr Bailey in the course of his treatment of Mr Crawford in the period 25 December 1973 to 25 January 1974.

We accept that submission but that is not the end of the matter. It then becomes necessary to identify the relevant terms of that contract and the effect upon them of changes made to the articles, particularly on 1 December 1977 and 4 November 1982.

Moreover, as it stood at the time of the events giving rise to the claim, Art 57 was subject to qualifications found in Arts 58, 59 and 60. Article 58 dealt with the situation where the member resigned before the claim or demand was first made or the action or proceeding first commenced. It obliged the Union to indemnify the member, or his personal representatives in the event of his death, in accordance with and to the extent provided for in Art 57. Article 58 thus assisted the position of members. Article 59 applied where the member was an unfinancial member or an unindemnified member at the time when the claim or demand was first made or the action or proceeding first commenced. In such a situation, indemnity was nevertheless available if all arrears of membership and any interest or charges in respect of unpaid membership dues were paid in full and payments thereafter were made up to the end of the financial year during which the action or claim was finalised.

Of central importance in the present case is Art 60. Before its amendment on 1 December 1977, Art 60 conferred a discretion upon the council to refuse indemnity to members who were expelled from the Union. Dr Bailey was never expelled. Art 60 stated:

Notwithstanding the provisions of Article 57 where the action, proceeding, claim or demand is one in respect of which the Union shall give indemnity to a member under Article 57 and all conditions entitling such member to such indemnity have been fulfilled but before such action, proceeding, claim or demand has been finalised such member was expelled from the Union under the provisions of these Articles the Council shall have complete and absolute power and discretion to refuse to indemnify such member or his personal representative in the case of his death either wholly or in part and subject to such conditions as the Council may impose and the Council shall not be required to give reasons for decisions made by it in the exercise of its said power and discretion and any decision so made shall be final and conclusive and binding on all members as well as the members so expelled and the personal representative of such member in the event of his death and such decision shall not be the subject of any question or discussions at any general meetings of the Union. (Emphasis added.)

By special resolution passed 1 December 1977, Art 60 was amended by deleting the phrases which we have emphasised and inserting in the first instance the phrase "ceased to be a member" and in the second "concerned". The effect of this was to broaden the discretion of the Union by making it exercisable not only in cases of expulsion but in cases where the member had ceased to be a member for any one or more of the other grounds set out in Art 15(1). These included par (a), the death of the member.

As we have indicated, the Court of Appeal dealt with the appeals to it in three sets of reasons for judgment, the first of which was delivered on 3 September 1993. On the last day of the hearing preceding the delivery of those reasons, 27 November 1992, counsel for the Union drew the attention of the Court to the circumstance that, prior to 1977, Art 60 was limited to cases of expulsion and the discretion of the council did not arise where the member ceased to be a member for any other reason. In the reasons for judgment subsequently delivered, there was discussion of Art 60, but only Sheller JA referred to the article in its form before 1977, noting that the discretion to refuse indemnity had applied only if a member was expelled [34] .

NSW Medical Defence Union Ltd v Crawford (1993) 31 NSWLR 469 at 513.

What then, at the time of the institution of the action by Mr Crawford against Dr Bailey in 1980, was the extent and effect of the incorporation of provisions of the articles into the contract between Dr Bailey and the Union?

In our view, the steps taken by Dr Bailey in acquiring and maintaining his position as a financial member of the Union brought about and continued a single contract which conferred upon him entitlements to the benefits of indemnity and assistance specified in Art 57 and qualified by other articles.

The provisions of the articles show that a vital incident of membership of the Union was provision to financial members of indemnity and assistance pursuant to Arts 57-67. However, that does not mean that the relationship between Dr Bailey and the Union is to be characterised as if it were no more than that between a policy holder and an insurance company which had been paid the necessary premium for a particular period. In particular, payment to the Union by a member of the annual subscription avoided the consequences which otherwise could, but not necessarily would, flow from the member becoming an unfinancial member. Article 10(2) is a significant provision in this connection. It provides that reasonable cause might be shown for delay in payment, and that, whilst an unfinancial member ceased "to be entitled to receive assistance from the Council" (a phrase indicative of what otherwise was a continuing entitlement), cessation of entitlement was "subject to Articles 58 to 60 hereof". Payment of the subscription was not analogous to a renewal of a policy of insurance resulting on each occasion in a fresh contract of insurance [35] .

cf C E Heath Underwriting & Insurance (Aust) Pty Ltd v Edwards Dunlop & Co Ltd (1993) 176 CLR 535 at 545-546.

The entitlement of Dr Bailey arose upon the occurrence of a relevant act or omission whilst he was a member of the Union. This included the time of his treatment of Mr Crawford in late 1973 and early 1974. Dr Bailey's entitlement would not have arisen if at that time he had been an unfinancial or unindemnified member. That would have followed from the terms of Art 57(2). The obligation of the Union to indemnify is in respect of liability arising from a claim made which arises out of any act or omission done or omitted whilst a member "other than an unfinancial or unindemnified member". If the member was unfinancial or unindemnified when the relevant act or omission was done or omitted, there is thereafter no obligation to indemnify. Again, if the act or omission was done or omitted to be done in the United States of America, there is no obligation to indemnify (Art 57(4)). These provisions suggest that the gist of the contract is concerned with "occurrences" rather than "claims made".

If Dr Bailey had died before the claim had been made, the entitlement to indemnity would have enured in favour of his personal representatives. That also would have been a consequence of the terms of Art 57(2). Further, entitlement would have persisted if Dr Bailey had resigned before action against him had been commenced (Art 58). However, if, at the time of the first making of the claim or commencement of the action, Dr Bailey had been an unfinancial member or an unindemnified member, the obligation would have persisted only if certain conditions were met. These would have been that repayment in full was made of all arrears of membership and any interest or charges in respect of unpaid membership dues and such membership dues were thereafter paid up to the end of the financial year during which the action or claim was finalised (Art 59).

In addition, if, before the claim or action were finalised, Dr Bailey had been expelled, then Art 60 would have conferred upon the council the power and discretion to refuse indemnity to Dr Bailey or, if he had died, to refuse it to his personal representatives (Art 60).

It is not useful and may be dangerous to attach descriptive labels to contracts which lack necessarily fixed characteristics. However, in the particular sense described above, the contract between the Union and Dr Bailey may be described as one in respect of "occurrences" rather than "claims made". This classification commended itself to two members of the Court of Appeal [36] .

That is not to say that, as a matter of construction of the articles, the limitation to the indemnity imposed by Art 57(3) in respect of all claims arising from any one act or omission necessarily operated by reference to the limit specified at the date of the relevant occurrence, rather than at the time of the performance of the obligation to indemnify following the making of the claim or institution of action. At the time of the events complained of by Mr Crawford, the limit was $250,000. At the time of the institution of his action late in 1980, the regulations referred to in Art 57(3) had increased the indemnity limit to $500,000. It will be noted that Art 57(3) fixes upon $100,000 or "such greater sum or sums" as may be provided by the regulations. Thus, change is to operate to the advantage of the indemnified party.

The point was dealt with as follows in the Court of Appeal by Sheller JA [37] :

Quite clearly the limit in article 57(3) is expressed in respect of claims. When a claim is made it is necessary to look to see what limit applies to that claim. As a matter of language, in my opinion, the limit is that applicable at the time the claim is made. 1. Crawford (1993) 31 NSWLR 469 at 536.

However, Art 57(3) is to be construed with Art 57 as a whole. In particular, the subject of the limitation in Art 57(3) is "[t]he indemnity under this Article". As indicated above, the liability to provide that indemnity is anchored to the occurrence of each relevant act or omission whilst the member was a financial member who had not become an unindemnified member within the meaning of Art 4(1)(iii). From any one such act or omission, a plurality of claims might arise and do so over a period, with claims being made at different times. The significance of the phrase "in respect of all claims arising from any one act or omission" is to indicate that the limit specified in Art 57(3) applies to all claims which arise in this way from any one act or omission. The amount of the limitation is $100,000 or such greater sum or sums as the regulations provided at the time of the relevant act or occurrence.

Were the position otherwise, the monetary limit in respect of claims made at different times but arising from the one act or omission would be greater or lesser, depending upon what might be the purely chance sequence in which claims were made. Further, the matter may be examined by reference to the position of a member who had resigned before any claim was first made. It would be an odd result if that member had the benefit of the increased level of indemnity which was in force by reason of steps taken after resignation by the then current members to increase that level and to raise the amount of the annual subscription. Likewise, in the case of a member who had died before the claim was made against the personal representatives of that member.

The consequence of this is that there must be a reduction in the amounts awarded by Enderby J to reflect the limitation of $250,000 rather than $500,000.

Once the position is reached that the entitlement of Dr Bailey arose upon the occurrence of the relevant acts or omissions, the next question concerns the effect thereon of subsequent changes to the articles which would operate adversely to his interests by changing the incidents of his entitlement or, indeed, abrogating it.

It is appropriate here to refer again to Hunt v Carrier A/asia Ltd in the New South Wales Full Court [38] and in this Court [39] . By written agreement, the company agreed to employ Mr Hunt as managing director and he agreed to serve "for the term and subject to the company's articles of association and the provisions hereinafter contained" [40] . The agreement stated that the employment was to continue until a specified date and also provided that the company was to be at liberty to terminate the term on notice if Mr Hunt "ceases to be a director of the company" [41] . Article 91 empowered the company by extraordinary resolution to remove any director before the expiration of his period of office but stated that this was "[s]ubject to the provisions of any agreement for the time being subsisting" [42] . The company, by special resolution, amended Art 91 by deleting those words and then removed Mr Hunt from the board and gave due notice of termination. In the Full Court, Jordan CJ said [43] :

The question is whether the obligations of the particular contract left it still open to the company, upon altering its articles so as to give itself power to remove the plaintiff from the directorate, to exercise that power and so dismiss him as managing director, without thereby committing a breach of contract. At the date when the contract was made, the only power which the company had to remove a director by extraordinary resolution was that conferred by Art 91, and this was expressed to be subject to the provisions of any agreement for the time being subsisting It is true that the contract is to employ "subject to the articles," but I am of opinion that this does not mean "subject to a right in the company so to alter the articles as to enable the company to free itself from the obligations of the contract" I am of opinion, however, that the presence in Art 91 of the words which have been deleted did not make any difference to the effect of that article. They served as a reminder that the power conferred by the articles is one the exercise of which may involve the risk of committing a breach of contract. All that their deletion has achieved has been to remove the reminder. Later in his judgment, the Chief Justice said [44] : A company has power to alter its articles by special resolution: Companies Act 1936 NSW, s 20. But if a company makes a contract dehors the articles by which it agrees expressly or impliedly not to do a particular thing, it cannot, by altering its articles and conferring on its board of directors or a general meeting power to do the thing on its behalf, acquire a right to do the thing with impunity. No doubt the thing may be effectual if done, but it is none the less a breach of contract. In this Court, the bench was equally divided so that the decision of the Supreme Court was affirmed. McTiernan J, who was in favour of dismissing the appeal, said [45] that it would be contradictory to imply into the contract, expressed to be subject to the articles, a term that the company have the right to make Mr Hunt cease to be director at any time and in that way to terminate his employment as managing director. 1. Hunt (1938) 39 SR(NSW) 12. 2. Hunt (1939) 61 CLR 534. 3. Hunt (1938) 39 SR(NSW) 12 at 14. 4. Hunt (1938) 39 SR(NSW) 12 at 14. 5. Hunt (1938) 39 SR(NSW) 12 at 13. 6. Hunt (1938) 39 SR(NSW) 12 at 16-17. 7. Hunt (1938) 39 SR(NSW) 12 at 18. 8. Hunt (1939) 61 CLR 534 at 554.

In the present case, the substance of the contract was to confer upon Dr Bailey, in the events that had allegedly happened during his treatment of Mr Crawford, an entitlement to indemnity in respect of the claim which might later be made upon him. In that sense, Dr Bailey acquired vested or accrued rights or interests. Consistently with general principle, a power which might be construed so as to curtail or abrogate what otherwise would be rights or interests in favour of one party to the contract is construed as operating prospectively [46] .

Swabey v Port Darwin Gold Mining Co (1889) 1 Meg 385; McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477; Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd (1936) 54 CLR 361 at 380, 386; Elkhoury v Farrow Mortgage Services Pty Ltd (In liq) (1993) 114 ALR 541 at 546-547; Victrawl Pty Ltd v Telstra Corporation Ltd (1995) 183 CLR 595 at 620-621, per Deane, Dawson, Toohey and Gaudron JJ; cf British Equitable Assurance Co Ltd v Baily [1906] AC 35.

Accordingly, and to adapt what was said in Westralian Farmers Ltd v Commonwealth Agricultural Service Engineers Ltd [47] , changes made to the articles after 1974 would operate prospectively upon the continuing contract in relation to acts or omissions on the part of Dr Bailey done or omitted thereafter. But they would not operate upon past events which already had given rise to his entitlement. This would be true, for example, of an amendment to Art 60 which broadened the circumstances in which in respect of such a past event the council might exercise adversely the power and discretion to refuse indemnity to the member or, in the case of death, to the personal representatives of the member.

We turn now to relate those actions by the Union which did involve such amendments. The evidence does not disclose any protest or objection by Dr Bailey when those amendments were made. This absence of complaint is consistent with an interpretation that the changes to the articles would operate upon the continuing contract, although in the prospective sense we have described [48] .

cf Eltham Co-operative Dairy Factory Co Ltd v Johnson [1931] NZLR 216 at 246.

We have referred to the amendments to Art 60 made in 1977. These did have the effect of broadening the power of the council to refuse indemnity. However, as we have indicated, they were ineffective to modify so much of the existing and continuing contract as operated upon the then accrued entitlement to indemnity by reason of the alleged acts or omissions in respect of Mr Crawford.

On 21 April 1981, whilst the action of Mr Crawford against Dr Bailey was on foot and the solicitors for the Union had taken over the defence of the case, further amendments were made to the articles of the Union (Arts 4, 10, 57, 58, 59, 60, 61, 62 and 63). It is not suggested by any party that these changes are material for present purposes. However, on 4 November 1982, the articles were further amended in such a fashion as to produce the result that the Union no longer carried on insurance business within the meaning of the Insurance Act. The reference in Art 6 to "entitlement" of applicants, upon payment of entrance fee and subscription, to the benefits "of indemnity and assistance conferred by Arts 57 to 67" was replaced. Articles 57-67 were deleted and a discretionary regime established [49] . New Arts 57-61 were as follows:

The Council shall investigate all cases in which assistance is sought from the Union by a member.

The Council may in its sole and absolute discretion and either in whole or in part and upon such terms and conditions as to the Council may seem proper determine that the Union will assist a member:

(a) by undertaking the conduct of or assisting in the conduct of or defence of any matter or proceedings whether of a strictly legal nature or otherwise and,

(b) by granting indemnity to such member in respect of any action, proceedings, claim or demand

arising in the course of the practice of such member from an event which occurred while he was a member.

Any member who has sought assistance authorises the Union and any lawyers appointed by it to conduct the defence of or settle on such terms as the Council may in its sole and absolute discretion think fit any action proceeding claim or demand against such member.

The Council may in its sole and absolute discretion terminate any grant of assistance or indemnity and thereafter cease to assist any member in whose favour a determination had been made under Article 58.

Any member who has sought assistance from the Union before 4 November 1982 shall be deemed to have requested assistance and the Council shall as soon as expedient make a determination under Article 58 in respect of such request.

cf Medical Defence Union Ltd v Department of Trade [1980] Ch 82.

In accordance with the conclusions already expressed as to the relevant ineffectiveness of the change to Art 60 in 1977, these changes are to be treated as ineffective to commute a current right to indemnity, which had been conferred by contract created in the course of conduct of an insurance business, into a right in the council, in its sole and absolute discretion, to provide assistance to members in certain circumstances. That conclusion is not qualified by the presence of a new Art 61. On the construction proffered by the Union, this would translate what had been a present entitlement to a request for assistance. Rather, as indicated earlier, these changes would operate prospectively upon the continuing contract between Dr Bailey and the Union.

On 2 December 1982, the council, acting pursuant to the new Art 61, resolved in general terms to grant assistance under the new articles to those members who had previously requested assistance from the Union under the old Art 58. The effect of this resolution was to afford assistance to Dr Bailey in respect of the then outstanding action brought by Mr Crawford. The conduct of the defence to that action continued and the carriage of it remained with the solicitors for the Union. It was not until some three weeks after Dr Bailey died that the attitude of the council changed. On 3 October 1985 the council resolved:

(1) That the assistance granted to Dr Bailey in respect of the claim by Mr Crawford be terminated.

(2) That the Defence Union's solicitors be instructed to file a Notice of Ceasing to Act in the Supreme Court proceedings.

(3) That consideration of any application for assistance by the legal representative of Dr Bailey be deferred until any such application is made.

In his reasons for judgment, the primary judge said: No attempt has been made to offer any explanation for the change and no members of Council have been called to give evidence. It is notorious, however, that by 1985 "Chelmsford" had become very well known in the media and was being given great publicity. Many ex-patients of Chelmsford were making complaints and claims similar to those of the plaintiff.

On 8 October 1985, Mrs Bailey, on behalf of the Estate, requested assistance from the Union in relation to the claim by Mr Crawford. On the same day, Mr Crawford instituted a proceeding in the Supreme Court seeking leave to commence action against the Union under s 6 of the Law Reform Act.

On 23 October, the Union filed a motion in the action against it by Mr Crawford seeking a declaration that it was no longer an "insurer" within the meaning of s 6. On 7 November, the council resolved "that the request for assistance by Mrs M J Bailey on behalf of the Estate in respect of the claim by Mr Crawford be refused". Yeldham J declined to make the declaration sought by the Union but he also refused Mr Crawford leave under s 6(4) of the Law Reform Act. An appeal by Mr Crawford and cross-appeal by the Union produced the result that the appeal was allowed and the cross-appeal dismissed [50] . It was after refusal by this Court of an application by the Union for special leave to appeal against the grant of leave to Mr Crawford to proceed against the Union that, on 28 July 1988, Mr Crawford commenced the proceeding under s 6(4).

On 16 August 1990, shortly before the trial together of both proceedings, the Union resolved that "pursuant to its powers generally and in particular its power under Old Article 60 [it] refuses to indemnify the late Dr Bailey and/or Mrs J Bailey, executrix of the Estate of the late Dr Bailey in relation to the following claims: Crawford".

The reference to "Old Article 60" is not without its difficulties. First, if what was intended was a reference to Art 60 in its form before the special resolution of 1 December 1977, that article could have had no application because it required the expulsion of Dr Bailey, something which never occurred. If what was intended was a reference to the power of the council under Art 60 as it stood after amendment on 1 December 1977, there is still the difficulty that such power must have ceased with the deletion of Art 60 by the special resolution passed on 4 November 1982. In so far as what was relied upon was a power conferred by contract, but adopting the articles as they stood from time to time, the deletion of Art 60 in 1982 would have deprived the contract of the relevant subject matter. Because Dr Bailey had never been expelled from membership of the Union, the power conferred upon the council by Art 60 in the form it took before amendment in 1977 was never exercisable by the council. The 1977 amendment and subsequent deletion of Art 60 were, as we have indicated, picked up by the contract between Dr Bailey and the Union but only in their prospective operation.

Our conclusion is that the Union was obliged by the contract it had with Dr Bailey to indemnify his estate in respect of any legal liability for damages or costs from the claim made by Mr Crawford. Accordingly, the Court of Appeal should have upheld the orders of Enderby J in this respect and the appeal to this Court by the Estate against the Union should succeed.

However, we should not part with the matter without further reference to the submissions made by the Union as to the distinction between what was identified as a "special contract" and a "statutory contract".

The Union submitted that Art 57 conferred upon members "in their capacity as members or as incidents of their membership" rights which amounted to a "statutory contract" between each member and the Union. However, the rights enjoyed under this arrangement by members would subsist only unless and until the articles were altered. In the present case, this occurred when Art 57 was deleted and entitlement was superseded by the claim to the exercise of discretion by the council under the new articles.

In support of these propositions counsel referred to statutory provisions producing the result that the memorandum and articles of the Union had the effect of a contract under seal between the Union and each member, and between a member and each other member. Section 14 of the 1899 Act was in the following terms:

(1) The articles of association shall be printed and shall be signed by each subscriber in the presence of, and be attested by, one witness at least.

(2) When registered they shall bind the company and the members thereof to the same extent as if each member had subscribed his name and affixed his seal thereto, and there were in such articles contained a covenant on the part of himself, his heirs, executors, and administrators, to conform to all the regulations contained in such articles subject to the provisions of this Act.

(3) All moneys payable by any member to the company, in pursuance of any of the conditions and regulations of the company, shall be deemed to be a specialty debt due from such member to the company.

Section 10 thereof was a corresponding provision as to observance of the conditions of the memorandum of association.

Provisions to the effect of s 14(3) were introduced into the companies legislation in the United Kingdom and Australia, to set at rest the doubt expressed in Robinson's Executor's Case [51] that unpaid calls were simply not specialty debts [52] and so subject to the six year rather than twenty year limitation period under the statute of 1623 [Limitation Act 1623 UK] [53] . However, in Land Mortgage Bank of Victoria Ltd v Reid [54] , Cussen J interpreted such a provision in s 16 of the Companies Act 1890 Vict as applying only to moneys payable by a member "in his character as a member" rather than as including moneys "payable by a person who happens to be a member".

(1856) 6 De GM & G 572 [43 ER 1356]. 2. Buck v Robson (1870) LR 10 Eq 629 at 631. 3. Halsbury's Laws of England, 2nd ed, vol 20, par 824. 4. [1909] VLR 284.

Section 22 of the 1936 Act and s 33 of the 1961 Act were to the same effect as the 1899 provisions, save that each now dealt with both the articles and the memorandum. In Australian Coal & Shale Employees' Federation v Smith [55] of s 22 of the 1936 Act, Jordan CJ said:

The provision now contained in s 22 of the Companies Act 1936 NSW, that the memorandum and articles shall when registered bind the company and the members thereof to the same extent as if they respectively had been signed and sealed by each member and contained covenants on the part of each member to observe all the provisions of the memorandum and articles, which has the effect of obviating the necessity for the execution of a deed by the members of the company, first made its appearance in the Joint Stock Companies Act 1856 UK, ss 9, 10. The section does not say that the Memorandum and Articles are to operate as if they had been executed by, and had contained a similar covenant on the part of, the company; but it does say that they are to bind the company, and this should be perhaps regarded as a statutory application of the principle that a party who takes the benefit of a deed is bound by it though he does not execute it [56] . The curiosity to which the Chief Justice referred was remedied by s 78(1) of the 1981 Act (which was inserted as a consequence of s 52 of the Companies and Securities Legislation (Miscellaneous Amendments) Act 1985 Cth). This provided that the memorandum and articles had the effect of a contract under seal between the company and each member, between the company and each officer and between a member and each other member; the "effect" of that contract under seal was stated as one under which each of these persons agreed "to observe and perform the provisions of the memorandum and articles in force for the time being so far as those provisions are applicable to that person". Section 180(1) of the Corporations Law is to the same effect as s 78(1) of the 1981 Act. 1. (1937) 38 SR(NSW) 48 at 54-55; cf In re Compania de Electricidad de la Provincia de Buenos Aires Ltd [1980] Ch 146 at 187. 2. Norton on Deeds, 2nd ed (1928), p 26.

Professor Sealy has observed of this legislation [57] :

[It] was enacted to cover a gap which was thought to have been created when the memorandum and articles replaced the deed of settlement in 1856; neither it nor all the subsequent theorising has any relevance to the present-day world. 1. Sealy, Cases and Materials in Company Law, 5th ed (1992), p 96.

In so far as the memorandum and articles, pursuant to such legislative provision, constitute a contract between the company and its individual members or between the members inter se, the contract is of an unusual type. First, the members are deemed to have contracted on the basis that, since the articles, and in general the memorandum, can be altered by special resolution of the company, the terms of the contract are variable from time to time without agreement of both parties to that variation. Secondly, there is no jurisdiction in a court of equity to rectify the articles of association even if they do not accord with the concurrent intention of all the signatories thereof at the moment of signature; the articles may be amended only pursuant to statutory authority [58] . Thirdly, the direct enforcement by a member of rights under such a contract against the company may have to overcome obstacles placed in its path by the rule in Foss v Harbottle [59] . Fourthly, as Salmond J pointed out in Shalfoon v Cheddar Valley Co-operative Dairy Co Ltd [60] , whilst a contract binds those who made it and their personal representatives, the articles in a company limited by shares bind the owners thereof for the time being and the obligations imposed by the deemed covenant are appurtenant to the shares and pass with ownership of them. Finally, the view has been taken, not without doubt, that, in the absence of some other statutory provision, the effect of the decision in Houldsworth v City of Glasgow Bank [61] is to preclude a member of a company limited by shares from suing the company for damages for breach of contract whilst still a member and without seeking rescission of the contract whereby the shares were obtained [62] .

Scott v Frank F Scott (London) Ltd [1940] Ch 794. 2. (1843) 2 Hare 461 [67 ER 189]. See Ford's Principles of Corporations Law, 8th ed (1995), pars 6.120-6.130; Drury, "The Relative Nature of a Shareholder's Right to Enforce the Company Contract" [1986] Cambridge Law Journal 219 at 237-244. 3. [1924] NZLR 561 at 580. 4. (1880) 5 App Cas 317. 5. See Webb Distributors (Aust) Pty Ltd v Victoria (1993) 179 CLR 15 at 30-33.

As Jordan CJ and Professor Sealy indicate in the above passages, the perceived need for statutory provisions as to deemed covenants arose in the course of development in England of modern company law with incorporation by registration and the displacement of earlier forms of business organisation. One of these organisations was conducted under a deed of settlement and with some features of partnership and some of trust. The term "company" may be used to describe business associations, incorporated and unincorporated [63] . The unincorporated joint stock company involved the use of a deed of settlement containing covenants between the members and trustees, the effect of which was to oblige the trustees to refuse transfers by members of their interests unless fresh covenants were obtained from the transferees [64] . In this way the deed of settlement gave rise to a series of covenants binding the members who sealed it. The Joint Stock Companies Act 1844 UK [65] adopted the existing method of formation of an unincorporated joint stock company by use of a deed of settlement and superimposed incorporation as the consequence of statutory registration. As Jordan CJ pointed out in Australian Coal & Shale [66] in the passage set out above, the Joint Stock Companies Act 1856 UK [67] introduced the memorandum and articles of association in place of the deed of settlement. However, the inclusion of ss 9 and 10, the progenitors of ss 10 and 14 of the 1899 Act and other Australian legislation, evinced the intention, as a matter of form, to preserve the link with the old deed of settlement by carrying over contractual notions to support what, in any event, would later come to be seen as incidents of modern company law.

In re Stanley, Tenant v Stanley [1906] 1 Ch 131 at 134. 2. Elders Trustee & Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 at 229-230; Cornish and Clark, Law and Society in England 1750-1950 (1989), pp 246-251; Sealy, The Director as Trustee [1967] Cambridge Law Journal 83 at 84-86. 3. 7 & 8 Vict c 110. 4. (1937) 38 SR(NSW) 48 at 54-55. 5. 19 & 20 Vict c 47. Similar provision to ss 9 and 10 of the 1844 statute was made by the Companies Act 1862 UK, s 16.

We have referred to several curiosities, if not difficulties, involved in accommodating the contractual concepts apparently preserved in the legislation to other mechanisms of company law. This, in turn, led to decisions which concentrated upon the specification in the legislation of a deemed covenant between the company and "the members thereof", being a deemed covenant to observe the conditions of the memorandum and conform to the regulations contained in the articles.

Hence, there has been built up a body of authority in Australia, New Zealand and the United Kingdom that the memorandum and articles have no direct contractual effect in so far as they purport to confer rights or obligations on a member, otherwise than in the capacity of a member. This concept is expressed in such phrases as "qua member" and "member as such" [68] . The point is that adumbrated by Cussen J in Land Mortgage Bank of Victoria [69] that the statute speaks of members whereas persons who are members may also deal with the company or be involved in its affairs in some further capacity as "an outsider".

Hickman v Kent or Romney Marsh Sheep-Breeders' Association [1915] 1 Ch 881; Heron v Port Huon Fruitgrowers' Co-operative Association Ltd (1922) 30 CLR 315 at 338-340; Australian Coal & Shale (1937) 38 SR(NSW) 48 at 57; Beattie v E & F Beattie Ltd [1938] Ch 708 at 721; Black, White & Grey Cabs Ltd v Gaskin [1971] NZLR 552 at 556. 2. [1909] VLR 284.

In addition to the special considerations applying to variation and enforcement of the "statutory contract", the decisions of the courts, at least since that of Lord Cairns LC in Eley v Positive Government Security Life Assurance Co Ltd [70] , have displayed a concern that persons becoming members should not become bound to do something unrelated by their membership of a company as a consequence of a provision one would not expect to find in the constitution of the company in question. In Land Mortgage Bank of Victoria [71] , Cussen J identified the primary function of the articles as similar to that of by-laws, namely the provision of a series of enactments to govern the company in the administration of its affairs and to bind members in that respect whilst they were members. Later, in Hickman v Kent or Romney Marsh Sheep-Breeders' Association [72] , Astbury J distinguished rights which are part of the general regulations of the company applicable alike to all shareholders from those provisions of articles said to create a contract between a particular member or members and the company.

(1876) 1 Ex D 88. 2. [1909] VLR 284 at 288-289. 3. [1915] 1 Ch 881 at 900.

This distinction has been criticised as not consistent with the earlier English authorities [73] , and as creating the difficult distinction between a member as a member and as an outsider [74] . Nevertheless, on this appeal it was not disputed that, where rights are by the articles given to members in some other capacity, reliance cannot be placed on the "statutory contract" as the source of contractual rights. The issue was whether Dr Bailey had been party to such a statutory contract in respect of his policy.

Gregory, The Section 20 Contract, Modern Law Review, vol 44 (1981) 526. 2. Drury, The Relative Nature of a Shareholder's Right to Enforce the Company Contract [1986] Cambridge Law Journal 219 at 225-229; Welling, Corporate Law in Canada: The Governing Principles, 2nd ed (1991), pp 61-64.

The distinction drawn in Hickman became of added importance as business and professional associations were organised in corporate form. Examples included co-operative associations of primary producers [75] , groups of trade unions [76] , mutual insurance associations [77] , associations of sheep breeders [78] , and of taxi operators [79] . In Australia, before and to some extent after the enactment of the strata title legislation, a corporate structure was employed to apportion through the medium of the articles of association the occupation and enjoyment of buildings containing home units as an alternative to co-ownership under real property law [80] .

Gore Bros v Newbury Dairy Co [1919] NZLR 205; Shalfoon v Cheddar Valley Co-operative Dairy Co Ltd [1924] NZLR 561; Eltham Co-operative Dairy Factory [1931] NZLR 216; Heron v Port Huon Fruitgrowers' Co-operative Association Ltd (1922) 30 CLR 315; Pakenham Upper Fruit Co Ltd v Crosby (1924) 35 CLR 386 at 400. 2. Australian Coal & Shale (1937) 38 SR(NSW) 48. 3. Lion Insurance Association v Tucker (1883) 12 QBD 176; In re Bangor and North Wales Mutual Marine Protection Association (Baird's Case) [1899] 2 Ch 593. 4. Hickman [1915] 1 Ch 881. 5. Black, White & Grey Cabs Ltd [1971] NZLR 552. 6. Crumpton v Morrine Hall Pty Ltd (1965) 82 WN (Pt 1) (NSW) 456; [1965] NSWR 240; Magill v Santina Pty Ltd [1983] 1 NSWLR 517.

In some cases, where a corporation has been formed for such a special purpose (for example, before modern trade practices legislation, to implement co-operative and marketing arrangements between primary producers), it has been said that, by adopting the corporate structure, the members must be taken to have accepted that all their rights under the articles were the subject of the "statutory contract". These rights were said to extend, for example, to the co-operative marketing arrangements. There was a deemed covenant to conform to all of the regulations contained in the articles, subject to the provisions of the statute dealing with such matters as change of the articles by special resolution.

An example is the New Zealand decision of Gore Bros v Newbury Dairy Co Ltd [81] . The issue was whether the company could set-off against a claim by a member liquidated damages for breach of an obligation set out in the articles to supply the company with the whole of his milk production against payment at a rate stated by way of liquidated damages in the event of default. The company was successful. Chapman J said [82] :

The subject, therefore, of the mutual rights and obligations of the company and of the shareholders quâ shareholder-suppliers is intimately connected with the very purpose of the incorporation of the company; and the articles, as was clearly intended, can form and do form a contract between the company and the individual shareholder. 1. [1919] NZLR 205. 2. Gore Bros [1919] NZLR 205 at 208.

However, the broad trend of authority referred to above, particularly since Hickman, has been to identify the subject matter of the "statutory contract", so far as concerns the relations between the corporation and the members, not as commercial rights but as the government of the corporation and the exercise of the constitutional powers of the corporation. Such matters as inspection of the register, the right to receive a share certificate, to vote, to receive informative notice of meetings, to receive payment of duly declared and payable dividends, and the like, even where not specifically supported by statutory provision, have been treated as inherent in the relationship between the corporation and its members [83] .

See Gower's Principles of Modern Company Law, 5th ed (1992), p 286; Ford's Principles of Corporations Law, 8th ed (1995), par 6.370; Farrar's Company Law, 3rd ed (1991), pp 122-127.

The term "special contract" appears to have been coined by Lindley MR and Romer LJ in Allen v Gold Reefs of West Africa Ltd [84] . The expression has proved to be an unfortunate one. What it identifies is no more than a contract which is not a "statutory contract". That is to say, the expression identifies a contract which is constituted otherwise than solely by the articles unsupplemented by any external facts. Once the relevant "statutory contract" cannot be so found (which is, in our view, the position in the present case), then it is a question whether the evidence supports the finding of the existence of a contract which, in truth, is ordinary rather than "special" in nature. Such a contract may, as this case illustrates, pick up in a particular fashion provisions of the articles.

[1900] 1 Ch 656 at 673-674, 679. See the analysis of these judgments by Priestley JA in Oswald v Bailey (1987) 11 NSWLR 715 at 737-739. This aspect of Allen was not material in Gambotto v WCP Ltd (1995) 182 CLR 432.

The present case did not involve a "statutory contract" constituted solely by the articles and unsupplemented by any external facts. The particular rights to indemnity upon which the Estate sues the Union could not, consistently with Hickman [85] , be described as flowing from the general regulations of the Union as applicable alike to all shareholders. The attaining of the right to indemnity had been dependent upon Dr Bailey making the necessary application for membership and the payments which from time to time were fixed by the regulations as necessary for him to remain a financial member with the appropriate level of protection. Further, and again consistently with Hickman and the cases which have followed it, the entitlement in Art 57 was not conferred upon members "as such". This is so despite the fact that, before the changes which were made in 1982 to its constitution, the provision of malpractice insurance may have been one of the significant purposes sought to be achieved when the Union was incorporated.

In the light of these conclusions on the contract issue, as between the Union and the Estate, the Estate should have the substance to meet the judgment against it in favour of Mr Crawford. The orders made by Enderby J assist this result by providing for direct payment by the Union to Mr Crawford. Nevertheless, we should also deal with the alternative path pursued by Mr Crawford, that which led to success in the Court of Appeal. We turn therefore to consider s 6 of the Law Reform Act.

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