Garvey v Institute of General Practice Education Incorporated

Garvey v Institute of General Practice Education Incorporated - [2007] NSWIRComm 159 - NSWIRComm 2007 case summary — Zoe

[65]

25 Having identified the respondent's trading activities to the extent possible in light of the available evidence, we turn to consider the second question arising in these proceedings, namely whether, as a matter of law, the respondent's trading activities are such that the respondent should properly be characterised as a trading corporation. 26 As already mentioned, the parties correctly accepted that if the respondent was able to satisfy the Commission that it was a constitutional corporation by reason of meeting the requirements to be identified as a "trading corporation" for the purposes of s 51(xx) of the Commonwealth Constitution, the Commission would have no power to hear the applicant's applications by virtue of the operation of s 16(1) of the WR Act. 27 A corporation will be identified as a constitutional corporation if it can be properly regarded as one or more of a foreign corporation, a trading corporation formed within the limits of the Commonwealth or a financial corporation formed within the limits of the Commonwealth: s 51(xx). 28 In these proceedings, the parties' submissions were limited to characterisation as a trading corporation while in another matter to be decided shortly, the question has arisen as to the characterisation of a corporation as both a trading and financial corporation. While the present matter can be dealt with in short order, we nevertheless propose to set out the key principles relevant to the characterisation of a corporation as a trading corporation, particularly given the frequency with which this issue is arising in proceedings before this Commission. We observe that the approach to the characterisation of trading corporations and financial corporations is largely the same (subject to making due allowance for the difference between "trading" and "financial"): State Superannuation Board v Trade Practices Commission (1982) 150 CLR 282 at 303. Relevant principles 29 The High Court in New South Wales v Commonwealth (2006) 231 ALR 1 was not required to examine the question as to what constituted a trading or financial corporation, observing (at 20): [55] The challenge to the validity of the legislation enacted in reliance on the corporations power does not put in issue directly the characteristics of corporations covered by s 51(xx). It does not call directly for an examination of what is a trading or financial corporation formed within the limits of the Commonwealth. (Plainly, a foreign corporation is a corporation formed outside the limits of the Commonwealth.) No party or intervener called in question what was said about trading and financial corporations in R v Federal Court of Australia; Ex parte WA National Football League (1979) 143 CLR 190; 23 ALR 439, Actors and Announcers Equity Association v Fontana Films Pty Ltd (1982) 150 CLR 169; 40 ALR 609, State Superannuation Board v Trade Practices Commission (1982) 150 CLR 282; 44 ALR 1 or Fencott v Muller (1983) 152 CLR 570; 46 ALR 41. 30 Having reviewed the authorities identified by the High Court in NSW v Commonwealth, the authorities helpfully identified by the parties and other relevant case law, we consider that the key principles relevant to the question as to whether a corporation can properly be characterised as a trading corporation on the current state of the law are as follows:

[74]

31 As already mentioned, the only trading activity ultimately pressed by the respondent was teaching services provided to the University of New South Wales, deriving revenue of $760.98 for the year ended 30 June 2006, being the financial year immediately prior to the relevant date of the applicant's dismissal. Based on the authorities, the concessions made by the respondent as to its other activities, particularly as to the services it provides pursuant to the Federal government grant and the interest it receives on unspent grant moneys, appear to us to be well founded. 32 We have proceeded on the basis that the provision of teaching services to the University of New South Wales can properly be described as trading activities. Given our conclusion as to the characterisation of the respondent, it is strictly unnecessary to test the correctness of this assumption. 33 In light of the principles set out above, we consider that the respondent cannot properly be characterised as a trading corporation on the basis of its single trading activity. It is sufficient to reach this conclusion by comparing the proportion of revenue arising from its sole trading activity to the respondent's total revenue. Based on this comparison, it cannot be said that such proportion is substantial or even significant. In the context of the total revenue of the respondent, it constitutes a very small percentage amount. It is also a small amount in itself (and so is not akin to the situation in Australian Red Cross). On this basis, the respondent is not a trading corporation. 34 In the circumstances it is unnecessary for us to examine an issue that arose in the proceedings as to the impact of the general prohibition on trading in the Associations Incorporation Act (see s 66 set out earlier). We observe that this issue does not appear to have been conclusively addressed in the authorities. On the one hand, it seems clear that a breach of such a prohibition will not affect the corporate nature of the body: see Adamson at 199 per Barwick CJ, and also Murphy J's observations in Adamson (at 239): A corporation which trades is a trading corporation even if it gained incorporation under an Act which forbids trading. The suggestion that such a corporation ceases to be one when engaged in the forbidden activity resembles the submission which was rejected by Fullagar J in Williams v Hursey (1959) 103 CLR 30 where he stated that the notion of qualified legal personality is unintelligible. 35 On the other hand, Barwick CJ's observations (at 208) as to corporate power are also relevant: But once it is found that trading is a substantial and not merely peripheral activity not forbidden by the organic rules of the corporation, the conclusion that the corporation is a trading corporation is open.

[75]

(See also Quickenden at 286 per Carr J). 36 A question arises as to the consequences if the substantial trading activity is forbidden by the organic rules of the corporation. Does such activity thereby cease to be trading activity? While the relevant internal rules or constitution may provide the resolution of this issue, it seems open to conclude that the fact of trading activity remains and may still play a role in the resolution of the constitutional issue, even though there may be a separate issue arising from the breach. This, however, appears to run counter to the enunciation of the activities test by Barwick CJ in Adamson. In the circumstances of the present matter where the constitution does not itself contain the prohibition on trading found in the Associations Incorporation Act, it is unnecessary to resolve this issue. Notice of discontinuance and withdrawal of motion 37 After the foregoing reasons were prepared and the parties were notified of the decision being delivered, two developments occurred. First, a notice of discontinuance was filed on Wednesday 27 June 2007 by the solicitors for the applicant. Secondly, at about 2.25 pm on the same day, the President's Associate was advised in a facsimile message by the respondent's solicitors that the parties had entered into a settlement of the "referenced matters" and, therefore, the respondent "withdrew" its notice of motion raising a jurisdictional challenge to the applicant's "referenced applications". The respondent also sought that the "hearing" scheduled (for 12.45 pm) on Thursday 28 June 2007 for the handing down of the decision on its motion be vacated. 38 We note the respondent's advice that the parties have entered an agreement to settle this matter. That is a matter for the parties but we take the view that there is a significant public interest in the decision in these proceedings being published. We have decided, therefore, to deliver our decision on the jurisdictional question as previously scheduled before granting leave to discontinue the proceedings.

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