In Re Ryder [2020] NSWSC 895, Kunc J of the New South Wales Supreme Court has, in the exercise of the parens patriae jurisdiction of the Court, ordered that chemotherapy be permitted for a young child over the objections of his parents.

Parens patriae jurisdiction

In an ex tempore judgment, his Honour explained (at [25]) (references to the cases have been omitted) that the parens patriae jurisdiction was an extraordinary jurisdiction which, when invoked to permit medical treatment of a child against the wishes of the parents, had only one criterion – what was in the best interests of the child? His Honour indicated that, although the jurisdiction was a broad one, the Court should act cautiously – it should not act as if it was a private person acting with regard to his or her own child, and should act in opposition to the parents only when judicially satisfied that the child’s welfare required that the parental rights should be suspended or superseded.

Background

The young child was a boy aged two years and eight months. He had been diagnosed with bilateral retinoblastoma at the age of 7 months. He had undergone several cycles of chemotherapy but was subsequently found to have new tumours in his left eye. He had then undergone further treatment including chemotherapy into the left eye but the tumour had recurred and his left eye had been removed. Subsequent examination of the eye revealed that the tumour had extensively invaded the choroid layer and that there had also been involvement of the front part of the eye by the tumour, which carried a large risk of spread beyond the eye to other parts of the body. In these circumstances, it was recommended that the child should have further cycles of chemotherapy to minimise the prospect of any microscopic cancer cells which might have escaped from the eye developing into cancer in other parts of his body. The recommendation was made by the child’s treating doctor and supported by a formal second opinion as well as by consultation among other specialists in the field. The parents, however, did not wish to consent to the proposed treatment, mainly because they did not want to put their child through more chemotherapy (with all its discomfort and side effects) when there was presently no detectable cancer in his body.

The Minister for Health and the treating hospital network urgently invoked the parens patriae jurisdiction of the Supreme Court for orders which would permit the proposed treatment to be administered over the objections of the parents.

Decision

Kunc J made the orders requested after considering further medical evidence and the concerns of the parents.

His Honour made it clear that the parents were not to be criticised for the approach which they had taken and said that their reasons for objecting were rational and motivated by their concern for their child’s quality of life – they did not want to put him through more chemotherapy when it was not apparently necessary at the present time (at [5]-[6]; also at [27]).

His Honour said that, when exercising the parens patriae jurisdiction, the Court’s role was not to act as a substitute parent but to consider the evidence objectively and to apply only the test of what was in the best interests of the child. His Honour further said that, while the Court felt deep sympathy and understanding for the emotional turmoil of the parents, the Court’s jurisdiction was not exercised by reference to the emotional wellbeing of the parents, other than to the extent that that wellbeing might have an impact upon the child. His Honour considered that, although the parents might find what might come to be difficult and upsetting, they would be able to see it through with the same fortitude and care for the child that they had shown and done during his earlier chemotherapy treatment (at [27]-[28]).

His Honour said that the medical evidence showed that if the child underwent the proposed treatment, then there was only a 10 per cent prospect of a recurrence of the cancer in some other part of his body as a result of the travel of microscopic cancer cells from his left eye prior to its removal. While the proposed treatment would be uncomfortable and would have side effects, it was likely that the child’s capacity to tolerate it would be better than it was during his earlier treatment. On the other hand, his Honour further said, if the child did not undergo the proposed treatment, then there was a 40 per cent prospect of a recurrence of his cancer in some other part of his body and, in that event, any treatment would be longer and more toxic than the proposed treatment, including, depending on where the cancer developed, carrying significant risks to his long term health and development. Furthermore, his Honour stated that treatment of a cancer had a lower chance of a successful outcome than dealing with microscopic cancer cells that had not yet developed into an active tumour (at [29]-[30]).

In conclusion, his Honour ordered that the proposed treatment be permitted because he was satisfied that it was in the child’s best interests to have the treatment now, with its attendant discomfort and side effects, but with very good prospects of success, to avoid or minimise the significant risk of the child contracting cancer and having to undergo far more intrusive or toxic treatment later, with far lower prospects of success (at [3]; [31]) However, his Honour emphasised that this conclusion had not been reached lightly and that he had borne in mind that the Court had to be cautious about intruding on the autonomy of parents to make decisions about their child (at [32]).

The High Court of Australia in Australian Securities and Investments Commission v King [2020] HCA 4 has held that para (b)(ii) of the definition of “officer” of a corporation in s 9 of the Corporations Act 2001 (Cth) (“CA”) (being a person who has the capacity to affect significantly the corporation’s financial standing) is not confined to a person who occupies an “office” within the company in the sense of a recognised position with rights and duties attached to it. Accordingly, the chief executive officer of a parent company of a group of companies who had assumed overall responsibility for a subsidiary which was the responsible entity of a registered managed investment scheme and had approved and authorised the misuse of the scheme’s funds was a s 9(b)(ii) “officer” of the subsidiary and had breached his duties as an officer of a responsible entity.

Relevant provisions

Section 9 of the CA defines an “’officer’ of a corporation” to mean:

“ (a) a director or secretary of the corporation; or

                     (b)  a person:

                     (i)  who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or

                     (ii)  who has the capacity to affect significantly the corporation’s financial standing; or

                      (iii)  in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person’s professional capacity or their business relationship with the directors or the corporation); or

                     (c)  a receiver, or receiver and manager, of the property of the corporation; or

                     (d)  an administrator of the corporation; or

                     (e)  an administrator of a deed of company arrangement executed by the corporation; or

                      (f)  a liquidator of the corporation; or

                     (g)  a trustee or other person administering a compromise or arrangement made between the corporation and someone else.”

Background

K was the chief executive officer (“CEO”) and an executive director of MFS Ltd which was the parent company of a group of companies known as the MFS Group. The MFS Group included MFSIM which was the responsible entity of PIF, a registered managed investment scheme. A bank granted a loan facility to MFSIM in its capacity as the responsible entity of PIF, which facility was to be used for the purposes of PIF only.  Money, however, was drawn down under the facility to pay the debt of another company in the MFS Group for which PIF had no liability.  MFSIM received no consideration for the use of PIF’s moneys and there was no agreement that the moneys would be repaid. Although K had previously been a director of MFSIM, he was not a director at the relevant times.  ASIC, nevertheless, claimed, amongst other things, that K was an officer of MFSIM who had breached the duties imposed by s 601FD of the CA on an officer of the responsible entity of a registered scheme. ASIC contended that K fell within the s 9(b)(ii) definition of “officer” of a corporation.

A single judge of the Supreme Court of Queensland was satisfied that K was an “officer” of MFSIM within s 9(b)(ii) because he had the capacity to affect significantly MFSIM’s financial standing and, accordingly, found K liable for breach of various provisions of s 601FD(1).

On appeal, the Queensland Court of Appeal did not disturb the trial judge’s factual findings about K’s involvement in MFSIM’s operations and found, consistently with the trial judge’s findings, that:

• K had acted as the overall boss of the MFS Group and had assumed overall responsibility for MFSIM.
• K had spoken daily with W, an executive director of MFSIM (as well as the deputy CEO of MFS Ltd) who had taken instructions from him with respect to the proprietary matters of MFSIM’s business.
• K had been in frequent contact with others within the MFS Group, including W, about efforts to obtain funds to repay the other company’s debt by the due date.
• K had encouraged W and others to use the PIF moneys for the purpose of making the debt repayment and had approved and authorised the use of the moneys to make the debt repayment.
• W would not have caused the moneys to be used in this way without the imprimatur of K.
• K had known that there was no agreement under which any consideration would pass to PIF for the use of PIF’s moneys.

Nevertheless, the Court of Appeal held that K was not an officer of MFSIM within the s 9 (b)(ii) definition of “officer” of a corporation because he did not occupy an “office” within MFSIM, in the sense of a recognised position with rights and duties attached to it. Rather, the Court of Appeal said that any capacity to affect MFSIM’s financial standing derived from K’s position as CEO of the MFS Group and was exercised by him in that role. ASIC appealed by special leave to the High Court.

High Court

The High Court (Kiefel CJ, Gageler, Keane, Nettle and Gordon JJ) unanimously allowed the appeal and restored the orders of the trial judge.

Joint judgment of Kiefel CJ, Gageler and Keane JJ

Kiefel CJ, Gageler and Keane JJ said that it was clear from the textual differences between paras (a) and (b) of the s 9 definition that para (b) extended the scope of the term “officer” beyond its ordinary meaning of “office holder” and that, while para (a) captured those who held a named office in a corporation for which the CA prescribed certain duties and functions, para (b) captured those who did not hold such an office. What para (b) did was define “officer” by reference to the facts of the relationship between a person and a corporation in relation to the affairs of the corporation (at [24]; also [28]).

Their Honours further said that considerations of legislative context, history and purpose all pointed in the same direction as the textual considerations:

• There was no requirement for a person to act in an “office” in order to be a shadow director. Furthermore, ss 206A(1)(b) (making it an offence for a person disqualified from managing a corporation to exercise the capacity to affect significantly the corporation’s financial standing), 180(1) (imposing civil obligations on directors and other officers) and 601FD (imposing duties on an officer of the responsible entity of a registered scheme) did not only apply to persons who acted in a designated office or position (at [29]-[37]).
• The concern that para (b)(ii), if applied literally, would capture persons who were unrelated to the management of the company such as external advisors or consultants, bankers, and the Commissioner of Taxation, was misplaced. Even where para (b) appeared to be satisfied, it was still necessary to determine whether the “officer” was “of” the corporation in the sense of being engaged, in fact, in the management of its affairs or property (at [38]-[39]).
• The legislative history of the genesis of para (b)(ii) (and para (b)(i)) of the definition of “officer” confirmed this understanding of the provision as one capturing those concerned in, or taking part in, the management of a corporation (at [44]-[45]).
• The Court of Appeal’s construction of para (b)(ii) would not achieve the purpose of the CA to protect shareholders and creditors. Shareholders and creditors would be left exposed to an obvious risk if the CEO of the parent company of a group of companies could act in relation to other companies in the group without being restricted by the duties that were imposed on officers of each of the other group companies. No intention could be discerned from the CA that an officer of a holding company should fall outside the para (b)(ii) definition in relation to a subsidiary if, as a matter of fact, the person had the capacity to affect significantly the financial standing of the subsidiary, particularly where the person had shown that capacity by exercising it to the detriment of the subsidiary and its creditors and shareholders (at [46]-[47]).

The Court of Appeal had relied on Grimaldi v Chameleon Mining NL [No 2] [2012] FCAFC 6; (2012) 200 FCR 296 for its conclusion that K did not fall within the s 9(b)(ii) definition of “officer” but their Honours said that the reasons of the Full Court of the Federal Court in that case recognised that para (b) expanded the coverage of the duties of officers of a corporation to include persons who would not be officers of a corporation within the ordinary meaning of the term and did not support the view that a person had to act in a recognised office within the corporation to satisfy the requirements of para (b)(ii) (at [58]).

Joint judgment of Nettle and Gordon JJ

Nettle and Gordon JJ made the following points:

• Paragraphs (a) and (c)-(g) of s 9 dealt with persons who occupied or held a named office in, or in relation to, the corporation. Those were offices in respect of which the CA prescribed certain duties and functions. In contrast, persons in para (b) did not hold or occupy a named office. Thus, para (b) was essentially functional in character with its concern being on the quality of a person’s actions or capacity and their effects. Sub-paragraph (ii) (as well as sub-para (ii)) was concerned with identifying persons who were involved in the management of the corporation, namely, those who were involved in policy-making and decisions that affected the whole or a large part of the corporation’s business. Therefore, determination of whether a person fell under the s 9(b)(ii) definition of “officer” of a corporation required consideration of the role that the person played in the management of the corporation (at [86]-[91]).
• Determining whether a person had the capacity to affect significantly a corporation’s financial standing within para (b)(ii) depended on identifying their role in relation to the corporation, their acts or omissions, and the relationship between their acts or omissions and the financial standing of the corporation. Factors such as the corporation’s size, the corporate structure, the management structure, and the identity and nature of the persons involved were likely to affect who was an “officer” of a corporation at any particular time ([91]-[92]).
• It was not the case that bankers and other third parties could never fall within the para (b)(i)-(iii) definition of “officer” in s 9. For example, real issues about the application of the provisions could arise in the case of creditors managing the way in which a corporation tried to work its way out of financial difficulties ([96]).
• The legislative history reinforced the conclusion that the s 9(b)(ii) definition of “officer” was not concerned with whether a person held a named office but with identifying persons involved in the management of a corporation who, by their acts or omissions, had the capacity to affect significantly a corporation’s financial standing (at [97]).
• Taken together, the facts and circumstances relating to the misuse of funds and other matters relied on by ASIC compelled the conclusion that K was an officer of MFSIM within the meaning of the s 9(b)(ii) definition. After K ceased to be a director of MFSIM, his involvement in and impact on MFSIM and its business remained significant and extensive. Without being an office holder, K had influence over the general conduct of MFSIM which had the capacity to affect significantly MFSIM’s financial standing ([125]).
• The Court of Appeal applied the wrong test to determine who was an officer of a corporation within the s 9(b)(ii) definition. It also took too narrow a view of the significance of specific examples which ASIC had put forward about K’s capacity to affect significantly MFSIM’s financial standing. The question of whether a person was an officer of a corporation did not arise in a vacuum but always arose in the context of some acts or omissions concerning one or more companies. Where the acts or omissions related to one or more companies in a group, to put too much emphasis on the phrase “of a corporation”, would tend to wrongly suggest that the focus should only be on the person’s acts or omissions in respect of that company or those companies, ignoring the overall influence which the person might have had on the group’s affairs (at [162] and [73]).

In conclusion, Nettle and Gordon JJ said that the s9(b)(ii) definition of “officer” was not limited to a person who held or occupied a named office, or a recognised position with rights and duties attached to it, and that to impose such a limitation would be contrary to the text of the definition and to the extension of the definition over time to persons who were concerned in, or who took part in, the management of the corporation (at [185]).

An application to set aside a creditor’s statutory demand is not validly made for the purposes of s 459G of the Corporations Act 2001 (Cth) unless there is a supporting affidavit filed and served within 21 days after the statutory demand is served (see s 459G(3)(a)). Numerous cases have addressed the minimum requirements for an affidavit to qualify as a supporting affidavit. A recent case dealing with the issue is the decision of the New South Wales Court of Appeal in Drama Unit Pty Ltd v Fearndale Holdings Pty Ltd (Administrator Appointed) [2020] NSWCA 1 which found that an affidavit which asserted an offsetting claim that exceeded the amount claimed in the statutory demand was not a sufficient supporting affidavit because it did not provide evidentiary support for the asserted offsetting claim.

The affidavit in question had been sworn by a solicitor acting on behalf of the company seeking to set aside the statutory demand. The solicitor had deposed that he had been “advised which I verily believe to be true” that the company would be filing a Statement of Claim in the Supreme Court of NSW, a draft of which was annexed to the affidavit, and that the amount claimed in the Statement of Claim “will offset and exceed” the amount claimed in the statutory demand. The draft Statement of Claim annexed to the affidavit was unsigned, undated and unverified. The affidavit was the only relevant affidavit filed and served within the 21 day time period.

At first instance, after reviewing the authorities, the trial judge said that, although the affidavit contained a “conclusory statement” of sorts that the amount of the claim exceeded the amount of the demand, the solicitor had not squarely asserted, on information and belief or at all, that the company was entitled to the amounts that would be claimed in the proceedings, nor on what basis. The trial judge further said that the fact that the annexed Statement of Claim was in a draft form and was unsigned and unverified by a director of the company might not have been fatal if the solicitor had, in the body of his affidavit, set out the material facts on which the company intended to advance the claim, on information and belief or at all. However, the solicitor had not deposed, for example, that he had been informed by an identified person (ideally a director of the company with first-hand knowledge) that the facts in the draft Statement of Claim were correct. The trial judge found that the draft Statement of Claim was merely “a series of draft assertions rather than anything concrete” and that the affidavit did not raise the grounds nor state the material facts supporting the alleged offsetting claim (at [22]-[23]). Accordingly, the trial judge dismissed the s 459G application.

The company then applied to the Court of Appeal seeking leave to appeal against the dismissal. In refusing leave to appeal, Gleeson JA (with whom Macfarlan and Payne JJA agreed) made the following relevant points (at [30]-[34]).

• The word “affidavit” in s 459G(3)(a) connotes evidence, and the affidavit must be one that supports the s 459G application. The requirements of a supporting affidavit will depend on the precise nature of the application, that is, whether the company asserts a genuine dispute or an offsetting claim (s 459H(1)), or a defect in the demand or some other reason why the demand should be set aside (s 459J).
• In the present case, the company relied upon an offsetting claim, and the question before the trial judge was whether the affidavit was an affidavit supporting the s 459G application on the ground that the company had an offsetting claim. The proposed appeal sought to challenge the trial judge’s factual finding that the affidavit did not answer that description, a finding which involved an evaluative judgment as to whether the affidavit provided evidentiary support for the asserted offsetting claim.
• The affidavit in question did not verify any of the material facts asserted in the draft Statement of Claim. The affidavit said no more than that the company would be filing a Statement of Claim and that the amount claimed would “offset and exceed” the judgment debts. But the mere foreshadowing of an intention to make a claim did not give those allegations in the draft Statement of Claim any evidentiary value.

The High Court of Australia in Connective Services Pty Ltd v Slea Pty Ltd [2019] HCA 33 has upheld the decision of the Victorian Court of Appeal that companies which brought proceedings at their own expense to enforce ‘pre-emptive rights provisions’ in their constitutions for the benefit of some of their shareholders had contravened the implied prohibition against financial assistance in s 260A(1) of the Corporations Act 2001 (Cth) (“CA”) and should be restrained from prosecuting the proceedings under s 1324 of the CA.

Relevant provisions

Section 260A of the CA relevantly provides as follows:

“(1) A company may financially assist a person to acquire shares (or units of shares) in the company or a holding company of the company only if:

(a) giving the assistance does not materially prejudice:

(i) the interests of the company or its shareholders; or

(ii) the company’s ability to pay its creditors; or

(b) the assistance is approved by shareholders under section 260B (that section also requires advance notice to ASIC); or

(c) the assistance is exempted under section 260C.

Note: For the criminal liability of a person dishonestly involved in a contravention of this section, see subsection 260D(3). Section 79 defines involved.”

Section 1324(1) of the CA empowers the Court to grant an injunction where a person has engaged, is engaging or is proposing to engage in conduct, that constituted, constitutes or would constitute, a contravention of the CA. By s 1324(1B), if the ground relied upon in an application for an injunction is conduct or proposed conduct of a company or other person which it is alleged constitutes, or would constitute, a contravention of s 260A(1)(a), then the Court must assume that the conduct constitutes, or would constitute, a contravention of that provision unless the company or person proves otherwise.

Background

The case involved two companies (the so-called “Connective companies”) which each had the same three shareholders, one of which was Slea. Slea held 33.33% of the shares while the other two shareholders held 66.67% of the shares. The constitutions of the Connective companies each contained identical ‘pre-emptive rights provisions’ which provided that, before a shareholder could transfer shares of a particular class, the shares first had to be offered to existing shareholders of the particular class in proportion to the number of shares of the class already held by that shareholder.

The Connective companies brought proceedings claiming that certain agreements entered into between Slea’s sole director and shareholder and a company called Minerva breached the pre-emptive rights provisions and that Slea intended to transfer its shares in the Connective companies to Minerva without complying with the pre-emptive rights provisions. The Connective companies sought an order compelling Slea to offer its shares in the Connective companies to the other two shareholders in accordance with the pre-emptive rights provisions.

Slea and Minerva then applied to have those proceedings dismissed or stayed, seeking relief which included an injunction under s 1324 of the CA to restrain the Connective companies from prosecuting the proceedings on the basis that the proceedings contravened s 260A(1) of the CA.

A decision at first instance that the Connective companies had not contravened s 260A was overturned on appeal by the Victorian Court of Appeal. By grant of special leave, the Connective companies appealed to the High Court which agreed with the Court of Appeal that s 260A had been contravened and that an injunction must issue.

High Court

The High Court (Kiefel CJ, Gageler, Keane, Gordon and Edelman JJ) in a joint judgment said that the following three elements were necessary to establish a contravention of s 260A(1) of the CA for the purposes of the appeal (at [20]):

• financial assistance given by the company;
• to acquire shares or units of shares in the company; and
• which materially prejudices the interests of the company or its shareholders or its ability to pay its creditors.

Financial assistance

The Court said that “financial assistance” (at [16]; [21]-[22]; [33]):

• was a commercial concept and a broad concept;
• did not need to involve a money payment or direct contribution by the company to the person acquiring the shares;
• could be action by the company which eased the financial burden that would be involved in the process of acquisition such as payment of the costs of stamp duty or valuation costs, or which improved the person’s net balance of financial advantage in relation to the acquisition.

To acquire shares or units of shares

As for the element to acquire shares or units of shares in the company, the Court said that the words “to acquire” (at [23]):

• required that there be a sufficient link between the financial assistance and the acquisition of the shares or units of shares but that an acquisition did not actually have to take place;
• included conduct that was in connection with the process of an acquisition of the shares or units of shares and was not limited to conduct for the purpose of acquisition.

The Court further said that acquisition also had broad connotations and included acquisitions by issue, by transfer, or by any other means (at [23]).

Material prejudice

The Court then observed that the potential breadth of s 260A was constrained by the requirement of the implied prohibition that the financial assistance by the company to acquire its shares had to be materially prejudicial to the interests of the company or its shareholders (being the shareholders collectively and each shareholder individually) or its ability to pay its creditors (at [25]). The Court then said that the question of material prejudice (at [26]):

• required that there be an assessment of, and comparison between, the position before the financial assistance was given and the position after it was given to determine whether the company or its shareholders or its ability to pay its creditors was in a worse position; and
• should not be glossed over by the introduction of further concepts not found in the language of s 260A(1) and which would require further explanation such as whether there had been a diminution of the company’s assets, whether there had been a transaction, or whether there had been a net transfer of value to the person acquiring the shares.

Findings

The Court said that, by s 1324(1B) of the CA, in the application for an injunction based upon an alleged contravention of s 260A(1)(a), the Connective companies were required to disprove that their conduct constituted a contravention of s 260(1)(a) and that this meant that they were required to disprove each element of the conduct that would constitute a contravention of s 260A(1)(a), including those in the introductory words (at [28]). The Court then went on to make the following points (at [34]-[37]):

• The bringing of legal proceedings against Slea was a necessary step for the vindication of any pre-emptive rights of the other two shareholders. If those proceedings had been brought by the other two shareholders, it would clearly have been financial assistance for the Connective companies to have provided the funds for those proceedings just as it would have been financial assistance had the Connective companies provided funds for the payment of stamp duty or valuation costs. Instead, the proceedings had been brought at the expense of the Connective companies in which the other shareholders held 66.67% of the shares and so the Connective companies had eased a financial burden in the process of any acquisition of shares by the other shareholders. Thus, the commencement of the pre-emptive rights proceedings by the Connective companies at their expense was financial assistance to those shareholders.
• The argument by the Connective companies that any financial assistance was not to acquire shares because the pre-emptive rights proceedings would not create any new rights and that, in any event, the pre-emptive rights were only to be offered shares for purchase and would not necessarily result in an acquisition was not consistent with the breadth of the words “to acquire” which extended to all conduct in connection with the process of an acquisition of the shares or units of shares. Furthermore, the acquisition process did not exclude court recognition of pre-emptive rights merely because the exercise of the rights would not give rise to the acquisition of shares. Section s 260A(1) included the acquisition of “units of shares” and s 9 of the CA defined a “unit” of shares to include “an option to acquire such a right or interest in the share”. Thus, the Connective companies had financially assisted the other two shareholders to acquire shares, or units of shares, in the companies.
• As for material prejudice, the Connective companies would incur costs in prosecuting the pre-emptive rights proceedings which, even if they succeeded, would not be entirely recovered, as well as becoming subject to any potential adverse costs orders. These costs could reduce Slea’s equity as a shareholder which was a step towards compelling Slea to offer its shares for transfer to the other two shareholders. The pre-emptive rights proceedings could have been brought by the other two shareholders in their own right, yet no evidence had been put forward by the Connective companies that they had sought funding or indemnity from those shareholders against the costs liability. Therefore, the Connective companies had not discharged their onus of proving that there was no material prejudice to them or their shareholders by giving the financial assistance to the other two shareholders.

In conclusion, the Court said as follows (at [39]):

“Section 260A(1) does not abrogate the power of a company to enforce its constitution. However, together with s 1324(1B), it has the effect that if a company wishes to bring proceedings to enforce pre-emptive rights in its constitution, for the benefit of some of its shareholders but at the company’s expense, then the company is liable to be enjoined from doing so unless the assistance is approved by shareholders under s 260B, or unless the company can satisfy the court that bringing the proceedings at its own expense does not materially prejudice the interests of the company or its shareholders or the company’s ability to pay its creditors. The Connective companies failed to discharge this onus.”

The New South Wales Court of Appeal in Cappello v Roads and Maritime Services [2019] NSWCA 227 has now delivered its reasons for upholding the validity of proposed acquisition notices given by Roads & Maritime Services (“RMS”) in respect of an underground stratum of land which RMS intended to compulsorily acquire for the purpose of constructing a road tunnel. The Court of Appeal had earlier dismissed the appeal from a decision of a judge of the Supreme Court of New South Wales in Cappello v Roads and Maritime Services [2019] NSWSC 439 (summarised by K Ottesen on 14 May 2019) which had held that the notices were authorised by law and within the power of RMS.

Background

The notices in question were given under s 11 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW) (“Just Terms Act”) which prevents an authority of the State from acquiring land by compulsory process unless the authority has given the owners of the land written notice of its intention to do so. By s 7 of the Just Terms Act, the authority is not empowered by that Act to acquire land if it does not have the power (apart from that Act) to acquire the land.

The notices made it clear that RMS was purporting to acquire the land by exercising power under s 177 of the Roads Act 1993 (NSW). Section 177 empowers the Minister, RMS or a council to acquire land for “any of the purposes of this Act”. By s 178, land that is authorised to be acquired may be acquired by agreement or by compulsory process in accordance with the Just Terms Act.  The notices indicated that the acquisition of the land was for the “purposes of the Roads Act 1993 in connection with the construction, operation and maintenance of WestConnex M4-M5 Link tunnels.”

Planning approval for the carrying out of the WestConnex M4-M5 Link had been granted under the Environment and Planning Assessment Act 1979 (NSW). Pursuant to s 52 of the Roads Act which enables the Minister, by order published in the Gazette, to declare to be a “tollway” any road proposed to be constructed on land owned or to be owned by RMS, the Minister had declared the proposed road to be constructed in the main tunnel to be a tollway. It was common ground that the tollway when constructed would be a private road under the Roads Act. Pursuant to s 63 of the Roads Act, which empowers the Minister to direct that some or all of the functions of a roads authority with respect to a classified road are to become the responsibility of RMS, ministerial directions had been made directing that all of the functions of a roads authority were to become the responsibility of RMS with respect to the project.

Central issue

The central issue in the appeal was whether the purposes identified in the notices, being “purposes of the Roads Act 1993 in connection with the construction, operation and maintenance of WestConnex M4–M5 Link tunnels”, were within the scope of the purposes of the Roads Act.

Court of Appeal

In finding that the identified purposes were within the scope of the Roads Act, Payne JA (Brereton JA and Emmett AJA agreeing) made the following points (at [39]-[56]):

• The landowners’ argument that the “purposes” of the Roads Act referred to in s 177 were limited only to the “objects” set out in s 3 of the Roads Act was not correct. The scope of the expression “the purposes of this Act” in s 177 was to be determined by reference to the provisions of the Roads Act read as a whole and the “purposes” included the exercise and achievement of particular purposes of the Roads Act identified in the powers granted by the Roads Act.
• As to the landowners’ argument that the objects of the Roads Act extended to public roads only, s177 itself made plain that the power of acquisition extended beyond the acquisition of land for public roads. Furthermore, the power to acquire land under s 177 of the Roads Act together with the Just Terms Act gave RMS the power to acquire such land compulsorily.
• No general assumption against the acquisition of private property applied. In any event, this was a case where the legislative intent to interfere with private property rights for the purposes of the Roads Act was manifest. The acquisition of private property by RMS to construct a road was clearly within the contemplated exercise of power.
• Even if attention was confined only to the objects in s 3 of the Roads Act, those objects did not expressly or impliedly exclude the performance of road work in relation to a private road. The power to acquire land to build a road fell within s 3(f). It provided that one of the objects of the Roads Act was to “confer certain functions (in particular, the function of carrying out road work)” on RMS and s 52(1)(b) of the Roads Act specifically contemplated that the Minister could declare to be a “tollway” (which, by definition, was a private road) a road proposed to be constructed on land to be owned by RMS.
• The landowners’ argument that the power of a roads authority to carry out road work under s 71 of the Roads Act which authorised a “roads authority” to “carry out road work on any public road for which it is the roads authority and on any other land under its control” was limited to the carrying out of road work on an existing public road failed to recognise that there was a distinction between the appointment of RMS as the roads authority with respect to a “public road” by operation of s 7 of the Roads Act, and the conferral or exercise of the functions of a roads authority on RMS with respect to other types of road by the operation of other provisions of the Roads Act.
• When ss 64(1A), 64(1) or 63 of the Roads Act conferred the functions of a roads authority upon RMS in relation to a road, one of the functions conferred was the carrying out of “road work”, an expression which was very widely defined and included the construction or installation of any kind of work, including a roadway and tunnel on or in the vicinity of a road for the purpose of facilitating its use as a road. Conferral of that function included the power to carry out the function including the power to construct a new road. The power to carry out road work included the power to construct a tollway.
• The main WestConnex tunnel had been approved as State significant infrastructure under the Environmental Planning and Assessment Act and the effect of that approval under s 64(1A) of the Roads Act was to enable RMS to exercise the functions of a roads authority with respect to any road for the purposes of carrying out the WestConnex project. Thus, the clear purpose of s 64(1A) was to confer on RMS the functions of a roads authority in relation to a road where RMS was not the roads authority for that road under s 7.
• To limit the function in s 71 when conferred on RMS by operation of s 64(1A) to the carrying out of road work on an existing public road for which RMS was the roads authority would add nothing to what s 71 already conferred on RMS in its direct application when RMS was the roads authority for that road.
• That this was how s 64(1A) should be construed was confirmed by s 52 which expressly contemplated that a “tollway” might be a road to be constructed by RMS on land to be owned by it in the future and was consistent with the Roads Act otherwise authorising RMS to undertake that expressly contemplated construction activity.
• Accordingly, by operation of s 64(1A), the function of carrying out the construction of the road for the purposes of the WestConnex project was conferred on RMS. Thus, construction of the road for the purposes of the WestConnex project was a purpose of the Roads Act within the meaning of s 177 and the acquisition of the landowners’ land for this purpose was permitted by s 177.
• Although not necessary to decide given the clear operation of s 64(1A), the same conclusion could be reached by operation of ss 63 and 64(1) of the Roads Act. A ministerial direction had been given pursuant to s 63, the effect of which had been that all of the functions of a roads authority with respect to the proposed tollway became exercisable by RMS. Under s 64(1), RMS could exercise the functions of a roads authority with respect to any classified road whether or not that road was a public road. This included the road in question which had not been classified as a public road but as a tollway.