Calwell-Smith v Director-General Department of Finance and Services [2012] NSWSC 413 | Case summary

Supreme Court of NSW|2011-10-19|Before: Rothman J

Judgment 1The plaintiff, Amanda Calwell-Smith, challenges the appointment of an administrator by the first defendant ('Director-General') to Essential Personnel Association ('EPA'). EPA is an incorporated association under the Associations Incorporation Act 2009 ('the Act'). 2On 9 March 2011, the Director-General purported to appoint an administrator under the powers provided in s 55 of the Act. Ms Calwell-Smith is and was the Chief Executive Officer of EPA at all relevant times. The second defendant, David Mansfield, was appointed as the administrator and, in these proceedings, submits to any order of the Court save as to an order for costs. 3By amended summons filed 17 March 2011, the plaintiff sought injunctive relief preventing the administrator from acting in accordance with the appointment. That prayer for injunctive relief was not the subject of any substantive argument during these proceedings. 4Otherwise, in the amended summons, the plaintiff seeks, under s 104 of the Act, a review of the decision of the Director-General of 9 March 2011 ('the decision') to appoint the administrator. Further to the foregoing, the plaintiff sought, in the amended summons, an order "revoking or setting aside" the decision, without express reference to the review provisions of the Act. 5The issues between the parties include the extent and categorisation of the review in this Court, and, in particular, whether "judicial review" is available; the proper construction of s 55 of the Act and, in particular, the proper effect of the word "persistently" where used in that provision; the effect, if any, of a failure to comply with the Associations Incorporation Act 1984 (hereinafter 'the 1984 Act') and whether there was a counterpart provision to s 50 of the Act in the 1984 Act; whether, as a consequence of the foregoing, there was error of law or jurisdiction; and lastly, whether, on the merits, the decision was warranted as "in the interest of the Association's creditors".

Review: Category and Extent 6The Act provides: "104 Review of decisions of Director-General (1) An association may apply to the Administrative Decisions Tribunal for a review of: (a) any decision by the Director-General under section 7, 12, 16, 74 or 79 to refuse an association's application, or (b) any direction given to the association by the Director-General under section 11 or 73, or (c) any cancellation of the association's registration by the Director-General under section 76. (2) Section 53 of the Administrative Decisions Tribunal Act 1997 does not apply to the cancellation of an association's registration. (3) A person aggrieved by a decision made by the Director-General to appoint an administrator under section 54 or 55 may apply to the Supreme Court for a review of the decision." 7As can be seen from the foregoing, an application for review may be lodged with the Administrative Decisions Tribunal ('ADT') or with this Court, and each body has the jurisdiction to conduct a review of the kind described in the provision. The ADT has jurisdiction in relation to decisions or directions of a particular kind, being generally: decisions (and related directions) on the application for registration; the name, objects and constitution of the Association; and the cancellation of registration. 8The Court's jurisdiction, under s 104 of the Act, is confined to a review of the appointment of an administrator. The Act contains no privative provision, and there is no reason to suspect that there is a restriction on the capacity of the Court to undertake judicial review, except to the extent that such judicial review would be an abuse of process. 9The utilisation by the legislature of the term "review", as distinct from "appeal", is significant. The term "appeal" was described by Sir Frederick Jordan as having two "connections", being an appeal from one judicial tribunal to another and an appeal from an executive authority to some other executive authority or to a court. In an appeal to a court from an executive authority, the jurisdiction exercised by the court is not appellate but original: Ex parte Australian Sporting Club Ltd; re Dash (1947) 47 SR (NSW) 28. I do not deal, in these proceedings, at length, with the various kinds of appeals that may arise and the various powers and jurisdiction that may be conferred. Ultimately, the jurisdiction of the Court depends upon the proper construction of the statute. 10As earlier stated, the term "review" is used twice in the same provision. It is a counsel of perfection that a word is always to be given the same meaning each time it is used in a statute, and where, as here, the word is used twice in the one provision, it is appropriate to assume as a starting point for the construction of the term, that the legislature has used the word with similar, if not identical, meanings on each occasion. Here, the effect of that meaning may be different because of the nature of the jurisdiction otherwise exercised by the tribunal or court to which the jurisdiction to review under this Act is granted. 11Nevertheless, there is no reason to suggest that the term "review", where used in s 104(3) of the Act, ought to be confined to judicial review and to exclude a merits review. No party before the Court suggests that the Court has not been granted the jurisdiction to conduct a merits review. 12The issue between the parties is a far more futile one. The parties dispute whether the Court also has the jurisdiction, under s 104 of the Act, to conduct "judicial review". The futility of this argument is manifest and can be described for at least two reasons, no doubt amongst many. 13First, as earlier stated, there is no privative provision in the Act. Whether or not s 104 of the Act confers a jurisdiction for judicial review, the Court has such a jurisdiction under its inherent jurisdiction and, otherwise, as conferred by the Supreme Court Act 1970. Secondly, it is difficult to conceive of an injustice, or lack of jurisdiction, that could not be, and would not be, resolved by a merits review, without recourse to judicial review. 14For example, if there were a denial of natural justice (assuming, for this example, that the rules of natural justice applied) by the Director-General, the Court proceedings would enable any such procedural unfairness to be overcome. Further, if there were an absence of a jurisdictional foundation for the making of an order appointing an administrator, such as would ordinarily give rise to successful judicial review, a merits review would establish the lack of any such jurisdictional foundation and the result of such merits review would also overcome the lack of jurisdictional foundation. 15As to the existence of a merits review, I accept the submission of the parties that the conferral of jurisdiction on the Court under s 104(3) of the Act is the conferral of a merits review. To the extent that authority on the construction of the Act is required, it is sufficient to refer to the judgment of the High Court in Tasty Chicks Pty Ltd v Chief Commissioner of State Revenue [2011] HCA 41; (2011) 85 ALJR 1183, in which the High Court reaffirmed that the term "review" takes its meaning from the context in which it appears in a statute (at [5]). 16No other provision of the Act deals with the powers of the Court on review under s 104(3) of the Act. Regard must therefore be had to the provisions of s 75A of the Supreme Court Act, which deals with "appeals" from an administrative body: see Kostas v HIA Insurance Services Pty Ltd (2010) 241 CLR 390 at [27] - [32]. The legislature has chosen to utilise the term "review" and not the term "appeal". There are many judgments that seek to describe the taxonomy of "appeals", some of which refer to a "review" as an "appeal". Ordinarily, the term "review" describes a de novo hearing, based on the evidence before the original decision maker and any additional evidence that may be adduced. 17Even where the term "review" is described as a kind of "appeal", it involves the broadest form of appeal and allows interference with the original decision on the basis of a reassessment of the original material before the decision maker, with or without any additional evidence. In that sense, the power of the Court, when exercising a jurisdiction to review, encompasses the capacity to intervene in an exercise of discretion, even in the absence of the kind of error described in House v The King (1936) 55 CLR 499. Nevertheless, weight should be given to the original decision and good reason established for interference with it. 18A review of administrative action was the subject of discussion by a Full Court of the Federal Court of Australia in Drake v Minister to Immigration and Ethnic Affairs (1979) 46 FLR 409. In the joint judgment of Bowen CJ and Deane J, at 419, their Honours said: "The function of the Tribunal is, as we have said, an administrative one. It is to review the administrative decision that is under attack before it. In that review, the Tribunal is not restricted to consideration of the questions which are relevant to a judicial determination of whether a discretionary power allowed by statute has been validly exercised. Except in a case where only one decision can lawfully be made, it is not ordinarily part of the function of a court either to determine what decision should be made in the exercise of an administrative discretion in a given case or, where a decision has been lawfully made in pursuance of a permissible policy, to adjudicate upon the merits of the decision or the propriety of the policy. That is primarily an administrative rather than a judicial function. It is the function which has been entrusted to the Tribunal. The question for the determination of the Tribunal is not whether the decision which the decision maker made was the correct or preferable one on the material before him. The question for the determination of the Tribunal is whether that decision was the correct or preferable one on the material before the Tribunal. The Act offers little general guidance on the criteria and rules which the Tribunal is to apply in the performance of its task of reviewing administrative decisions which are subjected to its surveillance. Even in a case such as the present where the legislation under which the relevant decision was made fails to specify the particular criteria or considerations which are relevant to the decision, the Tribunal is not, however, at large. In its proceedings, it is obliged to act judicially, that is to say, with judicial fairness and detachment. In its review of an administrative decision, it is subject to the general constraints to which the administrative officer whose decision is under review was subject, namely, that the relevant power must not be exercised for a purpose other than that for which it exists (Water Conservation and Irrigation Commission (N.S. W.) v. Browning) that regard must be had to the relevant considerations, and that matters "absolutely apart from the matters which by law ought to be taken into consideration" must be ignored: R v Cotham; Randall v Northeote Corporation; Shrimpton v Commonwealth; R v Anderson; Ex parte Ipec-Air Pty Ltd" [footnotes omitted] 19I take the view of the jurisdiction conferred on the Court by the provisions of s 104(3) of the Act that a Court is involved in a "full merits review", which includes, at least, a review of the decision and a determination of whether, on the material before the Court, the appropriate decision has been made or another decision is warranted. For that reason, if there be jurisdictional error or error of law involved in the decision of the Director-General, including the processes leading thereto, it is unnecessary to ascertain it, as any such error will be overcome by the reassessment of the issues by the Court, on the material before it: see Calvin v Carr [1980] AC 574, [1979] 1 NSWLR 1. It is therefore unnecessary to resolve the issue between the parties as to whether a review under s 104(3) of the Act includes judicial review for procedural error.

Plaintiff's Standing 20As is clear from the provisions of s 104 of the Act, set out above, in order for the plaintiff to seek a review in this Court the plaintiff must fall within the description of "a person aggrieved" by the decision. The plaintiff is the public officer of EPA and as such she has the task of representing the interests of EPA (and its members) and is a person concerned in the management of EPA. The interests of the plaintiff in the affairs of EPA and its administration go well beyond that of an ordinary member of the public. 21The Director-General concedes that the plaintiff has standing to bring the present proceedings. Such a concession is appropriate and welcome. A concession however appropriate cannot grant the Court jurisdiction where none exists. The test for a person aggrieved has been the subject of much authority. Essentially, a person is a person aggrieved when the person has an interest in the subject matter beyond that of an ordinary member of the public: Australian Conservation Foundation Inc v Commonwealth of Australia (1980) 146 CLR 493 at 526 and 548; Onus v Alcoa of Australia Ltd (1981) 149 CLR 27 at 35 - 36. 22These authorities (and others) were reviewed by Wilcox J in Executive Council of Australian Jewry v Scully (1998) 79 FCR 537 in dealing with the meaning of the term "person aggrieved" under the racial vilification legislation. His Honour, in dealing with whether the executive officer of an organisation of members of the Jewish community had standing to take racial vilification proceedings on behalf of the Jewish community in Launceston, said: "I have pointed out the authorities recognise that a person may be a "person aggrieved" because of a special responsibility to safeguard the interests of a group. In my opinion, Mr Jones is in a position similar to that of the applicants in Ogle v Strickland, Bropho v Tickner and the industrial and environmental cases cited above. Mr Jones is a "person aggrieved" because he is the Executive officer of the national Jewish organisation, an organisation that represents the interests of Jews throughout the country, including in the Launceston area." (at 550) 23As the Chief Executive Officer, the plaintiff clearly has a representative interest of a similar kind to that described by Wilcox J in relation to the interests of the members of EPA. This interest extends beyond the interest of an ordinary member of the public in the decision of the Director-General.

Facts 24It is unnecessary to trawl through each of the issues of fact in much detail. The evidence before the Court is, in a number of significant respects, different from that which formed the basis of the decision. 25EPA is, as already stated, an incorporated association established for the purpose of providing disability services. It undertakes a range of programs, including an employment programme assisting over 500 persons with disabilities to seek and obtain employment with support. It was incorporated in 1990 with an office in Wollongong. Since that time other offices have been established. Initially the services were extended to Nowra, Bowral and Goulburn. It currently has 12 offices and 7 outreach services across the Southern Tablelands, Southern Highlands, Shoalhaven and Illawarra regions. 26It obtains funding by undertaking a number of government-funded activities. It has funding agreements, which derive from both Federal and State governments' programs. Those agreements with the Department of Education, Employment and Workplace Relations ('DEEWR') (a Commonwealth Department), the New South Wales Department of Ageing, Disability and Home Care and the New South Wales Department of Education and Training ('Department of Ageing'). 27The agreements with each of the government agencies or departments require EPA to account for monies obtained from the agency or department and to satisfy the said agency or department that the money has been expended for a purpose consistent with the funding program. There is no evidence before the Court that EPA has ever, ultimately, expended moneys otherwise than in accordance with the funding program for which it was provided. 28The funding is substantial. In 2008/2009, EPA received a total amount of $5,260,328 in government funding. 29Apparently in or about July 2009, the Department of Fair Trading received one or more complaints regarding the misuse of government funds by EPA through the New South Wales Ombudsman and the Department of Ageing. 30As a consequence of those complaints, the Director-General instigated an investigation by first issuing two notices to produce to EPA (dated 26 October 2009 and 5 March 2010) under s 67 of the 1984 Act, which was replaced by the Act on or from 1 July 2010. A number of other notices to produce were issued including notices to the Commonwealth Bank of Australia, the auditors of EPA and to EPA itself. An inspection of EPA's premises was conducted on 29 September 2010, 30 September 2010 and 1 October 2010 and EPA provided further documentation during that inspection. 31The Director-General requested EPA to provide documents that disclosed payments made on EPA's credit cards; evidence of approval of remuneration of the plaintiff; expenditures made in respect of each funded program including transfers between programs; and the sale of assets from committee members to EPA. 32The Director-General, in the reasons for the decision of 9 March 2011, described the conduct, which, the Director-General considered, warranted the appointment of an administrator. That conduct was described in the following manner: "Credit Card Usage by Essential Personnel (a) Credit Card Number 5550 0523 XXXX XXXX: In the period between July 2007 and July 2008, there were a total of nine cash withdrawals from the Automatic Teller Machine ("ATM") totalling $5,100. No documentation evidencing approval of these withdrawals was provided, despite a request from Fair Trading. (b) Credit Card Number 5353 1921 926X XXXX: In the period between July 2007 and September 2010, there were a total of 17 cash withdrawals from the ATM totalling $9,412. No documentation evidencing approval of these withdrawals was provided, despite a request from Fair Trading. Two withdrawals in the amount of $800 and $1,200 were repaid through the deduction of salary of Ms Calwell-Smith. (c) Credit Card No. 5353 1921 92XX XXXX: In the period between November 2009 and September 2010 there were two withdrawals from the ATM each of which were more than $700.00 including $786 AUD ($770 Canadian). No documentation evidencing approval of these withdrawals was provided, despite a request from Fair Trading. (d) The following table sets out the total amount of unauthorised expenditure for the last four financial years in respect of accommodation, air fares, car hire, taxi fares, and miscellaneous charges. No documentation evidencing approval of the expenditure was provided, despite a request from Fair Trading. Expenditure Financial Year 2007/2008 2008/2009 2009/2010 2010/2011 Accommodation $26,234 $24,487 $17,927 $9,025 Air Fares $19,170 $7,680 $3,497 $1,186 Car Hire $14,704 $7,348 $2,757 $525 Taxi Fares $0 $2,484 $2,360 $149 Miscellaneous $2,144 $3,826 $3,210 $1,641

Accommodation (e) In relation to the expenditure on accommodation, a significant portion of this expenditure was incurred through "Wotif", an online accommodation specialist. Little or no documentation evidencing approval of the expenditure was provided, despite a request from Fair Trading. For the vast majority of these charges, it was not possible to identify the accommodation, the names of the representatives of the Association using these accommodation or the program to which the expenditure related. Where supporting documentation was available most related to accommodation booked for Ms Calwell-Smith and / or Mr Dennis Smith. Airfares (f) In relation to the expenditure on air fares, little or no documentation evidencing approval of the expenditure was provided, despite a request from Fair Trading. In almost all cases, it was not possible to establish the destination or the names of the representatives of the Association travelling. In those instances where supporting documentation was provided in most cases, the expenditure related to travel by Ms Calwell-Smith with Mr Dennis Smith (husband) also travelling to the same destination on several of these occasions. Car Hire (g) In relation to the expenditure on car hire, the vast majority of these charges relate to car hire through Hertz and other providers in Lismore, AVIS Mascot and Sawkins Car Hire Nowra. Little or no documentation evidencing approval of the expenditure was provided, despite a request from Fair Trading. For the vast majority of these charges, it was not possible to establish the names of the representatives of the Association using the accommodation or the program to which the expenditure related. Taxi Fares (h) In relation to the expenditure on taxi fares, the bulk of these payments were made to "Radio Cabs of Wollongong". A number of these payments were for multiple fares on the same day. Little or no documentation evidencing approval of the expenditure was provided, despite a request from Fair Trading. For the vast majority of these payments it was not possible to establish the names of the representatives of the Association using the accommodation or the program to which the expenditure related. Miscellaneous Charges (i) In relation to the expenditure on miscellaneous charges, the expenses relate to a wide range of businesses, including restaurants, florists, airport parking, valet parking, supermarkets, chemists, liquor stores, overseas transactions, manchester, newsagencies and PayPal. No supporting documentation was provided evidencing approval of these expenditure, despite a request from Fair Trading. Remuneration to Amanda Calwell-Smith (j) In relation to the remuneration paid to Ms Calwell-Smith, a review of the minutes of Committee Meetings reveal that a number of payments were not discussed or approved by the Committee. No documentation was provided in relation to Ms Calwell-Smith's contract of employment or her level of remuneration despite a request from Fair Trading. Further, there was no clear audit trail of the significant payments made to Ms Calwell-Smith. The payments were as follows:- 2007/2008 · $10,000.00 In lump sum payment paid in the pay period ending 26 September 2007 · $15,295.02 in lump sum payment paid in the pay period ending 29 February 2008 · $11,318.38 in lump sum payment paid in the pay period ending 7 May 2008 2008/2009 · $10,000.00 in lump sum payment paid in the pay period ending 2 September 2008 · $13,171.95 in lump sum payment paid in the pay period ending 8 October 2008. 2009/2010 · $6,940.88 in lump sum payment paid in the period ending 4 July 2010. Government Agency Funding (k) In relation to the expenditure on programs funded by the New South Wales Department of Ageing and the Federal Department of Education, the auditors for the Association noted as early as 2006 that large amounts of monies were transferred between the programs by the Association, without approval. The auditor noted that in 2008, more than $1.8M were found to be 'inter-project borrowing' and in 2009, this figure was more than $2.5M. The auditor recommended that the Association stop the practice immediately as it was a fundamental breach of the funding body's terms of agreement. This recommendation was found in the annual audit report in 2006, 2007, 2008 and 2009. Contrary to the auditor's recommendation, the Association continued to engage in such a practice. Sale of Vehicle from Paul Comelli to Essential Personnel (I) In relation to the sale of asset from a Committee Member to the Association, documentation provided by the Association at the request of Fair Trading indicate that the sale of a bus by Mr Paul Comelli, Committee Member to the Association for $10,000 was not discussed at the Committee Meeting. Negotiations were solely conducted between Ms Calwell-Smith and Mr Comeili." 33On the basis of the foregoing particulars, the Director-General considered that he was satisfied that EPA "has persistently failed to comply with the requirements of this Act in that [EPA] did fail to keep records that correctly record and explain its financial transactions and financial position, contrary to section 50 of the Act and having regard to these circumstances, [the Director-General is] satisfied that it is in the interests of [EPA's] creditors for an administrator to be appointed." 34In fact, it was not the Director-General who issued the reasons and made the decision. It was the Assistant Commissioner, Compliance and Enforcement, Mr Don Jones. Nothing turns on that issue and there is no submission that the delegation was invalid or that the decision was vitiated by reason of the delegation. 35The evidence before the Court differs significantly from the material before the Director-General. The Court is aware of, and has before it, the material upon which the Director-General relied. In addition to that material, the Court has affidavits and oral evidence. That evidence deals with the issues, set out at [32] above, upon which the Director-General relied.

Credit card usage 36In relation to the "credit card" issues, the details of the actual transactions to which the Director-General referred were not provided to EPA until 3 June 2011, almost 3 months after the decision. Nevertheless, general practices, which it is said these transactions evidence, were raised by the Director-General, or on his behalf as a concern. 37There is, from all of the evidence now available, no evidence of any defalcation or dishonesty. There are some transactions that would have raised, and did raise, suspicion that warranted investigation. Each of the transactions has been adequately explained in these proceedings. 38The Director-General referred to certain issues relating to "credit cards". These cards were, in fact, "debit cards" and utilised the funds of EPA without the need for a credit facility, except in circumstances where all funds had been dissipated. As a matter of convenience, I will refer to the credit or debit cards as "the cards" or "the credit cards". 39EPA possessed, over time, four cards during the relevant period. Two of the cards were cancelled following some unrelated credit card fraud (skimming that occurred in Canada) and the other two cards were issued to replace the two cancelled cards. Thus, there were effectively only two cards being used at any one time. 40The cards were used to pay EPA expenses (except in one emergency situation to which I will return). The matter upon which the Director-General relied was not fraud or incorrect records, but, rather, the absence of documentation evidencing approval of either the cash withdrawals or expenditure. 41Suspicion was, it seems, raised, in part, by the fact that most of the documentation that was available to the Director-General, to support accommodation and airfare expenditure for example, was in the name of Ms Calwell-Smith and/or her husband. The plaintiff's husband, Mr Dennis Smith, was engaged by EPA, as the training manager for Essentra (a registered training organisation operated by EPA) and as a supported wage assessor. 42The evidence before the Court establishes that two persons had access to the cards and only the plaintiff had access to more than one card (leaving aside the short time during which replacement cards, to which reference has already been made, and the original cards were in EPA's possession at the same time). 43The plaintiff has produced to the Court a schedule of credit card payments relating to the transactions, of which they were given notice on 3 June 2011. That schedule discloses, as initially alleged, that each of the credit card payments and withdrawals were payments of EPA expenses or matters for which approval had been given as part of remuneration of the plaintiff. 44In particular, each of the amounts expended for accommodation has been explained, as have the airfares. The Court reiterates that EPA conducted a number of services over a significant geographical area. Airfares were a required incident of the work performed by the staff of EPA, and accommodation was an even more essential requirement in order for work to be performed. 45The Court has also been provided with EPA's Credit Card Usage Guidelines, first effective in May 2008 and amended in February, March and July 2010. Those Guidelines require credit cards to be used only for EPA purposes and never for private purposes. A person provided with a credit card in the name of EPA was required to acknowledge and accept the procedures. 46Earlier, I mentioned that there was one exception. On one occasion, the plaintiff's personal credit card was refused, and the plaintiff, who was in the process of purchasing groceries, used the EPA credit card. As soon as practicable thereafter, the plaintiff, of her own volition, reported the use and transferred an amount to cover the usage. While this is a technical breach of the procedure by which the plaintiff was bound, I do not consider it untoward in the overall context. 47The Court is in the relatively enviable position that, because of the appointment of an administrator, there are administrator's reports dealing with some or all of the issues raised by the Director-General. The administrator, Mr Mansfield, in his report of 1 July 2011, on the issue of credit card usage, said: "I note that [EPA] has adopted a new policy with regard to credit cards from 1 July 2010. Each staff member that holds a credit card must complete a credit card payment form each month, itemising the payments made from their credit card and the reason for the payment. [EPA] is now also properly accounting for credit card transactions in its MYOB accounts, meaning individual payments on each credit card are now being posted to the correct expense accounts and allocated properly. This means that going forward, it will be possible to audit the use of credit cards by the Association easily and accurately. This system is much more transparent and as long as [EPA] continues to utilise this process in the future I do not have concerns with the continued use of credit cards [by EPA]." (exhibit DM2, at 34) 48The administrator had noted (exhibit DM2, at 28) "that all of the credit card payments made appear to have been reconciled to the accounts of [EPA]". This reconciliation has occurred in relation to payments of airfares, accommodation, car hire and taxi fares, and all the matters of which the Director-General was concerned, regarding the use of credit cards and cash withdrawals. Moreover, the administrator records that an analysis of the accommodation charges incurred by the plaintiff, when she was travelling, "does not show any significant difference between the cost of accommodation charged by any of the staff" (exhibit DM2, at 24).

Motor vehicle purchase 49Another aspect of concern to the Director-General was the purchase of a motor vehicle from a member of the committee of management, Mr Comelli. The undisputed evidence before the Court is that the committee of management authorised the purchase; the committee of management was aware of the "conflict" in purchasing from a member of the committee of management; the wholesale value of the vehicle, without the cost of equipment to adapt it for the use of persons with disabilities, was approximately $10,000; with the particular equipment, the value of the vehicle was approximately $20,000; and EPA paid $10,000 for the vehicle. In other words, on any analysis, there has been a donation of approximately $10,000 by a member of the committee to EPA, or EPA is an extraordinarily astute purchaser. 50The concern of the Director-General seems to be the fact of the purchase from a member of the committee. In all of the circumstances, no criticism can be made of EPA for the purchase, and no criticism can be made of Mr Comelli for the sale or for accepting the money. Indeed, Mr Comelli's generosity should be congratulated. 51There is a point at which concerns with procedure must give way to the obvious benefits associated with the conduct. In any event, it cannot be said, nor has it been suggested, that the records of EPA did not accurately reflect the purchase.

Remuneration of the plaintiff 52A further concern expressed by the Director-General was the remuneration of the plaintiff and the manner in which the plaintiff was paid. Certain of the cash withdrawals to which the Director-General referred were payments of "remuneration". The plaintiff's remuneration was approved by the committee of management of EPA. It is not suggested that the plaintiff was paid more than the approved remuneration. That remuneration was set having regard to information provided by employment services groups for like salaries. The Director-General referred to a number of payments that were not approved by the committee of management. The evidence before the Court is that all of the payments were in accordance with the contract of employment by which EPA was bound and which its committee had approved. 53Mr Mansfield's report of 1 July 2011 states: "My indications are that the contract was validly adopted by the COM [committee of management] and is thus binding on [EPA]. The contract was voted on and accepted by the COM in a validly constituted meeting. ... Based on the evidence provided... I do not consider her salary to be excessive." [exhibit DM2, at 17] The administrator investigated the level of salary for completeness and had before him comparable salaries and information provided by Rimfire Resources, an employment group that provided such comparisons.

Loans between programs 54Lastly, the Director-General expressed concerns about monies lent from one funding program to another. Prior to 1 July 2010, EPA accounted for each of its funding programs by a separate MYOB program. As a consequence, no account was taken of general administrative overheads and operational costs. This was the subject of comment by the administrator. He said: "My review of the accounts of [EPA] have determined that [EPA] had issues with its financial accounting procedures prior to 1 July 2010, when they moved to a new accounting system. [EPA's] accounts for the periods prior to 1 July 2010 were organised in four separate MYOB files, one for each division with no discernible allocation system for overheads or cross program costs. Additionally, [EPA] continually used general expense accounts and other suspense style accounts to record transactions, making it impossible to trace the flow of funds through the organisation or properly audit the accounts. I note that the above issues have now been rectified." 55The administrator described the current accounting system including the allocation of overheads. He took the view that the system that operated prior to 1 July 2010 was not optimal and that there were better methods of allocating overheads and administration costs. Yet, at no stage, did the administrator suggest that the accounts were incorrect or were such that an audit would not disclose the transfers of money, the sources of money and the amounts actually expended in each funding program. While the above extract of the administrator's report of 1 July 2011 suggests "impossibility" in tracing or auditing the transfers, the entire report and the other documentation make clear that this statement reflects some hyperbole. Nevertheless the divisional accounting system rendered audit more difficult, and it has now been replaced. 56The transfer of money, even for temporary purposes, from one funding program to another is, on the material before the Court, a breach of the guidelines and agreements that govern the funding program and the conduct of EPA.

57It is fundamental that a statute be construed as a whole and any construction must consider the purposes for which the Act was promulgated. In his submissions, or submissions on his behalf, the Director-General has set out a number of relevant provisions of the Act. 58The objects of the Act are to provide a scheme for registration of associations engaged in small-scale, non-profit and non-commercial activities (s 3(a) of the Act) and to provide for corporate governance and financial accountability of associations registered under the Act (s 3(b) of the Act). 59A Tier 1 association, which includes EPA, must cause financial statements to be prepared annually and to be audited: s 43 of the Act. Further, EPA is required to keep records that correctly record and explain its financial transactions and financial position: s 50(1) of the Act. 60The Director-General is entitled to require EPA (or any person associated with EPA) to furnish information, or produce documents and may authorise a person to enter premises on which EPA carries on any activity and may there inspect (and copy) documents relating to the business: ss 85 and 86 of the Act. It is in that context that s 104 has been examined and construed; and it is in that context that the jurisdiction and/or power reposed in the Director-General by ss 50, 51 and 55 of the Act must be construed. Those provisions are in the following terms: "50 Keeping of accounts and minutes of proceedings (1) An association: (a) must keep records that correctly record and explain its financial transactions and financial position, and (b) must keep minutes of the proceedings of its committee meetings and general meetings. Maximum penalty: 5 penalty units. (2) In the case of a Tier 1 association within the meaning of Division 1, the records referred to in subsection (1) (a) must be sufficient to enable financial statements to be prepared in accordance with the Australian Accounting Standards. (3) If any document required to be kept under this section is, either in whole or in part, in a language other than the English language, a copy of the document wholly in the English language must be kept with the document. (4) The regulations may make provision for or in respect of the keeping and inspection of records and minutes under this section. 51 Audit at the Director-General's direction (1) The Director-General may direct an association to cause the whole or any specified part of an association's financial records to be audited, and an auditor's report lodged with the Director-General, within a specified time. (2) Such a direction may be given regardless of whether the financial records have previously been audited. (3) An association to which such a direction is given must ensure that the direction is complied with. Maximum penalty: 5 penalty units. (4) An auditor's report under this section must state whether the association's financial records: (a)have been properly kept, and (b)give a true and fair view of the association's affairs. ... 55 Appointment of administrator by Director-General The Director-General may appoint an administrator to administer an association's affairs if: (a) the association has persistently failed to comply with the requirements of this Act or the regulations, and (b) having regard to those circumstances, the Director-General is satisfied that it is in the interests of the association's members or creditors for an administrator to be appointed." 61The plaintiff submits that the terms of s 50(2) of the Act limit, and explain, that which is required by s 50(1). The plaintiff submits that the keeping of records that correctly record and explain the financial transactions and financial position of EPA is limited to such records as sufficient to enable financial statements to be prepared in accordance with the requisite standards. Further, the plaintiff submits that the fact that audited accounts were prepared, and were unqualified, necessitates a finding that EPA has kept records that correctly record and explain its financial transactions and financial position. 62The foregoing submission does not withstand scrutiny. An accountant may prepare financial statements in accordance with the appropriate standards and not qualify that audit in circumstances where the accountant is unaware of transactions that may have occurred. Moreover, if this submission were accepted, given that the terms of s 43 of the Act require all Tier 1 associations to have their accounts audited, unless an accountant qualified the audit in question, s 50 of the Act would be otiose. 63The provisions of s 50 of the Act require EPA to have financial records that give a fair and true view of its financial position and record and explain its financial transactions. 64The requirement to give a true and fair view relies on the proper interpretation of the word "correctly" in the context of this Act, particularly the terms of s 51(4)(b) thereof. Moreover the terms of the last mentioned subsection inform the duty imposed upon EPA, and any other such association, under s 50(1) of the Act. 65On that basis, the duty to record and explain the financial transactions and financial position is a duty to ensure that the accounts are "properly kept" and "give a true and fair view of [EPA's] affairs". 66The plaintiff submits that because the conduct of EPA occurred prior to 1 July 2010, on which date the Act commenced operation, the Director-General had no material on which he could determine that there had been a persistent failure to comply with the requirements of the Act. It was submitted that the Director-General had no material upon which he was capable of coming to the decision to appoint an administrator, pursuant to the terms of s 55 of the Act. 67Of course, on one view, that which the Director-General had before him is significantly less relevant in circumstances where it is now the Court that must determine, on the material before it, whether there has been a persistent failure to comply. Nevertheless, the plaintiff's submission, in this regard, has construed transitional provisions too narrowly. 68The terms of Sch 4, Clauses 10 and 11(b) of the Act are part of the general savings clause in the transitional provisions. Those provisions are in the following terms: "10 Construction of other references Subject to this Schedule and the regulations, in any Act or instrument: (a) a reference to a provision of the 1984 Act for which there is a corresponding provision in this Act extends to the corresponding provision of this Act, and (b) a reference to any act, matter or thing referred to in a provision of the 1984 Act for which there is a corresponding provision in this Act extends to the corresponding act, matter or thing referred to in the corresponding provision of this Act. 11 General saving Subject to this Schedule and the regulations: (a) anything begun before the commencement of this Act under a provision of the 1984 Act for which there is a corresponding provision in this Act may be continued and completed under the 1984 Act as if this Act had not been enacted, and (b) subject to paragraph (a), anything done under a provision of the 1984 Act for which there is a corresponding provision in this Act (including anything arising under paragraph (a)) is taken to have been done under the corresponding provision of this Act." 69The 1984 Act contained a corresponding provision to the terms of s 50 of the Act, namely, s 28, which required that an association must ensure "that proper accounting records are kept which correctly record and explain the transactions of the association and its financial position". 70As a consequence, the keeping of accounting records "correctly", prior to 1 July 2010, is an act performed under a provision of the 1984 Act for which there is a corresponding provision in the Act and s 55 will apply, in the same way, to a failure to comply with s 28 of the 1984 Act as it does to s 50 of the Act. Any other interpretation would be inconsistent with the obvious and express objects of the Act. 71Next, I deal with the issue between the parties as to the meaning of the term "persistently". In the context of this Act, the use of the term "persistently" in s 55 of the Act is the use of the term in its ordinary meaning, but with particular reference to continuing conduct in the face of opposition. "Persistent", in its ordinary sense, means, "persisting, especially in spite of opposition, etc.; persevering; lasting or enduring; or continued; constantly repeated" (Macquarie Dictionary, 5th ed, 2009). 72Lastly, I deal with the plaintiff's submission that it was necessary for the Director-General to identify particular creditors in whose interests the appointment of an administrator was necessary. The term " creditors", where used in s 55 of the Act, does not refer to a special meaning of the term "creditor". It means any person to whom EPA (or an association in like position) owes money. The plaintiff's submission that the definition from the Farm Debt Mediation Act 1994 ought to be a basis for the meaning to be given to the term "creditor" is rejected. Moreover, a proper construction of s 55 of the Act requires that the term "creditors" be construed in a way that refers to present or future creditors and, in that sense, means those persons in the class of those who are or are likely to be creditors of the association.

73As the Court has already stated, it is for the Court, on the material before it now, to determine whether the appointment of an administrator is appropriate. Further, the material before the Court is, as already stated, significantly different from that which was before the Director-General. 74The administrator has examined all of the complaints made in the statutory declarations provided to the Director-General and upon which much of his suspicion was based. An analysis of those complaints is contained in exhibit DM2, at 22 to 28. Essentially, except in relation to loans between funding programs, those complaints are unsupported and/or inconsistent with documents that were before the administrator. 75I am not persuaded or satisfied that, in relation to the accounts kept by EPA of the transactions on the credit and/or debit cards provided to staff, the records do not provide a true and fair view of EPA's affairs or have not been kept properly. Further, I am satisfied that the accounts record the credit card transactions accurately and record and/or explain their purpose, except as explained below. 76I am also satisfied that the loans between funding programs, while a breach of the agreement with each fund-provider, were properly recorded and explained in EPA's accounts. While they should not have occurred, the inter-fund loans were not evidence of non-compliance with s 50 of the Act. 77Further, I consider the complaint about the purchase of the vehicle from Mr Comelli to be totally without substance. That purchase certainly did not warrant any punitive action against EPA. 78Lastly, I turn to the exception to which I have referred above and the issue of cash withdrawals. I accept that in some instances the cash withdrawals, and a failure to explain fully each of the transactions on the credit cards, raised grave suspicion in the Director-General. The cash withdrawals have now been explained, but were not explained adequately to the Director-General prior to the appointment of the administrator. 79For my own part, like the administrator, I would expect a better explanation and greater transparency. Yet, there is no evidence to suggest either dishonesty or defalcation. Nor was there such evidence before the Director-General. There were allegations of such behaviour, and suspicions, but no evidence that would warrant such a finding. 80The credit card transactions portray all the hallmarks of an organisation that has maintained a procedure originally designed for a small organisation in circumstances of exponential growth. Whatever be the reason, there is no evidence before the Court that the records are incorrect or not properly explained. Even if a better explanation were appropriate, and such a better explanation were necessary in order to comply with s 50 of the Act, in my view, it cannot be said that the procedure for recording credit card transactions was a "persistent" failure to comply with s 50 of the Act. As soon as these issues were seriously raised with EPA, and the problem identified, the process was changed in a way that was satisfactory to the administrator. 81The credit card transactions to which the Director-General referred were not, on the evidence before the Court, a proper basis of finding that EPA has "persistently failed to comply with section 50 of the Act". If those transactions were the only basis for the appointment of the administrator, it ought to be set aside. 82Clearly, given the above comments, the purchase of the vehicle from Mr Comelli could never have been a basis for an assertion that the records of EPA were not correct or were not properly explained and could not be the basis for an appointment of an administrator under s 55 of the Act. 83The issue of cash withdrawals is in the same category as the credit card transactions. While all of the withdrawals have not been explained by accompanying documentation to the satisfaction of the administrator, or to the Court, if the withdrawals were to amount to a failure to comply with s 50 of the Act, it would not be a "persistent" failure. 84I turn to the loans between funding programs. As I explained above, such loans, on the information before the Court, were inconsistent with the funding agreements under which the monies were supplied. Further, the auditors noted these issues in each of the audited accounts in 2006, 2007, 2008 and 2009. In each case the auditor recommended that EPA stop the practice immediately. EPA did not. Such conduct is "persistent". It also jeopardises the continued funding of EPA by the various government departments. 85Nevertheless, the loans were explained and recorded. The accounts (and the source records upon which they were based) gave a true and fair view of the financial transactions and the reason for them. They may not have been properly kept for a time, but they disclosed a true and fair view of the accounts, the financial affairs and position of EPA. I do not consider the loans between the various services, which have now ceased, a failure to comply persistently with s 50 of the Act (or s 28 of the 1984 Act). 86Lastly, it is necessary for the Court to comment on the actions of the Director-General under s 55 of the Act. The Director-General has the power under s 51 of the Act to direct an association to cause the whole or any specified part of its financial records to be audited. Presumably, the Director-General has the capacity to select an independent auditor. The Director-General certainly has the power to investigate the affairs of an association. 87Where, as here, the Director-General has serious concerns about an association, based, amongst other things, on complaints that have been received (directly or indirectly), the Director-General may immediately, and urgently, appoint an independent auditor to audit the impugned transactions. 88The Director-General does not have the power to appoint an administrator on the basis of a persistent failure to comply with s 50 of the Act merely on the basis that the Director-General does not know whether the records are a true and fair view of the affairs of the association or whether they have been properly kept. It seems to me that it was predominantly the lack of knowledge that was the basis of the actions of the Director-General. 89He has acted, understandably, on the basis of serious concerns raised by a variety of complaints. However, the Director-General has based his decision on his concern for the lack of documentation given to him, not on the failure to have records that gave a true and fair view of EPA's affairs or that were properly kept. 90For the foregoing reasons, and notwithstanding that the concerns of the Director-General were reasonable, on the material before the Court, the appointment of an administrator is not now warranted and the Court makes the following orders: (1) Judgment for the plaintiff; (2) The first defendant's appointment of the second defendant to administer the affairs of Essential Personnel Association Inc, effected on 9 March 2011, is set aside on and from the date of this judgment; (3) The first defendant shall pay the plaintiff's costs of and incidental to these proceedings, as agreed or assessed. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 19 June 2012

Calwell-Smith v Director-General Department of Finance and Services

At a glance

Court

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Before

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Judgment (11 paragraphs)

Parties

Cases Cited (8)