Corporate Affairs Commission (SA) v Australian Central Credit Union

The total consideration payable by A.C.C.U. under the contract for the purchase of the shares and completion of the building was approximately $4.4m. That amount exceeded 5 per cent of the sum of A.C.C.U.'s paid-up share capital and the amounts held by it as deposits. That being so, the consent of the Registrar of Credit Unions to completion of the contract was required by s. 43(2) of the Credit Unions Act. The Registrar declined to give that consent unless A.C.C.U. obtained a declaration of the Supreme Court of South Australia to the effect that the proposed offer by A.C.C.U. of the units to its members for purchase would not amount to an offer "to the public" for subscription or purchase of a prescribed interest in contravention of the provisions of s. 169 of the Companies (South Australia) Code ("the Code").

In due course, A.C.C.U. instituted proceedings in the Supreme Court of South Australia seeking such a declaration. The Corporate Affairs Commission of South Australia ("the Commission") and the Registrar were named as respondents. In separate proceedings in the Supreme Court, the Commission sought injunctive relief against A.C.C.U. based upon the claim that the proposed offer to members of A.C.C.U. would contravene the section. Both proceedings were heard together by consent of the parties. The learned trial judge (Olsson J.) held that, for the purposes of s. 169, no "offer to the public" would be involved. He made the declaration sought by A.C.C.U. and dismissed the Commission's application for injunctive relief [1] . An appeal by the Commission and the Registrar to the Full Court of the Supreme Court (King C.J. and Bollen J., Matheson J. dissenting) was dismissed [2] . The Commission and the Registrar now appeal, pursuant to special leave, to this Court from the judgment and order of the Full Court. In the meantime, the Registrar and A.C.C.U. have apparently acted on the basis of the Full Court's decision since the Court was informed, in the course of argument, that the acquisition of the shares has been completed and that units in the unit trust have been issued to those members of A.C.C.U. who desired to purchase them. Details of the circumstances in which the actual offer of units was made are not before the Court, however, and it would seem preferable to confine consideration to the proposed offer which was the subject of examination in the courts below. It is convenient to refer to that offer as if it remained a prospective one.

1. (1984) 9 A.C.L.R. 132; 2 A.C.L.C. 657. 2. (1985) 39 S.A.S.R. 169.

A person, other than a company or an agent of a company authorized for that purpose under the common or official seal of the company, shall not issue to the public, offer to the public for subscription or purchase, or invite the public to subscribe for or purchase, any prescribed interest. It is common ground between the parties that A.C.C.U. is a person "other than a company or an agent of a company" and that the proposed offer of units to its members would be of a prescribed interest. That being so, the provisions of s. 169 would be contravened by such an offer if it would constitute an offer "to the public" for the purposes of the section. Whether that would be so must be determined in the light of s. 5(4) of the Code which provides: A reference in this Code to, or to the making of, an offer to the public or to, or to the issuing of, an invitation to the public shall, unless the contrary intention appears, be construed as including a reference to, or to the making of, an offer to any section of the public or to, or to the issuing of, an invitation to any section of the public, as the case may be, whether selected as clients of the person making the offer or issuing the invitation or in any other manner and notwithstanding that the offer is capable of acceptance only by each person to whom it is made or that an offer or application may be made pursuant to the invitation only by a person to whom the invitation is issued, but a bona fide offer or invitation shall not be taken to be an offer or invitation to the public if it -

(a) is an offer or invitation to enter into an underwriting agreement;

(b) is made or issued to a person whose ordinary business is to buy or sell shares, debentures or prescribed interests, whether as principal or agent;

(c) is made or issued to existing members or debenture holders of a corporation and relates to shares in, or debentures of, that corporation;

(ca) is made or issued to holders of prescribed interests made available by a corporation pursuant to a deed that is an approved deed for the purposes of Division 6 of Part IV and is an offer or invitation that relates to prescribed interests made available by that corporation pursuant to the same approved deed; or

(d) is made or issued to existing members of a company in connection with a proposal referred to in section 409 and relates to shares in that company.

It is not suggested that the offer would come within any of the exceptions set out in s. 5(4). The relevance of those exceptions in the present case is limited to any assistance which they may provide in construing the main body of the sub-section.

Plainly enough, s. 5(4) is not intended to provide a comprehensive definition of what constitutes, for the purposes of the Code, an offer or invitation "to the public". It does not, for example, expressly include the most obvious case of an offer to the public, namely, an offer to all the world. As the use of the word "including" indicates (see, e.g., Federal Commissioner of Taxation v. St. Hubert's Island Pty. Ltd. (In liq.) [3] ), the sub-section is expansive of what would otherwise be included in the notion of an offer or invitation to the public. That does not, however, mean that none of the cases which the sub-section includes would have been included in that notion in any event. The function of such an inclusive "definition" is commonly both to extend the ordinary meaning of the particular word or phrase to include matters which otherwise would not be encompassed by it and to avoid possible uncertainty by expressly providing for the inclusion of particular borderline cases.

In Lee v. Evans [4] , the question arose in this Court whether an invitation, which had been orally extended to individuals who had apparently been selected at random, was an "invitation to the public" to deposit or lend money for the purposes of s. 4a(1) of the Registration of Business Names Act 1928 S.A.. That Act contained no expansive "definition" of "invitation to the public" of the kind contained in s. 5(4) of the Code. It was held by a majority of the Court (Barwick C.J., Kitto, Taylor and Owen JJ., Windeyer J. dissenting) that no "invitation to the public" was involved in the particular circumstances of that case. The effect of the majority judgments was that, for the purposes of the particular legislative provision, an invitation was not an invitation to the public unless, in the words of Kitto J. [5] (with whose judgment Owen J. agreed), it was "an invitation made to the public generally and capable therefore of being acted upon by any member of the public". As Barwick C.J. [6] pointed out, that "does not mean that it must be an invitation to all the public either everywhere, or in any particular community". The Chief Justice continued [7] :

How large a section of the public must be addressed in a general invitation for it to be an invitation to the public in the relevant connexion must depend on the context of each particular enactment and the circumstances of each case. But within that sufficient area of the community the invitation must be general in the sense spoken of by Viscount Sumner in Nash v. Lynde [8] , by Warrington J. in Sherwell's Case [9] , "An offer of shares to anyone who should choose to come in", and by Jordan C.J. in Ex parte Lovell; Re Buckley [10] , "made to the public generally and capable therefore of being acted upon by any member of the public". That those to whose hands such an invitation is intended to come, also stand in some special relationship to the invitor, will not prevent the invitation being an invitation to the public. 1. (1964) 112 C.L.R. 276. 2. (1964) 112 C.L.R., at p. 286. 3. (1964) 112 C.L.R., at p. 285. 4. (1964) 112 C.L.R., at pp. 285-286. 5. [1929] A.C., at p. 169. 6. (1907) 23 T.L.R., at p. 483. 7. (1938) 38 S.R. (N.S.W.) 153, at p. 159; 55 W.N. 63, at p. 65.

Were it not for the expansive provisions of s. 5(4) of the Code, Lee v. Evans would provide support for a conclusion that the proposed offer in the present case would not constitute an offer to the public. It would not be "to the public generally" or "capable of being acted upon by any member of the public": it would be restricted to, and capable of being accepted or acted upon by, only those persons who are members of A.C.C.U. The expansive definition in s. 5(4) of the Code is, however, plainly intended to exclude the direct applicability of Lee v. Evans to determine what will constitute an offer or invitation to the public under the Code in that it effectively negates the necessity for what that case identified as the touchstone of what constitutes an offer or invitation to the public. Under s. 5(4), it is not necessary that the offer be made "to the public generally" or that it be "capable of being acted upon by any member of the public". It suffices if it be made to "any section of the public whether selected as clients of the person making the offer or issuing the invitation or in any other manner" and "notwithstanding that the offer is capable of acceptance only by each person to whom it is made or that an offer or application may be made pursuant to the invitation only by a person to whom the invitation is issued". Ultimately, the critical question in the present case is whether the members of A.C.C.U. constitute, for relevant purposes, a "section of the public".

The question whether a particular group of persons constitutes a section of the public for the purposes of s. 5(4) of the Code cannot be answered in the abstract. For some purposes and in some circumstances, each citizen is a member of the public and any group of persons can constitute a section of the public. For other purposes and in other circumstances, the same person or the same group can be seen as identified by some special characteristic which isolates him or them in a private capacity and places him or them in a position of contrast with a member or section of the public. In a case where an offer is made by a stranger and there is no rational connexion between the characteristic which sets the members of a group apart and the nature of the offer made to them, the group will, at least ordinarily, constitute a section of the public for the purposes of the offer. If, however, there is some subsisting special relationship between offeror and members of a group or some rational connexion between the common characteristic of members of a group and the offer made to them, the question whether the group constitutes a section of the public for the purposes of the offer will fall to be determined by reference to a variety of factors of which the most important will ordinarily be: the number of persons comprising the group, the subsisting relationship between the offeror and the members of the group, the nature and content of the offer, the significance of any particular characteristic which identifies the members of the group and any connexion between that characteristic and the offer: cf., generally, Lee v. Evans [11] ;Australian Softwood Forests Pty. Ltd. v. Attorney-General (N.S.W.); Ex rel. Corporate Affairs Commission [12] . Thus, if the proposed offer in the present case would be by a stranger to the members of A.C.C.U. and it was not possible to discern any rational connexion between membership of A.C.C.U. and such an offer, the members of A.C.C.U. would plainly enough constitute a section of the public for the purposes of that offer. The offer in the present case would, however, not be made by a stranger. It would be made by the credit union to its own members. Nor, as will be seen, would it be without rational connexion with the characteristic which sets the proposed offerees apart as members of a particular group. That being so, the question whether an offer to a section of the public would be involved must be determined by reference to the nature, content and general circumstances of the proposed offer.

1. (1964) 112 C.L.R., at p. 287. 2. (1981) 148 C.L.R. 121, at pp. 135-136, 143-144.

No particular number of persons can be designated as being, of itself, necessarily sufficient or inadequate to constitute the public or a section of the public for every purpose. "Anything from two to infinity may serve: perhaps even one, if he is intended to be the first of a series of subscribers, but makes further proceedings needless by himself subscribing the whole": Nash v. Lynde [13] ; see, also, Loss, Securities Regulation, 2nd ed. (1961), vol. I, pp. 655-656. As has been mentioned, there were, at relevant times, approximately 23,000 members of A.C.C.U. The magnitude of that number is, by itself, a factor militating in favour of a conclusion that those members would constitute a section of the public in relation to an offer made to them. However, closer examination of the particular proposed offer and the circumstances in which it would be made negatives the conclusion that it would, for relevant purposes, be an offer to a section of the public.

The characteristic which sets the proposed offerees apart as a group is both restrictive and well-defined. It is membership of A.C.C.U. The rules of A.C.C.U. restrict eligibility for membership by reference to employment and/or residence and prescribe clear procedures for applications for membership and their rejection or acceptance. Membership of the credit union involves subscription for ten one dollar ($1) shares in its capital. The proposed offer by A.C.C.U. to its members would have a perceptible and rational connexion with their membership: cf. Securities and Exchange Commission v. Sunbeam Gold Mines Co. [14] , cited with approval in Securities and Exchange Commission v. Ralston Purina Co. [15] . It would involve extending to those members an opportunity to share in the beneficial ownership of the premises which are to serve as the headquarters of the credit union of which they are members. More importantly, it would involve extending to them the opportunity to share, through the unit trust, in the beneficial ownership of premises of which that credit union would, at the time of the offer, be the beneficial owner. That being so, the direct interest in the beneficial ownership which a member would acquire by the purchase of a unit would, if all members were to take equal advantage of the opportunity to acquire units, be matched by a diminution of his or her indirect interest, through the credit union, in that ownership. In these circumstances, the offer of units to the members of A.C.C.U. would be an offer to them in their domestic or private capacity as members of A.C.C.U. It would arise from their membership, would relate to property in which they would be already indirectly interested as members and would have a perceptible and rational connexion with that membership. Such an offer could not properly be seen as constituting "an offer to [a] section of the public" for the purposes of s. 5(4) or an "offer to the public" for the purposes of s. 169 of the Code.

1. (1938) 95 F. (2d) 699, at p. 701. 2. (1953) 346 U.S. 119, at pp. 123-124 [97 Law. Ed. 1494, at p. 1498].

The appellants submitted that in construing s. 5(4) the Court should have regard to the purpose of the sub-section in protecting members of the public by requiring disclosure of information relevant to their investment decisions. Reliance was placed on the Ralston Purina Case in which the United States Supreme Court held that an offer of shares to "key employees" was not exempt from certain disclosure requirements, the exemption depending on whether the offer was a transaction "not involving any public offering" within the meaning of s. 4(1) of the Securities Act 1933 U.S.. The Supreme Court construed the language of that provision primarily by reference to the purpose which the statute sought to promote, holding that the applicability of the exemption should therefore "turn on whether the particular class of persons affected needs the protection of the Act" [16] . Because the offerees were employees who did not have access to the kind of information which registration of the offer would disclose, they were held to be in need of the statute's protection. Accordingly, it was held that the offer did not come within the exception.

1. (1953) 346 U.S., at p. 125 [97 Law. Ed., at p. 1499].

The generality of the statutory provision in the Ralston Purina Case made it susceptible to the interpretation placed upon it by the Supreme Court. Here, however, the statutory provisions are comprehensive and detailed and are couched in language reflecting earlier statutory provisions which have been the subject of judicial interpretation. Perhaps more importantly for present purposes, s. 5(4) is specifically expressed with a view to displacing to some extent the preceding judicial interpretation. In this context it would be quite inappropriate to give effect to the approach adopted in the Ralston Purina Case. To say this is not to exclude the purpose of the legislative provisions as a relevant consideration. It is legitimate to consider, in addition to the matters already mentioned, whether the relevant group of persons is one which Parliament could reasonably be expected to have had in mind as part of the investing public to be protected by the disclosure requirements: cf. the Australian Softwood Forests Case [17] .

It should be mentioned that it was also submitted, on behalf of the Commission and the Registrar, that the content of the specific exclusions from the general provisions of s. 5(4) of the Code supported a conclusion that the proposed offer in the present case would constitute an offer to a section of the public for the purposes of that sub-section. As King C.J. pointed out in the Full Court of the Supreme Court however, undue attention by courts to implications based on such exceptions is liable to lead to constructions which distort the true meaning of the relevant general substantive provisions [18] . This is particularly so in the case of uniform legislation prepared after consultation with a wide range of special interest groups. In such a case, exceptions such as those contained in pars. (a) to (d) of s. 5(4) are often to be seen as intended to make clear beyond argument that particular activities are not caught by the legislation rather than as intended to indicate a legislative intent that other activities are caught. The function of s. 5(4) is to give an extended operation to a large and varied number of other provisions of the Code, including penal provisions: see, in relation to s. 169, s. 174(1)(a). It would, in our view, be wrong to use the content of the exceptions contained in pars. (a) to (d) of s. 5(4) to attribute to the substantive words of the sub-section a wider scope than that which they bear as a matter of ordinary language.

The facts on which this case should be decided and the relevant statutory provisions are set out in the judgment of the majority. I am in agreement with their Honours' analysis of the facts and with the complexion which their Honours place on them. I too would hold that the offer in the present case is not an offer to the public. I write what follows, however, to state my understanding of the criterion which inheres in s. 5(4) of the Companies (South Australia) Code ("the Code").

The legislative history of s. 5(4) of the Code confirms what the text of that provision reveals, namely, that the legislature has been concerned to extend the meaning of "the public" so that it includes a section of the public, however selected. That extension has eliminated the dichotomy between an invitation to "the public at large, all and sundry" and an invitation to "a select group to whom and to whom alone the invitation is addressed" - the dichotomy expressed by Windeyer J. in his dissenting judgment in Lee v. Evans [19] . The principle established by the majority in Lee v. Evans that an invitation to a particular individual and open to acceptance only by him was not an invitation to the public [20] was also abrogated by s. 5(4).

1. (1964) 112 C.L.R. 276, at p. 292. 2. (1964) 112 C.L.R., at pp. 286, 287, 290.

The offer by Australian Central Credit Union ("A.C.C.U.") was intended to be made to and to be open to acceptance by its members as a class. We are therefore concerned with that aspect of the operation of s. 5(4) by which an offer to a selected group of persons is brought within the scope of "an offer to the public". For some purposes, of course, the members of A.C.C.U. are a section of the public. But not every offer to an identifiable group of persons can be treated as an offer to the public even though that group is for some purposes a section of the public. Although s. 5(4) is extremely wide, it retains a distinction between, on the one hand, an offer that is made to the public or a section of the public and, on the other, an offer that is not made to the public or a section of the public. The question is: what is the criterion for determining whether an offer belongs to one class or the other?

A group of offerees who are not a "section of the public" are not to be distinguished from a group who are a "section of the public" by reference merely to the manner in which they are selected to receive the offer. And thus the criterion of distinction cannot be simply whether the offerees have some special interest in the subject-matter of the offer. A well-targeted offer of a prescribed interest is directed to those members of the public who have a special interest in the subject-matter. The operation of s.169 in conjunction with s. 5(4) would be truncated without apparent reason if the application of those provisions to a particular offer were excluded merely because the offer is made to a group selected on the ground that the members of the group have a special interest in receiving the offer.

The viewpoint from which a group is to be distinguished from a "section of the public" is the viewpoint of the offeror. When an offeror contemplates the making of a particular offer to a particular group, the question is whether or not that group is to be seen by a reasonable person in the offeror's position as a section of the public. The answer to that question depends on whether there exists some particular relationship between the offeror and the group whom he has in contemplation as offerees which is apt to distinguish the group from a section of the public. The relationship must exist before the offer is made, for the group must be classified as a section of the public at the moment when the offer is made if s. 5(4) is to apply. But relationships, particularly commercial relationships, are various and not every relationship between an offeror and a group will suffice to take an offer to a group out of s.5(4). Some relationships between offeror and offerees may have no connexion or only a tenuous connexion with the subject-matter of the offer to be made. But when an antecedent relationship exists between an offeror and a group of offerees and, by reason of that relationship, the offerees have a special interest in the subject-matter of the offer, there is a ground for distinguishing the group from the public. (It may be that a ground of distinction appears also when the offeror has some kind of special interest in the acceptance of the offer by the offerees because of the relationship between offeror and offerees, but that question can await consideration in another case.)

When the offerees' special interest is substantially greater than or substantially different from the interest which the offerees would have had in the subject-matter of the offer if the antecedent relationship did not exist, the ground for distinguishing them from a section of the public is substantial. In my opinion, the criterion which distinguishes an offer to a group of offerees who are not a section of the public from an offer to a section of the public is this: whether the offerees are members of a group who, by reason of their antecedent relationship with the offeror, have an interest in the subject-matter of the offer substantially greater than or substantially different from the interest which others who do not have that relationship would have in the subject-matter of the offer. As the A.C.C.U. offer to its members was an offer to a group whose relationship with the offeror gave them an interest in the subject-matter of the offer substantially greater than or substantially different from the interest which non-members would have in the offer, I agree that the offer was not an offer to the public. I would dismiss the appeal.