FEDERAL COURT OF AUSTRALIA Lawrence v Morris [2002] FCA 874 INDUSTRIAL LAW – superannuation – whether power to nominate member representative directors of a corporate trustee of an employer sponsored superannuation fund can be conferred on a division of a branch of a union – whether a union can require member representative directors to pay to the union the remuneration they receive as directors of the trustee WORDS AND PHRASES - "trade union, or other organisation" Workplace Relations Act 1996 (Cth) ss 209 and 470 Superannuation Industry (Supervision) Act 1993 (Cth) ss 10(1) and 19 Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Fohmsbee (1998) 81 IR 120 – cited Re McJannet; Ex parte Australian Workers' Union of Employees, Queensland (1995) 184 CLR 620 - cited Murphy v Eagleton (1987) 21 IR 419 - cited The Queen v Joske; Ex parte Shop Distributive and Allied Employees' Association (1976) 135 CLR 194 - cited Levin v Clark [1962] NSWR 686 – cited Re Broadcasting Station 2GB Pty Ltd [1964-1965] NSWR 1648 – cited Scottish Co-op Wholesale Society Ltd v Meyer [1959] AC 324 - cited JEFFREY PAUL LAWRENCE v JOHN MORRIS N99 OF 2002 JUDGE: MERKEL J DATE: 11 JULY 2002 PLACE: MELBOURNE (HEARD IN SYDNEY) IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 99 OF 2002 BETWEEN: JEFFREY PAUL LAWRENCE APPLICANT AND: JOHN MORRIS FIRST RESPONDENT JOHN BARRY SECOND RESPONDENT ANDREW HARPAS THIRD RESPONDENT KAREN ROGERS FOURTH RESPONDENT JOHN HAWKER FIFTH RESPONDENT KEVAN LLOYD SIXTH RESPONDENT DENISE DE NICOLA SEVENTH RESPONDENT CATHERINE BROUGHTON EIGHTH RESPONDENT BEVERLY COOK NINTH RESPONDENT JOHN DUNNACHIE TENTH RESPONDENT JOAN GUNNING ELEVENTH RESPONDENT VALERIE ILES TWELFTH RESPONDENT GAIL ROBERTS THIRTEENTH RESPONDENT SAM SCAGLIONE FOURTEENTH RESPONDENT PETER JAMES FIFTEENTH RESPONDENT JUDGE: MERKEL J DATE OF ORDER: 11 JULY 2002 WHERE MADE: MELBOURNE (HEARD IN SYDNEY) THE COURT ORDERS THAT the Order to Show Cause be discharged. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 99 OF 2002 BETWEEN: JEFFREY PAUL LAWRENCE APPLICANT AND: JOHN MORRIS FIRST RESPONDENT JOHN BARRY SECOND RESPONDENT ANDREW HARPAS THIRD RESPONDENT KAREN ROGERS FOURTH RESPONDENT JOHN HAWKER FIFTH RESPONDENT KEVAN LLOYD SIXTH RESPONDENT DENISE DE NICOLA SEVENTH RESPONDENT CATHERINE BROUGHTON EIGHTH RESPONDENT BEVERLY COOK NINTH RESPONDENT JOHN DUNNACHIE TENTH RESPONDENT JOAN GUNNING ELEVENTH RESPONDENT VALERIE ILES TWELFTH RESPONDENT GAIL ROBERTS THIRTEENTH RESPONDENT SAM SCAGLIONE FOURTEENTH RESPONDENT PETER JAMES FIFTEENTH RESPONDENT JUDGE: MERKEL J DATE: 11 JULY 2002 PLACE: MELBOURNE (HEARD IN SYDNEY) REASONS FOR JUDGMENT 1 The applicant, in his capacity as the National Secretary of the Australian Liquor, Hospitality and Miscellaneous Workers Union ("LHMU") has applied to the Court under s 209 of the Workplace Relations Act 1996 (Cth) ("the WRA") for orders requiring the respondents, as members of the LHMU, to comply with its rules ("the Rules"). The LHMU is an industrial organisation of employees registered under the WRA. 2 The applicant claims that the first to fourteenth respondents have been acting in breach of the Rules by nominating and appointing the member representative directors of Club Plus Superannuation Pty Ltd ("Club Plus"), which acts as the corporate trustee of an employer-sponsored superannuation fund called the Club Plus Superannuation Scheme ("the Scheme"). Club Plus has eight member representative directors and eight employer representative directors. The applicant contends that under the Rules only the National Council or the National Executive of the LHMU is entitled to appoint the eight member representative directors of Club Plus. 3 The Scheme was established in 1986 to provide superannuation benefits to employees working in registered clubs in New South Wales. In 1999 the Scheme amalgamated with a similar scheme established for employees working in registered clubs in the Australian Capital Territory. Currently there are approximately 132,400 members who are, or will become, entitled to benefits under the Scheme, the net assets of which exceed $520 million. It would appear that about 96% of members are or were New South Wales employees and about 4% of the members are or were Australian Capital Territory employees. 4 The first to fourteenth respondents are members of the Committee of Management of the Liquor and Hospitality Division of the New South Wales Branch of the LHMU ("the L and H Division"). The fifteenth respondent is a member of the LHMU and is a member representative director and the secretary of Club Plus. The respondents contend that the Committee of Management of the L and H Division, rather than the National Council or National Executive of the LHMU, is entitled to nominate member representative directors of Club Plus and deny that the exercise by the Committee of Management of its entitlement to nominate member representative directors is, or is capable of being, a breach of any rule of the LHMU. 5 Club Plus and the Australian Prudential Regulation Authority were granted leave to intervene in the proceeding pursuant to s 470 of the WRA. 6 Although the matter before the Court was said by the applicant to be an internal union dispute about who was entitled under the Rules to nominate and appoint member representative directors of Club Plus, it is clear that the resolution of that issue also depends upon the Constitution of Club Plus and upon any provisions of the Superannuation Industry (Supervision) Act 1993 (Cth) ("the SIS Act") that govern appointment of member representative directors to a corporate trustee of a superannuation fund. 7 The applicant seeks orders requiring the respondents to treat as void the nomination of the sixth respondent by the Committee of Management in October 2001 as a member representative director of Club Plus and, so it would seem, the sixth respondent's subsequent appointment by Club Plus as a director. The orders were sought on the basis that the Committee of Management's nomination of the sixth respondent contravened r 71 of the Rules. Orders were also sought that such of the respondents as were member representative directors of Club Plus perform and observe the Rules by paying to the LHMU the remuneration they receive for acting as directors. The orders sought by the applicant in the Order to Show Cause were as follows: "1. That the respondents and each of them perform and observe the rules of the Australian Liquor Hospitality and Miscellaneous Workers Union ['LHMU] by treating as void or of no effect the resolution carried by the first to fourteenth respondents as members of the New South Wales Divisional Committee of Management of the Liquor and Hospitality Division of the New South Wales Branch of the LHMU dated October 2001, which resolution purported to appoint or to propose for appointment a Mr Kevan Lloyd to the board of Club Plus Pty Ltd [Club Plus]. 2. A declaration that, upon the true construction of rule 71 of the registered rules of the LHMU, the selection for appointment or appointment of persons to serve upon the board of Club Plus is the preserve of the National Council or National Executive of the LHMU to the exclusion of the Committee of Management of the Liquor and Hospitality Division of the New South Wales Branch of the Union. 3. That the respondents and each of them perform and observe the rules of the LHMU by performing and observing the resolutions carried by the National Council of the LHMU and dated October 1999, October 2000 and October 2001, which resolutions dealt with the appointment of LHMU representatives to the board of Club Plus. 4. That the respondents and each of them perform and observe the rules of the LHMU by performing and observing each of the resolutions carried by the National Executive of the LHMU and dated June 2000, and June 2001, which resolutions selected for appointment or confirmed the selection for appointment of LHMU representatives to the board of Club Plus. 5. That the respondents and each of them perform and observe the rules of the LHMU by recognising and continuing to recognise the persons selected for appointment to the Board of Club Plus pursuant to the resolutions referred to in orders 3 & 4 above. 6. That the respondents [name each of the person on Club Plus] Morris, Barry, Hawker, Lloyd, and James perform and observe the rules of the LHMU by complying with the decisions of the National Council and Executive by accounting to the applicant for the monies received by each of them in their capacities as members of the Board of Club Plus. 7. That the respondents Morris, Barry, Hawker, Lloyd, Rogers and James perform and observe the rules of the LHMU by paying to the LHMU the monies received by each of them in their capacities as members of the Board of Club Plus. 8. That Club Plus recognise, and give effect to, the resolutions referred to in orders 3 & 4 by taking the necessary action to remove and appoint such employee representatives on its board (provided such persons are otherwise eligible for appointment) to comply with the resolutions. 9. That Club Plus appoint to any vacancy which occurs in the case of employee representatives on its board, only those persons who are nominated by the LHMU (and who are otherwise eligible for appointment). 10. That Club Plus remove from its board, any employee representative who is nominated for removal from the Board by the LHMU where a replacement employee representative has been nominated by the LHMU (which nominee is a person who is otherwise eligible for appointment)." 8 In the course of the hearing counsel for the applicant stated that the applicant was no longer seeking the orders in paras 8, 9 and 10. 9 Rule 71 provides: "71. DELEGATES TO OTHER BODIES (a) Delegates to (or representatives upon) bodies to which the union is affiliated or on which the union is represented (other than those referred to in rules 69 and 70 hereof) may be appointed in any manner decided from time to time: (i) where the affiliation or representation is at national level, by the National Council, National Executive or, in the absence of any decision by the National Council or National Executive, the National Secretary, or (ii) where the affiliation or representation is at branch level or at a level of some lesser geographic unit, by the relevant Branch Council or Branch Executive or, in the absence of any decision by the relevant Branch Council or Branch Executive, by the relevant Branch Secretary. (b) Such delegateship and/or representative appointment is not an office and such delegates shall not thereby become officers of the union. (c) Delegates or representatives so appointed shall hold such appointments, in the absence of a shorter term of appointment being specified, for a period of four years and the holder shall be eligible for reappointment. (d) A delegate or representative shall (so far as is practicable and lawful) at all times act in the position to which he or she has been appointed under this rule in accordance with the rules of the union and/or lawful decisions/instructions of the National Council, National Executive or National Secretary or Branch Council, Executive or Secretary, as appropriate. (e) Any such delegate or representative may be replaced at any time by a resolution of the National Council or National Executive or Branch Council or Executive as the case may require. A delegate or representative may be re-appointed to such position. (f) Where the National Council or Executive or Branch Council or Executive so decides, the member concerned shall immediately take all the necessary steps to vacate the position concerned." 10 Rule 71 can only apply to a body "to which the [LHMU] is affiliated or on which the [LHMU] is represented". Further it is implicit, if not explicit, that the rule can only apply where the LHMU is entitled to appoint delegates or representatives to that body. 11 The contention of the applicant is that: · for the purposes of r 71, Club Plus is a body to which the LHMU is affiliated, or on which it is represented; · under r 71 the LHMU is entitled to nominate and appoint the member representative directors of Club Plus. 12 The primary difficulty confronting the applicant's contention is that under the Constitution of Club Plus no provision is made for the LHMU to play any role whatsoever in relation to the nomination or appointment of member representative directors of Club Plus. Indeed, the LHMU has no function or role under the Constitution or the Trust Deed establishing the Scheme. The applicant, however, claimed that references in the Constitution to the L and H Division must be deemed to be references to the LHMU because the L and H Division is merely a division of the NSW branch of the LHMU and has no legal personality or existence apart from the LHMU: see Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Fohmsbee (1998) 81 IR 120 ("Fohmsbee") at 132-135 per Northrop J. 13 In order to deal with the applicant's contention it is appropriate initially to consider the requirements of the SIS Act in relation to the Scheme, and then to consider the Constitution of Club Plus which is required to comply with the SIS Act. 14 The Scheme is a regulated superannuation fund under s 19 of the SIS Act. As the Scheme is not a public offer superannuation fund it must comply with the basic equal representation rule which is that the board of the corporate trustee consist "of equal numbers of employer representatives and member representatives" (ss 93(4) and 89(1)). Section 10(1) defines an "employer representative" as a member of the Board nominated by "(a) the employer or employers of the members of the fund; or (b) an organisation representing the interests of that employer or those employers." and a "member representative" as a member of the Board nominated by: "(a) the members of the fund; or (b) a trade union, or other organisation, representing the interests of those members." 15 Clause 39 of the Constitution of Club Plus provides that, save for any independent directors, one half of the total number of directors are to be member representatives and one half are to be employer representatives. Clause 39.1(a) provides that, subject to that requirement: "…the Directors may, by resolution: (i) remove any Director and appoint another Director in the Director's place; and (ii) appoint any person as an additional Director." 16 Under cl 39.1(c) a director will continue to hold office until he or she dies, or until his or her office is vacated. 17 Clause 1.1 of the Constitution contains the following definitions, unless the context requires otherwise: "'Employer Association' means the Registered Clubs Association of New South Wales ('RCA') otherwise known as 'Clubs NSW', and includes any other organisation nominated by RCA which from time to time represents the interests of some or all of the Employers for the purposes of the Fund. 'Employer Representative' means a person nominated from time to time by the Employer Association. … 'Member Representative' means a person nominated from time to time by the Union. … 'Union' means the Australian Liquor Hospitality & Miscellaneous Workers Union, Liquor and Hospitality Division, New South Wales Branch ('ALHMWU') and includes any other trade union or other organisation nominated by ALHMWU which from time to time represents the interests of some or all of the Fund Members for the purposes of the Fund." 18 Thus, the Constitution of Club Plus gives effect to the basic equal representation rule by providing for the L and H Division to nominate the member representative directors who may be appointed by the directors of Club Plus. In exercising their powers under cl 39 the directors can only appoint a member representative director nominated in accordance with the Constitution, but the power to decide whether to appoint a particular nominee as a director is vested in the directors, rather than in the nominator. 19 The applicant's contention that the power conferred on the L and H Division to nominate a director should be treated as a power to appoint a director is unsustainable. The Constitution specifically provides for nomination to be by the L and H Division and for appointment to be by the directors. Thus, one of the bases upon which LHMU's case was founded, that the LHMU was entitled to appoint directors to Club Plus, is wrong. 20 Further, while it may have been open to the L and H Division to nominate the LHMU as an entity entitled to nominate member representative directors, the L and H Division has not made any such nomination. Thus, another basis upon which the LHMU's case was founded, that Club Plus is a body to which the LHMU is affiliated or on which it is represented, is also wrong. 21 I would add that there is nothing anomalous about the L and H Division, rather than the NSW Branch of the LHMU or the LHMU, being appointed to be the "representative" of members of the Scheme. The traditional function of the L and H Division and its predecessors was, essentially, to represent union members employed to work in registered clubs in New South Wales. A union branch in the Australian Capital Territory also traditionally represented union members employed to work in registered clubs in the Australian Capital Territory. As a result of union amalgamations, and also of the amalgamation of the New South Wales and Australian Capital Territory Club Plus superannuation schemes, the task of representing the interests of the members of the Scheme has, under the Constitution, remained with the L and H Division, which also owns one of the two issued shares in Club Plus. 22 The applicant also submitted that because the L and H Division has no existence under the Rules apart from the LHMU the Court should regard the functions and powers conferred on the L and H Division under the Constitution of Club Plus as conferred on the National Council or the National Executive of the LHMU. 23 Under the Rules the control vested in members of the LHMU can be exercised on their behalf by the National Council (r 17). The national executive is responsible for management of the LHMU (r 20). The LHMU has State and Territory branches. Relevantly, for present purposes, r 75B establishes the New South Wales branch of the LHMU. The branch has a Branch Council, Branch Executive and Divisional Committees of Management. 24 Clause N10 of r 75B provides that the New South Wales branch is to consist of four divisions, one of which is the L and H Division. The L and H Division is constituted by LHMU members employed by New South Wales registered clubs. Clause N11 of r 75B provides that the L and H Division is to have a Divisional Committee of Management comprised of a Divisional President, Vice-President, Secretary, Assistant Secretary and eight Executive members. Clause N12 sets out the powers and functions of the L and H Division, which include powers and functions which are to be exclusively exercised by the Divisional Committee of Management. Thus, under the Rules the L and H Division is given a degree of autonomy and specific responsibilities. It is unnecessary to detail the functions and powers of the L and H Division other than to observe that the applicant has not established that the role of the L and H Division under the Constitution of Club Plus is inconsistent with any specific power or function vested in the L and H Division under the Rules. Indeed, the L and H Division, and its predecessors, have been primarily responsible for representing the interests of the members of Club Plus as a result of their employment by registered clubs in New South Wales. 25 Although the L and H Division may not be a legal person or entity it does not follow that it has no legal capacity to exercise the functions ascribed to it in the Constitution. As is made clear by Northrop J in Fohmsbee, and in Re McJannet; Ex parte Australian Workers' Union of Employees, Queensland (1995) 184 CLR 620 at 639-642, a branch: · is not a legal person or entity and has no existence apart from that of its members; · is nonetheless a collective noun which identifies the members of the branch collectively. 26 In my view the same principles apply to the L and H Division. Thus, while the L and H Division is not a legal entity or person in its own right it is nonetheless constituted by the members of the Division, who are essentially LHMU members employed by registered clubs in New South Wales (cl N10(a)(i) of r 75B). Any unincorporated association of members may under the rules of the association authorise a committee of management to exercise the powers or functions of the association. Under the Rules the committee of management of the L and H Division has been authorised to exercise the powers and functions of the Division. 27 Thus, the issue in the present case is not whether the L and H Division is a legal entity or person. Rather, it is whether the L and H Division is a "trade union, or other organisation" representing the interests of the members of the Scheme for the purposes of the definition of "member representatives" in s 10(1) of the SIS Act. If it is not such an organisation then it is not capable of being the nominator of member representatives under the Constitution of Club Plus. In that regard cl 63 of the Constitution provides inter alia that, to the extent any provision of the Constitution is inconsistent with any requirement of the SIS Act, the provision of the Constitution will be deemed to be modified to the extent necessary to comply with the SIS Act. On the other hand, if the L and H Division is such an organisation there is no reason why its committee of management cannot be conferred, under the Constitution of Club Plus, with the power to nominate member representative directors. 28 In enacting the requirement that member representative directors be nominated by a "trade union, or other organisation" representing the interests of the Scheme members, it is likely that the legislature intended that the nominator be a trade union or other analogous organisation that functions generally as a representative body on behalf of employees who are members of the Scheme. The L and H Division has traditionally performed that function. While it is correct that under the Rules it represents the New South Wales union members, rather than all of the members of the Scheme, it is unlikely that any employee organisation has represented all of the members of any Scheme or Fund that is not limited to union members. In my view the representative capacity required by the SIS Act is not to be taken literally in the sense that the relevant organisation has the role or function of representing all of the members of the Scheme. If that literal approach were to be adopted it is unlikely that, outside of union member schemes, any employee representative organisation would qualify under the statutory definition. Taking a broad view of the representational requirement I am of the view that the L and H Division is aptly described as representing the members of the Scheme. 29 The substantive question is whether the L and H Division is an "organisation" for the purposes of the statutory definition. The Macquarie Dictionary defines an "organisation" as including, inter alia: "that which is organised, a body of persons organised for some end…" 30 As explained above branches of a union, and divisions within a branch, are constituted by their members and are not registered organisations or legal entities under State or federal industrial law. However, under the Rules union members have been organised into branches and divisions. The L and H Division has its own Divisional Committee of Management, divisional executives and specific functions and powers, including functions and powers which are exclusive in the sense that they cannot be exercised by the National or Branch Councils or Executives of the LHMU: see cll N10-N15 of r 75B. In my view the L and H Division is aptly described as a body of persons organised for the end or purpose of representing the interests of members of the division in the manner provided in r 75B. 31 It is consistent with the legislative intent, and with the ordinary and natural meaning of the words in the definition of "member representative" in s 10(1) of the SIS Act, to regard the body of persons constituting the L and H Division, organised in the manner provided in the Rules, as an "organisation" representing the interests of members of the Scheme. As explained above it is not appropriate to take a narrow view of the statutory requirements for the representation of employee members of the Scheme. 32 Accordingly, I am satisfied that the L and H Division is an organisation representing the interests of members of the Scheme. Under the Rules the Committee of Management has the legal capacity to exercise and carry out the functions and powers of the L and H Division on behalf of the members of the Division. One of those functions and powers is the nomination of member representative directors of Club Plus. 33 Of course, even if the L and H Division was not a "trade union, or other organisation" it doesn't follow that the LHMU is entitled to succeed to the role and function of the L and H Division under the Constitution of Club Plus. Members of the Scheme are not limited to members of the LHMU. Rather, members of the Scheme will include: persons who are currently members of LHMU; members of the equivalent union registered under State legislation; persons who were but are no longer members of LHMU or one of its predecessors; and persons who were never members of any trade union. Thus, it does not follow that, because the LHMU is the federal union to which many members of the Scheme belong that it is the only union or employee organisation that can represent the interests of members of the Scheme. 34 The applicant also contended that the respondents who are member representative directors of Club Plus have acted in breach of the Rules by failing to pay to the LHMU the remuneration they receive from Club Plus for acting as its directors. Under cl 42 of the Constitution of Club Plus provision is made for directors to receive remuneration which, generally, is to be determined by the Registered Clubs Association of New South Wales and the L and H Division. The basis for the LHMU's claim that it is entitled to orders under s 209 of the WRA that the directors' remuneration be paid to it, rather than held as remuneration earned by the directors, is that the LHMU has passed resolutions under r 71 to that effect. As was observed by Gray J in Murphy v Eagleton (1987) 21 IR 419 at 428 (in respect of a predecessor to s 209) the provision "is designed to secure compliance with the rules of an organisation, and not to secure compliance with the resolutions of governing bodies." 35 The power of the LHMU to pass a resolution requiring payment of remuneration earned for services provided by the representatives or delegates it appoints is far from clear. However, it is unnecessary for me to pursue that matter as I am satisfied that the claim of the LHMU in respect of the director's fees is misconceived. The applicant's contention that the fees were payable to the member representative directors in some representative capacity, or as delegates or agents of the LHMU is wrong. As explained above, the LHMU is not entitled to appoint, and did not appoint, the member representative directors and in exercising their powers as directors the member representative directors did not act as representatives or delegates of the LHMU under r 71. Thus, r 71 has no application to the member representative directors nominated by the L and H Division and appointed by Club Plus. Plainly, the fees paid by Club Plus to its directors are fees paid for the services rendered by them in their capacity as directors of Club Plus and not as representatives or delegates of the LHMU or of any branch or division of the LHMU. 36 Accordingly, the rule to show cause is to be discharged. In those circumstances it is unnecessary to consider other difficulties confronting the applicant's claims. Those difficulties include whether any affiliation or representation of the L and H Division or the LHMU with the Scheme is at the "national level" and not a "lesser geographic unit" and is therefore the responsibility of the National Council or National Executive of the LHMU under r 71(a)(i), and whether the orders sought relate to acts that will conduce the performance of the Rules: see s 209(9) of the WRA and The Queen v Joske; Ex parte Shop Distributive and Allied Employees' Association (1976) 135 CLR 194 at 212. 37 A further issue might also have arisen as to whether there is some tension between the wide power alleged by the LHMU to exist to pass resolutions under r 71 and the functions and duties of member representative directors under the SIS Act and the Corporations Act 2002 (Cth): see for example: Levin v Clark [1962] NSWR 686 at 700-701; Re Broadcasting Station 2GB Pty Ltd [1964-1965] NSWR 1648; Scottish Co-op Wholesale Society Ltd v Meyer [1959] AC 324. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel. Associate: Dated: Counsel for the Applicant: Mr J Nolan Solicitor for the Applicant: Steve Masselos & Co Counsel for the Respondents: Mr R Crow Solicitor for the Respondents: Harmers Workplace Lawyers Counsel for the intervener, Club Plus Superannuation Pty Ltd: Mr T Bathurst QC with Mr J Murphy Solicitor for the intervener, Club Plus Superannuation Pty Ltd: Minter Ellison Solicitor for the intervener, Australian Prudential Regulation Authority: Ms V Webster Date of Hearing: 12 June 2002 Date of Judgment: 11 July 2002