In re Proprietary Articles Trade Association of South Australia Incorporated

[1949] SASR 88
[1949] ALR 529

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(Judgment by: ABBOTT J)

In re Proprietary Articles Trade Association of South Australia Incorporated

Court:

Judge:
ABBOTT J

Judgment date: 1, 4, 24 March 1949

Adelaide

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Judgment by:
ABBOTT J

Voluntary associations -Incorporation - Trade protection association-" Association "-" Useful object "- Whether an association "for the purpose of securing pecuniary profit to the members from the transactions thereof "- Liability to register as company under Companies Act-Associations Incorporation Act 1929-1935 (No. 1912 01 1929-No. 2246 of 1935), s. 3-Companies Act 1934-1939 (No. 2196 of 1934-No. 46 of 1939), s. 9(2).

A trade protection association was formed by manufacturers, wholesalers and retailers making and dealing in a particular class of goods. The manufacturers listed the prices of their goods to the retailers and to the public, and those prices were maintained by the association, which had power to place its members on a "stop list" and to fine members for underselling, overcharging, or other breaches of its rules. The association neither traded nor made any profit. Membership was voluntary, and at the relevant time there were 1,340 members.

Held, (1) That the association was not required by s. 9(2) of the Companies Act 1934-1939 to be registered as a company.

(2) That it was entitled to be incorporated as an association under the provisions of the Associations Incorporation Act 1929-1935.

Originating summons.

This was an application, under s. 16 of the Associations Incorporation Act 1929-1935, by a seal-holder of Proprietary Articles Trade Association of South Australia Incorporated for an order that the incorporation of the Association, which had been cancelled by the Registrar of Companies under s. 15 of that Act, should be restored. The facts are sufficiently stated in the judgment.

Ward K.C. (with him McFarlane) , for the applicant. 1. Trade protection associations of this nature are lawful associations (Th~ v. Motor Trade Association^[1]; Ware and De Freville Ltd. v. Motor Trade Association^[2]; M cKernan v. Fraser^[3]; Sorrell v. Smith^[4]) . 2. The Association is formed for a useful object. The ejusdem generis rule has no application to the" useful objects" in the definition of " association" in s. 3 of the Associations Incorporation Act 1929-1935. The Association is not formed for the purpose of trading, nor does any profit result to its members from its transactions. 3. The Association does not fall within s. 9(2) of the Companies Act 1934-1939. "Within" in s. 3 of the Associations Incorporation Act 1929-1935 means wholly or exclusively within. If the Association can be registered under the Associations Incorporation Act, then s. 9(2) does not apply. (Smith v. Anderson^[5]; Armour v. Liverpool Corporation^[6]). There has been an implied repeal of the final clause of the definition of "association" in s. 3 of the Associations Incorporation Act by s. 401 of the Companies Act.

Hague, for the Registrar of Companies. 1. Although the definition of " association" in s. 3 of the Associations Incorporation Act 1929-1935 uses the word "including," the definition is exhaustive (Dilworth v. Commissioner of Stamps^[7]; and an association must fall within the definition to be capable of incorporation under the Act. 2. The words "the like" exclude the strict application of the ejusdem generis rule to the words "other useful objects"; but the context and the history of the legislation show that the privileges of incorporation as an association were intended to be limited to certain types of association only. The "useful objects" must be objects useful to the community. 3. The Association is one for the purpose of securing pecuniary profit to its members from its transactions. It is formed to promote their trade interests. The benefit to them must ultimately be by way of pecuniary profit. 4. The Association is capable of being registered as a company under the Companies Act 1934-1939 and is therefore ineligible for incorporation as an association, by reason of the final words of the definition of " association" in s. 3 of the Associations Incorporation Act. 5. The Association is unlawful under s. 9(2) of the Companies Act 1934-1939. It carries on a business which has for its object the acquisition of gain by the individual members (Commissioners of Inland Revenue v. Marine Steam Turbine Co.^[8]; In re a Debtor^[9]; In re Padstow Total Loss and Collision Assurance Association^[10]; Cornish Mutual Assurance Co. v.' Commissioners of Inland Revenue^[11]; In re Commonwealth Homes and Investment Co. Ltd.^[12]; In re Riverton Sheep Dip^[13]).

ABBOTT J. delivered the following judgment:-

On 13th April 1935, Proprietary Articles Trade Association of South Australia Incorporated (hereinafter referred to as "the Association") was incorporated and registered under, and purporting to be in pursuance of, the provisions of the Association Incorporation Act 1929-1935.

As required by s. 6 of the Act, all necessary particulars accompanied the application for incorporation, including a statement of the objects and purposes of the Association.

The Association is a trade protection association constituted of manufacturers, wholesalers and retailers, the retailers being divided into a chemist section and a general section. Membership is voluntary and there are at present 1,340 members. The management is vested in an elected Council which meets monthly, and as occasion demands, and discusses matters of general or sectional interest.

The manufacturer-members list the prices of goods to the retailer and the public, and these prices are maintained by the Association, which has the power to place its members on a " stop list" and to fine members for underselling, overcharging or other breaches of its rules. The total fines imposed by the Association since its incorporation have not exceeded £5. The Association itself neither trades nor makes any profit. Its objects, as specified in its rules, are:-

"(1)

The discussion of matters of common interest to the branches of the trades represented with a view to decision, and, if necessary, concerted action.

(2)

The taking of such steps as the Association is advised are legal to deal with extreme cutting of prices; to give advice and render assistance to its members in preventing substitution; and to restrain excessive prices of listed proprietary articles.

(3)

The doing of all such other things as may appear to be of benefit to the trades represented."

The objects of the Association are per se lawful, and "indeed its whole scheme of operation is quite common in Britain and Australia. (Thorne v. Motor Trade Association^[14]; Sorrell v. Smith^[15]; Ware and DeFreville Ltd. v. Motor Trade Association^[16]; Crofter Hand Woven H arris Tweed Co. Ltd. v. Veitch^[17]).

Having carried out its objects since its incorporation in 1935 without objection by the Registrar of Companies, the Association was suddenly called upon by him on 26th November 1947 to show cause why he should not cancel its incorporation on the ground that the Association /C IS not or has ceased to be an association within the meaning of s. 3 of the Associations Incorporation Act 1929-35."

In reply to an inquiry from the Association's solicitors for his reasons, the Registrar wrote on 4th December 1947 :-

"I consider that the ... Association was never an association within the definition of s. 3 ... I believe that all the transactions of the Association are such that it _ not or has ceased to be an association within the meaning of s. 3."

This answer not proving satisfactory, a further correspondence followed, without, however, persuading the Registrar to particularize the grounds of his objection, and on 22nd January 1948 he gave formal notice" that at the expiration of three months from the date of publication of this notice in the Government Gazette the incorporation of the . Association will, unless cause is shown to the contrary, be cancelled."

On 2nd April a further application was made by the Association's solicitors for particulars of the grounds of objection, and at last, on 7th April 1948, the Registrar supplied the reasons for his opinion that the Association" is not or has ceased to be an association within the meaning .of s. 3."

The Registrar is a public officer administering a public department, and, in my opinion, he should have given these reasons promptly when they were first requested. Whether he is right or wrong in his reasons, he bona fide believed that they justified his action. It was no part of his duty to display the Fabian skill with which the natural inquiries of the Association could be baulked for upwards of four months, and the Association's counsel not unreasonably now suggests that he either had not formulated his rea80ns when he first wrote to the Association, or that he had no great confidence in their cogency.

However, that may be, the reasons when finally disclosed were as follows:-

"1.

The transactions clearly are not those of any of the types of association specifically mentioned in s. 3 and, therefore, they must be such that the object of the Association is some other 'useful object.' The purp08e of this Association is to protect the financial interests of certain manufacturers and traders, which, in my opinion, is not a useful object within the meaning of s. 3.

2.

You state that the Association does not secure pecuniary profit to its members from its transactions. I consider that by fixing and controlling prices and/or the persons to whom goods are to be supplied, it indirectly secures pecuniary profit to its members.

3.

I consider that this Association is one which is 'within the provisions of an Act to limit the liability of members thereof,' i.e., the Companies Act 1934-1939. Section 9(2) of this Act refers to associations which have for their object the acquisition of gain by the individual members thereof.

You state that listed articles can be, and are in fact, sold at fixed prices by retailers who are not members of the Association. This may be so, but I understand that the position regarding wholesalers is different, for a wholesaler who is not a member cannot obtain supplies.

As I am of the opinion that the objects of this Association are such that the Association does not come within the ambit of s. 3, it follows that any, transactions in connection with carrying out these objects will fall within the provisions of s. 15(1).

The transactions to which the strongest objection is taken are:-

1.

Enforcing in any way the charging of minimum prices.

2.

Directing the channels through which or the manner in which goods shall be manufactured, purchased, sold or otherwise dealt with or disposed of."

By notice published in the Government Gazette on 29th April 1948, the Registrar cancelled the incorporation of the Association. Thereupon these proceedings were initiated under s. 16 of the Act to have the incorporation restored.

In s. 3 of the Act the term " association" is defined. It" includes churches, chapels, and all other religious bodies; schools, hospitals, and all benevolent and charitable institutions; associations for the purpose of recreation and amusement, or for promoting and encouraging literature, science, and art, and all other institutions and associations formed~ Or to be formed, for promoting the like objects or any other useful object, other than associations for the purpose of trading or securing pecuniary profit to the members from the transactions thereof, and other than such associations as are within the provisions of any Act to provide for the registration of joint stock companies, or to limit the liability of members· thereof."

Mr. Hague contends that the word" includes" should be interpreted as signifying " means and includes," and that the definition is, in terms, an exhaustive definition (Dilworth v. Commissioner of Stamps^[18]. I think, however, that the earlier dictum of Lord Watson in that case, in which he says words so defined " must be construed as comprehending,. not only such things as they signify according to their natural import; but also those things which the interpretation clause declares that they "hall include," is more appropriate to the definition under consideration. In accordance with this principle of construction, I think the term: " association" has a natural and a readily understandable meaning, which is enlarged by the definition to include " churches, chapels, schools, hospitals" and other bodies which would not usually be understood as included in such a word as " association."

In his first reason, the Registrar rightly points out that the Association does not come within the class of association expressly named in the definition, and cannot be considered as ejusdem generis by reason of the phrase "all other institutions and associations formed, or to be formed, for promoting the like objects."

The question then arises whether it is included in the phrase " or any other useful object," which I read with the immediately preceding phrase as including " all other institutions and associations formed, or to be formed, for promoting. any other useful object." It is not contested that this class of association is not brought into the previous genus by the ejusdem generis rule.

Mr. Ward contends that the objects of the Association, as specified in its roles, are clearly "useful" objects. Mr. Hague, although discarding the ejusdem generis rule, says that the objects must be akin to the objects expressly. mentioned previously, and that the word" useful" must be construed as meaning " useful to the public."

The word "useful" is defined in the Shorter Oxford English. Dictionary as meaning " having the qualities to bring about good or advantage; helpful in effecting a purpose; suitable for use; serviceable."

It is to be observed that the phrase in s. 3 does not particularize to whom or for what purpose the object of the intended association is required to be useful. In this case, the objects of the Association are clearly useful, in the dictionary sense, to its members, and in my opinion the Association also serves a useful purpose in the interests of the public.

As Scrutton L.J. said in Ware and De Freville Ltd. v. Motor Trade Association^[19]:-

"While low prices may be good for the public for a time, they are not a benefit if all the suppliers are thereby ruined. A steady level price may have considerable advantages over violent fluctuations from very high prices in times of scarcity, and fierce competition and unremunerative prices in times of plenty and financial pressure."

Therefore, even if it were necessary to read the word "useful" as meaning" useful to the public "-an argument advanced by Mr. Hague with which I do not agree-it can be said that the objects of the Association are in fact useful to the public.

The next objection of the Registrar is that the Association is excluded by the definition in s. 3 because it is an "association for the purpose of trading or securing pecuniary profit to the members from the transactions thereof." The meaning of the word" profit," especially in contrast with the word" gain," was considered by Jessel M.R. in In re Arthur Average Association for British; Foreign and Colonial Ships; Ex parte Hargrove & Co^[20]. It is quite clear, of course, that the Association is not and never has been a trading association, and trading is not one of its purposes; but the Registrar considers that "by fixing and controlling prices and/or the persons to whom goods are to be supplied, it indirectly secures pecuniary profit to its members." It is to be observed that s. 3 does not contain the word" indirectly:" The Association in fact makes no profit of any kind; its income, such as it is. is almost entirely derived from subscriptions from its members, and interest on accumulated funds. Any pecuniary profits made by members of the Association are made from the sale by them of their own stock, either manufactured, or bought by them and resold. I suppose it can truthfully be said that when the supply of a commodity greatly exceeds the demand, price fixing by the Association may indirectly lead to enhanced profits; but it is equally true that when a commodity is in short supply, price fixing indirectly leads to reduced profits. Without price fixing, the profit obtainable is what the buyer is willing to pay. This has been quite clearly demonstrated by the war-time statutory control of prices which has been, and still is. to a more limited extent, it} operation, and which is designed to reduce profits and control inflation.

Apart from this aspect, it is clear to my mind that if any pecuniary profit is secured to the members, such profit is secured, not from the transactions of the Association, but from the sale by the members of their own commodities. In my opinion, the Registrar by reading into the definition clause the word "indirectly" is enlarging the ambit of the exclusion beyond what the Legislature intended. Furthermore, the Registrar omits in his letter any reference to the phrase "from the transactions thereof." It is to be observed that the" purpose" contemplated by the definition in s. 3 is that of securing pecuniary profit to the members from the transactions of the Association. The Shorter Oxford English Dictionary defines" transaction" as "that which is or has been transacted; a piece of business," and in the plural as " doings, proceedings, dealings." Now whatever the" transactions" of the Association may be, it is clear that they result in no direct profit to the members. But further than that, I think that no profit direct or indirect arises from the transactions of the Association. Listed goods are in fact supplied to many' retailers and other persons who are not members of the Association, conditionally on their reselling at the list price. Whatever profit a member-retailer makes, is equally made by a retailer who is not a member. The non-member does not derive his profits by virtue of any membership of the Association, though his profits are the same as those of the members, but derives them from his sales in his own business.

In my opinion, any profits made by members of the Association do not arise directly, nor do they arise from the transactions of the Association. It is not a 11 purpose" of the Association to secure profits to its members from its transactions nor are profits so secured (cf. Anderson v, Magistrates of Lauder^[21]). Accordingly, I find that it is not one of the kind of associations intended to be excluded by this provision from being incorporated.

The third of the Registrar's reasons for cancellation is that the Association is one "which is I within the provisions of an Act to limit the liability of members thereof' i.e. the Companies Act 1934-1939. Section 9(2) of this Act refers to Associations which I have for their object the acquisition of gain by the individual members thereof'.' " Section 9(2) of the Companies Act is as follows:-

"No company, association, or partnership consisting of more than twenty persons shall be formed for the purpose of carrying on any other business" (scilicet than banking) " that has for its object the acquisition of gain by the company, association, or partnership, or by the individual members thereof, unless it is registered as a company under this Act, or is formed in pursuance of some other Act of Parliament or by letters patent, or Royal Charter."

The first question for consideration is whether the Association is formed for the purpose of carrying on any business. It is to be observed that the words in s. 9(2) are 11 any other business," and that they relate back to sub-s. (1) of s. 9, which deals with 11 the business of banking." I incline to the view that 11 any other business" in sub-s. (2) should be read ejusdem generis with the business of banking. Read in that way, I think that the type of business contemplated by sub-s. (2) is some form of commercial trading carried on for profit. The Association is not a trading association at all, nor does it carry on any "business" which can under the ejusdem generis rule be brought within the category of which banking can be said to be the type. This point was not argued by counsel, and therefore although it appeals to me as a solution of the problem, I prefer not to rely upon it as decisive.

Mr. Hague referred me to the cases of In re a Debtor^[22]; In re Padstow Total Loss and Collision Assurance Association^[23], and Cornish Mutual Assurance Co. Ltd. V. Commissioners of Inland Revenue^[24], in which the occupation of· an actress and the activities of two insurance concerns were held to be businesses within the meaning of that word as used in the legislation under consideration.

Mr. Ward referred me to Smith v. Anderson^[25] as to the meaning of the words "business" and "gain," and also to Armour v. Liverpool Corporation^[26] .

In Commissioners of Inland Revenue v. Marine Steam Turbine Co. Ltd.^[27], Rowlatt J. defines" business" as "meaning an active occupation or profession continuously carried on." " Business" is a word more extensive than" trade": Hams v. Amery^[28]. Jessel M.R. defined it as " anything which occupies the time and attention and labour of a man for the purpose of profit ... a word of extensive use and indefinite signification" (Smith v. Anderson^[29]).

As Brett L.J. said in the same case:-

"The association . must be formed in order to carry on a series of acts having the acquisition of gain for their object."^[30]

In In re Arthur Average Association for British, Foreign and Colonial Ships; Ex parte Hargrove & Co.^[31], Jessel M.R. said:-

"Now, if you come to the meaning of the word ' gain,' it means acquisition ... , Gain is something obtained or acquired. It is not limited to pecuniary gain. I take the words as referring to a company which is formed to acquire something, or in which the individual members are to acquire something, as distinguished .from a company formed for spending something, and in which the individual members are simply to give something away or to spend something, and not to gain anything."

Although the decision in that case is not now authoritative, I think this definition is still accepted, as correct.

In re Siddall^[32] was another case in which the same question was considered, and while it is not of much help in itself, it followed the decision in Smith v. Anderson^[33].

Moore v. Rawlins^[34], Bear v. Bromley^[35], and R. v. Whitmarsh^[36] were considered in In re Russell Institution; Figgins v. Baghino^[37], where North J., in deciding (inter alia) the effect of s. 4 of the Companies Act 1862 (Imp.), said:-

"That. . section draws a distinction between a company that has for its objects the acquisition of gain, which has to be registered, and a company with an equally large number of members which has not to be registered, because it is not formed for the acquisition of gain."^[38]

And Stirling J. in In re JOMS; Clegg v. Ellison^[39] pointed out that the associations in the earlier cases I have mentioned very closely resemble joint stock companies, but were held not to require registration under the Joint Stock Companies Act 1844 (Imp.).

In Wigfield v. Potter^[40] the object of the society was to purchase an estate, subdivide it into allotments, and divide the allotments among the members, by offering them at auction and allotting them to the highest bidder. The question was whether it was required to register as a company under s. 4 of the Companies Act 1862 (Imp.), which was substantially in the wording of s. 9(2) of the South Australian Act.

Grove J. said:-

"Now, the sole question here is whether this society is an association for the purpose of carrying on a business that has for its object the acquisition of gain, and I am of opinion that it is not such an association. I read the word business in the usual sense in which we use it when speaking in an ordinary way as trafficking, and having for an object the acquisition of gain by buying and selling; and I think it was so used by the learned judges in the case of Smith v. Anderson^[41]... . I do not mean to say that they might not have made a profit, but it does not appear to me that there is any contemplation here that the purpose of the society was to make a profit."^[42].

And Lopes J. says:-

"There is nothing in the rules which leads me to think that the association ever had in view the purchase of land and enabling members to sell it to. the public at a profit... . I am at a loss to understand why that which would not be a business when conducted by one person, would be a business when conducted by a large number of persons."^[43]

Bowen J. also took the same view.

In my opinion, it was clearly never the purpose of the Association, nor within the contemplation of its members, that it would carry on any'.' business" as I understand the use of that word in s. 9(2). And even if, adopting the widest possible meaning of " business," the transactions of the Association are to be regarded as a business, the Association has not and never has had as one of its objects the acquisition of gain by the Association or by its individual members. . The only contention by the Registrar is that as a result of price fixing there is or might be some "gain" (in its widest sense) to the individual members. I do not at all agree with this contention; I think it might with equal force be said that there is or might be considerable loss to individual members. But even assuming there is " gain" to them, that is not one of the objects of the Association.

Mayo J. in In re Riverton Sheep Dip^[44] considered the effect of s. 9(2) of the Companies Act in relation to an unregistered association formed for the purpose of dipping sheep for members and non-members, the former being charged a lower fee than the latter, but, as he says, "where members of a body, even when acting in the course of their common objective, exercise no more than the rights they have as individuals, the element of gain would be wanting."^[45] In the case at Bar, I think that it is clear that all the members merely sold at fixed prices, as they were entitled to do whether the Association was in existence or not. Indeed many trade agreements exist simply for that purpose, without any registrable Association having been formed by the persons concerned, who often operate under what is sometimes called an " honourable understanding."

In its final phrase the definition in s. 3 of the Associations Incorporation Act excludes " such associations as are within the provisions of any Act to provide for the registration of joint stock companies, or to limit the liability of members thereof." The meaning of the final phrase of the definition in s. 3 of the Associations Incorporation Act seems to be that if an association otherwise able to be incorporated is "within the provisions of" the Companies Act, it is not an association capable of being incorporated within the meaning of the definition. On the other hand, by virtue of s. 9(2) of the Companies Act, an association is required to register under that Act " unless it is formed in pursuance of some other Act."

Section 3 of the Companies Act expressly excludes from the application of its provisions, "except where this Act or any other Act otherwise provides ", an association incorporated under the Associations Incorporation Act 1929.

I think that probably any association which can lawfully be incorporated and registered under the Associations Incorporations Act can lawfully be registered as a company under the Companies Act, provided it complies with the conditions and formalities requisite for such registration. The final clause of the definition in s. 3 of the Associations Incorporation Act must, I think, contemplate a construction different from this, because otherwise the words" formed for promoting any other useful object" would be deprived of all operation.

An association" for the purpose of trading or securing pecuniary profit to the members from the transactions thereof" would clearly be "an association within the provisions of an Act to provide for the registration of joint stock companies," namely, the Companies Act. I find it very difficult to give a satisfying interpretation to the final phrase in the definition, but whatever it may mean, I am convinced that it is not intended to exclude from incorporation as an association a body otherwise capable of such incorporation, merely because by substituting a memorandum and articles of association for its rules, it could be registered as a company.

Interesting arguments were addressed to me by both counsel on the legislative history of the Associations Incorporation Act, and as to the effect of s. 401 of the Companies Act on s. 18 of that Act. If, as Mr. Ward contends, and I think quite reasonably, s. 401 impliedly repeals s. 18, then the words in the definition in s. 3 of the Associations Incorporation Act " or to limit the liability of members thereof" are deprived of all effect, because by virtue of such implied amendment, the liability of the members of every incorporated association may be limited to an equal or greater extent than can be done under the Companies Act.

I hope I am doing no injustice to the argument of Mr. Hague when I say that I am led to the conclusion that the final phrase of the definition in s. 3 has no application to the facts in this case.

As I understand that phrase, it means no more than this: If an association, in form and essentials, is really a joint stock company registrable under the Companies Act, it is not an association capable of incorporation under the Associations Incorporation Act. Whatever may be the true effect of the final exception in the definition, it seems to me that the Association is not excluded by it.

On the evidence before me, I am satisfied that the Association has not ceased to exist, and that the transactions of the Association are such that it is an association within the meaning of s. 3 of the Associations Incorporation Act 1929-1935.

After full consideration, being satisfied that it is just so to do, I order that its incorporation be restored.

Order that incorporation of the Association be restored. Registrar of Companies to pay applicant's costs to be taxed.