Hillig v Darkinjung [2006] NSWSC 594 | Case summary

14.4 Amendment of this constitution The company may by resolution amend this constitution, If at the time of such resolution the Council holds any shares, the resolution of the company is conditional on the Council passing a resolution (prior) to the resolution of the company or within one months after the passing of a resolution by the company) in materially similar terms as the resolution passed by the company by a majority of 66% of the members present and voting at such meeting. 8 I shall refer to the conditions attached to clauses 6.1(d), 6.1(e) and 14.4 as "the Provisos". 9 In his third affidavit made on 23 May 2006, and in the written submissions made on his behalf, Mr Hillig explained in detail the steps that he took with a view to achieving his intended results. Purporting to act as Administrator of the Land Council, he signed five categories of documents, in the following sequence: (1) separate minutes of resolutions of Darkinjung, by its sole member, for the removal from the office of director each of the 5 directors of Darkinjung (and in the case of Mr Bradford, to remove him as secretary); (2) an instrument by which he consented to be appointed to the office of director and secretary of Darkinjung; (3) a minute of resolutions of Darkinjung, by its sole member: · reducing the number of directors of the company to one director; · removing para 6.1(c) from the Constitution; · appointing himself to the office of director; · removing the Provisos; (4) a minute of resolutions of the Land Council, approving and confirming Darkinjung's resolutions in paras (1) and (3) above, and "to the extent that it is necessary, in order that resolutions in those terms by the Company may have effect", adopting equivalent resolutions; (5) a minute of resolutions of Darkinjung, by its sole member, that the constitution be repealed and that Mr Hillig's appointment to the office of director be confirmed. 10 Then, purporting to act as sole director of Darkinjung, Mr Hillig signed two minutes of resolutions of the director of Darkinjung: · first, a resolution to remove Mr Bradford as secretary of the Company; and · secondly, a resolution withdrawing the retainer of the defendants' solicitors, Norton White, and directing them to hand over funds held by them on the Company's behalf and debts due by them to the Company. Mr Hillig's submissions to support the validity of his actions 11 In oral submissions, in which he identified the essential grounds presented in a more diffused fashion in written submissions, senior counsel for Mr Hillig said his client's case rested on four grounds. First, he contended that the exercise of powers by Mr Hillig as Administrator is valid by reason of s 125 of the Corporations Act 2001 (Cth), and consequently the directors, in so far as they have any power to challenge Mr Hillig's decisions, have a remedy in damages and nothing more. 12 Secondly, he contended, as a matter of construction, that the Provisos are satisfied by resolutions of the Land Council by its Administrator, because where an Administrator has been appointed the Provisos do not require a resolution of a meeting of members of the Land Council. 13 Thirdly, he submitted that if (contrary to his second submission) the Provisos are not satisfied by decisions of the Administrator on behalf of the Land Council, then they are repugnant to the Aboriginal Land Rights Act 1983 (NSW) ("ALR Act") and are void. 14 Fourthly, he said that the establishment of the trust and the incorporation of Darkinjung as trustee with the Constitution that it has, are parts of a scheme to achieve an improper purpose. He did not seek to suggest any moral turpitude, or dishonesty, but simply that the adoption of the scheme was improper in the sense that it was designed to achieve something contrary to the scheme of administration of aboriginal land and aboriginal funds that had been established by the legislature. 15 I shall consider these four submissions, in turn. Mr Hillig's first submission: s 125 of the Corporations Act 16 Darkinjung, which was formed by registration under Corporations Act, is a "company" for the purposes of that Act, and therefore s 125 applies to it. The Land Council, though it has the status of a body corporate under the ALR Act (s 50(2)), is not a company for the purposes of the Corporations Act and therefore s 125 does not apply to it. 17 Section 125 is in the following terms: "(1) If a company has a constitution, it may contain an express restriction on, or a prohibition of, the company's exercise of any of its powers. The exercise of a power by the company is not invalid merely because it is contrary to an express restriction or prohibition in the company's constitution. (2) If the company has a constitution, it may set out the company's objects. An act of the company is not invalid merely because it is contrary to or beyond any objects in the company's constitution." 18 Mr Hillig's submission is that the Provisos are express restrictions on Darkinjung's exercise of its powers to remove its directors and to amend its constitution. Therefore, by force of s 125(1), the exercise by Mr Hillig of those powers is not invalid merely because (there being no resolution passed by a majority of 66% of the members present and voting at a meeting of members) it was contrary to the restrictions in the Provisos. 19 I disagree with this submission. I think the fatal flaw is the assertion that a resolution of the company's sole member to remove a director or to amend the company's constitution is, for the purposes of s 125(1), an exercise of a power by the company. 20 Section 125, which took its present form in the Company Law Review Act 1998, was based on s 68 of the Companies Act and Codes, introduced by amendment to that legislation in 1983 and then amended in 1985. It was part of a package of legislative amendments made for the purpose of abolishing the doctrine of ultra vires in its application to registered companies, by giving the company all the powers of a natural person, while allowing companies to have constitutional provisions restricting or prohibiting the exercise of any of their powers: see Explanatory Memorandum to the Companies and Securities Legislation (Miscellaneous Amendments) Bill 1983, para 188. Section 68(1A) of the Companies Code said that the rules of the company may contain an express restriction on, or express prohibition of, the exercise by the company of a power of the company. That is equivalent to the first sentence of the present s 125(1). Subsections 68(1)-(3) said that if a company acted contrary to an express restriction in its constitution, the company and any officers knowingly concerned contravened the section, though they were not guilty of any criminal offence. Then subsections (4) and (5) said that the exercise of the power was not invalid by reason only of the contravention. Subsections 68(4) and (5) correspond, though not precisely, with the second sentence of the present s 125(1), the main difference being that the present section does not state that failure to comply with an express provision of the constitution is a contravention. 21 In Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279, the fixing of Brick and Pipe's common seal had been attested by a director (Goldberg) and a person purporting to act as secretary (Furst), who was found never to have been properly appointed as secretary, and there was no board meeting to authorise the execution. Brick and Pipe claimed that the deed of guarantee was void because it had been executed in contravention of the company's constitution, which required a properly convened meeting of disinterested directors authorising the execution of the deed. Occidental submitted, inter alia, that the deed was not invalid, although executed in contravention of express provisions of the constitution, by virtue of s 68 of the Companies Code. The Full Court (McGarvie, Marks and Beach JJ) unanimously held that Occidental could not rely on s 68. 22 The Court observed that s 68 could not be viewed in isolation, but was to be considered in the light of the other provisions which addressed corporate capacity, namely a provision approximately equivalent to s 67, and also a definition provision (s 66B) and a statutory statement of the object of ss 67 and 68 (s 66C). Then their Honours continued (at 367): "As the learned judge pointed out in his reasons for judgment, those latter sections make it clear that the reason behind the sections is the abolition of the doctrine of ultra vires , a doctrine which is to be distinguished from the internal rules of the company whereby particular persons are authorised to represent or act on behalf of the company. The view his Honour took of the matter was that s 68 was not applicable to the present case because the articles of Brick and Pipe which had been contravened by Goldberg and Furst were not articles which restricted the powers of the company within the meaning of s 68(1) but were articles intended only to control the acts of the directors and other organs of the company so as to deny the power of those directors and organs to act on behalf of the company if not complied with." 23 After setting out the text of the constitutional provisions dealing with the management of the business of the company, disqualification of disinterested directors, directors' meetings and authority to use the common seal, the Court held (at 368) that nothing in those provisions restricted or prohibited Brick and Pipe's power to give a guarantee. They said (at 368-369) that the provisions merely regulated the authority of the directors, the manner in which the board of directors was to meet, and the manner in which documents were to be attested by the company: "They are internal requirements which although restricting and inhibiting those acting on behalf of the company do not have any bearing on the extent of the powers of the company. In that situation we also are of the view that s 68 of the Code has no application to the case." 24 Professor HAJ Ford summarised the effect of the Brick and Pipe case (Ford's Principles of Corporations Law, LexisNexis, looseleaf, [12.130]): "A provision directed only to powers of directors, the members in general meeting or any other person acting for the company could not be the express restriction or prohibition contemplated by s 125(1)." 25 I respectfully agree. If it were otherwise, some other sections of the Corporations Act generally regarded as expressing important principles of company law would be rendered otiose - for example, s 201M (which provides an act done by a director is effective even if the director's appointment did not comply with the company's constitution), s 129(1) (which entitles a person to assume that a company's constitution has been complied with) and s 129(2) (which entitles a person to assume that anyone who appears from ASIC's records to be a director or company secretary has been duly appointed). A large body of company law dealing with the consequences of a company organ, such as the board of directors or the company in general meeting, failing to comply with constitutional requirements for decision-making, and the potential scope for the curative application of s 1322, would have to be revised to cater for the application of s 125(1). If s 125(1) were applied in a case of non-compliance with requirements for the amendment of the company's constitution, the result would be at odds with s 136(3), which permits the company's constitution to provide that a special resolution to modify or repeal the constitution does not have any effect unless a further requirement specified in the constitution has been complied with. It is improbable that the legislature intended s 125(1) to affect these parts of company law, and clear from the Explanatory Memorandum to the 1983 Bill that the drafters had no such intention. 26 The Provisos are conditions attached to decision-making by company organs. Clause 6.1(d) deals with the power of the members of the company (or the sole member) to increase or reduce the number of directors. Clause 6.1(e) deals with the power of the members (or the sole member) to appoint or remove a director. Clause 14.4 deals with the power of the members (or the sole member) to amend the company's constitution. They are, relevantly, analogous to provisions allocating decision-making power on matters of management to the board of directors constituted in a specified manner, and allocating decision-making power over the use of the common seal to the board, the matters before the Full Court. To use the language of the Full Court, the Provisos restrict and inhibit the members (or the sole member) in exercising those powers, but they do not have any bearing on the extent of the powers of the company. Instead, they are qualifications to the internal requirements for the allocation, amongst the organs and agents of the company, of authority to exercise the company's powers. In my opinion, to apply the second sentence of s 125(1) to the Provisos would be inconsistent with the Brick and Pipe decision, and it would misconceive the purpose and operation of the section. 27 In argument, it was pointed out that clause 6.1(e) says that "the company" may appoint or remove a director subject to the proviso, and clause 14.4 says that "the company" may by resolution amend the constitution, subject to the proviso. It was submitted that this language makes it clear that the clauses are dealing with powers of the company, for the purposes of s 125(1). I disagree with this submission. The subject matter of these clauses is, inherently, to do with the internal management of the company, by allocation of a decision-making function to a company organ. When clauses 6.1(e) and 14.4 refer to "the company", they mean "the company in general meeting" or, to use the language of clause 6.1(d), "the company ... by resolution", rather than the corporate entity viewed from the outside. The use of such language is commonly found in the constitutions of companies (see, for example, the replaceable rule in s 201G). Properly understood, they are allocating decision-making functions to the members rather than some other company organ such as the board of directors (the organ selected in clause 6.1(f) for the power to fill casual vacancies). When clauses 5.9 and 5.10 speak of "the company" passing a resolution without a general meeting, they are identifying mechanisms for the members (or sole member) to make decisions acting as a company organ, rather than conferring on "the company" as an entity some additional capacity or power to act. 28 Mr Hillig submitted that, since his decisions are not invalid by virtue of s 125, the remedies available to the directors for non-compliance with the requirements of the Provisos are limited. Although the "statutory contract" set out in s 140 of the Corporations Act now extends to the relationship between the company and each director, he submitted that a director's enforcement of the statutory contract will not normally be by way of equitable relief (citing Hayes v Bristol Plant Hire Ltd [1957] 1 All ER 685, at 688; Howes v Gosford Shire Council [1962] NSWR 58, at 66-7; RP Austin, HAJ Ford and IM Ramsay, Company Directors: Principles of Law and Corporate Governance (LexisNexis, 2005), para 2.57 at p 112). I do not find these authorities helpful in the present circumstances. Whether there are limitations on the availability to an individual director of equitable relief and declaratory orders, it is plain in my view that these forms of relief are available upon the application of all of the [former] directors and [through them] the company seeking to establish that an attempt to remove the board has been unsuccessful. Mr Hillig's second submission: proper construction of the Provisos 29 Mr Hillig's second submission was that, where an Administrator has been appointed under the ALR Act, then as a matter of construction, either: (a) the Provisos apply in such a manner that a properly made decision of the Administrator is treated as the equivalent of the requisite majority vote of the members of the Land Council; or (b) the Provisos simply cease to apply. 30 In developing this contention, Mr Hillig referred to the following provisions of the ALR Act: (a) s 222(4), according to which an Administrator appointed by the Minister under s 222(1) "has, during the period of his or her appointment, all, or such part as is specified in the Administrator's instrument of appointment, of the functions of the Council conferred or imposed by or under this Act, to the exclusion of the Council"; (b) s 4(2)(a), according to which a reference in the ALR Act to a function includes a reference to a power; (c) s 41, which states that "an Aboriginal Land Council may do or suffer in relation to its property any act or thing that it could lawfully do or suffer if it were a natural person having, in the case of land, the same estate or interest in the property as the Council …". 31 His argument, as presented by senior counsel in oral submissions, may be summarised as follows: (a) the combined effect of ss 222(4), 4(2)(a) and 41 is that, when an Administrator is appointed by the Minister to a Land Council owning company shares, he or she is thereby empowered to act in relation to the Land Council's shares as if he or she were a natural person owning the shares, and therefore the Administrator is empowered to exercise the right to vote attaching to the shares from time to time as he or she sees fit; (b) this power cannot be abrogated or cut down by the constitution of the company in which the Administrator holds shares; (c) if the Provisos were construed as requiring a resolution by a majority of members of the Land Council even after an Administrator had been appointed, the powers to which the Provisos apply could not be exercised at all once an Administrator had been appointed to the Land Council - not by the Administrator because, on this construction, the Provisos would require a resolution of the members, nor by the members because under the ALR Act the functions and powers of the Land Council are vested in the Administrator; (d) the view that the powers to which the Provisos apply could not be exercised at all would be repugnant to the ALR Act, which empowers the Administrator to exercise voting rights attached to shares held by the Land Council; (e) therefore that construction should be avoided, and instead, the Provisos should be construed as meaning either that if there is an Administrator in place, references to the Council are to be taken mutatis mutandis as references to the Administrator, or that the Provisos simply cease to apply once an Administrator has been appointed. 32 I accept the contention that an Administrator acquires, under ss 222(4) and 4(2)(a) of the ALR Act by virtue of his or her appointment, the powers in relation to a Land Council's property conferred by s 41. But in my opinion, Mr Hillig's argument contains two flaws. 33 The first flaw arises from the fact that the powers enjoyed by the Administrator under s 41 are no more than powers to do or suffer, in relation to the Land Council's property, any act or thing that the Land Council could lawfully do or suffer if it were a natural person. A natural person holding shares in a company formed under the Corporations Act has, in relation to those shares, the rights conferred by the company's constitution. If the company's constitution contains a restriction on one of the rights attaching to shares, such as the right to participate in dividends, or a return of capital, or a distribution of surplus assets on winding up, or the right to vote, that restriction will be effective as a part of the bundle of shareholders' rights, unless contrary to law. 34 Section 136(2) permits every company to repeal or amend its constitution by no more onerous a procedure that a special resolution. But by way of qualification to that proposition, s 136(3) allows the constitution to prescribe a "further requirement", beyond a special resolution, for the repeal or amendment of its constitution. The proviso to clause 14.4 of Darkinjung's constitution is a "further requirement". Where the company's constitution has such a further requirement, the efficacy of each shareholder's vote upon a resolution to repeal or amend the constitution depends upon satisfaction of the further requirement. It is not incompatible with s 41 to allow that further requirement to operate. This is because the further requirement is a part of the bundle of rights which constitute the property that is the share, and therefore it affects what a natural person, and consequently a Land Council under s 41, may lawfully do as a shareholder. It is not a restriction superimposed on a species of property defined aliunde. 35 Subject to one qualification, the same reasoning applies in relation to the Provisos in clauses 6.1(d) and (e). The qualification is that, in relation to a resolution to increase or reduce the number of directors or to appoint or remove a director, there is no statutory provision expressly permitting a "further requirement", as there is in the case of the repeal or amendment of a company's constitution. In the case of a proprietary company such as Darkinjung, the Corporations Act does not purport to prescribe any procedure for increasing or reducing the number of directors or appointing or removing a director (except, in s 201F, in the case of a sole director/shareholder company). Therefore there is no need for the law to allow the constitution to prescribe a "further requirement" for a resolution on any of these matters. It is recognised that the constitution of a proprietary company may vest the powers of increasing or reducing the number of directors, or appointing or removing directors, in a person or persons other than the members as such or the directors as such - for example, a founder or a governing director. Likewise, the constitution of a proprietary company may vest those powers in a company organ such as the shareholders in general meeting, subject to a further requirement such as the consent of an identified person or group (as noted below, a limitation that may become relevant is that the power to exercise the right to vote attached to shares cannot be vested in a non-shareholder). Where the constitution authorises shareholders to increase or reduce the number of directors or to appoint or remove a director, subject to a further requirement, the further requirement is part of the definition of the voting rights attaching to the shares, and so under s 41 of the ALR Act a Land Council holding such shares (and its Administrator) have the voting rights affected by the further requirement. 36 The second flaw lies in Mr Hillig's assertion that if the Provisos were construed as requiring a resolution by a majority of members of the Land Council even after an Administrator had been appointed, the powers to which the Provisos apply could not be exercised at all once an Administrator had been appointed to the Land Council. In my view the appointment of an Administrator would be no obstacle to the Provisos operating according to their terms, and therefore permitting decisions by the shareholders (or the sole shareholder) of Darkinjung on the stated subjects only with the approval of a resolution of members of the Land Council. The fact that the Administrator acquires all the functions and powers of the Land Council upon appointment does not mean that he or she acquires a power conferred on the members of the Land Council. Although the Provisos speak of "the Council passing a resolution", these words do not, in their context, identify the exercise of a function or power of the Council, acquired by the Administrator. The phrase "the Council passing a resolution" is, like "the company by resolution" or "the company in general meeting", a form of words used by convention to identify one of the organs of the relevant body, namely the members in general meeting. The Provisos juxtapose the concepts of the Council passing a resolution and the company passing a resolution, strongly suggesting uniformity of meaning. 37 In my view, the Provisos upon their proper construction require that a decision by the shareholders (or sole shareholder) of Darkinjung on any of the subjects identified in clauses 6.1(d), 6.1(e) and 14.4 be conditional on the passing, by a majority of 66% of the members present and voting at a meeting of members of the Land Council, of a resolution in materially similar terms, either prior to the resolution of the shareholders (or sole shareholder) or within one month after the passing of that resolution. The Provisos, so construed, are not inconsistent with the ALR Act because they form part of the definition of the voting rights of the shareholders of Darkinjung. 38 Several things follow from these conclusions, subject to the arguments about impropriety and repugnancy considered below. Mr Hillig's minuted decisions, made on behalf of the Land Council as sole shareholder of Darkinjung, to remove each of its directors, reduce the number of directors to one, appoint himself to that position, and amend and repeal the constitution of Darkinjung, were decisions that he was empowered to take as Administrator of the Land Council exercising its powers as shareholder. But those decisions were subject to the Provisos, and therefore they were conditional on the passing of resolutions in materially similar terms by the requisite majority of members of the Land Council within the timeframe specified in the Provisos. Therefore they are inoperative and ineffective unless the condition is satisfied. It is not necessary for the court to address the question of the validity of any acts that may have been done in reliance on those decisions, and it has not been suggested that failure to comply with the condition is cured, or ought to be cured by the court, under s 1322 of the Corporations Act. Mr Hillig's minuted decisions, purporting to be decisions of the Land Council pursuant to the Provisos, are ineffective because, on their proper construction, the Provisos do not permit an Administrator to replace the members of the Land Council for the purpose of compliance with the condition that the Provisos impose. 39 Mr Hillig submitted that the construction that I favour amounts to an invalid alienation of the voting rights attached to shares in Darkinjung. I disagree. The limitation was explained by Gibbs J in Kolotex (Hosiery) Australia Pty Ltd v FCT (1975) 132 CLR 535 at 571, where he said that "the whole tenor of the Act, so far as it deals with notice of and voting at meetings, strongly suggests that any general meeting of the company is a meeting of its members, at which people who are not members or their proxies have no right to attend and vote". In Shears v Phosphate Co-op Co of Australia Ltd (1988) 14 ACLR 747, King J (with whom Nathan J agreed) held that a constitutional provision which vested in persons other than registered shareholders the primary right to vote at meetings of the company could not be valid under the corporations legislation. That decision was applied by Derrington J in Amalgamated Pest Control Pty Ltd v McCarron (1994) 13 ACSR 42. But these cases are directed towards attempts to confer direct voting power on non-shareholders. As s 136(3) confirms, in the context of voting for the repeal or alteration of the constitution, the reasoning of the cases does not stand in the way of a constitutional provision imposing, as a further requirement, that the voting shareholder must obtain some consent or take some other step in order to exercise a valid vote. In Australian Fixed Trusts Pty Ltd v Clyde Industries Ltd (1959) SR (NSW) 33, a constitutional amendment requiring a trustee shareholder to obtain the directions of unit holders before voting was struck down by application of the principle of fraud on the minority, essentially because it was found to be an unreasonable provision, but nothing in the judgment of McLelland J suggests that it is never permissible to require a trustee shareholder to consult unit holders before voting. Mr Hillig's third submission: repugnancy to the ALR Act 40 Part 5 Division 4 of the ALR Act deals with meetings of Local Aboriginal Land Councils. It includes s 77, headed "Voting", which provides: "Subject to this Act, a decision supported by a majority of votes cast at a meeting of the Council at which a quorum is present is the decision of the Council." 41 Mr Hillig submitted that the constitution of a private corporation cannot validly dictate to a statutory corporation, namely a Land Council, that the statutory corporation is to reach decisions as a shareholder in a manner departing from s 77 (such as by a 66% majority of the members present and voting). Consequently, a company cannot, by constitutional provision, restrict a Land Council's exercise of the voting rights attached to shares which it holds with the same rights as a natural person under s 41, in a manner contrary to s 77. 42 Mr Hillig's submission would be relevant to the present case (where there has been no resolution of members of the Land Council, whether by simple majority or 66% majority) only if it established that the Provisos are wholly invalid and can therefore be disregarded. In my opinion, however, the most that his submission can establish is that the Provisos are invalid to the extent that they are inconsistent with s 77. The statutory provision must override the Provisos to this extent. 43 In my opinion, s 77 does not wholly extinguish the Provisos, as a matter of construction. To the extent that they impose the additional requirement of a resolution by the members of the Land Council, as a condition for an effective decision of the Darkinjung shareholders/shareholder, the Provisos are not inconsistent with s 77. The inconsistency arises only with respect to the requisite majority for the resolution to be carried. 44 Arguably, s 77 has the effect that a resolution passed pursuant to one of the Provisos, by a simple majority but not a 66% majority of members, is a decision of the Council and therefore satisfies the conditions prescribed by the relevant Proviso, notwithstanding that the proviso expressly demands a 66% majority. But the issue is unclear. There is a contrary view, explored in argument, that if a meeting of the Council, acting under s 77, votes for a special "manner and form" requirement of a super-majority for future decisions on a certain subject, s 77 has the effect that there is a decision of the Council and so thereafter, the super-majority provision applies according to its terms. A fortiori, if the meeting's decision is to vote in favour of a resolution of shareholders of a company in which the Council holds shares amending the corporate constitution to introduce a "manner and form" requirement. It is unnecessary for me to attempt to resolve that issue in the present judgment. It is sufficient for present purposes to hold (and I do hold) that s 77 does not extinguish the Provisos, so as to permit Mr Hillig to exercise the Land Council's powers as Darkinjung's shareholder in disregard of them. Mr Hillig's fourth submission: scheme for an improper purpose 45 It is common ground that the Land Council became entitled to receive approximately $42 million, payable in instalments, upon the sale of land at North Entrance to a company in the Mirvac group. So far approximately $25 million has been received in three instalments. 46 According to Mr Hillig's case, Darkinjung was formed in May 2004. The second to sixth defendants are the directors. It is wholly owned by the Land Council. At the same time various other Darkinjung entities were established. Except for one, they are either subsidiaries of Darkinjung or sister subsidiaries of the Land Council, wholly owned within the Land Council/Darkinjung group. Some of the Darkinjung entities carry on what might broadly be described as welfare (and possibly charitable) work for the Darkinjung aboriginal community in areas such as aged care, housing, funeral assistance, youth work and employment and training services. One of the entities which may not fit that description is Darkinjung Projects Pty Ltd. Another is Darkinjung Cattle Company Pty Ltd, a company partly owned by Darkinjung and partly owned by a company called Outback Beef Australia Pty Ltd. 47 Darkinjung became the trustee of a trust called the Darkinjung Local Aboriginal Land Council Trust ("the Trust"), purportedly a charitable trust established on very broadly expressed terms essentially mirroring the structure and powers of the Land Council so as to create, according to Mr Hillig, "a private version of the Land Council". Mr Hillig contends that the vast bulk, if not all, of the money to be received from the sale of the land was to be transferred to the Trust. He complains that the effect of these arrangements is to take the Land Council's money outside the statutory controls applicable to Aboriginal Land Councils under the ALR Act, controls that include requirements for the banking of funds in specific bank accounts, auditing and reporting requirements, and other supervisory requirements. 48 Senior counsel for Mr Hillig made it clear that his client did not accuse those who established and implemented the scheme of any dishonesty or moral turpitude, but he did contend that the scheme was established for an improper purpose, because it was designed to defeat or hinder the administration of aboriginal property under the ALR Act and the activities of an Administrator appointed under that Act in recovering funds. During submissions he noted that various reasons had been advanced as to why the scheme was implemented, including: to isolate the funds of the Land Council from ephemeral management that might be capable of wasting them; to administer the funds more efficiently and get a better rate of return; to deter what has been described as raiders; to isolate the funds from the New South Wales Government in the event of any change in the ALR Act. Senior counsel submitted that all of these things have in common that they are for the purpose of removing the funds and their administration from the statutory scheme of the Act and thereby to subvert the statutory system of control and administration of aboriginal land and aboriginal funds. 49 There are in evidence several learned opinions by counsel, addressing a number of questions relating to the validity of the Trust as a charitable trust and the validity and efficacy of the transfer of Land Council funds to the Trust. It is not necessary to give any detailed account of the opinions here. The following summaries are sufficient. 50 Mr A Robertson SC advised that the functions of a Land Council (as conferred upon them by s 52 of the ALR Act) are sufficiently broad as to enable it to create or enter into a trust to deal with the proceeds of the sale to Mirvac. Mr T Robertson SC advised that the Trust was validly established, however payments by the Land Council to the Trust were ultra vires. Mr J Basten SC (as his Honour then was) advised that while the establishment of the Trust may be valid, the payment of funds by the Land Council to the Trust was invalid. Mr A Robertson SC then gave a further advice stating that the creation of a trust by a Local Aboriginal Land Council will be lawful provided that the objects of the trust are within the objects of that Council. He stated that in the case of the Land Council the clause setting out the purpose of the Trust (in the trust deed) would need to be read down for the Trust to avoid being considered statutory ultra vires. Finally Mr B Walker SC and Mr J Kirk advised that the payment by the Local Council to the Trust was unlawful. 51 The opinions show a diversity of views on difficult questions. Assessed as a whole, they provide grounds for concern as to whether the Trust was validly constituted, and for substantial concern as to whether the Land Council's funds were validly transferred to it and are being validly disbursed, bearing in mind the requirements of the ALR Act. For reasons I shall explain, it is not necessary for me to inject yet more opinions into the arena. 52 Senior counsel for Mr Hillig took me to some provisions of the ALR Act, bearing on the validity and lawfulness of the scheme. Section 152(1) of the Act requires each Local Aboriginal Land Council to establish an account with an authorised deposit-taking institution. Money received by the Land Council and not required by statute to be paid into any other account of fund is to be deposited into the Land Council's account (s 152(2)(b)). Payments permitted to be made out of the account include amounts required for the acquisition of land by the Land Council where the acquisition has been approved in accordance with the Act, and amounts required to meet expenditure incurred by the Land Council in the execution or administration of the Act (s 152(3)(a) and (b)). It was submitted that in the present case, some funds do not seem to have passed through the Land Council's account as required by s 152(2)(b), and some funds seem to have been transferred to the Trust or associated entities without the authority required by s 152(3). 53 Senior counsel also explored whether any of the statutory functions of a Local Aboriginal Land Council, set out in s 52(1) of the ALR Act, would be capable of authorising the Land Council to pay virtually the whole of its funds to a trust having broadly the same objects as the Council but without equivalent statutory controls. He referred to the joint opinion of Mr B Walker SC and Mr J Kirk, who considered, step by step, each of the statutory functions and concluded that none of them authorised what had been done. He contended, for reasons more fully elaborated in the joint opinion with which he agreed, that the implementation of the scheme in the present case was clearly beyond anything contemplated in s 52, and consequently that the transfer of funds to the Trust was unauthorised and therefore in breach of s 152. 54 In this context, senior counsel for Mr Hillig submitted that the Provisos in Darkinjung's constitution inhibit Mr Hillig as Administrator from undoing the effect of a scheme for the improper diversion of money from the control structures of the Land Council to an uncontrolled private structure. Therefore, he said, the court should refuse to enforce the Provisos by way of discretionary remedies (including declaratory orders). After reflection, he did not submit that the Provisos were void for illegality, a submission that would be "putting the bar too high". 55 Senior counsel for the defendants contested Mr Hillig's claims as to improper purpose. Mr Bradford, the second defendant and formerly Chairman of the Land Council, stated in his second affidavit that the decision to incorporate Darkinjung and establish the Trust were based on advice from Gilbert and Tobin, Alan Robertson SC and National Management Consultants. He suggested that the motivation for the establishment of the Trust was to ensure that the funds received by the Land Council from the sale of land to Mirvac were managed "efficiently and prudently for the benefit of the members" of the Land Council. 56 Senior counsel for the defendants told the court that his clients relied on and accepted the advice by Alan Robertson SC. Mr Robertson expressed the view, addressing the proposal that had been formed at that stage, that it would in principle be lawful. The defendants supported that view, and challenged Mr Hillig's assertions that the scheme was outside the statutory functions of the Land Council under s 52 of the ALR Act and that its implementation involved contravention of s 152. 57 In my view it is not necessary to me to make any decision as to whether the Trust is unlawful or the scheme was designed and implemented for an improper purpose or unlawfully. 58 Senior counsel for the defendants submitted that Mr Hillig had not established that any improper purposes underlying the development and implementation of the scheme have affected the validity or enforceability of the Provisos. I agree. It seems to me that the constitution of a corporate vehicle that is formed and used for the implementation of a scheme designed for an improper purpose is not invalid or unenforceable simply by virtue of the way the company has been used. The Provisos in the present case are said to be an integral part of the improper scheme, but all they do is to make certain important decisions depend upon a special procedure involving decision-making by the members of the Land Council. They are provisions that might be used in the constitution of a trustee company or trust established for limited, uncontroversially legitimate purposes related to an aboriginal community. They do not seem to me to be an integral or necessary part of the kind of scheme alleged by Mr Hillig. If it were shown by the evidence that the Provisos were developed and promoted by identified individuals for the specific purpose of diverting Land Council funds from the control structure of the ALR Act the court would be likely to decline discretionary relief (and perhaps make other orders), but as I shall explain, my view is that such a finding is not warranted by the evidence presently before me or by the nature of the interlocutory applications to be decided. 59 Similarly, if there is evidence that a person seeking orders for the enforcement of a company's constitution is doing so for, or incidentally to, the implementation of a scheme designed for an improper purpose, then the court may, in the exercise of its discretion, refuse equitable or other discretionary relief, including declaratory orders. But here, the matter has come before the court because of action initiated by Mr Hillig, and although it is the defendants who seek declaratory orders, they do so in response to Mr Hillig's action. This does not seem to me to be the kind of case where the court would decline relief because of a concern about the motives of a litigant in seeking that relief. 60 There are additional good discretionary considerations for this court to avoid any decision about the allegation of improper purpose, in the present interlocutory applications. Although there is a substantial volume of evidence before me, the interlocutory processes upon which I have heard argument are essentially directed towards whether Mr Hillig validly removed and replaced the defendant directors. That is a matter that requires urgent decision because the outcome affects the shape and content of any interlocutory regime for the management of the affairs of the Land Council and Darkinjung, in circumstances where there are pressing needs for debts to be paid and day-to-day affairs to be attended to. Findings about improper purposes depend upon a close analysis of facts, normally assisted by pleadings and cross-examination. My view is that the affidavit evidence before me on the applications under consideration would not be sufficient to enable me to make findings on the subject. The questions surrounding the validity of the Trust and its implementation are raised in a Commercial List proceeding in this court. That seems to me a far more appropriate form of proceeding in which to address factually complex, contested issues about allegations of improper purposes than the present interlocutory applications. 61 Further, it is relevant than the issue of validity of the removal of the directors and Mr Hillig's subsequent actions has arisen, by the steps he has taken, after his application to the court for urgent interlocutory relief to protect assets under the control of the defendants pending the determination of this proceeding. The relief sought by the defendants will have the effect, approximately, of restoring the status quo as it existed when Mr Hillig initially approached the court. That is a consideration tending to counteract any reluctance that the court may have to grant discretionary relief in circumstances where there are unresolved allegations of improper purpose made against those seeking the relief. The challenge to the defendants' solicitor's retainer 62 Mr Hillig contends that as he is now the sole director of Darkinjung, and has terminated the authority of the defendants' solicitor to act for the company, the solicitor's retainer has been revoked. Since, however, I have reached the conclusion that Mr Hillig is not the sole director of Darkinjung, the company remains under the control of the defendant directors and Mr Hillig's purported withdrawal of authority to act is not authorised by the company and is therefore ineffective. 63 Mr Hillig also challenges the retainer on the grounds that the defendants' solicitor has previously acted for the Land Council in various ways. The principal evidence in support of this application is a very recent affidavit by Mr Hillig's solicitor and the annexed correspondence. The allegations that are raised will probably require the court to make findings of fact on matters that may well be contested. They are raised in the context of applications directed, at least principally, to determining whether the defendant directors were validly removed and replaced, rather than the exploration of the relationship between the defendants and their lawyers. The defendants' solicitor was not identified as a represented respondent at the hearing of the applications. Counsel for the defendants submitted (T 35) that the only application before the court was based on the footing that there was no contract of retainer, because of the purported removal of the directors, rather than any ground of possession of confidential information such as would entitle a former client to restrain a solicitor from acting. In these circumstances, I am not satisfied that the defendants' solicitor has had an adequate opportunity to present an evidentiary case, and I do not believe that the matter is ready for determination. 64 Additionally, I agree with the submission by senior counsel for the defendants that, if an application is intended to raise questions about conflict of interest, possession of confidential information or other disqualifying conduct against a solicitor, it is at least normally appropriate that some form of relief other than costs, such as injunctive relief, be sought against the solicitor as respondent. The interlocutory process in the present case merely seeks an order that the notice of appearance on behalf of Darkinjung be struck out, and an order that the solicitor pay the costs of the application. The application for that relief is appropriate to raise the issue of validity of the purported dismissal of the directors, but less appropriate to raise conflict of interest issues against the solicitor. 65 I think the appropriate course is to dismiss the present application to strike out the notice of appearance, while granting leave to Mr Hillig to bring a further application by interlocutory process in proper form to seek orders to restrain Darkinjung's solicitor from acting, giving directions for the filing of evidence with respect to the new application (if brought), with a view to a hearing by the Corporations Judge at a later date. Conclusions 66 In my view the defendants have made out their case for orders substantially along the lines of orders 1-10 sought in their interlocutory process filed on 29 May 2006. Mr Hillig has failed to establish his entitlement to orders in terms of paras 1 and 2 of his interlocutory process filed on 1 June 2006. I have explained what I propose to do with Mr Hillig's application by interlocutory process filed on 24 May 2006. 67 I shall direct the defendants to bring in draft short minutes of orders to reflect these reasons for judgment, and appoint a time to hear the submissions of the parties on the question of costs. **********

Hillig v Darkinjung

At a glance

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Judgment (14 paragraphs)

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Legislation Cited (2)

Cases Cited (1)

Cited By (6)