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[2020] QCA 87
Here, the appellants sought orders for the winding up of the first respondent, an incorporated association, despite it being solvent and continuing to operate as a church. At first instance, declarations were made and receivers were appointed instead. On appeal, particular consideration was given to the propriety of the first respondent using its funds to take an active role in the litigation. While it was found that the primary judge erred in assessing one of the just and equitable considerations, the Court of Appeal agreed that the first respondent should not be wound up.
McMurdo JA and Lyons SJA and Boddice J
28 April 2020
The first respondent in this appeal is a church which is incorporated under the Associations Incorporation Act 1981 (“the Act”). [1]. The appellants represent members of the church’s congregation who objected to steps taken by the church’s minister and the second respondent, Mr Reupena, “to sever the ties” between the church and its “mother church” in Samoa, the Congregational Christian Church of Samoa. [2]. The appellants claim that they were excluded from participating as members of the church after voicing their objections at a meeting on 4 September 2016. [3].
The appellants commenced proceedings in the Supreme Court, seeking an order that the church be wound up, at first on the ground that it was insolvent and then, after amendment, on the ground that it was just and equitable to do so under s 90(1)(e) of the Act. [5]. However, Wilson J, declined to order the winding up of the church because it was “a solvent and functioning body” and “the appellants’ remaining concerns could be addressed by alternative relief”. [7]. Thus, her Honour made certain declarations and ordered that receivers and managers be appointed to determine the church’s members “and then to convene an extraordinary general meeting of the members for the purpose of electing a management committee”. [8].
Dissatisfied, the appellants raised six grounds of appeal in support of the ultimate contention that Wilson J erred in not ordering that the church be wound up. The first two grounds of appeal overlapped and so were considered together by McMurdo JA, with whom Lyons SJA and Boddice J agreed. [45]. Broadly, they related to the church taking an active role in the Supreme Court proceedings and using corporate funds to do so. [46]–[47]. His Honour identified the test for whether it was proper for the church to take an active part in the proceedings as being “whether it is necessary or expedient in the interests of the company as a whole”. [51].
Here, the church had two proper interests: in defending a case that it was solvent, and in identifying its members. [52]–[53]. While, in general, “a corporation would have a legitimate interest in the litigation of an issue involving the interpretation of its constitution”, because the arguments advanced on behalf of the church “were without any substance”, “it is difficult to see that they would have been advanced by the [church] had it been independently advised and represented”. [54]. It followed that the litigation of some of the issues was an improper application of the church’s funds. [55]. This constituted “a substantial consideration, which supported a winding up, which was not weighed in the exercise of her Honour’s discretion”. [55].
The third ground was abandoned at the hearing of the appeal. [59]. The fourth ground was rejected by McMurdo JA [62], [63]. McMurdo JA deferred consideration of the fifth ground until his Honour considered substantively whether a winding up order should be made. [65].
By the sixth ground of appeal, the appellants contended that the primary judge erred in appointing receivers when neither party had sought that relief, and the task faced by the receivers would be exceedingly difficult. [66]. However, McMurdo JA noted that the appellants had not demonstrated that her Honour erred in thinking that it “was practicable for the receivers to perform the tasks which her orders assigned them”. [69]. His Honour concluded that if “it is right to describe the parties as bitterly divided factions who cannot work together” that supports the appointment of a receivers. [70].
Having considered the grounds of appeal and found that the primary judge had erred in considering the just and equitable factors, McMurdo JA then turned to whether or not the church should be wound up. In his Honour’s view, the question was whether “it is now impossible to achieve the objects for which the [church] was formed?” [71]. His Honour found that the church had, on a continuing basis, continued to serve its community in accordance with its objects, with two exceptions: [71]:
1. The exclusion of the appellants from membership, and
2. The severance by the church of its ties with its “mother church”.
While his Honour recognised that the exclusion of the appellants from membership would have been hurtful, their membership was reinstated by orders made by Wilson J. Similarly, while the constitutional amendments severing the ties with the mother church were declared invalid, his Honour noted that it was likely that the ties would be validly severed in the future. [73]. This prospect itself was not advanced as a reason for winding up. [73]. His Honour found that the historical irregularities in the management of the church weighed in favour of a winding up, although they were “not a compelling reason for it”. [74]. The misuse of the church’s funds for litigation also weighed in favour of winding up, although it too was not determinative. [75].
Ultimately, McMurdo JA found that the proper interest of the church’s members is in its operation in furtherance of its objects as stated in its constitution. [77]. Given “the winding up of a solvent incorporated body is a remedy of last resort”, and considering the substantial adverse consequences of a winding up, his Honour concluded that the church should not be wound up. [78].
In the event, the appeal was dismissed. [79].
M Paterson