SUPREME COURT OF QUEENSLAND

SUPREME COURT OF QUEENSLAND CITATION: Re Queensland Police Credit Union Ltd [2013] QSC 273 PARTIES: FILE NO/S: BS 3893 of 2013 DIVISION: PROCEEDING: ORIGINATING COURT: QUEENSLAND POLICE CREDIT UNION LIMITED ACN 087 651 036 (applicant) Trial Division Originating Application Supreme Court of Queensland DELIVERED ON: 8 October 2013 DELIVERED AT: Brisbane HEARING DATE: 27 September 2013 JUDGE: ORDER: Philip McMurdo J Declaration that, on its proper construction, and having regard to s 43(1) of the Corporations Amendment (Improving Accountability on Termination Payments) Act 2009 (Cth), s 200B of the Corporations Act 2001 (Cth) did not apply to the retirement benefits made to the following former directors of the Applicant: (a) Mervyn John Bainbridge: $97,960.83 paid on 6 May 2010; (b) John Andrew Cummins: $40,000 paid on 3 February 2010 and $49,866.91 paid on 7 July 2010; (c) Gregory Early: $114,135.80 paid on 5 December 2012. CATCHWORDS: PROCEDURE MISCELLANEOUS PROCEDURAL MATTERS DECLARATIONS JURISDICTION where the applicant makes an application for declarations where there must be a contradictor for the court to have jurisdiction to make the declarations sought where no contradictor appeared at the hearing where the application and supporting material were served upon the Australian Securities and Investments Commission where ASIC declined to appear at the hearing and did not express its view on the application where the outcome of the application is likely to have an impact upon ASIC s interests in a potential investigation and prosecution of the applicant whether the court has jurisdiction to make the declarations sought whether ASIC is a proper contradictor for the purposes of the

2 application whether the failure of ASIC to appear or express a view prevents it from being a contradictor CORPORATIONS MANAGEMENT AND ADMINISTRATION OFFICERS OF CORPORATION DIRECTOR REMUNERATION where the applicant made payments to certain directors upon their retirement where payments not authorised by the Constitution or made with shareholder approval whether the retirement payments made to the directors were valid CORPORATIONS MANAGEMENT AND ADMINISTRATION OFFICERS OF CORPORATION DIRECTOR REMUNERATION where the applicant made payments to three directors upon their retirement where the applicant proposes to make a payment to a fourth director where the Corporations Act 2001 limits the amount a company can pay as a retirement benefit without shareholder approval being required where the limits provided under the Corporations Act 2001 were amended in 2009 where those amendments were to apply to directors who held office under an agreement that was entered into, renewed, extended or varied after the commencement of the amending Act whether the amending Act applies to the retirement payments made to the directors whether the retirement payments were made in contravention of the Corporations Act 2001 Corporations Act 2001 (Cth), s 200B Corporations Amendment (Improving Accountability on Termination Payments) Act 2009 (Cth), s 43 Ainsworth v Criminal Justice Commission (1992) 175 CLR 564; [1992] HCA 10, cited Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378; [2012] FCAFC 56, applied Australian Competition and Consumer Commissioner v MSY Technology Pty Ltd (No 2) (2011) 279 ALR 609; [2011] FCA 382, cited BMI Ltd v Federated Clerks Union of Australia (NSW) Branch (1983) 76 FLR 141; [1983] FCA 351, cited Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421; [1972] HCA 61, cited Guinness Plc v Saunders [1990] 2 AC 663; [1989] UKHL 2, cited IMF (Australia) Ltd v Sons Of Gwalia (admin apptd) (2004) 211 ALR 231; [2004] FCA 1390, cited Kelly v Commissioner of Taxation [2013] FCAFC 88, cited Oil Basins Ltd v Commonwealth of Australia (1993) 178 CLR 643; [1993] HCA 60, cited Re George Newman & Co [1895] 1 Ch 674, cited Russian Commercial and Industrial Bank v British Bank for

3 COUNSEL: SOLICITORS: Foreign Trade Ltd [1921] 2 AC 438, cited Sali v SPC Ltd (1991) 9 ACLC 1511, applied N O Bryan SC for the applicant Norton Rose Fulbright Australia for the applicant [1] The applicant is Queensland Police Credit Union Limited, an unlisted public company. It is concerned that certain payments which it has made to former directors, upon their retirement from office, may have contravened s 200B of the Corporations Act 2001 (Cth) ( the Act ). It says that there has been no such breach, but suggests that there is an ambiguity in a relevant provision which ought to be resolved in its favour by a declaration. [2] It commenced this proceeding by an Originating Application, which it served upon each of the directors (or the widow of one director) and the Australian Securities and Investments Commission. Unsurprisingly, none of the former directors contends that the payment which was made to him contravened the Act. As for ASIC, it declined to appear and has not expressed a view on the subject one way or the other. [3] In these circumstances, I raised with the applicant s counsel whether the proceeding was irregular in that the court was being asked to provide an advisory opinion rather than to judicially determine a dispute. I received submissions on that question as well as on the substantive question for which the declaration is sought. It is convenient to deal first with that jurisdictional question. Jurisdiction [4] In Ainsworth v Criminal Justice Commission, it was said that the broad discretionary power of superior courts to grant declaratory relief is nevertheless confined by the considerations which mark out the boundaries of judicial power. 1 Their Honours referred to some of the circumstances, in which a court might be asked to give declaratory relief, which do not involve the exercise of judicial power, that is to say the determination of a legal controversy. They were where a court is asked to answer abstract or hypothetical questions or where the declaration sought would produce no foreseeable consequences for the parties. 2 But the question is not abstract or hypothetical: it concerns the lawfulness of events which have happened. My concern about jurisdiction here came from an apprehension that there was no contradictor. [5] In Forster v Jododex Australia Pty Ltd, 3 Gibbs J (with whom the other members of the court agreed on this point) said that the Scottish rules summarised by Lord Dunedin in Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd 4 should in general be satisfied before a declaration is made. Lord Dunedin there said: The question must be a real and not a theoretical question; the person raising it must have a real interest to raise it; he must be able 1 2 3 4 (1992) 175 CLR 564 at 581-582 per Mason CJ, Dawson, Toohey and Gaudron JJ. Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-582 per Mason CJ, Dawson, Toohey and Gaudron JJ. (1972) 127 CLR 421 at 437-438. [1921] 2 AC 438 at 448.

4 to secure a proper contradictor, that is to say, some one presently existing who has a true interest to oppose the declaration sought. [6] In the present case, no contradictor appeared at the hearing. But that does not compel a conclusion that there is an absence of a proper contradictor in this case, so that the court is being asked to advise rather than to adjudicate. In my view, here ASIC is such a contradictor. [7] This requirement for a contradictor was recently considered by the Full Court of the Federal Court in Australian Competition and Consumer Commission v MSY Technology Pty Ltd. 5 The primary judge had been asked to make orders by consent in civil penalty proceedings instituted by the ACCC in relation to representations by the respondents in respect of their businesses. The primary judge declined to grant declaratory relief, holding that, contrary to his own view, an earlier judgment of the Full Court precluded the grant of declaratory relief in those circumstances for the want of a contradictor. 6 The Full Court allowed the ACCC s appeal, holding that the respondents, although ultimately consenting to the declarations, were contradictors, which thereby permitted the grant of the declarations. The Court (Greenwood, Logan and Yates JJ) referred to Forster v Jododex, and the passage in which Gibbs J had approved the statement in Russian Commercial and Industrial Bank, that a proper contradictor was someone with a true interest to oppose the declaration sought. 7 The Full Court said that [t]here is a difference between having an interest to oppose the granting of declaratory relief and, having that interest, choosing whether or not to oppose the granting of that relief. 8 They concluded that only the former was necessary. [8] The Full Court cited a judgment of Dawson J, sitting as a single judge, in Oil Basins Ltd v Commonwealth of Australia. 9 In that case, it was relevant to a dispute about what payments were owing under a royalty agreement to determine whether the plaintiff was liable to pay petroleum resource rent tax. The plaintiff instituted proceedings joining the parties which were obliged to pay the royalty as well as the Commonwealth and the Commissioner of Taxation, seeking a declaration that the tax was not payable. The Commissioner had indicated no view about the suggested liability to pay this tax. A question arose about whether the plaintiff had a sufficient interest to seek this declaration. In that context, Dawson J, after citing Forster v Jododex, Russian Commercial and Industrial Bank and Ainsworth v CJC, said: 10 The question raised by the plaintiff is neither abstract nor hypothetical and the answer to that question will clearly produce consequences for the parties. In those circumstances I would, for my own part, doubt whether the failure on the part of the Commissioner to indicate whether or not he disputes the plaintiff s claim could preclude the plaintiff from seeking against him the relief which it does. The most that could be urged is that there is no proper 5 6 7 8 9 10 (2012) 201 FCR 378. Australian Competition and Consumer Commissioner v MSY Technology Pty Ltd (No 2) (2011) 279 ALR 609 at 619-620 [41]-[44]. That earlier decision being BMI Ltd v Federated Clerks Union of Australia (NSW) Branch (1983) 76 FLR 141. Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378 at 382 [14]. Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378 at 382 [14]. (1993) 178 CLR 643. Oil Basins Ltd v Commonwealth of Australia (1993) 178 CLR 643 at 649.

5 contradictor, but I doubt whether that is so when the Commissioner s participation in the action is likely to force him to abandon his present stand of neutrality. Even if he were to maintain that stand, I doubt whether that would prevent him from being a proper contradictor. He clearly has a true interest in the plaintiff s claim and, if he were to choose not to oppose it and to abide by any order which the Court might make, that might perhaps amount to no more than the performance of his role as a contradictor in a particular manner. (emphasis added) In ACCC v MSY Technology, the Full Court observed that it was clear that Dawson J regarded the requirement for a proper contradictor to be satisfied where there was a party which had a true interest in the plaintiff s claim even if that party came to see that interest served by not opposing the relief claimed. 11 [9] The Full Court also set out the following passage from the judgment of French J (as his Honour then was) in IMF (Australia) Ltd v Sons Of Gwalia Ltd (admin apptd): 12 The requirement of a proper contradictor in a declaratory context is not merely to ensure that the court will be provided with all materials but also that absent a contradictor there is no person to be bound by the relief sought: Acs v Anderson [1975] 1 NSWLR 212 at 215 per Hurley JA citing PW Young, Declaratory Orders, 1st ed, Butterworths, Sydney, 1975, p 210. A proper contradictor, for jurisdictional purposes, in my opinion cannot be confined to the class of party who comes to court ready to oppose the relief sought. There may be a case in which a party, whether a private person or body or a statutory regulator, expresses opposition to, and an intention to oppose, a proposed course of action by another party on the basis that it is in breach of some contractual or statutory prohibition. The party opposing the conduct may however decide for any one or more of a variety of reasons not to contest declaratory proceedings about the lawfulness of the proposed conduct. So the declaration may be made by consent or may be uncontested. This does not mean that the court lacks jurisdiction or power to grant the declaration in such a case. The proceedings will have resolved a pre-existing controversy. A more difficult question arises where a party with an interest in opposing a particular course of conduct refuses to say whether it will take any action in respect of that conduct. Such a party may be said to be one which, notwithstanding its silence, has an interest in opposing the proposed conduct. [10] The primary judge in ACCC v MSY Technology had felt unable to grant a declaration because of a view which he took of the joint judgment of Keely and Beaumont JJ in BMI Ltd v Federated Clerks Union of Australia (NSW) Branch. 13 The primary judge considered that this judgment was inconsistent with Forster v 11 12 13 Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378 at 383 at [16]. (2004) 211 ALR 231 at 244 [47]. (1983) 51 ALR 401.

6 Jododex, in that Gibbs J had referred to the requirement for a contradictor whereas the joint judgment in BMI had held that there was no contradictor because there was no contest. 14 The Full Court in ACCC v MSY said that if that was the effect to be given to the joint judgment in BMI, that judgment was incorrect and the correct position was that stated by Dawson J in Oil Basins and by French J in IMF (Australia) Ltd v Sons Of Gwalia. 15 [11] The applicant s concern is that there may have been contraventions of ss 200B and 200D of the Act, in each case constituting an offence of strict liability. ASIC has prosecutorial powers under s 1315 of the Act and s 49 of the Australian Securities and Investments Commission Act 2001 (Cth) ( the ASIC Act ). In practice, a prosecution for a contravention of these provisions, it appears, would be made by the Commonwealth Director of Public Prosecutions, according to a memorandum of understanding between ASIC and the DPP. Nevertheless, ASIC could have a significant role in such a prosecution, in referring the matter to the DPP and in providing information to the DPP to assist in a prosecution. 16 Therefore ASIC has a true interest to oppose the declaration sought, because of its statutory role or roles in connection with a potential prosecution. The fact that ASIC has chosen to express no view about the merits of the application, does not prevent it from being a proper contradictor. ASIC was served with the Originating Application as well as the affidavits in support of it. The relevant facts [12] The declaration which is sought relates to retirement payments made to three former directors and a proposed fourth payment to another. The first was a payment to Mr J A Cummins of $40,000, which was paid on 3 February 2010. There was a further payment to Mr Cummins of $49,866.91 on 7 July 2010. Next there was a payment to Mr M J Bainbridge of $97,960.83 on 6 May 2010. Mr G Early was paid $114,135.80 on 5 December 2012. The proposed payment is to Mr Michael O Brien. A payment is said to be presently due and payable to him, subject to its legality being confirmed by this judgment. [13] Each of the three payments was made according to the terms of an identical instrument, being a Deed between the company and the payee. Each Deed was executed in September 2009, when each of these men was a director of the applicant. Deeds in identical terms were executed by the five other directors in September 2009. The Deeds were executed prior to the commencement of the Corporations Amendment (Improving Accountability on Termination Payments) Act 2009 (Cth) ( the 2009 Act ), 17 which reduced the amount of a termination benefit which could be paid to a departing director without the approval of members. Each of the past or proposed payments exceeded or would exceed the threshold prescribed by the 2009 Act. The question is whether the 2009 Act applied or would apply to it. 14 15 16 17 Australian Competition and Consumer Commissioner v MSY Technology Pty Ltd (No 2) (2011) 279 ALR 609 at 619 [42]. Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378 at 387 at [30]. Under s 127 of the ASIC Act. The relevant parts of which commenced on 24 November 2009.

7 [14] The Deed, in each case, recited that the applicant was executing the Deed in consideration of the director continuing to provide his services to the applicant. They were the services of a non-executive director. The Deed contained some provisions which are not presently relevant because they concerned other subjects such as a right of access to board papers. It also contained an indemnity by the applicant in favour of the director against any liability incurred by him in his capacity as a director. It obliged the applicant to procure directors liability insurance for the other party. [15] Clause 11.1 of the Deed provided that if the directors had been a director for at least three years, then the applicant was to pay him a once only payment if he ceased to be a director for certain specified reasons or, in the case of a director of at least nine years standing, for any reason. Each of the three payee directors had served on the board for at least nine years prior to the payment or payments in question, as has Mr O Brien. [16] Clause 11.3 of the Deed provided that for a director of at least nine years service, the termination payment was to be the equivalent of the total remuneration which the director had received as a director in the three years immediately preceding the cessation of his directorship. [17] No approval of the members of the applicant was sought or obtained for the execution of these Deeds or the making of the payments under them. The 2009 Act [18] By the 2009 Act, the Act was amended so that retirement benefits for directors and certain other officers were effectively limited to one year s remuneration, absent the approval of members under s 200E. Section 200B of the Act, as amended by the 2009 Act, relevantly provides as follows: 200B Retirement benefits generally need membership approval Benefits in connection with retirement if person has held a managerial or executive office (1) An entity mentioned in subsection (1AA) must not give a person a benefit in connection with a person s (the retiree s) retirement from an office, or position of employment, in a company or a related body corporate if: (a) the office or position is a managerial or executive office, or (b) the retiree has, at any time during the last 3 years before his or her retirement, held a managerial or executive office in the company or a related body corporate; unless there is member approval under section 200E for the giving of the benefit. (1AA) The entities are as follows.

8 (a) the company; (1A) For an offence based on subsection (1), strict liability appies to the circumstance, that the benefit is in connection with the retiree s, or someone else s, retirement. [19] The managerial or executive office includes, relevantly here, the office of a director of the body corporate. 18 A benefit includes a payment. 19 [20] Section 200D provides that a person who holds or who has held a managerial or executive office in a company must not receive a benefit if the giving of the benefit contravenes s 200B (or s 200C which is not presently relevant). [21] Section 200F exempts certain types of benefits or benefits given in certain circumstances, one of which is a benefit given to a person under an agreement made between the company and that person before the person became the holder of the office or position as the consideration, or part of the consideration, for the person agreeing to hold the office or position. 20 But in the present cases, each director had long been a holder of that office when the Deed was executed. [22] Section 200G provides that s 200B(1) does not apply to a benefit within certain limits which, relevantly here, is the average annual base salary the person received from the company during the last three years of service. [23] By s 200J, if there is a payment made in contravention of s 200B, that amount is received on trust for the payer and constitutes a debt due recoverable by a payer in a court of competent jurisdiction. The transitional provision [24] Section 43 of Schedule 1 of the 2009 Act was a transitional provision in these terms: 43. Application (1) The amendments made by Part 1 apply in relation to a retirement from an office, or position of employment, held under: (a) (b) (c) an agreement entered into; or an agreement renewed or extended, or an agreement, for which a variation of a condition of the agreement happens; 18 19 20 s 200AA of the Act. s 200AB(1) of the Act. s 200F(2)(a)(ii) of the Act.

9 on or after the commencement of that Part. (2) If the amendments made by Part 1 apply in relation to a person s retirement from an office or position in a company, the person s relevant period for the purposes of section 200F or 200G of the Corporations Act 2001 applies to managerial or executive offices held by the person: (a) (b) in the company or related bodies corporate; and before, on or after the commencement of that Part. (3) Despite the amendment made by Part 2 (the Part 2 amendment), paragraph 200F(1)(a) of the Corporations Act 2001 (as amended by Part 1 of this Schedule) continues to apply, in relation to agreements entered into before 1 January 1991, as if the Part 2 amendment had not been made. The amendment by Part 2 was to provide a specific exemption, within s 200F(1)(a), for a certain type of benefit under an industrial instrument. Otherwise the amendments made by the 2009 Act were within Part 1. [25] The question raised by the applicant comes from the fact each of the directors of the applicant took office by an election under the applicant s Constitution. None took office by the force of an agreement. Clause 13.4 of the Constitution provides that the members may appoint a person to be a director by election. Clause 13.5 permits the board to fill a casual vacancy until the next annual general meeting. Clause 13.6 provides that a director s term of office should be three years from election, subject to its rotation provisions. Clause 13.8 permits a director to resign upon giving written notice. [26] During their terms of office, the directors were not remunerated under an agreement. Instead they were remunerated according to Division 17 of the Constitution, as follows: 17.1 Remuneration of Directors (1) The credit union in general meeting must determine any remuneration of directors (other than an employee director), (2) In the absence of apportionment determined by the general meeting, the directors may determine how the sum of their remuneration is to be apportioned among them (excluding any employee director) and how and when it is to be paid (3) The remuneration of directors accrues from day to day.

10 17.2 Travelling Expenses and Insurance In addition to any remuneration to which a director may be entitled, the credit union may also pay: (a) the director s travelling and other expenses that they properly incur: (i) (ii) (iii) in attending board meetings or any meetings of committees of directors; and in attending any members meetings; and otherwise in connection with the credit union s business, and (b) subject to the Corporations Law, insurance premiums for a contract that insures the director against liabilities that the director incurs as an officer of the credit union. 17.3 Indemnities for Officers and Former Officers (1) In this Rule indemnified person means an officer or agent, or former officer or agent, of the credit union. (2) To the extent that the Corporations Law permits: (a) the credit union must indemnify an indemnified person against any liability that the indemnified person incurs in conducting the credit union s business or exercising the credit union s powers as an officer or agent of the credit union, and (b) the credit union may indemnify, agree to indemnify or enter into (and pay premiums on) a contract of insurance in relation to an indemnified person or any other person. (3) The indemnity in paragraph (2)(a) applies in relation to an indemnified person for all incidents occurring during the period that person is an officer or agent of the credit union, even though a claim is made against the indemnified person after they have ceased to be an officer or agent of the credit union. [27] The subject payments, of course, were made not pursuant to the Constitution but under agreements, namely the Deeds executed in September 2009. The submissions for the applicant did not explain the source of a power of the board to agree, on behalf of the applicant, that each director should be entitled to a termination benefit according to the Deed.

11 [28] The applicant s counsel submitted that this termination benefit was not remuneration within cl 17 of the Constitution. In other contexts, a termination payment would be well within the subject of the remuneration of a director. 21 However, counsel submitted, remuneration as referred to in cl 17.1, which is to be determined by the members in a general meeting, is the remuneration of directors for a certain period and which is to accrue from day to day. That submission has the support of obiter dicta in Sali v SPC Ltd, 22 where Ormiston J was of the view that a retirement benefit would not be within the term remuneration in relevantly identical provisions of that company s constitution. [29] Ormiston J there said: 23 Numerous cases were cited as to the meaning of the word remuneration in varying contexts but none was directly relevant to the present dispute. There can be little doubt that in an appropriate context remuneration can include rewards for past services: cf Colhoun v Green (1919) VLR 196 at 200-201 per Cussen J. But the present article goes further and prescribes that the remuneration shall be such sum as the company in general meeting determines and that it shall be divided as the board of directors agrees or in default of agreement equally between them. Without elaborating upon the matter further it is clear that Article 86 could not have contemplated the payment of an allowance of the kind referred to in the 1988 resolutions. It looks to a fixed sum capable of division among all directors and cannot be taken as referring to benefits such as retiring allowances, for the procedure in the article is simply inapplicable to that kind of remuneration or benefit. I would therefore have held that Article 86 could and did not apply to the claimed allowance. But Ormiston J added: I have already pointed out that it does not follow that the absence of a specific provision in the articles as to retiring allowances left it free for the board of directors to resolve upon the payment of such an allowance, but that is a different question. [30] I accept that in the present case also, the procedure in Article 17 would not easily facilitate the determination of remuneration which included termination benefits as were paid here. But in my view, it does not follow that the directors were empowered to commit the applicant to make these payments. [31] In Re George Newman & Co, Lindley LJ delivering the judgment of the Court, said: 24 Directors have no right to be paid for their services, and cannot pay themselves or each other, or make presents to themselves out of the company s assets, unless authorised so to do by the instrument which regulates the company or by the shareholders at a properly convened meeting. The shareholders, at a meeting duly convened for the purpose, can, if they think proper, remunerate directors for their 21 22 23 24 For example it would have to be disclosed as part of the remuneration of a director for a company which is subject to AASB 124: Related Party Disclosures. (1991) 9 ACLC 1511. Sali v SPC Ltd (1991) 9 ACLC 1511 at 1525. [1895] 1 Ch 674 at 686.

12 trouble or make presents to them for their services out of assets properly divisible amongst the shareholders themselves. [32] Similarly, in Guinness Plc v Saunders, Lord Templeman approved this statement from the 24th edition of Palmer s Company Law (at p 902): 25 Prima facie, directors of a company cannot claim remuneration, but the articles usually expressly provide for payment of it and, where this is the case, the provision operates as an authority to the directors to pay remuneration out of the funds of the company; such remuneration is not restricted to payment out of profits. Thus absent an authority from the company s Constitution or a resolution of its shareholders, the directors have no power to bind the company to pay themselves any remuneration or other benefit. To do so would clearly offend the rule against self dealing by fiduciaries. In Guinness Plc, Lord Goff of Chieveley said: 26 The leading authorities on the doctrine have been rehearsed in the opinion of my noble and learned friend, Lord Templeman. These indeed demonstrate that the directors of a company, like other fiduciaries, must not put themselves in a position where there is a conflict between their personal interests and their duties as fiduciaries, and are for that reason precluded from contracting with the company for their services except in circumstances authorised by the articles of association. Similarly, just as trustees are not entitled, in the absence of an appropriate provision in the trust deed, to remuneration for their services as trustees, so directors are not entitled to remuneration for their services as directors except as provided by the articles of association. [33] These principles were recently applied by the Full Federal Court in Kelly v Commissioner of Taxation, where the Court (Lander, Siopis and Gilmour JJ) referred to the passage which I have quoted from Re George Newman & Co. 27 [34] The applicant s Constitution contains no provision by which the directors were authorised specifically to approve remuneration of a kind which could not be approved under cl 17 or, if it be different, a termination benefit. The board is given a general power, by cl 14.1, to manage the applicant s business and to exercise all of the powers of the applicant except any powers that the Corporations Law or the Constitution expressly allocates to the general meeting. Although that provision was not discussed in the course of the applicant s submissions, it may be the applicant s position that this was the source of the power of the directors to cause the applicant to contract in terms of the Deeds. But that is not an obvious source of such a power. It is far from clear that the Constitution should be read as providing for some of the directors emoluments to be decided by a general meeting whilst leaving others, such as these termination benefits, to the board. The better view is that the Constitution permits the remuneration of directors but only by cl 17. If that is correct, then the provisions for termination benefits, within these Deeds, were made without the applicant s authority and the recipients of the payments, who secured the benefit of these Deeds whilst themselves directors, would be obliged to repay the moneys. 25 26 27 [1990] 2 AC 663 at 690. [1990] 2 AC 663 at 700. [2013] FCAFC 88 at [114].

13 [35] Ultimately, it is unnecessary for me to express a concluded view upon whether the agreements for these termination payments were made with the authority of the applicant. That question was not fully argued and the declaration which is sought is in relation to a different issue, which is whether the payments contravened s 200B of the Act. That issue can be determined without a conclusion that the payments were otherwise duly made. [36] Returning then to s 43 of the 2009 Act, the applicant submitted that the directors did not retire from an office which was held under an agreement. Instead, they held office by an election of the members under the applicant s Constitution. Upon that premise, the submission suggested that there was a doubt as to the operation of s 43 in this way. On one view, it was said, s 43 means that the amendments made by the 2009 Act could apply only in relation to former directors who had held office under an agreement. If so, then upon that same premise, the directors here were outside the operation of s 200B. On another view, it was said, s 43 might be construed to mean that the Act as amended applies, as to cases where the director had held office under an agreement, only where that agreement was entered into, renewed, extended or varied on or after the commencement of the 2009 Act. Therefore, it would also apply to directors who had not held office under any agreement. Upon that interpretation of s 43, the Act as amended in 2009, prohibited the payments in question. The applicant submitted that the former interpretation should be preferred. [37] The explanatory memorandum referred to the potential reach of these amendments as follows: 28 2.6 The new arrangements will not apply retrospectively to existing contracts. The new arrangements will apply to contracts that are entered into and renewed or extended. 2.7 Additionally, the arrangements will apply to existing contracts for which a variation of a condition is made. Minor changes to an existing contract would not be considered a variation of a condition. However, changes that effect an essential term, including any term relating to remuneration would be considered a variation of a condition. The second reading speeches, on this point at least, were in these identical terms: 29 The Bill will not affect existing contracts, and will apply to all new contracts which are entered into, extended or substantially varied after the commencement date. [38] It fairly appears that s 43 was enacted upon an assumption that any relevant office holder must have held office under a contract with the company. There is one sense in which a director will always be in a contractual relationship with the company, which is the statutory contract resulting from s 140(1) of the Act, by which a company s constitution (if any) and any replaceable rules that apply to the company have effect as a contract between the company and each member, the company and 28 29 Explanatory Memoranda, Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 8. Commonwealth, Parliamentary Debates, House of Representatives, 24 June 2009, 6970 (Chris Bowen); Commonwealth, Parliamentary Debates, Senate, 10 September 2009, 6320 (Penny Wong).

14 each director and company secretary, and between a member and each other member. But it is far from clear that this would be the agreement, or an agreement, which might engage s 43. [39] I have concluded that, for alternative reasons, the amendments made by the 2009 Act do not apply to the subject payments. The first reason comes from my view that in the context of s 43, a director would hold office under an agreement where there is an agreement which, in whole or in part, provides the terms of the director s service in the office. In most cases, the entitlement to a benefit of a kind which is relevant for these provisions would derive from a contract which provides at least some of the directors terms of service. (The other possibility is that the entitlement would derive from the resolution of shareholders, but in such a case, the protective protection of these provisions would not be necessary.) Upon this view of s 43, each of the directors did hold office under an agreement. The provision for retirement benefits may be invalid (as I have discussed) but the Deeds made provision for other matters and to that extent at least, had effect. But s 43 was not engaged, because the agreement predated the commencement of the 2009 Act and there was no renewal, extension or variation after that commencement. [40] Alternatively, if the office is held under an agreement only where the appointment to the office was by an agreement, I would accept the applicant s submission as to the operation of s 43. The section is not in terms which exclude the operation of the amendments made by the 2009 Act. Rather, it is in terms which define the circumstances in which the amendments will operate. If these directors do not hold office under an agreement at all, the terms of s 43 cannot be read as extending the operation of the 2009 Act to them. [41] It follows that the payments made to Messrs Cummins, Bainbridge and Early did not contravene s 200B. There will be a declaration in terms of paragraph 1 of the Originating Application save for the case of Mr O Brien. The declaration sought in his case is that s 200B will not apply to the retirement payment which is presently due and payable to him under his Deed. Because of the doubts which I have expressed about the validity of that Deed, insofar as its provision for the retirement benefit is concerned, there should not be a declaration which states that an amount is due and payable. But if there is a valid agreement to pay Mr O Brien according to the Deed, it would follow from these reasons that the payment would not contravene s 200B.