Case: R v Trade Practices Tribunal; Ex parte St George County Council [1974] HCA 7 ; (1974) 130 CLR 533
Outcome: discussed
There are further observations in the judgment of the majority which have a relevance to the present controversy. The majority said at [157]: By the time Fontana Films came to be decided, there had been controversy about what are "trading or financial corporations formed within the limits of the Commonwealth". In particular, in R v Trade Practices Tribunal; Ex parte St George County Council [1974] HCA 7 ; [(1974) 130 CLR 533 ; 2 ALR 371] , the court had held that a county council, established under the Local Government Act 1919 (NSW) for "local government purposes", empowered to sell electricity and sell and install electrical fittings and appliances, and pursuing only those activities, was not a trading corporation. In his dissenting opinion, Barwick CJ had said [1974] HCA 7 ; [(1974) 130 CLR 533 at 543] that "a corporation whose predominant and characteristic activity is trading whether in goods or services" was a trading corporation. But this view did not then command the assent of a majority of the court. 14 The majority continued at [158]: In R v Federal Court of Australia; Ex parte WA National Football League [1979] HCA 6 ; [(1979) 143 CLR 190 ; 23 ALR 439] [Adamson] St George County Council was distinguished. Associations incorporated under associations incorporation legislation, whose principal objects were the promotion, control and management of Australian Rules football matches, were held to be trading corporations. Mason J said [1979] HCA 6 ; [(1979) 143 CLR 190 at 233; [1979] HCA 6 ; 23 ALR 439 at 472]: "Trading corporation" is not and never has been a term of art or one having a special legal meaning. Nor, as the Chief Justice pointed out [in St George County Council ], was there a generally accepted definition of the expression in the nineteenth century. Essentially it is a description or label given to a corporation when its trading activities form a sufficiently significant proportion of its overall activities as to merit its description as a trading corporation. 48 The High Court decision of The Queen v Trade Practices Tribunal; Ex Parte St George County Council [1974] HCA 7 ; (1974) 130 CLR 533 ( St George County Council ) is not directly on point, but, in my opinion, is of assistance on the question of characterisation, when one contrasts the powers and activities the subject of consideration in that case, with the powers and activities of the Etheridge Shire Council in the present case. 49 In that case, the St George County Council was established under the Local Government Act 1919 (NSW) for "local government purposes". It was empowered within its district to supply electricity and to supply and install electrical fitting and appliances, and these were its only activities . The Act provided that the county council should "endeavour so to conduct each trading undertaking that without any loss being incurred the service, product, or commodity of the undertaking may be supplied to the consumer as cheaply as possible". 50 The High Court, by a majority (McTiernan, Menzies and Gibbs JJ, with Barwick CJ and Stephen J dissenting) held that the St George County Council was not a "trading corporation" within s 5 of the Restrictive Trade Practices Act 1971-1972 (Cth). The majority accepted that the St George County Council was not a "trading corporation", notwithstanding that it carried on trading activities. 51 It was submitted on behalf of the State of New South Wales, intervening, that a "trading corporation" connotes more than a corporation which trades. It was submitted that "trading" describes the nature or quality of the corporation itself rather than its actual activities. For the Commonwealth of Australia, it was submitted that the St George County Council was set up to sell electrical fittings and appliances, and that to do that was to trade. It was therefore a "trading corporation". It was submitted that "[I]ts actual activities characterize it." 52 Barwick CJ said, at 538: The question raised by the case involves the construction of the expression "trading corporation formed within the limits of the Commonwealth" as it appears in the Act through the definition for the purposes of the Act of a "corporation". Because of identity of language and the fact that the statutory formula is designed to keep the Act within constitutional power, that construction would be applicable to the words of the Constitution , a circumstance which must influence the construction placed on the statutory formula. I ought to point out at the outset that the ultimate question in the case is to be answered in relation to the applicant and not as to all county councils. The powers and functions which under the Act may be transferred to a county council are diverse (cf., e.g. s. 564(1) and (2)). Consequently, considerations which, in my opinion, are definitive in this case may not be so in the case of other county councils with different powers and activities. (Emphasis added). 53 Importantly, Barwick CJ noted, at 539: ... the description "trading corporation", in my opinion, refers not to the purpose of incorporation but to the activities of the corporation at the relevant time. So far then the applicant is evidently a corporation which has been formed within the Commonwealth. It trades in the supply of electricity, of electrical appliances and of electrical services. It has no other purpose or activity. 54 Barwick CJ suggested that there did not appear to have been any generally accepted definition of a trading corporation. He said, at 541: It was assumed, I think, that such a corporation could be identified by its activities. If its nature was being sought, it was to be found in what it did. 55 Barwick CJ said, at 543: To say that a corporation's description for relevant purposes will be determined by its activities does not mean, of course, that a corporation which to any extent engages in trade is a trading corporation. It is evident that the legislative power given by s. 51(xx.) is not a power to legislate with respect to trading. It is a legislative power with respect to some corporations. But a corporation whose predominant and characteristic activity is trading whether in goods or services will, in my opinion, satisfy the description : and a corporation which does nothing but trade and, if it matters, was incorporated so that it could trade, i.e. exercise the trading powers of the constituent local government councils, is, in my opinion, properly described as a trading corporation within the constitutional power. It seems to me that the reason why a corporation trades as its sole or predominant and characteristic activity is irrelevant to the description of the corporation for present purposes, that is to say, the ends which such a corporation seeks to serve by trading are irrelevant to its description. As I have indicated, the purpose of the grant of legislative power includes the control of the corporate activities of the corporation : it is not so concerned with the motives which prompt those activities, nor the ultimate ends which those activities hope to achieve. If, upon that consideration, the corporation can fairly be described by reason of those activities, their extent and relative significance in the affairs of the corporation as a "trading corporation" it will, in my opinion, be nothing to the point that it is also a government or State or municipal corporation. The effect of the trading activities of such a corporation upon and in the community will not be lessened or necessarily affected by the fact that it is a State or municipal instrumentality. (Emphasis added). 56 The first and fourth sentences of this passage identify the basis for his conclusion that, in that case, St George County Council was a trading corporation. 57 Relevant to the contention of the union applicants in QUD 481 of 2006 that the Etheridge Shire Council is a municipal corporation, a tier of State government in its own right, and therefore cannot be also a constitutional corporation, Barwick CJ said, at 544-545: It may be granted that the applicant may properly be styled a "municipal" corporation; it is both the creature and servant of "local government": but it is, none the less, in my opinion, a trading corporation within the statutory definition. It is easily demonstrated that the purpose of the applicant's incorporation and of its activities is the performance of what has come to be regarded as a local government function, its charter being to provide electricity at low cost to the ratepayer. But it is to achieve and satisfy this purpose by trading, both in electricity and in electrical goods and services. It buys and sells an activity recognized by the Act itself as "a trading undertaking" (s.418(1) and (2)). To say that it is a "municipal" corporation is, in my opinion, to say no more than that it is a government, or local government, agency; or, put another way, that it is a municipal trading corporation. 58 Menzies J in the majority said, at 551: The submission of the Solicitor-General for the Commonwealth, who appeared for the respondents, was that the Council is and has always been a trading corporation. He relied exclusively upon the contention that this Council had been established for no purpose other than to trade and he refrained from submitting, in these proceedings, that a local government corporation which has local government purposes other than trading purposes is a "trading corporation" within the meaning of s. 5. (Emphasis added). 59 Later, at 551, Menzies J said: It is because trading of a council is subordinate to its governmental purposes that the Act contains a section such as s. 419. It is this subordination of trading to community purposes that is, to my mind, the real importance of s. 419 in this case. It reveals the very nature of a council to which it applies. 60 Menzies J said, at 552: It seems to me that trading corporations were in 1900 a well-recognized classification of companies. 62 Gibbs J (as he then was) said, at 561: The question ... is whether the County Council is a trading corporation. In my opinion, the words "trading corporation" in s. 51(xx.) do not mean "a corporation which is trading". The word "trading" forms part of a composite expression and indicates the essential attribute of the kind of corporation to which it refers. It is common to describe corporations according to their nature, and to speak, for example, of ecclesiastical, eleemosynary or municipal corporations. There can be no doubt that the words "foreign corporations" and "financial corporations" in pl. (xx.) describe corporations of a particular kind rather than corporations of any kind which happen to act in a particular way. The same is true of the words "trading corporations" which, in their natural meaning, as well as in the context of the placitum, refer to corporations of a particular kind. 63 At 562, his Honour said: A trading corporation is one formed for the purpose of trading. However, as I have indicated, the mere fact that a corporation is trading does not mean that it is a trading corporation. It is necessary to determine the true character of the corporation, upon a consideration of all the circumstances that throw light on the purpose for which it was formed. Thus there is no difficulty in holding that the fact that a corporation carries on some trade which is merely incidental or ancillary to the fulfilment of its main purpose does not give it the character of a trading corporation. 64 Gibbs J said, 564: When all these facts are considered, the proper conclusion in my opinion is that the County Council is a corporation constituted for the purposes of local government to provide an essential service to the inhabitants of an aggregation of local authority areas, under conditions thought most likely to prove beneficial to them. It is properly described as a municipal corporation. The description to the corporations to which the powers of s. 51 (xx.) extend does not include municipal corporations. 65 Gibbs J went on to say, at 565: It seems to me that the purpose of specifically mentioning the corporations intended to be within the power given by s. 51 (xx.) was to exclude from the scope of the power at least those corporations which could properly be characterized as municipal and charitable corporations. ... The purpose of its [the County Council's] formation is more properly described as that of fulfilling a function of local government. 66 Stephen J, who formed a minority with Barwick CJ in St George County Council , was of the view that, (at 570-571): ... when a corporation is formed for the sole purpose of undertaking that [trading] function and undertakes none of the functions of local government which typify the activities of a municipal corporation it is ... inappropriate to describe it as a municipal corporation. 67 The High Court in Adamson , which was differently constituted from the High Court in St George County Council, departed from the purposive reasoning of the majority in St George County Council and favoured the reasoning of Barwick CJ in that case. 68 In Adamson , Barwick CJ said, at 208: The only sure guide to the nature of the company is a purview of its current activities, a judgment as to its nature being made after an overview of all those activities. 72 Toohey J in Hughes summarised the position up until 1986, saying, at 20: The last few years have seen several decisions, particularly by the High Court, in which the notion of a trading corporation has been examined. It is not my intention to refer to those decisions in great detail but rather to state the principles that appear to emerge from them and then to apply those principles to the facts of the present case. 1. The mere fact that a corporation trades does not mean that it is a trading corporation: R v Trade Practices Tribunal; Ex parte St George County Council [1974] HCA 7 ; (1974) 130 CLR 533 at 543, 562 (St George County Council); R v Federal Court of Australia; Ex parte Western Australian National Football League [1979] HCA 6 ; (1979) 143 CLR 190 at 219, 234 (Adamson). 2. The purpose of incorporation, propounded in St George County Council, is no longer a valid test. The test is one of the current activities of the corporation: Adamson; State Superannuation Board v Trade Practices Commission [1982] HCA 72 ; (1982) 150 CLR 282 at 304; (1982) ATPR 40-326 at 43,976-43,977 (State Superannuation Board). 3. But the current activities test is not the sole criterion for determining whether a corporation is a trading corporation. Thus where a corporation has not begun to trade, its character may be found in its constitution. Even when there are current activities, the corporation's constitution is not completely irrelevant: Fencott v Muller [1983] HCA 12 ; (1983) 152 CLR 570 at 602; (1983) ATPR 40-350 at 44,218. 4. Views as to the necessary extent of trading activity have varied. It must be a substantial corporate activity (Barwick CJ in Adamson at 208); the trading activities must form a sufficiently significant proportion of the corporation's overall activities (Mason J in Adamson at 233, with Jacobs J concurring at 237); the trading activities should not be insubstantial (Murphy J in Adamson at 239); the corporation must carry on trading activities on a significant scale: (Mason, Murphy and Deane JJ in State Superannuation Board at 304; 43,976-43,977; Deane J in Commonwealth v Tasmania [1983] HCA 21 ; (1983) 57 ALJR 450 at 559-560. 5. An incorporated sporting body can be a trading corporation if its activities meet the required test: Adamson. 6. In particular, incorporation under a statute such as the Associations Incorporation Act does not prevent a corporate body from being a trading corporation if its activities warrant that description: Adamson at 232. 7. Trading denotes the activity of providing, for reward, goods or services: Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134 at 139; St George County Council at 569-570; Bevanere Pty Ltd v Lubidineuse [1985] FCA 134 ; (1985) 7 FCR 325 at 330-331; (1985) ATPR 40-565 at 46,568. 8. The Trade Practices Act itself draws a distinction between trading corporations and financial corporations; nevertheless the two classes are not mutually exclusive: State Superannuation Board at 303. 73 What his Honour referred to in paragraph 3. above may have an important relevance to a "fully fledged" municipal corporation, like the Etheridge Shire Council, as opposed to what might be described as an ersatz municipal corporation that was the subject of consideration in the St George County Council case. 74 As a practical matter, his Honour concluded that the WACA was a trading corporation, but reached a different conclusion in relation to the Cricket Clubs. At 25, he highlighted some difficulties: Where all activities are income producing, it may not be hard to single out some as trading activities and quantify their significance, even if only in a broad way. But where some activities are income producing and others are not, the exercise is not so straightforward ... A trading activity may represent a significant part of a club's income but be relatively insignificant in an overall consideration of the club's activities. 75 This observation has a particular resonance in the present case, as will appear later. Such trading activity of the Etheridge Shire Council is quite insignificant in relation to the overall consideration of the activities of the Etheridge Shire Council, which, as a local government, exercises extensive legislative and executive functions in the local government area, and is its raison d'&ecirc;tre. 81 With respect, there is an element of circularity in this observation, but it is not consistent with the view of Barwick CJ in the St George County Council case, set out in [55] above. 82 It is to be noted that Gibbs J in the St George County Council case, said, at 561: The word "trading" forms part of a composite expression and indicates the essential attribute of the kind of corporation to which it refers. It is common to describe corporations according to their nature ... 83 And later, in the same paragraph: ... the words "trading corporations" ... in their natural meaning, as well as in the context of the placitum, refer to corporations of a particular kind. 84 Both Barwick CJ, at 543, and Gibbs J, at 561, thoroughly rejected the contention that a corporation which to any extent engages in trade is a trading corporation. 85 I therefore proceed to enquire whether the Etheridge Shire Council is a trading corporation or a financial corporation, by considering whether, on the evidence, "the predominant and characteristic activity of the Etheridge Shire Council is trading, whether in goods or services", or whether "the predominant and characteristic activity of the Etheridge Shire Council is in finance." 86 In that enquiry, it is necessary to have regard not only to whether the predominant and characteristic activity of the Council is trading or finance, but also, as Barwick CJ indicated in St George County Council at 543, the extent of that activity and its relative significance in the affairs of the Etheridge Shire Council. 87 The Etheridge Shire Council is established by the LGA, and the powers and activities of the Etheridge Shire Council are governed by that Act. 88 The Etheridge Shire Council was established as a body corporate (in the name Einasleigh Shire Council) in accordance with the Local Government (Divisional Boards) Act 1879 (Qld) by proclamation notice of which was published in the Queensland Government Gazette dated 11 November 1879. 142 Menzies J in St George County Council , said, at 552: In Halsbury's Laws of England ... the distinction between trading and non-trading corporations is conveniently drawn and corporations having statutory powers of local government are included in the classification there appearing of non-trading corporations. It may also be observed that in 1850 James Grant in his Treatise on the Law of Corporations classified "Municipal Corporation" separately from trading bodies and devoted 150 pages of his book to the consideration of municipal corporations. 143 His Honour concluded, at 554: It is not my purpose to attempt to define all that falls within the limits of the classification of "trading corporation". Rather, I am concerned to indicate that the classification has limits and those limits are not to be ascertained simply by asking the question "Does the corporation trade?" As I have indicated, many corporations which do trade are clearly outside the limits of the classification and one group of corporations that is not comprehended is, in my view, corporations of an essentially different character, namely corporations for local government purposes." 144 Mr Herbert of Counsel for the applicants in QUD 481 of 2006 drew attention to the record of the constitutional debates on 17 April 1897, at 793, where Mr Symon said, "In the original Act corporations simply are mentioned. Why this difference?" To which Mr Barton, later an original judge of the High Court, said: The reason of making the difference was this: It having been seen that the word "corporations," as it existed, covered municipal corporations, the term was changed to "trade corporations." 145 In 1891, in the Constitutional debates on whether the corporations power should extend to the registration or incorporation of companies, Sir Samuel Griffiths said, at 686: I do not think we should. There are a great number of different corporations. For instance, there are municipal, trading, and charitable corporations, and these are all incorporated in different ways according to the law pertaining in different states. ... It is sometimes difficult to say what is a trading corporation. What is important, however, is that there should be uniform law for the recognition of corporations. 146 In the light of the observations by the High Court in Adamson and the later cases, in the characterisation of a corporation as a trading corporation, or a financial corporation, the primary focus has to be on the activities of the corporation. 154 I am of the view that all five judges in the St George County Council case would have determined that the Etheridge Shire Council is not a trading corporation. 155 Accepting that the "activities test" is the appropriate test to apply in determining whether local governments are trading corporations, the application of that test points overwhelmingly to the conclusion that the Etheridge Shire Council is not a trading corporation. 156 Equally, it is not a financial corporation. The only financial activities which, on the evidence, it engages, is maintaining interest-bearing deposits of funds prior to their utilisation for the purposes of the shire council.