Welker v Hewett

High Court of Australia|1969-07-01|Before: Windeyer JJ, McTiernan J

High Court of Australia Barwick C.J. McTiernan, Kitto, Menzies and Windeyer JJ. Welker v Hewett [1969] HCA 53

ORDER Appeal allowed with costs. Order of the Supreme Court of New South Wales set aside and in lieu thereof order that the order nisi for prohibition be made absolute with costs.

The question in this matter is whether the mere circumstance that a person, otherwise unconnected in any respect with the State of New South Wales or with the transaction by virtue of which a company has become liable to pay to the government of that State a sum of money, happens to be a director of that company at the time the statute of that State if valid would impose liability upon him to pay the company's debt, provides a sufficient foundation for an extra-territorial operation of the statute so as to validly impose that liability. In my opinion, it does not.

I have had the advantage of reading the reasons for judgment prepared by my brother Kitto in this appeal and I agree entirely with his reasons and have nothing I would wish to add for myself. Accordingly, in my opinion, the appeal should be allowed and the order nisi for statutory prohibition made absolute.

This was an order nisi for a writ of prohibition to restrain further proceedings upon a conviction and consequential orders for an offence against the Road Maintenance (Contribution) Act, 1958-1965 N.S.W., consisting in the refusal of the appellant to comply with the requirement of a notice served on him pursuant to s. 10A (2) of this Act. The requirement of the notice was that the appellant, who was a director of a company which was the owner within the meaning of s. 3 (1) of the Act, should pay to the Commissioner for Motor Transport amounts of money which were charges owing by that company under s. 5 of the Act and which it had failed to pay.

The main ground of the order nisi was that s. 10A (2) of the Act, on which the Commissioner relied to issue the notice to the appellant, was ultra vires s. 5 of the Constitution Act, 1902 N.S.W., in that it attempts to impose liability upon a director, who is not resident in New South Wales, of a company not incorporated in New South Wales, for payment of charges payable by the company under s. 5 which the company was liable to pay under s. 7 (2) (b) of the Act. This attempt, it is said, must fail because there is no sufficient territorial foundation for the provision, that is to say, no nexus between the provision seeking to impose the liability and the peace, order and good government of New South Wales.

The Court of Appeal of the Supreme Court of New South Wales discharged the order nisi. Their Honours were of opinion that the ground of the order nisi could not be maintained in view of the decision of that Court in Ex parte Breen; Re Sneddon [1] . The present appeal has been brought by special leave of this Court against the judgment of the Court of Appeal discharging the order nisi. It was argued on behalf of the appellant that that decision is erroneous and therefore should not be followed. The substance of the decision is stated in the following passage which I quote from the judgment of Sugerman A.-P. [1] :

For convenience I shall confine my observations to the directors of a company, but what I shall have to say is also applicable, mutatis mutandis, to the members of the governing body, or the manager, of a body corporate, the other categories of persons to whom s. 10A applies. I should here refer also to the provisions of s. 10A (6) for contribution between directors and the indemnifying of a manager.

Viewed as a body, the directors of a company control the management of its affairs. It is legitimate in this context to view them as a body, because the substance of the legislation is to impose a liability upon all of them, with a right in the Commissioner to elect which one he will proceed against, and a right of contribution inter se, precisely as if the statute had in express terms imposed a joint and several liability upon all of them. The directors have power to control the movements of motor vehicles belonging to the company, and in particular they have the capacity to determine whether they shall travel on public streets in New South Wales. In them is vested the right to govern the use of the company's vehicles by the servants or agents of the company or to permit or refuse to permit them to be used by others. The obligations imposed on directors being of a secondary character, imposed only if the company does not perform its primary obligations under the Act, the directors have the capacity to ensure that those obligations, whether to deliver the required returns or to pay the prescribed charge, are performed by the company.

In these circumstances it appears to me, viewing the matter as it must be viewed as one of degree and judgment, that the nexus with the territory of New South Wales is not broken, nor is the connexion rendered too slight or remote, by the extension of liability to any director of the company which owns the vehicle. The presence in New South Wales of the vehicle and the use of it upon the public streets of New South Wales attract the constitutional authority of the State and enable its legislature to impose the obligation of contributing to the upkeep of its streets upon directors of the company which owns the vehicle who are in a position to control its use and to control the performance by the company of its primary obligation to contribute, and who permit the use of the vehicle upon the public streets of New South Wales and the obligations of the company to go undischarged, no matter where the directors reside or are domiciled and no matter where the company is registered or carries on its business.

(1968) 70 S.R. (N.S.W.) 258. 2. (1968) 70 S.R. (N.S.W.), at pp. 268, 269.

I agree with these observations of the learned justice. It cannot be doubted that ss. 6 and 7 respectively of the present Act are intended to extend to companies which are incorporated in other States and in the Territories of the Commonwealth. Those sections validly operate according to their tenor and are within constitutional power because there is a real connexion between a law providing for the collection of charges under s. 5 (2) of the Road Maintenance (Contribution) Act from the owners of commercial vehicles using the roads of New South Wales and the peace, order and good government of the State.

As regards directors it is important to quote some observations in Buckley on the Companies Acts, 13th ed. (1957), p. 861, to appreciate the relation between a member of the board of directors and the company:

Directors are agents of the company; but not mere agents. The director, if he be a shareholder, is himself a member of the body of which he is agent. He manages for himself and others. He is in a sense a managing partner. The company cannot act in its own person, for it has no person; it can act only through directors. Directors are described sometimes as agents, sometimes as trustees, sometimes as managing partners. But each of these expressions is used, not as exhaustive of their powers or responsibilities, but as indicating useful points of view from which they may for the moment and for the particular purpose be considered. It is not meant that they belong to the class, but that it is useful for the purpose of the moment to observe that they fall pro tanto within the principles which govern that class.

I do not find it easy in the light of these observations to distinguish between a law imposing liability on a director to pay according to the terms of s. 10A and a law directly imposing the liability on the company itself as in s. 7. The territorial aspect is substantially the same in each case.

In my opinion the Court of Appeal were right in discharging the order nisi and the present appeal should be dismissed.

The appellant was charged in a court of petty sessions in New South Wales with an offence under sub-s. (4) of s. 10A of the Road Maintenance (Contribution) Act, 1958 N.S.W.. He was convicted and applied unsuccessfully to the Supreme Court of New South Wales for statutory prohibition. By special leave he appeals to this Court, contending that s. 10A is either beyond the competence of the Parliament of New South Wales or may only be brought within the competence of the Parliament by a process of reading down which excludes its application to the appellant in the circumstances that have been proved.

Section 10A is supplementary to s. 7 (2), which places two obligations upon an owner of a commercial goods vehicle which has travelled on any public street in New South Wales. The owner is required to deliver periodically to the Commissioner for Motor Transport at his office in Sydney (a) a record of all journeys of the vehicle along such public streets, and (b) the amount of all moneys owing by way of charges payable in respect of the relevant period pursuant to the Act in so far as not already paid. The charges are made payable by s. 5, being there described as payable towards compensation for wear and tear caused by the vehicle to public streets in New South Wales. Section 10A is directed to imposing enforceable obligations upon any director, member of the governing body or manager of a body corporate which, being the owner of a commercial goods vehicle, has failed to deliver either the record or the amount referred to in s. 7 (2). Sub-section (1) of s. 10A deals with the case of a corporation's having failed to deliver the record under s. 7 (2) (a) and the remaining five sub-sections with the case of a corporation's having failed to pay any amount payable to the Commissioner under s. 7 (2) (b).

The appellant was at all material times one of two directors who constituted the board of a company called Jupiter Transport Pty. Ltd. The company was incorporated in the State of South Australia and it had, so far as appears, no connexion with New South Wales except that on some occasion or occasions a commercial goods vehicle of which it was the owner travelled on public streets in New South Wales. In respect of these journeys the company delivered the required record to the Commissioner, so that no case for the application of sub-s. (1) of s. 10A arose. The charges imposed by the Act, however, were not paid, and the Commissioner took steps against the appellant under the provisions of sub-s. (2) and following sub-sections. It is the validity of these provisions either generally or in their application to the appellant in the circumstances of the case that is in question in this appeal.

A brief description of the provisions will be sufficient. Sub-section (2), as I have said, applies where a body corporate fails to pay any amount payable by it to the Commissioner in accordance with s. 7 (2) (b). It authorizes the Commissioner in such a case, by notice in writing served on any director, member of the governing body or manager of the body corporate, to require him to pay the unpaid amount to the Commissioner within a specified period; and it goes on to provide that upon the expiration of the period the director, member or manager on whom the notice is served shall be liable to pay the amount to the Commissioner. The Commissioner served such a notice on the appellant as a director of Jupiter Transport Pty. Ltd. There was some evidence of an admission by the appellant, made a few months later, that he was then the manager as well as a director of the company; but there was no evidence, and consequently no finding, that he was the manager at the time the notice was served or at any earlier time. Accordingly it will suffice to discuss the section as applying to a director. Sub-section (3) makes any amount not paid in accordance with a notice served on a director under sub-s. (2) a civil debt due to the Commissioner by the director and recoverable in any court of competent jurisdiction. Sub-section (4) is the provision under which the prosecution in this case was launched. It provides (so far as material) that if any amount required to be paid by the director in accordance with a notice served on him under sub-s. (2) is not paid within the specified period the director shall be guilty of an offence; and the consequence is that he is liable to a penalty not exceeding $400: s. 10 (2).

The appellant is, and so far as appears always has been, a resident of South Australia. There was no evidence in the prosecution that he had ever been in or had ever had anything whatever to do with New South Wales. For that matter there was no evidence that he had had anything to do with, or even knowledge of, the travelling of the company's vehicle along the streets of New South Wales; but in my view that is immaterial because s. 10A does not base any liability of a director under its provisions upon his having been a party, by action or inaction, to the company's causing or permitting the vehicle to be used in New South Wales. It bases the liability upon the bare fact that, at the time the Commissioner serves him with a notice to pay the amount owing by his company for charges under the Act, he is a director of the company. Whether he was a director when the charges were incurred by the company is not regarded. Whether, under the company's articles of association, he has any power in the company's affairs other than the power to cast a vote at a board meeting is likewise disregarded. Whether in fact he was present at any board meeting where business concerning the use of the vehicle in New South Wales was or could have been considered; whether, if absent from such a meeting he was absent from choice or of necessity; whether, if present, he voted for or against the causing or permitting of any use of the truck in New South Wales; all these are treated as immaterial.

The first question is one of construction, namely whether in s. 10A the expression "any director" extends to a director who is not in New South Wales, that is to say at the time when, it is said, the section operated, by virtue of the service of the notice upon him, to make him liable to pay the charges owing by the company and to be convicted and punished if they should not be paid within the specified period. The prima facie presumption, even in the case of English legislation, is that its operation is territorial: Cooke v. Charles A. Vogeler Co. [1] ; and in the case of an enactment of a legislature, whose power is restricted by the terms of its charter to making laws for "the peace, welfare and good government" of its territory, the presumption is reinforced by the principle which requires statutes to be construed ut res magis valeat quam pereat: Macleod v. Attorney-General (N.S.W.) [2] . The power of the Parliament of New South Wales is so restricted: see s. 5 of the Constitution Act, 1902 N.S.W.; and accordingly s. 10A ought prima facie to be construed as not applying to a director who at the material time is out of New South Wales. There is nothing in the Act to displace the presumption unless it be (a) the description of the company of which he is a director as the "owner" of a commercial goods vehicle, together with the definition in s. 3 of "owner" as including (inter alios) any person in whose name the vehicle is registered under the Motor Traffic Act, 1909, as amended (N.S.W.) or under corresponding legislation of a State or Territory of the Commonwealth, (b) the definition in s. 3 of "tare weight" as meaning that shown in the certificate of registration of the vehicle under the same legislation, and (c) provisions in s. 13 (1) (c), (e) and (f) giving evidentiary effect to certain certificates signed by officers under the same legislation. None of these provisions, however, carries any suggestion that the legislature addressed itself at all to the question of the locality in which a director may be at any particular point of time. Whether there is sufficient to displace the prima facie presumption that the primary imposition of the charges under the Act upon the owner of a commercial goods vehicle applies only to owners in New South Wales is a different question. Observations upon it were made by some members of the Court in O'Sullivan v. Dejneko [3] , and I shall assume for present purposes that the intention of the Act is to impose the charges upon owners wherever they may be. Still, it does not follow that in the case of an owner which is a company the intention of s. 10A is to impose a secondary liability for the company's unpaid charges, and a liability to a penalty for non-payment of them, upon a director who himself is out of the jurisdiction.

[1901] A.C. 102, at p. 107. 2. [1891] A.C. 455. 3. (1964) 110 C.L.R. 498.

This is enough to entitle the appellant to succeed; but I shall proceed to consider the situation on the assumption that, contrary to my opinion, there is to be perceived in s. 10A an intention that its provisions shall apply to a director whether he is in or out of New South Wales when served with a notice under s. 10A (2), making him liable to pay the charges and guilty of an offence against the laws of New South Wales if the charges are not paid. The question that arises on this assumption is whether the Parliament of New South Wales has power so to deal with a person who is not within its territory. It has the power, of course, if it so limits the application of the law as to base its operation upon some connexion that the absent director has with New South Wales, provided that the connexion is such as to make the enactment of the law relevant to the peace, welfare and good government of New South Wales; but otherwise it has not, for the Parliament has no general power to make strangers to its territory liable in its courts to judgments or sentences by way of enforcing contributions to the revenue of the State. If the operation of s. 10A in respect of a director were limited to the case of one who had been actually concerned in the travelling of the company's vehicle on the streets of New South Wales on the journeys that gave rise to the company's liability to pay the statutory charges, or had been actually concerned in the company's failure to pay the charges (assuming them to be validly imposed on the company), it may well be that the limitation would suffice to restrain the section within the State's constitutional power. As was said in a well-known passage in the judgment of Dixon J. in Broken Hill South Ltd. v. Commissioner of Taxation (N.S.W.) [1] which the Privy Council affirmed in Johnson v. Commissioner of Stamp Duties (N.S.W.) [2] and recently re-affirmed in Thompson v. Commissioner of Stamp Duties (N.S.W.) [3] , "it is within the competence of the State legislature to make any fact, circumstance, occurrence or thing in or connected with the territory the occasion of the imposition upon any person concerned therein of a liability to taxation or of any other liability". The words "concerned therein" are of the essence of this proposition, for what is being described is a connexion between the person upon whom the liability is imposed and the State - a connexion through the selected fact, circumstance, occurrence or thing and therefore a connexion one link of which is a concern, in the sense of a personal implication or involvement in that fact, circumstance, occurrence or thing.

(1937) 56 C.L.R. 337, at. p. 375. 2. [1956] A.C. 331, at p. 353. 3. [1969] 1 A.C. 320, at p. 335.

But upon what connexion between the State and a director who is and always has been out of the State does s. 10A base its attempt to impose a civil and criminal liability upon the director? Certainly not upon his having been a director at the time when the company incurred its liability for charges under the Act by reason of the travelling of the vehicle on the public streets of New South Wales. The service of the notice is within the authority of s. 10A if the recipient is at that time a director. The reason is obvious. The intention is not that the travelling of the vehicle shall give rise to a primary liability in the company and a secondary liability in the directors in office at that time; it is that the failure of the company to pay the charge is to be treated as a failure for which each director who is in office while the failure continues may be made individually responsible by the means which s. 10A provides. The failure being a failure to pay money which the company owes to the State of New South Wales, anyone who is really concerned in the failure, in the sense that he has contributed by action or inaction to its coming about, might no doubt be validly penalized by New South Wales legislation which bases its penalizing provisions upon the fact of his having so contributed. But s. 10A does not base its provisions upon any relation of the director to the company's failure to pay the charges. The draftsman appears to have assumed what is simply not true, that if a company fails to pay its debt each of its directors must have been personally concerned in the failure. This seems to be the explanation of the enactment of sub-s. (6) (a) of s. 10A, by which a director who pays an amount to the Commissioner in accordance with the requirements of a notice under sub-s. (2) is given a right of contribution (not, be it noted, indemnity) against any other director. The board of directors is here being regarded as a body the acts and omissions of which are the acts and omissions of each member, so that each member is, in the relevant sense, "concerned in" those acts and omissions. In the case of a company such as Jupiter Transport Pty. Ltd., where no one director has any power by himself to make a decision binding upon the company, it is impossible to infer from the bare fact that A is a director that he was a participant in, or could have prevented, the company's failure to pay a debt which it should have paid but has not. He could not authorize the payment; he had no wider or other power with respect to the debt than to cast a vote at a board meeting in favour of its being paid, and he may have been prevented by illness or distance or some other compelling circumstance from doing even that. To say, therefore, that the company has failed to pay the debt and that he is a director is not to say that he is or has been concerned in the non-payment. He may even have moved that the debt be paid, done all he could to persuade the board to agree, and voted accordingly. The most that can legitimately be said is that he may or may not have been concerned in the failure to pay; and to say that is to say that he, as an individual, may or may not have had such a connexion with New South Wales as would support the enactment of s. 10A.

There is in s. 3 (2) of the Act a provision that the Act shall be construed so as not to exceed the legislative power of the State, to the intent that where the application of any provision of the Act to any person or circumstance is held invalid the application of such provision to other persons or circumstances shall not be affected. This provision, however, cannot save s. 10A if that section is not to be read as impliedly limited to the case of a director who is in New South Wales at the time he is served with a notice under sub-s. (2); for in that event it fails to base its provisions upon the existence of a connexion between a director and New South Wales, and consequently is, in my opinion, wholly beyond power. Since, however, I am of opinion that as a matter of construction the section applies only to a director in New South Wales, I would hold that it is valid, but that the present case falls outside its provisions.

Accordingly I would allow the appeal and make absolute the order nisi for statutory prohibition.

I have read the reasons for judgment of Kitto J. and I agree with him, for the reasons which he has given, that there is not sufficient connexion between the State of New South Wales and the appellant to support the application of s. 10A of the Road Maintenance (Contribution) Act, 1958-1965 N.S.W. to him.

I agree that this appeal be allowed and that the order nisi for statutory prohibition be made absolute.

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