Hardeman v Children's Medical Research Institute

Hardeman v Children's Medical Research Institute - [2007] NSWIRComm 189 - NSWIRComm 2007 case summary — Zoe

[16]

1 The applicant, Ms Edna Hardeman, commenced proceedings on 22 March 2007 (by way of a notice of motion and summons for relief) seeking interlocutory relief under s 106 of the Industrial Relations Act 1996 ("the Act") restraining the respondent, the Children's Medical Research Institute (a Company Limited by Guarantee) ("the respondent") from, in effect, terminating the applicant's contract of employment. The applicant also sought final relief declaring her contract unfair, harsh or unconscionable and/or contrary to the public interest and voiding and varying aspects of her contract. 2 The respondent filed a notice of motion raising a jurisdictional challenge to the applicant's motion, based on the contention that the Commission had no jurisdiction to hear the applicant's motion as the respondent was a constitutional corporation and, thereby, s 16(1) of the Workplace Relations Act 1996 (Cth) ("WR Act") operated to remove the Commission's jurisdiction in respect of the respondent. The respondent also sought to challenge the Commission's jurisdiction to grant the interlocutory relief sought by the applicant. 3 The parties' motions were initially heard by Staff J, who referred the matter to the President, pursuant to s 193 of the Act, to determine if a Full Bench should deal with the question of whether the respondent is a constitutional corporation. We understand that consent arrangements were made before his Honour by the parties to accommodate their respective situations pending the hearing of the Full Bench reference. The President then referred the "constitutional corporation" issue to the Full Bench for decision, pursuant to s 193 of the Act. Accordingly, these proceedings are limited to what may be referred to as the respondent's constitutional challenge. These proceedings do not relate to the substantive relief sought by the applicant, nor to the respondent's challenge to the Commission's jurisdiction to grant the interlocutory relief sought. 4 During the hearing, it was accepted by the parties that if the respondent was able to satisfy the Commission that it was a constitutional corporation for the purposes of s 51(xx) of the Australian Constitution ("Constitution"), the Commission would not have power to hear the applicant's summons and motion by operation of s 16(1) of the WR Act. 5 A Full Bench of the Commission has recently considered an analogous challenge in Garvey v Institute of General Practice Education Incorporated [2007] NSWIRComm 159 ("Garvey") and provided a synthesis and analysis of the principles relevant to an assessment as to whether a corporation is constitutional corporation. Though Garvey was decided by the Commission and, therefore, is not binding on this Court, we consider that the principles stated there represent a correct analysis of the principles to be derived from relevant authority. We observe at the outset that the point of difference between these proceedings and Garvey is that, in these proceedings, the respondent has contended that it is both a "trading corporation" and a "financial corporation", whereas in Garvey the issue was confined to whether the corporation was a "trading corporation". The Hearing of the Challenge 6 The Full Bench heard the respondent's constitutional challenge on 22 May 2007, at which the respondent relied upon the affidavits of Mr Stephen Ryall dated 11 April 2007 and 16 May 2007. In reply, the applicant tendered a notice to produce together with material produced by the respondent in response to the notice, namely minutes of the respondent's Finance and Investment Committee's meetings for the period 27 January 2004 to 23 March 2007. 7 Written submissions were also received from the parties as well as the Attorney General for New South Wales, who intervened in the proceedings on 17 May 2007, pursuant to s 78A of the Judiciary Act 1903 (Cth). 8 As the Commission observed in Garvey, a constitutional challenge of the type made by the respondent essentially gives rise to two questions:

[27]

(a) to initiate, promote, undertake, develop, conduct and carry out research in the field of paediatrics; (b) to conduct research into the causes, prevention, relief or cure of disease or illness in children; … (f) to take over, hold and manage the funds and other assets and liabilities of the charitable trust known as the "Children's Medical Research Foundation", such funds and other assets and liabilities being currently held by the Hospital as trustee of the said charitable trust, upon and subject to the trusts on which funds and other assets and liabilities are presently held by the Hospital and to act as the trustee of the said charitable trust. Solely for the purpose of carrying out of the aforesaid objects and not otherwise: … (n) to invest and deal with the moneys of the Institute not immediately required, in any form of investment for the time being authorised by law for the investment of trust moneys and in addition thereto in British Government Securities, in any government funds or debentures of the Commonwealth of Australia, or of any state of the Commonwealth of Australia, or of New Zealand or in any debentures or debenture stock of any municipal corporation therein, or of any bank or incorporated company carrying on business therein, or by way of deposit in any bank for fixed periods or otherwise, or by way of purchase of or mortgage upon any freehold estate; … (q) to sell, improve, manage, develop, exchange, lease, dispose of, turn to account or otherwise deal with all or any part of the property and rights of the Institute; … (z) to apply for purchase or otherwise acquire any patents, patent rights, copyrights, trade marks, formulas, licences, concessions and the like conferring any exclusive or non-exclusive or limited right to use or any secret or other information as to, any invention that seems capable of being used for any of the purposes of the Institute, or the acquisition of which seems calculated directly or indirectly to benefit the Institute, and to use, exercise, develop or grant licences in respect of, or otherwise turn to account, the property, rights or information so acquired; and (aa) to do all such other things as are incidental or conducive to the attainment of the objects and the exercise of the powers of the Institute.

[28]

(g) the respondent has established investment objectives, policies and processes by which it invests its long term assets and in the respondent's current Statement of Investment Objectives and Policy, prepared by Watson Wyatt Australia Pty Ltd, for the Children's Medical Research Institute dated June 2003, its general investment objectives are: 2.1 The Institute's general investment objectives for the Institute's long-term assets are as follows: · to invest the assets of the Institute as permitted by law · to prudently manage all aspects of risk in relation to the Institute's assets, including: - ensuring the assets are adequately diversified - ensuring the assets have an appropriate level of liquidity · to ensure that any party to whom investment decision making is delegated exercises integrity, prudence and professional skill in fulfilling the investment tasks delegated to them, and that the actions of the party are fully accountable to the Institute. (h) the Statement of Investment Objectives and Policy also outlines the respondent's policies in relation to financial management: 3.2 The institute recognises that it is empowered to delegate the investment of the institutes assets to one or more investment managers. ... 4.1 The Institute recognises the importance of an ongoing process of monitoring the investment managers to ensure they continue to demonstrate a sufficient level of skill to meet the investments objectives. 4.2 Each manager is required to provide regular information on investment performance. 4.3 The Institute from time to time as deemed necessary, will seek appropriate advice from its investment consultant, Watson Wyatt, to assist with the monitoring of investment managers including selection and de-selection. ... 4.8 The institute recognises that monitoring of performance alone is not sufficient to assess the future capability of managers. In addition therefore the institute relies on Watson Wyatt to hold regular meetings with the investment managers to satisfy themselves that the managers continue to carry out there work competently and have the appropriate knowledge and experience to manage the investments of the Institute. (i) the respondent's considerable financial investments are overseen by its Finance and Investment Committee and its Financial Advisor. The respondent has a Finance and Investment Committee, which is a sub-committee of the board of directors of the respondent, and which has as its primary function: The committee's primary function is to assist the Board in discharging its responsibility to exercise due care, diligence and skill in relation to the CMRI in the areas of investment policy, strategy and such other matters as the CMRI Board may determine from time to time.

[138]

29 This matter raises for consideration the application of those authorities in the context of a charitable public welfare research corporation that derives a significant component of its revenue from the sale of investments, interest and dividends, which are derived from the investment of funds received from donations, fundraising, capital gains, sale of merchandise, reinvestments and savings. Given the nature of that institution and the particular aspects of its financial activities that have attracted debate, the matter may be said to have wide implications for the characterisation of a financial corporation for the purposes of s 51(xx) of the Constitution. The Australian economy is a tertiary economy which is undergoing considerable expansion. It has a plethora of uncharacterised tertiary institutions. In that context, some incorporated modern charities or institutions carrying on major public welfare activities, have become entities possessing sophisticated fundraising and commercial arms. Further, most universities have active investments, significant endowments and commercial arms: see Quickenden. 30 However, there are some particular issues in this matter which represent, to some extent, a refinement of these broad questions. The issue raised by the proceedings is whether the investments we have described (and the financial returns they produce) and/or the management of them constitute financial activities such as would warrant a conclusion that the respondent was a financial corporation for the purposes of s 51(xx) of the Constitution. Given that the authorities make clear that the issue may not be resolved solely by reference to the purpose of the organisation, and given the nature of the organisation's activities which relate to finance, we consider that the issue may be refined as follows: i) If it is assumed that all the activities identified by the respondent are financial activities for the purposes of s 51(xx) of the Constitution , are they, when properly analysed, a sufficiently significant proportion of overall activities to characterise the respondent as a financial corporation? We are of the view, that the question should be answered in the negative, after the activities relied on by the respondent have been assessed relative to the other activities of the respondent. That answer is sufficient to resolve the motion. If we are wrong in that conclusion (and in any event in order to fully resolve, in the public interest, the issues ventilated in the proceedings) we shall address the following further issues; ii) Do the organisation's financial activities constitute financial dealings for the purposes of s 51(xx) of the Constitution ? On the current state of the authorities, we consider this question ultimately requires a determination as to whether the financial activities constitute commercial dealings in finance. If the answer to the question is, as we find, in the negative then the organisation may not ultimately be categorised as a financial corporation in the constitutional sense as it simply does not engage in financial activities of the requisite kind. It is not enough to demonstrate that an organisation provides or augments its primary non-financial activities by engaging in some financial activities which are not commercial in nature. 31 There are some particular aspects of the relevant factual background which may be identified as immediately relevant for the determination of these questions. They are as follows: (a) the respondent at 30 June 2006 held approximately $2 million in cash deposits and approximately $83 million in managed funds. At 30 June 2006 it earned $411,124 from interest received and $5,386,927 million as dividends from investments. It also earned $1,669,215 profit from the sale of some of its investments. Approximately 31 per cent of its revenue for the 2006 financial year was generated from these investments. The position was similar for the ensuing partial financial year;

[150]

42 In addition, the applicant submitted that State Superannuation (at 305) was authority for the proposition that dealing in finance must have a commercial element to characterise a corporation as a financial corporation. It was submitted that this was consistent with the discussion of Deane J in Re Ku-ring-gai. Similar affirming discussion was alluded to in Quickenden (first instance) at (608-609). 43 While contending that the respondent's activities were not commercial dealing in finance, the applicant also submitted, that if the investment activities were held to be financial activities, the administrative and staffing arrangements (see above), gave rise to the view that the investment activities were not a sufficiently significant proportion of respondent's overall activities in order to categorise the respondent as a financial corporation for the purposes of s 51(xx) of the Constitution. 44 Mr M G Sexton SC, who appeared with Mr J Kirk of counsel for the Attorney General, submitted that the respondent did not derive any of its revenue from financial activities as such, but rather derived its revenue from a mixture of grants, donations and essentially passive investments where money is given to another corporation who manages those investments for the respondent over a period of time. The Attorney further submitted that, whilst there was no doubt that a significant proportion of the respondent's revenue is derived from financial investments, it is not correct to say that a significant, let alone a substantial, proportion of its activities could be characterised as financial in nature. 45 Counsel for the Attorney General further contended that, in some respects, the respondent's submissions amounted to the proposition that the investment of the funds of the respondent (in the sense they are lent to a range of organisations) was sufficient to warrant a conclusion that it was a financial corporation. It was contended that this would mean that any corporation which merely had a bank account engaged in financial activity for the purposes of s 51(xx) of the Constitution and that this was an unlikely proposition. 46 Counsel for the Attorney General focused on the respondent's identified investment activities and contended they were not financial. Counsel submitted, particularly through discussion of Re Ku-ring-gai and State Superannuation, that commercial dealings in finance were required to categorise a corporation as a financial corporation and in this matter those activities were clearly not present. It was acknowledged that the respondent in this matter, as opposed to the University in Quickenden, was easily distinguished from the previous authorities as it was clearly apparent that its activities were not financial activities. Counsel, we note, also called into question the correctness of the decision in Quickenden.

[155]

50 If the activities identified by the respondent are appropriately termed financial activities for the purpose of s 51(xx) of the Constitution, we consider, as we have earlier mentioned, that those activities are not a sufficiently significant proportion of the respondent's overall activities in order to characterise it as a financial corporation for the purposes of s 51(xx) of the Constitution. We shall explain our reasons for the conclusion below. 51 The relevant test for categorising a financial corporation is whether financial activities form a sufficiently significant proportion of its current overall financial activities. This test is the same as for a trading corporation. The majority in State Superannuation (Murphy, Mason and Deane JJ) explained this concept as follows (at 303): Although this Court has had to consider the meaning of the expression "trading corporation" in s. 51(xx) of the Constitution in its suggested application to a county council formed under the Local Government Act 1919 (N.S.W.) (Reg. v. Trade Practices Tribunal; Ex parte St. George County Council) and in its application to a football league and a football club (Reg. v. Federal Court of Australia; Ex parte W.A. National Football League ("Adamson")), this is the first occasion on which it has been called upon to consider the associated expression "financial corporation". It is our view that the Court's approach to the ascertainment of what constitutes a "financial corporation" should be the same as its approach to what constitutes a "trading corporation", subject to making due allowance for the difference between "trading" and "financial". 52 There are various adjectives used to describe the appropriate level of activities in order to categorise a constitutional corporation, which are derived from the judgments in Adamson. They are "substantial", "not insubstantial" and "sufficiently significant", Adamson at (208, 239 and 233). Any differences between the comments are of "emphasis only": see State Superannuation (304). 53 Whether the financial activities of a corporation are sufficient to warrant it being characterised as a financial corporation is a question of fact and degree: Adamson (234), State Superannuation (304). 54 The respondent submitted that it is engaged in sufficient financial activities, on the basis of the size of its investment and the amount of income generated. However, these factors are only partly indicative of whether the respondent's financial activities are a sufficiently significant proportion of its overall activities. 55 In a discussion of the principles relevant to the characterisation of a trading corporation, which are equally applicable to a financial corporation, Carr J in the Quickenden appeal identified the uncertain state as to what was the appropriate measure of activities, stating (at 287): 7. It has not yet been decided whether trading is a substantial activity when measured in absolute dollar terms or whether substantiality is a relative term. Murphy J in Adamson (at 239) appears to have regarded substantiality as being an absolute rather than a relative concept. See also Wilcox J in E v Australian Red Cross Society & Ors (1991) 99 ALR 601 at 633 and 635. 56 Our view about the substantiality of the respondent's financial activities is prefaced on them being measured in relative terms rather than on a measurement of the activities in absolute dollar terms. On any analysis, in absolute dollar terms the respondent's financial investments would be substantial, but such a view, in this instance, misrepresents the actual proportion of financial activities to the respondent's overall activities. We take the actual activities to be the performance and acts of the respondent, of which financial activities, as termed, are not a sufficiently significant proportion of overall activities.

[164]

65 We consider that the first question should be answered in the affirmative for the reasons given under the next heading. When Deane J was resolving the question in Re Ku-ring-gai as to whether the Societies were financial corporations, he did so in a context in which the organisations had overall benevolent functions in the provision of low cost housing, but engaged in financial activities constituted by the borrowing from a bank at interest and lending to members at interest and the subsequent payments and receipt of money pursuant to obligations and rights resulting from those dealings. It was those financial dealings that ultimately led his Honour to the conclusion that, notwithstanding their altruistic motives, the organisations were financial corporations. However, as the extract from his Honour's judgment makes clear, that conclusion was not reached merely because the Societies engaged in some form of financial dealings. Rather, his Honour's reasoning makes clear that further qualifiers were necessary in order to be classified as a constitutional corporation. The criterion which we consider his Honour settled upon in his reasoning, and by its application to the activities of the Societies, was that their financial dealing had a commercial or business flavour. His Honour stated (at 160): Notwithstanding the restricted scope and limited duration of their activities of their activities, each applicant in my view carries on a business. At the heart of that business are the commercial dealings in finance constituted by the relevant applicant's borrowing and lending of money and the subsequent payments and receipt of money pursuant to obligations and rights resulting from those dealings. Each applicant was formed to carry on a business. The activities of each applicant are confined to carrying it on. The business which each applicant carries on and which it was formed to carry on is a financial business. Each applicant, being formed to carry on a business of dealing in finance and in fact carrying on such a business, is, in my view, properly to be categorised as a financial corporation within the meaning of the phrase as used in s 51 (xx) of the Constitution...

[171]

75 Similarly, in State Superannuation (at 306) the financial activities in question were "commercial and housing loans". The State Superannuation Board not only invested significant monies, but in order to effect those investments it engaged in significant financial activities by way of commercial dealing in finance through commercial and housing loans. Management and investment of the fund, in respect of commercial and housing loans was significant. In addition, surplus funds were invested on a day-to-day basis on the short term money market. The actual management of the fund drew on indigenous expertise, and there was clearly a commercial nexus between the activities of the corporation in the way it managed and invested to achieve high yields from its financial activity. The majority described the operation of the Board in State Superannuation (at 302-303) as follows: As at 30 June 1980 the investments of the fund stood in the books at $487,173,000. Longer term investments fell into four main group: semi government and local government loans, commercial loans, housing loans to contributors and real estate. Available surplus funds are invested, on a day-to-day basis, by way of loan on the short term money market. The investment of the Fund is, within the statutory limits, in the discretion of the appellant... In the management of the fund, the Board draws upon its indigenous expertise in forming its financial judgments, and it receives advice from a budget investment officer, property consultant, accountant and other staff who are skilled in the matters of finance. Taking account of the enhancement in the value of the fund's asset, the Fund is yielding annually over 10% on the total investment. The management of the Fund is a complex function, for the Fund itself is larger and there is a large number of individual transactions involved in its management. Its management accordingly requires considerable clerical work, a great deal of administration at the executive level, and the sound exercise of financial and actuarial judgment and managerial skills.

At a glance

Court

Decision date

Before

Source

Judgment (194 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (16)

Cited By (1)