Re State Superannuation Board of Victoria v Trade Practices Commission [1980] FCA 165; (1980) 49 FLR 216 (19 December 1980)

FEDERAL COURT OF AUSTRALIA

Re: STATE SUPERANNUATION BOARD OF VICTORIA
And: TRADE PRACTICES COMMISSION [1980] FCA 165; (1980) 49 FLR 216
No. VG 6 of 1980
Corporations - Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIAN DISTRICT REGISTRY
GENERAL DIVISION
Brennan J.(1)

CATCHWORDS

Corporations - Financial corporation - Governmental corporation engaged in financial activity - Whether corporation is a "financial corporation" - Notice to corporation under s.155

Trade Practices Act 1974.

The Constitution, s.51(xx); Trade Practices Act 1974 (Cth.) ss. 4, 155.

Trade Practices - Notice to corporation under s. 155 - Government corporation engaged in financial activity - Whether a "financial corporation" - Trade Practices Act 1974 (Cth), ss. 4, 155 - The Constitution (63 & 64 Vict. c. 12), s. 51 (XX). The applicant was a government body incorporated by statute whose principal function was the management of a superannuation fund.

The Trade Practices Commission served on the applicant a notice under s. 155 of the Trade Practices Act requiring it to furnish information and produce documents. The applicant sought to set aside the notice as invalid, asserting that it was not a "financial corporation" within the meaning of s. 4 and s. 155 of the Trade Practices Act.

Held, that the test of what is a "trading corporation" applies mutatis mutandis in determining what is a "financial corporation". The relevant factor is the substantiality and degree of financial activity of the corporation rather than its public character. The whole operation of managing the fund was a financial activity, and the Board was a financial corporation, notwithstanding its character as a government corporation.

HEARING

Canberra, 1980, December 3-5, 19. 19:12:1980
TRIAL OF ACTION.

D. Graham Q.C. and R. A. Sundberg, for the applicant.

A. R. Castan Q.C., for the respondent.

Solicitors for the applicant: J. P. Brent & Stephens.

Solicitor for the respondent: B. J. O'Donovan, Commonwealth Crown Solicitor.
J. W. K. BURNSIDE

ORDER

1. The application be dismissed.

2. The applicant pay to the respondent its costs of the application.

Application dismissed with costs.

DECISION

The applicant ("the Board") is a body corporate constituted by the Superannuation Act 1925 (Vict.) and continued under the Superannuation Act 1958 (Vict.) ("the Act"). The Board is charged with the administration of the Superannuation Fund, a fund established by the 1925 Act and continued under the Act for the purpose of providing pensions for public servants and officers employed by certain public instrumentalities. The Board is charged with the investment of the Fund in the manner set out in s.6 of the Act. The Board's investments are of different kinds including loans on the security of mortgages of land.

On 19 November 1979 the respondent Commission wrote to the Board stating that enquiries made by the Commission suggested that the Board, in the course of lending moneys on the security of mortgages of land, may have engaged in the practice of exclusive dealing in contravention of s.47(1) of the Trade Practices Act 1974 (Cth.). In purported pursuance of s.155 of the Trade Practices Act the Board was furnished with a notice requiring it to furnish certain information and produce certain documents. The applicant then commenced these proceedings seeking declarations that it is not a "corporation" as defined by s.4 of the Trade Practices Act, that s.47 of that Act does not apply to it, that the notice given in purported pursuance of s.155 was not validly given and that any failure or refusal by the Board to comply with the requirements of that notice would not constitute a contravention of s.155. The Board also seeks an injunction restraining the Commission from taking any step to enforce compliance with the notice or otherwise acting on the basis that the notice is a valid notice under s.155.

A statement of claim was delivered, alleging the facts above set out, and those facts were admitted in the defence. There is but one matter in dispute, namely, whether the Board is a "corporation" as defined by s.4 of the Trade Practices Act. The relevant part of that definition is contained in paragraph (b): "a trading corporation formed within the limits of Australia or . . .a financial corporation so formed". This definition, or parts of it now relevant, has received judicial consideration in three cases to which both parties referred during argument: R. v. Trade Practices Tribunal; ex parte St. George County Council [1974] HCA 7; (1974) 130 C.L.R. 533 (hereafter "St. George"); Re Ku-ring-gai Co-operative Building Society (No.12) Ltd. [1978] FCA 50; (1978) 36 F.L.R. 134 (hereafter "Ku-ring-gai"); and In re Adamson; Ex p. W.A. National Football League [1979] HCA 6; (1979) 53 A.L.J.R. 273 (hereafter "Adamson"). In those cases, the criteria according to which a corporation is to be categorized as a trading or financial corporation were discussed. The application of the appropriate criteria in this case may be deferred until the constitution, functions and activities of the Board have been examined. It will be convenient to refer to the Act, to certain supplementary legislation of the Victorian Parliament and to the activities of the Board before returning to the three cases and ascertaining the principles currently binding upon a judge at first instance in characterizing a corporation for the purposes of par (b) of the definition of "corporation" in s.4 of the Trade Practices Act and for the purposes of s.51(xx) of the Constitution.

The preamble to the Act states that it was enacted "to consolidate the law making provision on a contributory basis for superannuation benefits for certain public officers and employees and benefits for certain of their dependants". The incorporation of the Board is sustained or confirmed by s.58 of the Act. The Board consists of six members appointed by the Governor in Council, three of whom are contributors elected by other contributors (s.49). The contributor representation appears to be designed to ensure the protection of the interests of contributors to the Fund. The three non-elected members of the Board must include an actuary and the Government Statist. The present Board includes two actuaries, one of whom is the Chairman; the other is the Government Statist. The Board is thus equipped with considerable actuarial competence. Members are appointed for a term of five years and they are eligible for reappointment. During a member's term of office he may be removed from office only by resolution of both Houses of Parliament after suspension by the Governor in Council for misbehaviour or incompetence (s.53).

Contributors to the Fund are officers in the employment of the Victorian Government, governmental authorities, and institutions. At 30 June in each of the last four years the estimated number of contributors to the Fund administered by the Board was respectively 80,000 (1977) 84,425 (1978) 87,300 (1979) and 90,228 (1980). At 30 June 1980 the contributors were drawn from the teaching staff of the Education Department (36,308), Railway employees (13,850), Police Force (7,061), other Public Service departments (24,376) and from various government authorities, corporations, boards, colleges and educational institutions (8,633).

Contributors contribute either to the scheme originally created by the 1958 Act or to a revised scheme which was introduced subsequently (see s.3(1A)). Contributors are required to make certain minimum contributions (whether to the original or to the revised scheme) in accordance with statutory scales. But a contributor under the revised scheme has an option to contribute for sufficient additional units of pension (s.10B(3) (4) and (5)) to entitle him on retirement to a pension at the rate of up to 70% of his annual salary (s.10A). A ceiling is placed upon the amount of contributions for which a revised scheme contributor who takes out optional units is liable, and the effect of that ceiling is that the contributor is not liable to contribute more than 9% of his relevant salary (s.10C(3) (4)).

Although the Board is empowered to recover contributions in any court of competent jurisdiction (s.72), in practice the contributions of contributors are deducted from their salaries fortnightly (s.22) and are sent to the Board by the contributors' respective employing departments or instrumentalities. The clerical function of checking the contributions received is quite burdensome. There are more than 150 pay centres which transmit contributions for public servants other than police and railway employees. The amounts are first received into a suspense account, and after checking the correctness of those amounts, the contributions are taken out of suspense and credited to an officers' contribution account. In the last four years ending 30 June the amounts so credited were $58,442,806 (1977); $61,919,177 (1978); $65,121,918 (1979) and $67,160,606 (1980).

A contributor is classified after medical examination as a contributor for full benefits, a limited contributor or a service benefits contributor (s.12), and the classification affects the benefits available to the contributor on retirement on account of ill-health or physical or mental incapacity to perform his duties (ss.12A, 12AA) unless the ill-health or incapacity is caused by traumatic bodily injury (s.12B). One of the purposes of classification is to ensure so far as practical by the application of actuarial principles that on average the value, per unit of pension, of benefit paid out of the Fund after allowing for the Government's subvention will be the same for each classification (s.12(3)(d)). The function of classification is entrusted to the Board which engages the part-time services of a panel of 15 private medical practitioners to advise it. Each medical report is assessed by staff in the Board's Medical Assessment Section (a section comprising an actuary and 9 personnel) who prepare a schedule of classifications for approval by the Board at its weekly meetings. The Board is empowered in some circumstances to alter the classification of a contributor.

A contributor is entitled to a pension on his retirement on or after attaining retirement age or on the ground of ill health or of physical or mental incapacity to perform his duties (s.23). Early pensionable retirement is provided for (s.24), and employees who are retrenched have entitlements to payments from the Fund (ss.25, 35). Full pensions are calculated according to the number of units of pension for which the contributor "was contributing or liable to contribute at the time of his retirement" (ss. 28, 10E, 29(1)(a)), and proportionate pensions are payable to the spouse of a contributor or pensioner, or to a "dependent female" (as defined in s.32AA (1)) on the death of the contributor or pensioner (ss.31, 32, 32AA). Provision is made for the conversion by a pensioner or by the widow of a pensioner of a part of a pension entitlement to an entitlement to a lump sum (ss.32A, 32C), the lump sum being an amount calculated actuarially at a rate of interest below that earned by the Fund.

The Board is charged with the responsibility of determining whether a contributor is unable by reason of ill-health or physical or mental incapacity to perform his duties. The Board reaches its decision after receiving a report from the Board's medical officer and on occasions after receiving a further report by a medical practitioner agreed upon by the contributor and the Board (s.68)). The Board considers applications under s.68 individually, and a great deal of its time during its weekly meetings is taken up by this item on the Board's agenda. The numbers of contributors who retired on account of ill-health in the last four years ending 30 June were 466 (1977) 466 (1978) 450 (1979) and 503 (1980).

Pensions are paid fortnightly. During the last four years, the number of pensions being paid at 30 June, and the total amounts paid (pensions and lump sums) in the preceding 12 months were:

Year Pensions Amount Paid ($) 1977 25,617 53,067,426 1978 25,652 62,040,667 1979 24,585 70,511,940 1980 27,004 79,729,252 Pensions are paid and contributors' contributions are received in alternate weeks. The Victorian Government's subvention to the Fund is also received fortnightly.

The Treasurer of Victoria pays into the Fund amounts calculated in accordance with various provisions of the Act which define the measure of the Victorian Government's subvention to the schemes. The principal section is s.18, but it is unnecessary for present purposes to refer to the detailed provisions of that section. In general, the Government's subvention is fixed at five-sevenths of the amount paid out from the Fund by way of pension or at five-sevenths of certain lump sum payments to which contributors may become entitled otherwise than by conversion of part of a pension entitlement (see, e.g., ss. 18(1), 35(1)). Where a pensioner or a pensioner's widow converts part of a pension entitlement to a lump sum, the Treasurer continues to pay into the Fund from time to time the amount which he would have been required to pay if the part of the pension had not been converted (s.18 (4)). By reason of this and other provisions of the Act (e.g., s.10C (3)) it cannot be said that the Government subvention necessarily equals five-sevenths of the benefits for which the Fund is liable; but the Government subvention is of that order. The remaining two-sevenths is paid by the Fund. The Treasurer does not make the Government's contribution to the Fund in respect of a particular contributor from the time when that contributor starts to make his contribution to the Fund; the Treasurer makes the Government's contribution when that contributor's pension commences to be paid, and the Treasurer partially recoups the Fund for the amount paid out. The Government's subvention is paid fortnightly in an amount calculated by reference to lump sum amounts which have been paid out or pensions then being paid out of the Fund.

The Fund bears not only the net liability to pay the statutory pensions and lump sum payments in excess of the Government subvention, it bears also a proportion of payments of supplements to pensions which are augmented pursuant to the Pensions Supplementation Act 1966. That Act was enacted in relief of pensioners whose finances were affected by inflation, and the Pensions Supplementation Act 1973 provides for automatic updating of pensions based upon the Consumer Price Index. The Fund's contributions towards the supplementation of pensions has been substantial: $10,479,454 in 1977; $12,818,752 in 1978; $14,944,687 in 1979; and $16,956,393 in 1980.

The receipt of contributions, the management and investment of the Fund, the payment of pensions and the receipt of the Government subvention are all functions entrusted to the Board. In addition, the Board administers two funds which are of much smaller size - the Parliamentary Superannuation Fund and the Married Women's Superannuation Fund - each as a quite distinct fund, though a staff member may be required to attend to a particular task whether it is part of the administration of one fund or of another.

The Board has an administrative and clerical staff of 86, who are employed under the provisions of the Public Service Act, and whose salaries are paid by the Victorian Government. In addition the Board itself employs 8 persons in property management whose salaries are paid by the Fund (s.6C), and it retains the services of a consultant actuary and a panel of medical practitioners. It hires some computer services under an agreement with the Local Authorities Superannuation Board and shares some computer services with the Motor Accidents Board. The Board is dependent upon the Victorian Government for its administrative and clerical staff, the number of which is fixed by the Victorian Public Service Board. In its 1979 Annual Report, following earlier comments to the same effect, the Board drew attention to some administrative difficulties which were created by a shortage of staff and said:

"The Board is of the view that the Act can only be effectively and efficiently administered if there is a substantial increase in the numbers of staff and a complete reappraisal of the quality of staff needed to cope with the current scheme. The extended investment powers of the Board require a highly skilled and experienced staff to enable the investment return on the Fund to be maximised."

The Board was empowered, prior to 1979, to employ the property management personnel and to pay their salaries out of the Fund, but in late 1979 an amending Act (No. 9358) was passed which opened the way to relieving some administrative pressures in relation to the management of investments made by the Board in mortgages of freehold or leasehold interests in land in Victoria. Public servants were to be appointed as necessary for the management of those investments, and the Treasurer was empowered to direct that the Board reimburse the Consolidated Fund of Victoria for the salaries of employees so engaged (s.6D). The Treasurer was further empowered to approve payment by the Board out of the Fund of outgoings incurred in the management of those investments (s.6E). The 1980 Annual Report noted the consequential appointment of a further 4 staff to handle housing loan applications. The new appointments brought the number of staff solely employed in housing loans to 9, and accelerated the processing of applications for housing loans. Thus far the Treasurer has not given a direction to the Board to refund salaries paid to staff employed in the management of mortgage investments (whether home loans or commercial mortgage investments).

The Board's powers of investment (s.6) were widened in 1967 to permit the earning of a better return to the Fund than it was previously receiving. Although there was no evidence of a specific policy determining the investments made by the Board, some factors which are taken into account by the Board in making investments appeared in the course of the evidence given by Mr. Hastie, the experienced Secretary of the Board. Thus, as the effect of inflation became more manifest, the Board decided to invest in the purchase of property for rental, in order to secure a return which would keep pace with increases in the Consumer Price Index and which would appreciate in value. The Board also adheres to an understanding arrived at between the Board and the Government when the investment powers were widened that the Board would not withdraw support from semi-government loans to which hitherto it had been a substantial subscriber. The Board has continued to subscribe heavily to semi-government loans and in some years it has earned a small commission on underwriting semi-government loans. Although the Board is statutorily independent, the Government, which bears the major cost of paying pensions, has sometimes exercised influence upon the Board when it thinks that a particular investment ought to be made. And thus the Board has lent money to hospitals conducted by private institutions when the loans have been government guaranteed.

Housing loans to contributors are an authorized investment for the Fund, and the contributor members of the Board ensure that the interests of contributors as borrowers from the Fund are safeguarded. However, the rate of interest on these housing loans is fixed in line with prevailing market rates, approximating those charged by building societies.

Allowing for these influences upon the Board's investment decisions, the Board exercises its own discretion within the limits of its powers as to the kinds of investments it makes and the persons with whom it deals. The longer-term investments fall into four main classes: semi-government and local government loans, commercial loans, housing loans and property purchases. In addition, available funds are invested in the short-term money market.

On 30 June in the last four years, the Fund's investments stood at $338,497,000 (1977), $379,601,000 (1978); $433,294,000 (1979) and $487,173,000 (1980).

So large an investment portfolio requires considerable management. The Board devotes a substantial proportion of its time to the management of the Fund, and a substantial proportion of the activities of the staff (to which I shall presently refer) is also devoted to its management. The statistics of the longer-term investments newly made in each of the last four years reveals the magnitude of the activity.

1977 1978 1979 1980
---- ---- ---- ----
(To nearest $000)

Investment in -
Semi-Government and

Local Government Loans 5,500 37,082 38,420 29,370

Commercial loans 17,556 16,879 28,651 46,024
Housing loans 8,041 10,431 10,869 13,760
Property purchases 3,470 4,094 6,048 324

------ ------ ------ ------
Total: 34,567 68,486 83,988 89,478
------ ------ ------ ------

Proposals for investment in semi-government and local government loans are

referred to the Board for consideration. Mr. Hastie would like to see assembled a more highly skilled and experienced staff to handle this work. Some of the loans are of long standing and bear a much lower rate of interest than rates presently available.

Commercial loans originate in applications made by a prospective borrower to the Board's office or to a particular firm of solicitors which the Board retains to act on its behalf. Although the Board does not advertise, it is well-known as a lender of money on the security of a mortgage of property, and a large number of applications is received each year. When an application is first received, a preliminary report on the proposal is obtained from a property consultant and the application is then given preliminary consideration by the Board. If the Board approves the loan in principle, a valuation of the property offered as security is obtained and a detailed proposition is submitted to the Board for decision. Between 1 January 1980 and 3 December 1980 the Board considered 144 applications, 66 of which it rejected. A computer print-out of commercial loans current in March 1980 revealed a list of some 300 borrowers, and a total commercial mortgage investment at that time of $111,045,900.

Housing loans are made available to contributors. A contributor's borrowing ability is assessed having regard to his age and salary. When that is assessed in consultation with a member of the Board's staff, a formal housing loan application may be submitted for consideration, seeking up to a maximum of 90% of the value of the property ascertained by a sworn valuation. Housing loans are processed by the Board's staff, who prepare a schedule for approval by the Board. There are approximately 400 applications a year, and loans are being made at the rate of $12,000,000 to $13,000,000 per year. The loans are made on settlement of the purchase of the house, the Board's interests being represented by the Crown Solicitor (whose services are provided to the Board without fee) or a private firm of solicitors (not the firm retained in connection with commercial mortgages). During the 1979-1980 financial year, the Board also placed $1,841,000 with a firm of mortgage managers on the security of residential properties.

The Board has acquired four properties in the City of Melbourne, three of which were completed or practically completed office blocks, and which are now fully tenanted. The Public Works Department (the leasing authority of the Victorian Government) is the sole lessee of two of these buildings, and the principal lessee of the third. The fourth site (589 Collins Street) was acquired for redevelopment. The buildings which stood on the site have been demolished, but the proposed development has not yet taken place. A fifth property investment was the acquisition from a developer of a store in Shepparton which the Board leases to Woolworths. An option to acquire another property in Mildura was allowed to lapse. The consent of the Treasurer is always obtained before a property is acquired. The cost of the property investments was $42,774,065.

The funds for making longer term investments are derived from three sources: first, from the surplus of contributions received over the amounts net of government subventions paid out to pensioners, contributories, spouses and dependants; second, from interest or other return on funds invested; and third, from maturing investments and repayment of moneys lent. Counsel for the respondent submitted an analysis of the sources from which were derived the 1980 investment funds: $89,478,000 in longer term investments and nearly $1 million in the short term money market. The surplus on contributions accounted for $18 million; the interest and return on funds invested (including underwriting commission) accounted for $39.6 million; and maturing investments and repayments of moneys lent accounted for $33 million. Omitting the last of these sources, the Fund generates a surplus on its operations (including receipt of contributions) of the order of $57.5 million. Mr. Hastie regarded that figure as "fairly close to what we work on as our ongoing cash surplus." Apart from the effect of an alteration of investment in 589 Collins Street, Mr. Hastie sees no reason why surpluses would not be generated in the same way in future years, increasing with inflation.

The Board requires its staff to prepare schedules showing the estimates of surplus funds available from time to time and selects the areas in which the surplus will be invested. The Board's solicitors in the commercial loans area are informed generally of the funds which will be available for investment in commercial loans.

The large cash flows which are a feature of the Fund's management leave the Board with cash surpluses from time to time, and these surpluses are invested each working day on the short term money market. Each working day the Board's accountant is in touch with the authorized dealers in Melbourne and he places the available surplus with one or more of those dealers. The available surplus varies greatly, depending inter alia upon the Board's commitment to make particular investments, the maturing of investments, the receipt of contributions and government subventions and the fortnightly payment of pensions. The Board ratifies the short term money market transactions at its weekly meetings.

In the management of the Fund, the Board draws upon its indigenous expertise in forming its financial judgments, and it receives advice from a budget investment officer, property consultant, accountant and other staff who are skilled in matters of finance. Taking account of the enhancement in the value of the Fund's assets, the Fund is yielding annually a fraction over 10% on the total investment.

The management of the Fund is a complex function, for the Fund itself is large and there is a large number of individual transactions involved in its management. Its management accordingly requires considerable clerical work, a great deal of administration at the executive level, and the sound exercise of financial and actuarial judgment and managerial skills.

Before turning to an analysis of the cases earlier mentioned in order to ascertain the criteria to be applied in determining whether the Board is a trading or financial corporation I should add that no challenge was made to any of the evidence, whether oral or documentary, and that Mr. Hastie impressed me as a knowledgeable and frank witness.

In Adamson, the High Court reconsidered the judgments in St. George, and the majority of the Court in the later case expressly departed from the majority view in the earlier case (see [1979] HCA 6; 53 A.L.J.R. 273 at pp.280, 289, 291 and 292). The shift in judicial opinion now establishes the activities of a corporation as the principal factor designating the character of the corporation (see 53 A.L.J.R., at pp.279, 289, 291 and 292). The Adamson approach carries an implication of importance for the present case.

In St. George the intended and implemented activities of a corporation were held to be relevant to, but not conclusive of, the character of a corporation as a trading corporation. The majority judgments in that case identified a number of features which, notwithstanding the substantial trading activities of the St. George County Council, precluded its categorization as a trading corporation. I venture to recall without repeating my analysis of those judgments in Ku-ring-gai (36 F.L.R.134 at pp.149-150). In Adamson, however, the significance of features other than trading activities is diminished and it now appears that if, having regard to the trading activity of a corporation, the corporation appears to be a trading corporation, it will not be held to lose that character whatever other features may be exhibited.

Thus Barwick C.J. said in Adamson (at p.279) that "a corporation formed within the limits of Australia will satisfy the description 'trading corporation' if trading is a substantial corporate activity". Mason J., with whom Jacobs J. agreed, said (at p.289):

"Not every corporation which is engaged in trading activity is a trading corporation. The trading activity of a corporation may be so slight and so incidental to some other principal activity, namely, religion or education in the case of a church or school, that it could not be described as a trading corporation. Whether the trading activities of a particular corporation are sufficient to warrant its being characterized as a trading corporation is very much a question of fact and degree."

Although the reference by Mason J. to "incidental to some other principal activity" requires a comparative consideration of trading and the other activity, it is the sufficiency of the trading activity which his Honour identifies as the characterizing criterion. Slightness of trading activity and the predominance of another activity may demonstrate insufficiency for that purpose. And Murphy J. said (at p.292):

"Even though trading is not the major part of its activities, the description, 'trading corporation' does not mean a corporation which trades and does nothing else or in which trading is the dominant activity. A trading corporation may also be a sporting, religious, or governmental body. As long as the trading is not insubstantial, the fact that trading is incidental to other activities does not prevent it being a trading corporation."

Stephen J., with whom Aickin J. agreed, dissented. However, the criterion expressed by Stephen J. for characterizing a corporation places "prime importance" on the corporation's intended and implemented function. Stephen J. found (at p.284) that the Western Australian National Football League was not a trading corporation because, although the League engaged in trade

"Such trading as it undertakes is incidental to and a by-product of its principal activities and is undertaken the better to perform those activities."

That test is similar to the test propounded by Mason J. In St. George, the same test had led Stephen J. to hold that the St. George County Council was a trading corporation (130 C.L.R., at pp.572, 573).

What is now to be regarded as of critical importance is the substantiality and degree of the trading activity of the corporation, rather than the public character of the corporation, the purpose of its formation, or its powers (except where the relevant trading activity is ultra vires). The contrary view, expounded by Gibbs J. in St. George (see 130 C.L.R., at pp.564, 565) is now a minority view, and although Gibbs J. in Adamson adhered to the view he had expressed as a member of the majority in St. George, he propounded an alternative activities test in the later case (53 A.L.J.R., at p.281):

"If, contrary to my opinion, the activities of a corporation at the relevant time determine whether it satisfies the constitutional test, it is the 'predominant and characteristic activity' that has to be considered."

In the light of the judgments in Adamson, it appears to me that the balance of judicial opinion would categorize as a trading corporation a corporation whose trading activity is its substantial activity or is among its substantial activities. Trading need not be the corporation's predominant or principal activity, but the substantiality of its trading activity cannot be determined without reference to the other activities of the corporation, if any. Trading activity which is merely incidental to a predominant or principal activity is prima facie insufficient to confer the character of a trading corporation. To state the test in this way may not reflect the breadth of the test expressed in the judgment of Barwick C.J., and is more restrictive than the test propounded by Murphy J.; but I apprehend that the tests expressed in those judgments go further than the tests expressed in the judgments of the other members of the Court.

St. George and Adamson were each concerned with the characterization of a corporation as a trading corporation; Ku-ring-gai was concerned with the characterization of corporations as financial corporations. Ku-ring-gai was decided, of course, after St. George and before Adamson, and some of what was said in Ku-ring-gai would now require restatement to accord with the majority judgments in Adamson. But it is clear that to the extent to which trading activity is determinative of the character of a corporation as a trading corporation, activity in financial dealings is determinative of the character of a corporation as a financial corporation.

Bowen C.J., in a passage which reflects the judgments in St. George, said in Ku-ring-gai (36 F.L.R. at p. 138):

"In my opinion a financial corporation is one which borrows and lends or otherwise deals in finance as its principal or characteristic activity or, depending on which approach one takes, it is a corporation formed for the purpose of borrowing and lending or otherwise dealing in finance." Deane J. said (36 F.L.R. at p. 158):

"The phrases 'trading corporation' and 'financial corporation' in the context of both s.51(xx) of the Constitution and the definition of 'corporation' in the Act are composite ones. Each phrase refers to a corporation which can appropriately be categorized by reference to activity whether actual or intended."

And I expressed the view (36 F.L.R. at p.150):

"The activities of borrowing in order to lend and lending at interest are financial activities which give to each corporation the character, and place it within the category of a financial corporation."

It follows that the Adamson test for categorizing a corporation as a trading corporation by reference to its trading activities should be applied to ascertain whether the financial activities of a corporation categorize it as a financial corporation.

Ku-ring-gai does not exhaustively define the kind of activity which may confer upon a corporation engaging in it the character of a financial corporation. Deane J. referred to some typical examples of financial activity (at p.159):

". . . the phrase 'financial corporation' is a composite one. It does not refer to solvency. An obvious reference point is to the activity of commercial dealing in finance. Another possible reference point is the provision of management or advisory services in relation to financial matters. I use the words 'dealing in finance', for want of a better expression, to refer to transactions in which the subject of the transaction is finance (such as borrowing or lending money) as distinct from transactions (such as the purchase or sale of particular goods for a monetary consideration) in which finance, although involved in the payment of the price, cannot properly be seen as constituting the subject of the transaction. A common but not invariable characteristic of the relevant type of transaction is that the obligation on each side is to pay money."

The Board's investments in local authority and semigovernment loans, in commercial and home loans and in the short term money market are transactions where the mutual obligations are pecuniary. But commercial dealings in finance are of various kinds, and they encompass a wider range of transactions than those which create mutual obligations. The present case offers an illustration. Moneys are invested in income-yielding property, with the object of gaining a financial return on the moneys outlaid. The investment is made as a means of managing the Fund. The relevant commercial dealing in finance, the relevant financial activity, is the management of the Fund and the Board does not cease to engage in that activity when it invests some of the fund in property with the object of gaining a return which will keep pace with the Consumer Price Index and yield an increment in value. Financial activity is not constituted exclusively by the aggregation of a number of individual transactions each of which may be characterized as "financial"; it may consist in the management and investment of a fund of money with the object of earning a return on the moneys invested. It is not now necessary to consider whether the conjunction "or" in s.51(xx) requires the making of an investment in a trading venture to be excluded from the kind of activities which may characterize a corporation as a financial corporation.

The financial activity of the Board appears to me to be substantial: the magnitude of the task of managing and investing the Fund does not reasonably leave this open to doubt. The time and care expended on managing and investing the Fund, and the importance of the task to the success of the statutory scheme (and particularly to the supplementation of pensions) are manifest. A more difficult question appears to be whether the Board's financial activity is, in a relevant sense, merely incidental to some other predominant or principal activity.

The Board's activities in classifying contributors receiving contributions and subventions and paying pensions and lump sum payments are activities which may notionally be considered to be different from the management and investment of the Fund. They are activities which, in the superannuation schemes of some States, are statutorily separated from fund management and investment. But they are not so separated in Victoria, and to separate out the financial activity of the Board from the performance of its other functions is to treat as an independent activity what is in truth an integral and inseparable part of the Victorian superannuation arrangements. One of the purposes of classification of contributors is to affect the burden placed upon the Fund; the receipt of contributions and subventions requires the management of the funds received; and the financial ability to pay pensions and lump sums is in part the consequence of the management and investment of the Fund. The Board manages the entire schemes of superannuation, and its engaging in financial activity is not incidental to but is an integral part of its performance of the function of managing the superannuation schemes. The performance of that function involves substantial financial activity.

It was submitted, however, that the unity of the function of managing the superannuation schemes required that the Board be categorized by reference to the entirety of that function. The functions of the Board, thus identified, were said to relate to the functions of the government by providing pensions for retired servants of the government, and that, as the Board was set up by statute under the administration of the Treasurer and as it receives contributions from Consolidated Revenue, it is properly to be categorized as a governmental corporation. Though I accept this submission as soundly based, I do not think that it now suffices to answer the question whether the Board is a financial corporation. If the majority opinion in St. George had not been departed from in Adamson, I should have been much attracted by the force of the submission.

But when a test of financial activity becomes the test of prime importance, it seems to me impossible at once to apply that test to characterize a corporation as a financial corporation, and yet to refuse to categorize it according to that character because it is also a governmental corporation. To do so would be to embrace a constitutional heresy which Barwick C.J. condemned in St. George (130 C.L.R., at pp.540, 541), saying that the words in s.51(xx)

"must be given their full import without any constraint derived from the circumstance that so construed the constitutional power they express will affect State power, legislative or executive, or that the exercise of the constitutional power so construed will or may affect the exercise of State power. The reserved powers doctrine of the past has been fully exploded; but care needs to be taken that it does not still in some form or another infiltrate one's reasoning when construing Commonwealth powers or Acts of the Parliament."

Counsel for the Board did not contend that the Board's character as a governmental agency took it out of the operation of the Trade Practices Act. However, it was submitted that as a matter of construction the term "financial corporation" does not encompass governmental corporations. I do not perceive in s.51 of the Constitution a context which requires the term to be read down in this way, and I do not conceive it to be the duty of a judge at first instance to read into the activities test adopted in Adamson a qualification in the case of governmental corporations.

Some reliance was placed upon the Board's trusteeship of the Fund to distinguish it from a financial corporation which deals with moneys that it owns beneficially. Whether the Board is rightly to be regarded as a trustee of the Fund or not, the salient feature of its function is not its ownership of the fund which it manages and invests but its activity in managing and investing.

That activity appears to me to be a substantial activity of the Board, not merely incidental to some other activity, and to be sufficient in degree to characterize the Board as a financial corporation. It falls into the Constitutional category of "financial corporation" and therefore within the definition in s.4 of the Trade Practices Act.

The application must therefore be dismissed with costs.