Kathleen Investments (Australia) Ltd v Australian Atomic Energy Commission

Kathleen Investments (Australia) Ltd v Australian Atomic Energy Commission - [1977] HCA 55 - HCA 1977 case summary — Zoe

[55]

It has been submitted that s. 8 (2) of the Act itself both empowers and authorizes the Commission to acquire shares in the second defendant. It is said that shares in a limited liability company are personal property and that subscription therefor is a manner of their acquisition. But the capacity to acquire and hold property must be distinguished from the authority to acquire or use property. In the case of a statutory corporation such as the Commission, it is "limited and circumscribed by the statute" which incorporates and regulates it: see generally Halsbury's Laws of England, 4th ed., vol. 9, par. 1333. In the Act a clear distinction between such capacity and such authority is made. Whilst s. 8 (2) endows the Commission with capacity, Div. 2 of Pt II and particularly s. 17 delineates the powers and functions, as distinct from the capacities of the Commission. Though s. 8 (2) provides the capacity to acquire and hold property, it is, in my opinion, s. 18 which grants the power and authority to acquire the property there listed. Further, Div. 4 of Pt II, in specifying the uses to which the Commission may put its funds, limits their use to the purposes of the Commission. The acquisition of property for its own sake is not such a purpose. The acquisition is only authorized if it is incidental to the execution of some authorized purpose of the Commission. In this connexion, it is not without significance that the shares in question are contributory shares so that the Commission, if its agreement with the second defendant were valid, would be under an obligation to meet calls which may be made by the second defendant. Calls may, of course, be made for the financing of some project wholly unconnected with any form of mining or of mining activity, let alone the extraction or treatment of uranium. In these days of corporate diversification, there can be no guarantee as to the corporate activities into which shareholders' funds are poured, assuming a sufficiently wide memorandum and articles. I am therefore clearly of opinion that s. 8 (2) standing alone does not authorize the making of an agreement to subscribe for shares and, in particular, for contributory shares. This conclusion is reinforced when s. 8 (2) is read with and in contrast to the provisions of the Act found in Divs 2 and 4 of Pt II.

[62]

The first authorized function in s. 17 (1) (a) is the undertaking by the Commission itself of one or more of the stated activities: and to do so for one of the objects specified in s. 17 (4). The second mentioned function is the arrangement by the Commission for others to undertake one or more of those activities, no doubt for the attainment of one of the said objects. Thus, there is an element of certainty by the performance of either of these functions that the activity will take place and take place to secure one of the objects set out in s. 17 (4). To encourage is the third mentioned function. Whilst there is a declension in the paragraph of the extent of the first defendant's participation in the activity or in its proximity to the activity, the end point in each case is the certainty of the performance of the activity. Because the Commission's participation is less in the case of mere encouragement, the certainty of the performance of the activity is not diminished in contemplation. Thus the word "encourage" in the paragraph requires that what it authorizes will or will most probably result in the performance of the activity and with the attainment of a designated object. One would expect that, in the context of the Act, the inception of that performance will be proximate either in esse or in posse to the act which is said to be an encouragement of that activity. Here, quite clearly, for the reasons I have expressed, on the material to which the Court is presently authorized to have regard, there is no such relationship. It is not enough to say that on different facts that relationship may possibly be demonstrated. As the matter stands, the Commission has done no more than seek to become a member of the second defendant, and to contribute to its capital, that defendant not being obliged to undertake any of the activities specified in par. (a) of s. 17 (1), nor to do so to attain any of the objects of sub-s. (4) of that section. Whether a promise by the second defendant to do so, or a representation that it will do so, would suffice to remove the possibility of the use of the Commission's funds in some disparate activity must remain a question which I have no need presently to decide.

[108]

It follows from what I have said that the Commission has not an unfettered power to take up shares in any company no matter what the circumstances. Although no limitation is expressed in s. 8 (2), that provision has to be read in the context provided by the Act as a whole, and it cannot be doubted that the Commission can use the capacity with which it is endowed by that sub-section only for the purpose of carrying out the functions which the Act casts upon it. Similarly the powers conferred by s. 18 are to be exercised only so far as is necessary for or in connexion with the performance of its functions. The limitation effected by s. 17 (4) is important - it prevents the Act, and the Commission, from going beyond constitutional power. If the Commission acquired shares in a company for a purpose which had no connexion with the functions defined by s. 17, its action would be unconstitutional as well as unauthorized. However the facts alleged in the statement of claim do not show that the acceptance by the Commission of shares in MKU was not necessary or convenient to be done for or in connexion with the performance of any of the functions prescribed by s. 17. It may be accepted that the objects of MKU, which are framed with the usual width, would enable that company to engage in a business which had nothing to do with the exploration for, or the mining and treatment of, uranium. Further, the business of MKU, even if limited to the exploration for, and the mining and treatment of, uranium, might have no connexion with any of the purposes indicated in s. 17 (4). It is therefore possible that the acceptance of the shares by the Commission had nothing to do with the performance of the functions to which it is bound to confine itself. But whether that was in fact so depends not on the activities in which MKU might theoretically engage, but on all the circumstances of the case. And as to those circumstances the statement of claim is silent. It does not allege any facts that show that the application by the Commission to take these shares in MKU, or the agreement made by the Commission for the allotment to it of the shares, was beyond the powers of the Commission, or that the allotment itself was for any reason invalid. For these reasons the demurrers must be allowed.

[151]

A number of arguments were urged on behalf of the defendants as to why, even if the Commission's contract to take shares in MKU were void, the consequences which I have described above would nevertheless not follow. For the purposes of determining, on the present demurrer, the plaintiff's standing to sue it will be enough to say that I am not satisfied as to the correctness of these arguments. There is, I think, no question here of contractual rights merging in a conveyance, should that doctrine indeed have any application to a void contract; the allotment of shares is not a matter of any conveyance - see Ford, Principles of Company Law (1974), p. 224 and cases there cited. Nor, I think, is the maxim quod fieri non debet factum valet applicable where a transaction is void for want of capacity on the part of one of the parties to it - see generally Broom's Legal Maxims, 9th ed. (1924), pp. 125-6 and the cases there cited, suggesting that the maxim reflects a doctrine of convenience inapplicable where the initial transaction is void as a nullity. Again, I would not accept the distinction, in the case of ultra vires contracts, between executory and executed contracts, a distinction adopted in a line of United States decisions; instead I would adopt what was said by Mocatta J. in Bell Houses Ltd. v. City Wall Properties Ltd. [17] , a view also inherent in the observations of Fullagar J. in In re K.L. Tractors Ltd. (In liquidation) [18] . Reliance was also placed upon two cases said to be concerned with the consequence of ultra vires acts, Ayers v. South Australian Banking Co. [19] and Batson v. London School Board [20] . Ayers' case is not, I think, authority for any general proposition that rights may be validly acquired under a contract void as ultra vires the powers of one of the contracting parties. It concerned a chartered corporation and it was upon this fact and its consequences that their Lordships appear to have concentrated. Having referred to the difficulty of determining whether what had occurred in fact fell within the terms of the relevant clause of the bank's charter, their Lordships then referred to another difficulty which revealed their approach to the question as one concerned not with the ordinary concept of a joint stock company's ultra vires acts but rather with the consequences of a chartered corporation failing to observe the terms of its charter. They said [21] : "There may be also question whether, under any circumstances, the effect of violating such a provision is more than this, that the Crown may take advantage of it as a forfeiture of the Charter". In the event their Lordships found it unnecessary to decide this point; counsel for the appellant had "admitted that he could find no authority for the proposition, that any violation of such a condition of a Charter would prevent the property in goods passing to the person to whom an instrument otherwise valid professed to pass it, and their Lordships are of opinion, that whatever other effect the violation of such a condition may have, it has not the effect of preventing the property in the goods passing, or of preventing an action of Trover being maintained if there is a wrongful conversion". Nowhere in the judgment is there any reference to the doctrine of ultra vires. It was counsel for the appellant who had sought to apply to this chartered corporation the ultra vires doctrine appropriate to joint stock companies, citing for that purpose National Bank of Australasia v. Cherry [22] decided the previous year by a Board two members of which were also parties to the advice in Ayers' Case [19] . In Ayers' Case respondent's counsel were not called on, perhaps because their Lordships felt no difficulty in disposing of the appellant's submission in the light of the peculiar nature of the bank as a chartered corporation, to which the doctrine of ultra vires has no application - see Gower op. cit., at pp. 83-84, and the more detailed and somewhat different treatment of the matter in Street, Doctrine of Ultra Vires (1930), pp. 18-22. This impression is supported not only by their Lordships' repeated reference to the nature of the bank as a chartered corporation but also by the contrast between their vigorous repudiation in Ayers' Case [23] , of the suggestion that a transaction in breach of a clause of the charter might not be effective to pass property to the bank and the Board's acceptance of a contrary view only the previous year in National Bank of Australasia v. Cherry. In the latter case the bank was no chartered corporation, it had been incorporated by colonial Act as a joint stock company, and their Lordships there accepted with equanimity that the consequence of its limited powers, conferred in terms very similar to the South Australian Banking Co.'s charter, was that it was "ultra vires the bank to take" particular types of securities [24] , the bankers accordingly being "unable to have enforced the security which was given to them" [25] and the customer being in a position to "have said to the Bank "You may proceed against me and recover your debt but the deposit of my deeds is invalid. It was ultra vires the Bank to obtain such a security. I demur, therefore, to your interfering with my estates, and I require you to deliver up these deeds, which you had no right under your Act to take from me" " [26] .

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Judgment (202 paragraphs)

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