STYLIS v UNITED MEDICAL PROTECTION LTD [2007] NSWCA 109 (8 May 2007)

Last Updated: 9 May 2007

NEW SOUTH WALES COURT OF APPEAL

CITATION: STYLIS v UNITED MEDICAL PROTECTION LTD [2007] NSWCA 109


FILE NUMBER(S):
40650/06

HEARING DATE(S): 20 March 2007

JUDGMENT DATE: 8 May 2007

PARTIES:
Dr Stanley Chris Stylis – Appellant
United Medical Protection Limited - Respondent

JUDGMENT OF: McColl JA Basten JA Young CJ in Eq

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT FILE NUMBER(S): SC 15872/05

LOWER COURT JUDICIAL OFFICER: Harrison AsJ

LOWER COURT DATE OF DECISION: 18 September 2006

LOWER COURT MEDIUM NEUTRAL CITATION:
Stylis v UMP Ltd [2006] NSWSC 951

COUNSEL:
G. Sirtes – Appellant
R. Marshall - Respondent

SOLICITORS:
Swaab Attorneys – Appellant
Sally Nash & Co Solicitors - Respondent

CATCHWORDS:
CORPORATIONS – COMPANY CONSTITUTION - construction of provisions in constitution of a professional indemnity insurer – whether insurer had power to make a “call” when membership had ceased due to default in payments of subscription – whether debt was sufficiently proved by the claimant’s name being on the register of ordinary members

LEGISLATION CITED:
Corporations Act 2001 (Cth), ss 140, 168, 169, 175, 176, 251A
Local Courts Act 1982 (NSW), ss 73, 74
Supreme Court Act 1970 (NSW), s 101

CASES CITED:
Australian Broadcasting Commission v Australasian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Bailey v New South Wales Medical Defence Union Ltd [1995] HCA 28; (1995) 184 CLR 399
Dobbs v National Bank of Australasia Ltd [1935] HCA 49; (1935) 53 CLR 643
Ho Tung v Man On Insurance Co Ltd [1902] AC 232 (PC)
Kassem v Colonial Mutual [2001] NSWCA 38
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2005] FCA 1812; (2005) 56 ACSR 263
Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2006] FCAFC 144; (2005) 56 ACSR 263
Malika Holdings Pty Ltd v Stretton [2001] HCA 14; (2001) 204 CLR 290
National Roads and Motorists’ Association Ltd (NRMA) v Parkin [2004] NSWCA 153; (2004) 60 NSWLR 224
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Sung Li Holdings Ltd v Medicom Finance Pty Ltd (1995) 13 ACLC 955
Toepfer v Continental Grain Co Ltd [1974] 1 Lloyds’ Rep 11
Upper Hunter County District Council v Australian Chilling and Freezing Limited [1968] HCA 8; (1968) 118 CLR 429
Wilton v Commonwealth of Australia (1990) 12 MVR 243
K. Lewison QC “The Interpretation of Contracts” (1997) Sweet & Maxwell, 12.01

DECISION:
(1) Grant leave to appeal from the judgment and orders made in the Common Law Division on 18 September 2006
(2) Direct that the draft notice of appeal be filed within seven days
(3) Allow the appeal and set aside the judgment and orders made in the Common Law Division
(4) In lieu thereof
(a) set aside order 2(a) made by the Local Court on 17 November 2005 (for the amount of the call)
(b) order that UMP pay Dr Stylis one-half of his costs in the Local Court, and
(c) otherwise dismiss the appeal from the judgment and orders of the Local Court
(5) Order that UMP pay Dr Stylis two-thirds of his costs in the Common Law Division
(6) Order that UMP pay Dr Stylis his costs of the application for leave to appeal and the appeal in this Court.


JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40650/06

SC 15872/05

McCOLL JA

BASTEN JA

YOUNG CJ in Eq

8 May 2007

Stanley Chris STYLIS v UNITED MEDICAL PROTECTION LIMITED

Judgment

1 McCOLL JA: I have had the benefit of reading Basten JA’s judgment in draft. His Honour’s detailed recitation of the facts relieves me of the necessity to do any more than refer to the facts which, in my view, are critical to the resolution of the application for leave to appeal and, if leave be granted, of the appeal.

2 The single question on the claimant’s application for leave to appeal is the proper interpretation of cl 28 of the United Medical Protection Ltd (“UMP”) Constitution. This, as Basten JA has said, is a short point of law. Clause 28 provides:

“On the trial or hearing of any action for the recovery of any moneys due in respect of any call it shall be sufficient to prove that the name of the Ordinary Member sued is entered in the Register of Ordinary Members of the Company, that the resolution requiring payment of a call is duly recorded in the minute book of the Board, and that notice requiring payment of such call was duly given to the Ordinary Member sued, and it shall not be necessary to prove the appointment of the Directors or any other matters whatsoever but proof of the matters aforesaid shall be conclusive evidence of the debt.”

3 The claimant was an Ordinary Member of the UMP at the commencement of 2000. His membership ceased on 16 May 2000 because he made default in the payment of a subscription payable by him to the UMP and that default continued for one month after the payment became due: cl 20(2). Although it was open to the Board of UMP to determine that a defaulting Member did not cease to be a Member by reason of such a default (cl 20(2)), UMP did not rely upon any such determination in the proceedings.

4 On 17 November 2000 the UMP Board resolved to make a call for money on Ordinary Members. The resolution was made in consequence of a “substantial and significant escalation of claims reserves”, a “potential substantial and significant increase in future claims liabilities of members” and the “aggressive actions of competitors seeking to target low risk members”. UMP brought proceedings against the claimant in the Local Court to recover the amount of the call. It was successful at first instance, and before Harrison AsJ.

The magistrate’s decision

5 Before the Magistrate UMP proved that the claimant’s name appeared in its Register of Ordinary Members, that the call resolution was recorded in the Board Minutes and that the claimant had been given notice of the call. Reiss LCM held that the claimant ceased to be an Ordinary Member of UMP on 16 May 2000. Notwithstanding that conclusion he also found the claimant was liable for the call. He reached that conclusion by acceding to UMP’s submission that proof of the matters set out in cl 28 afforded conclusive evidence of the debt. He expressed his conclusion on this point as follows:

“... on the balance of probabilities ... Dr Stylis’s name was in fact, rightly or wrongly, so entered as a Member at the time of the call. That is all the clause requires in this respect. This clause as with several others continued to bind Dr Stylis despite the apparent actual ceasing of membership under cl 20(2) ... in meeting the requirement of cl 28 in this respect and the other matters required by the clause the plaintiff has provided ‘conclusive evidence of the debt’ and is not required to prove ‘any other matters whatsoever’. Dr Stylis is therefore liable to make payment of the call.” (emphasis added).

6 The claimant’s appeal to the Supreme Court was, as Basten JA has observed, limited to a complaint that, in reaching this conclusion, the magistrate erred “in point of law”: s 73(1), Local Courts Act 1982. UMP did not seek to disturb the Magistrate’s conclusion that the claimant had ceased to be a member of UMP on 16 May 2000.

7 Harrison AsJ accepted that the call resolution did not, in terms, extend to a doctor who had ceased to be a “Member“ by virtue of cl 20(2): Stylis v UMP Ltd [2006] NSWSC 951 at [28]. However she, too, resolved the apparent anomaly that the claimant could nevertheless be liable for the call, by reference to cl 28. She rejected the claimant’s argument that before cl 28 could apply the person sued must be “an Ordinary Member”. She held (at [33]) that it was sufficient for cl 28 to apply that the claimant’s name was entered in the Register of Ordinary Members as at 17 November 2000, that the resolution requiring payment of the call was duly recorded in the Board’s minute book and that notice requiring payment of the call had been “duly given to the Ordinary Member sued”. Accordingly she concluded (at [43]) the claimant had not established that the Magistrate had erred in law.

Submissions

8 Mr G Sirtes, who appeared for the claimant, submitted that cl 28 concerned actions against “Ordinary Members” and could have no application in actions against non-members. He argued that the interpretation of cl 28 which found favour with the primary judge led to absurd consequences. First, UMP could, whether deliberately or inadvertently, fail to maintain its Register of Members and thereby be entitled to make calls upon persons whose membership had ceased years before. Secondly, the primary judge’s construction prevented the claimant from denying a question of fact or a conclusion of law despite a contrary factual finding by a Court.

9 Mr R D Marshall, who appeared for the opponent, went to some length in his written submissions to argue that the claimant’s application for leave to appeal sought to raise an issue of fact or one of mixed fact or law which went beyond the permissible limits imposed by s 73 of the Local Courts Act. Somewhat ironically, in this light, his oral submissions ranged over a wide array of facts concerning the circumstances in which the claimant had fallen into arrears in relation to his membership subscription, none of which cast light on the interpretation of cl 28, nor the question whether leave to appeal should be granted.
10 As to the point of construction, Mr Marshall sought to submit that the claimant had “a legal relationship” with UMP at the date of the call, because a former Member was still liable to pay outstanding dues to the UMP (cl 26) and because a former Member did not forfeit the discretionary assistance to indemnity insurance available pursuant to cll 69–77. As to this I observe that the claimant’s exposure to liability for the call did not turn on a legal relationship other than that of Ordinary Membership. Further, this argument, for whatever purpose it was raised, was not the basis for the decisions below and can be set to one side.

11 Mr Marshall also sought to submit that the claimant was in fact an Ordinary Member at the date of the call because he was on the Register of Ordinary Members, and for other reasons it is unnecessary to relate. This also raised an issue of fact which was not the subject of a finding by the Magistrate and was not sought to be raised by cross-appeal or Notice of Contention. It, too, can be set to one side.

Consideration

12 The UMP Constitution had effect as a contract between UMP and its members: s 140, Corporations Act. While it is not a contract which attracts all principles of interpretation applicable to contracts in general or to commercial contracts in particular, sufficient of those principles are applicable, in my view, to assist in the interpretation of cl 28: see Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2005] FCA 1812; (2005) 56 ACSR 263 at [73] per Finn J, approved Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd [2006] FCAFC 144; (2005) 56 ACSR 263.

13 It is appropriate to regard the Constitution as a business document and construe it so as to give it reasonable business efficacy, “where a construction tending to that result is admissible on its language, in preference to a result which would or might prove unworkable”: National Roads and Motorists' Association Ltd (NRMA) v Parkin [2004] NSWCA 153; (2004) 60 NSWLR 224 (at [68] – [71]) per Ipp JA, Santow JA and Bryson JA agreeing); applied Lion Nathan (at [76]).
14 Interpreting cl 28 involves a close consideration of its text in the context of the Constitution, and, if appropriate, a consideration of “the surrounding circumstances known to [UMP and its members] and to the purpose and object of [cl 28]”: Lion Nathan (at [5], [79]) per Finn J, citing Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at [22]. Neither party identified any surrounding circumstances which should be taken into account.

15 In National Roads and Motorists' Association Ltd (NRMA) v Parkin Santow JA (at [3]) and Ipp JA (at [78]) held that the question whether resolutions proposed for a special general meeting of a company were void due to ambiguity was to be resolved by applying the test enunciated Upper Hunter County District Council v Australian Chilling and Freezing Limited [1968] HCA 8; (1968) 118 CLR 429, that is, a test which was neither narrow or pedantic. Equally the words of every clause of the Constitution must if possible be construed “so as to render them all harmonious one with another” and, if the words used in cl 28 are ambiguous, the Court should prefer a construction which will avoid a consequence which appears to be capricious, unreasonable, inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109–110 per Gibbs J (as his Honour then was).

16 I turn to consider the context in which cl 28 appears.

17 UMP is a medical defence body, which was established to take over as a going concern and carry on the Australian medical defence operations carried on by the New South Wales Medical Defence Union Ltd (cl 3(a)), a body whose Articles of Association were considered in Bailey v New South Wales Medical Defence Union Ltd [1995] HCA 28; (1995) 184 CLR 399.

18 Membership of UMP is divided into Ordinary Members and Affiliate Members: cl 12, Constitution. An Ordinary Member is required to guarantee the obligations of the Company (cl 13(2)) and is liable to meet any calls for contributions of funds “pursuant to cl 24”: cl 13(3). It is common ground that the reference to “cl 24” in cl 13(3) is erroneous and should have been to cl 27.

19 A person ceases to be a Member if he or she ceases to be a Member by reason of any of the provisions of the Constitution: cl 25(1). If a former Member is admitted (i.e. re-admitted), his or her rights and privileges as a Member commence from the date on which all amounts payable on readmission were received: cl 25(2). A person who ceases to be a Member remains liable for all moneys due from the Member to the Company at the time his or her membership ceased: cl 26.

20 The Board is empowered to call upon Ordinary Members to contribute funds for the purposes of the Company in circumstances which it considers to be “urgent or exceptional”: cl 27(1). Clause 28 deals with the matters UMP is required to prove to recover the call in litigious proceedings. For convenience, I reproduce cl 28:

“On the trial or hearing of any action for the recovery of any moneys due in respect of any call it shall be sufficient to prove that the name of the Ordinary Member sued is entered in the Register of Ordinary Members of the Company, that the resolution requiring payment of a call is duly recorded in the minute book of the Board, and that notice requiring payment of such call was duly given to the Ordinary Member sued, and it shall not be necessary to prove the appointment of the Directors or any other matters whatsoever but proof of the matters aforesaid shall be conclusive evidence of the debt.”

21 An Ordinary Member who neglects to pay the amount due under a call and set out in a cl 28 notice is liable to be expelled from the Company by a resolution of a meeting of the Board: cl 29.

22 UMP may arrange or procure indemnity insurance for its Members for such risks and liabilities as may arise in connection with the Member’s professional practice. Provision of that assistance is discretionary: see cll 69 - 76. Such assistance is also available to former Members who were not expelled from membership: cl 77.

23 The UMP Constitution, prima facie, only burdens Ordinary Members with responsibility for debts and liabilities incurred while they were members. I have already referred to cll 13 and 26 from which this conclusion can be drawn. In addition it should be noted that Ordinary Members undertake to contribute to the assets of UMP in the event it is wound up while the person is an Ordinary Member or “within one year afterward for payment of debts and liabilities of the Company contracted before the time at which he ceases to be an Ordinary Member”: cl 5.

24 Ordinary Members may benefit if, on the winding up or dissolution of the Company a surplus remaining after satisfaction of all the debts and liabilities cannot be distributed to another institution with the same or similar objects without breaching the mutual status of the Company. In that event any surplus property is to be distributed to persons who were Ordinary Members as at the date of determining the amount of the surplus in proportion to their respective contributions to the Company during their membership: cl 6(b). A certificate signed by the Company Secretary as to the Ordinary Member’s entitlement to the surplus is conclusive evidence of that person’s entitlement: cl 7B. It is of some interest to note that there is no provision which raises a presumption for the purposes of cll 6 and 7, that proof that a person whose name is, or is not, entered in the Register of Ordinary Members is conclusive evidence of his or her entitlement to participate in a surplus distribution.

25 The Constitution does not provide for the keeping of a register. That is governed by the Corporations Act 2001 (Cth), which applies in relation to the Constitution: cl 91. UMP was required to set up and maintain a register of members: s 168, Ch 2C Corporations Act. The register had to show “the name and details of each person who stopped being a member of UMP within the last 7 years and the date on which the person stopped being a member: s 169 (7). As Young CJ in Eq has observed (at [71]), no argument was advanced that cl 28 was subject to an implied term that the Register had been duly kept according to the law or that the operation of the Constitution was affected by any estoppel.

26 In the absence of evidence to the contrary, a register kept under Ch 2C is proof of the matters shown in the register: s 176. However, where there is an issue as to the accuracy of a register and there is other evidence which meets the prima facie evidence, the issue is determined by taking the other evidence into account in conjunction with what appears on the register: Sung Li Holdings Ltd v Medicom Finance Pty Ltd (1995) 13 ACLC 955 per Young J (as his Honour then was).

27 In Sung Li the register showed a transfer of 570 shares to the plaintiff on 3 November 1994. There was evidence that the directors never met and approved the transfer. Young J regarded the latter evidence as “decisive on the issue as to who is the legal owner of the shares”, adding “‘[r]egister’ must mean duly and properly registered”. Accordingly his Honour held the entry in the register was a nullity and the transferor of the 570 shares remained their legal owner.
28 The construction of cl 28 for which UMP contends would preclude the operation of s 176. The Court should be slow, in my view, to accept a construction of cl 28 which is contrary to the scheme for keeping, and proving the contents of, registers in the Corporations Act. If s 176 applied then, as in Sung Li, the evidence that the claimant’s membership had ceased on 16 May 2000 would have been decisive on the issue of whether he was liable for the call.

29 The general rule in adversarial litigation is that it is for the party alleging a material fact, when that fact is put in issue, to prove the fact. In the case of an alleged debt there may be a contractual provision in aid of proof, such as one which makes a certificate conclusive evidence of indebtedness”: Malika Holdings Pty Ltd v Stretton [2001] HCA 14; (2001) 204 CLR 290 at [5] per Gleeson CJ citing Dobbs v National Bank of Australasia Ltd [1935] HCA 49; (1935) 53 CLR 643. In Dobbs the High Court described the “manifest object” of a conclusive evidence certificate in a guarantee as being “to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an inquiry upon legal evidence into the debits going to make up the indebtedness”. In short, however, such a certificate enables a party to avoid the “general rule”.

30 Contractual certificate provisions are often used in contracts for the sale of goods and building contracts to avoid disputes as to the matters of fact certified: see K Lewison QC, The Interpretation of Contracts (1997) Sweet & Maxwell, at 12.01; Dobbs (at 654, 657). In Toepfer v Continental Grain Co Ltd [1974] 1 Lloyd's Rep 11 (at 14) Cairns LJ observed of such a certificate:

“When parties enter into a contract on terms that the certificate of some independent person is to be binding as between them, it is important that the Court should not lightly relieve one of them from being bound by a certificate which was honestly obtained and not vitiated by fraud or fundamental mistake on the part of the certifier. When, for instance, as in this case, the certificate called for by the contract is one relating to the quality of goods sold, the business purpose is to avoid disputes about quality, and that purpose is defeated unless it is made difficult for a party to go behind a valid certificate.... I see no grounds for saying that a provision of this kind should be construed with some special degree of strictness. It is not like an exceptional clause which is designed to operate to give protection to one party. Either buyer or seller benefit from this clause if some error of judgment on the part of the inspector led him to certify a quality in the goods different from their actual quality.” (emphasis added)

31 It can be readily understood that certificate provisions are inserted in contracts for the sale of goods, building contracts and guarantees to avoid disputes about complicated factual issues where, prima facie, the proof of the dealings leading to the fact certified might cause unnecessary expense. In the case of some contracts, as Cairns LJ observed, an error of judgment might benefit either party.
32 Clause 28 is clearly a provision intended to aid proof of UMP’s entitlement to recover the amount of any call. Clause 28 will usually operate to UMP’s benefit. While I do not suggest it should be construed with some “special degree of strictness”, in my view clear language is required to deprive a person of the right to contest an issue before a court: cf Malika per Kirby J (at [131]). Clause 28 does not provide that clear language in respect of the critical issue raised by the claimant. On its literal reading cl 28 calls for proof that the person sued is an Ordinary Member and that that person’s name is entered in the register. UMP can rely upon s 176 to establish its prima facie case in this respect if it wishes. It also requires UMP to prove the resolution and that it is recorded in the minute book and the giving of notice of the call. None of these matters are difficult to prove. Minutes kept and recorded in accordance with s 251A of the Corporations Act are evidence of the proceeding, resolution or declaration to which they relate unless the contrary is proved: s 251A(6). Notices served by UMP by post are deemed to have been served the day after posting, and it is sufficient to prove service to prove the notice was properly addressed and posted: cl 86.

33 Clause 28 expressly relieves UMP of the necessity to prove the appointment of directors and other matters. Thus, for example, it relieves UMP of the necessity to establish the circumstances which the Board considered to be “urgent or exceptional” to warrant the call, or that the Board’s view that the circumstances fell into that category were reasonable, matters which might otherwise be put in issue by an Ordinary Member seeking to resist liability for a call. In this way cl 28 serves the purpose of enabling UMP to avoid what might otherwise be a factual and expensive evidentiary exercise in this respect. No doubt examples could be multiplied.
34 The immediate context of cl 28 does not indicate that its purpose was to enable UMP to impose liability for a call upon a person who was not an Ordinary Member at the date of the call. A call can only be levied on an Ordinary Member: cl 27. An Ordinary Member who does not pay a call is liable to be expelled: cl 29. As Mr Sirtes submitted it would be an incongruous outcome if cl 28 was construed in a manner which would permit UMP to rely upon a negligently kept register to impose liability for a call upon persons who were not Ordinary Members at the date of the call.

35 Further, the provisions of the Constitution to which I have earlier referred demonstrate that Ordinary Members are only liable for debts and liabilities incurred while they were members; in turn, benefits on a winding-up are only available to Ordinary Members. As I have already observed there is no presumption in the Constitution on a winding-up that a person whose name is entered in the Register is entitled to participate in the surplus. While s 176 would confer prima facie evidentiary value on such an entry, it would be open to a liquidator to dispute the validity of such an entry if appropriate.

36 In my view, therefore, the conclusive evidence provisions of cl 28 did not relieve UMP of the necessity to prove that the person whose name was entered in the Register was an “Ordinary Member”. It could not do so in relation to the claimant whose membership had ceased one month after his subscription became due, on 17 May 2000: cl 20(2). This construction gives the Constitution reasonable business efficacy, but avoids a consequence which would be unjust. It also construes the provisions relating to the call in a manner which renders them harmonious.

37 Accordingly the primary judge erred in concluding that cl 28 had been satisfied and that the claimant was liable to the call.

38 As to leave, this is not a case where the decisions below are only arguably wrong: cf Kassem v Colonial Mutual [2001] NSWCA 38 (at [74] – [76]) per Rolfe AJA (Ipp AJA agreeing); see also Wilton v Commonwealth of Australia (1990) 12 MVR 243 (at 252) where in a case where the trial judge had awarded only $3111.94, the Court (Kirby ACJ, Priestley and Meagher JJA agreeing) would have granted leave to appeal on the basis that the judgment under appeal was flawed and the procedures by which it was reached involved a miscarriage of justice. The injustice demonstrated by the claimant goes beyond merely being arguable, the decisions below are demonstrably wrong and have occasioned a substantial injustice.

39 The notion that UMP could hold the claimant liable for a call of $27,126 plus interest on the basis of an erroneous interpretation of cl 28 demands the intervention of this Court.

40 Accordingly I agree with Young CJ in Eq that leave to appeal should be granted and I agree with the orders proposed by Basten JA in the event that leave to appeal is granted.

41 BASTEN JA: This application for leave to appeal concerned the liability of Dr Stanley Stylis (the claimant in this Court) in relation to payments claimed from him by his professional indemnity insurer, United Medical Protection Ltd (“UMP”).

42 The proceedings were commenced by UMP in the Local Court at Sydney, claiming a debt owing of $52,815.38, together with interest in an amount just under $20,000. The calculation of this amount is of no immediate concern, except to say that it constituted in part unpaid instalments of the practitioner’s annual subscription for the calendar year 2000, together with an unpaid levy in the same amount as the annual subscription, being a levy which UMP imposed on members on 17 November 2000.

43 In the Local Court, UMP obtained a judgment for $27,126 (being the amount of the levy) and $12,616.81 (being the amount of two outstanding quarterly instalments). That constituted a judgment in an amount of $39,742.81, together with interest from 1 January 2001 at the statutory rates.

44 Pursuant to s 73 of the Local Courts Act 1982 (NSW) Dr Stylis had a right of appeal to the Supreme Court against the judgment or order of the Local Court, “but only as being erroneous in point of law”: s 73(1). He could have sought leave to appeal “on a ground that involves a question of mixed law and fact”, but, at least in his summons issued on 13 December 2005, he did not do so: see Local Courts Act, s 74(1). UMP was also partly unsuccessful in the Local Court. In particular, it failed to recover the second two quarterly instalments payable during the year 2000, because the magistrate found that Dr Stylis ceased to be a member prior to those instalments becoming due and payable. The date upon which Dr Stylis ceased to be a member involved a question of fact, based upon the operation of the constitution, as construed by the magistrate. No appeal was brought by UMP from the magistrate’s finding in that regard, nor from any underlying legal point.

45 Dr Stylis’ primary challenge, heard in the Common Law Division by an Associate Justice, was that, having found that he ceased to be a member of the UMP on 16 May 2000, the Court should have concluded that he was not liable for the levy made upon members in November 2000. Further, he complained that the magistrate erred in finding that he was liable for a quarterly instalment payable in October-December 1999, but that, if he did fail to pay that amount, his membership ceased before the instalment for May 2000 became due, for which the magistrate also found him liable. His appeal was dismissed.

46 The application for leave to appeal to this Court relied upon the apparent inconsistency between the finding that Dr Stylis’ membership of the UMP ceased on 16 May 2000 and yet that he was liable for a “call” on members made on 17 November 2000. Leave is required in this matter because the amount involved is less than $100,000: Supreme Court Act 1970 (NSW), s 101(2)(r).

47 Because the amount in issue is the amount of the call only, it cannot be contended that leave should be granted, as sometimes occurs, because the difference between the statutory figure and the amount in issue is small. Nor was there any material placed before this Court to suggest that other cases depend upon the proper construction of this aspect of the UMP constitution; nor was it suggested that any issue of principle, going beyond the facts of the present case, was involved. The best that could be said in support of the application for leave was that the decision below was clearly wrong and that an injustice had been suffered by the claimant.

48 The substance of the point in issue can be shortly stated. Pursuant to clause 20(2) of the constitution of UMP, a member in default of payment of the subscription, for more than one month, ceases to be a member. The power to make a “call”, pursuant to clause 27(1) of the constitution of UMP, was limited to a call upon the ordinary members. The claimant said that because he was no longer an ordinary member at the date of the call, it did not apply to him. UMP argued, successfully below, that pursuant to clause 28, it was sufficient for it to prove that the claimant’s name was on the register of ordinary members in November 2000, in order to establish the existence of the debt. There was thus a short point of law involved, as the claimant contended, which depended on the construction of those three provisions in the UMP constitution.

49 It is necessary to consider those provisions in turn. Clause 20 makes provision for the payment of subscriptions in the following terms:

“20 (1) Each Member shall pay to the Company annually a subscription of such amount, in such manner and on such date or dates as the Board or any committee of the Board authorised in that behalf may from time to time determine ... “

(2) If any member makes default in any payment of the subscription payable by him to the Company and if such default continues for one month after such payment shall become due the Member shall, unless the Board or any committee of the Board authorised in that behalf at any time otherwise determines, cease to be a Member.”

50 The Court’s attention was drawn in the course of the hearing of the appeal to a letter dated 21 December 2000 in which an officer of UMP stated that Dr Stylis would have “continuous cover up to 31 December 2000 and remain a financial member with United Medical Protection” if payments were made in accordance with a schedule then provided. Whether that constituted a variation of the dates upon which payments were due, for the purposes of clause 20(1) was apparently not explored in the Local Court. It is too late to raise such an issue at this stage, as it would require findings of fact which have not been made below. Further, while it may be said that cessation of membership pursuant to clause 20(2) was automatic, it was clear that the board may undo that consequence of default in payment, and may do so “at any time”, which presumably includes both before and after the date on which the cessation of membership would otherwise take effect, though there may be a question as to whether that power would operate after the default had continued for one month. No particular formalities are specified in relation to the means by which the board or a committee of the board may ‘otherwise determine’. Again, no findings of fact were made as to whether or not the board had otherwise determined, nor, it would seem, was any such issue litigated in the Local Court.

51 Putting to one side the apparent default in payment for the last quarter of 1999, the claimant paid the first quarterly instalment due in 2000, on or prior to 15 February 2000. He failed to pay the quarterly instalments due in April, July and November 2000 and sought to explain why those payments were not made: the explanation was certainly not that there had been an intentional default on his part. The reasons given included the death of his practice manager and the failure of UMP (acknowledged by UMP) to send reminder notices. Other events occurred from which it could be inferred that both parties understood the membership of the claimant to be continuing through much of 2000, as the magistrate noted at Judgment, p 5. Thus, on 15 December 2000, the claimant wrote to UMP asking for a written assurance that he was “regarded as being fully covered up to date, absolutely, in accordance with the Insurance Policy”. He stated in his letter that that request, made by telephone, had not been met and that, as a result of his concern, he had cancelled an operation list in case he was not covered by medical insurance.

52 It would appear that, whether or not the claimant’s membership ceased upon any particular default in payment of instalments of his annual subscription, would depend upon whether the UMP made determinations for the purposes of clauses 20(1) and (2) which might avoid that result. Given the potentially serious consequences of cessation of membership, and thus professional indemnity cover, a court would generally strive to avoid that result. The magistrate said that there were “very few, if any, facts in dispute”. He also noted:

“There is no suggestion that the UMP did not wish Dr Stylis to continue his membership. The UMP took a number of active steps to facilitate that ongoing membership.”

53 His Honour also found that the continued entry of the claimant’s name on the register as at 17 November 2000, appeared “to be consistent with the apparent desire of both parties to have Dr Stylis’ membership continue during 2000 and the resignation of Dr Stylis at the end of 2000”. However, the legal consequence of such a conclusion was simply not explored, although it might well suggest some variation of the contractual obligations as between UMP and Dr Stylis. Any such variation would necessarily cast doubt upon the finding made by the magistrate that Dr Stylis ceased to be a member of UMP in May 2000, a finding which, as has already been noted, was not challenged.

54 The determination in the Local Court with respect to liability for the call did not depend upon any factual findings with respect to the operation of clause 20, but rather was based on the operation of clauses 27 and 28, which, so far as relevant read as follows:

“27 (1) The Board may, from time to time, in circumstances which it considers to be urgent or exceptional call upon the Ordinary Members or any of them, to contribute funds for the purposes of the Company and each Ordinary Member shall pay every call so made to the persons and at the times and places appointed by the Board ... .

28. On the trial or hearing of any action for the recovery of any moneys due in respect of any call it shall be sufficient to prove that the name of the Ordinary Member sued is entered in the Register of Ordinary Members of the Company, that the resolution requiring payment of the call is duly recorded in the minute book of the Board, and that notice requiring payment of such call was duly given to the Ordinary Member sued, and it shall not be necessary to prove the appointment of the Directors or any other matters whatsoever but proof of the matters aforesaid shall be conclusive evidence of the debt.”

55 The magistrate found as a fact that the claimant was on the register of ordinary members as at the date of the call and that the other matters referred to in clause 28 were established. He therefore concluded that the call was due and payable by him and gave judgment accordingly.

56 In effect, the claimant’s argument in this Court was that, if, as the magistrate found, he ceased to be a member in May 2000, his name should not have been on the register of ordinary members in November. Further, pursuant to clause 27(1) the power of the board to make a call upon an individual depended upon that person being an ordinary member at the time the call was made. This, he contended, was supported by the language of clause 28 which provided for reliance on the register of ordinary members “to prove that the name of the ordinary member sued” is on the register. This language, he contended, suggested that the clause was not engaged unless the defendant in the debt recovery proceedings was an ordinary member at the relevant time. If it were intended that the register provide conclusive evidence that a person was an ordinary member, clause 28 should have provided that it shall be sufficient to prove that “the name of the person sued is entered in the register of ordinary members”. Finally, the claimant obtained some further indirect support for this construction from clause 29 which provided that an ordinary member who neglected to pay the call for one calendar month was liable to be expelled: again, the inference was that only an existing ordinary member could be made liable to a call.

57 UMP contended that the clear purpose of clause 28 of the constitution was to avoid disputes of various kinds, including as to the authority of the directors to pass the relevant resolution making a call and to avoid a challenge to the accuracy of the register of ordinary members kept by the company. It is precisely that latter challenge which the claimant in effect sought to mount in the debt recovery proceedings with respect to the call. In other words, a purposive approach would suggest that if a person seeks to contend that he or she is not liable to pay a debt because the entry or maintenance of the person’s name on the register is in error, proceedings should be taken to rectify the register, possibly pursuant to s 175 of the Corporations Act 2001 (Cth). No other purpose was suggested by the claimant.

58 In support of her conclusion that clause 28 did permit reliance on the register (and the other matters referred to) as conclusive evidence of the debt, the Associate Justice referred to the principle which accords full effect to such a contractual provision. That principle was enunciated in a case involving a certificate signed by a bank manager, certifying the amount owing on the principal debtor’s account, for the purposes of a guarantee, which was held to be, as the contract stated, “conclusive” of the amount of the debt: Dobbs v The National Bank of Australasia Ltd [1935] HCA 49; (1935) 53 CLR 643.

59 In this Court, the claimant did not argue that Dobbs was not relevant, nor that there was some limitation or exception by which a multi-party contract, such as a company constitution, should be otherwise interpreted. Rather, he argued that, as a matter of construction of clause 28, and based upon the finding of fact by the magistrate, this issue simply did not arise.

60 At the heart of the claimant’s case was the proposition that he could not be liable for the two instalments of his annual subscription which fell due prior to the cessation of his membership in May 2000, but not those which fell due later, and yet be liable for the call, which depended upon the premise that his membership continued until 17 November 2000. However, there is no necessary legal inconsistency: the amounts payable depend upon different provisions in the constitution one of which, according to the magistrate in a finding which is not challenged, depends upon the operation of clause 20 and the continuation (until cessation) of ordinary membership, whilst the other depends upon the operation of clauses 27 and 28 which make separate and conclusive provision for the factual precondition to liability, based upon the state of the register, and not continuity of membership.

61 In my view the result obtaining in the Local Court gave rise to no legal absurdity. Rather, the case turned upon a peculiarly fine distinction depending on whether one gave clause 28 a purposive construction or rather relied upon the language which, read literally, would fail to give effect to the clear purpose of the provision.

62 For the reasons noted at [47] above, I would not have granted leave to agitate this point. Furthermore, given that Dr Stylis maintained throughout most of 2000 that he was entitled to professional indemnity cover, as provided to members of UMP, and would no doubt have relied upon that cover if sued by a patient, I see no relevant injustice in refusing leave. Indeed, the basis for the application appears to me to be entirely opportunistic, although it may be said that opportunity arises from the failure of UMP to prove continuity of membership, seek leave to appeal from the magistrate’s finding in that regard or from the finding that upon failure to pay an instalment, no further instalment became due.

63 However, as this is a minority view, I would indicate my conclusion with respect to the point of construction. Despite the fact that it would seem to give no effect to the purpose of clause 28 in permitting reliance purely upon the register of ordinary members, in my view the register should not be treated as conclusive evidence that the individual whose name appears upon it was, at the time of the call, an ordinary member. Although a contractual provision may deem a fact to exist which is not the case, the language of both clause 28 itself, clause 27 and clause 29 are consistent with the view that a call can only be levied upon a person who is in fact an ordinary member at the relevant time. There would appear to be inconsistency between the purpose of clause 28 and the language which introduces its effect and the language which is found in the operative provision of clause 27. But clause 27 is the provision conferring the power to make a call: clause 28 is in form a procedural provision. Clause 27 should prevail in the case of inconsistency of purpose. Thus, the power to make a call was constrained to operate only in respect of ordinary members, and not in respect of everyone whose name appeared on the register.

64 This conclusion may be seen as consistent with the resolution in fact passed by UMP, which required ordinary members, with the exclusion of certain identified groups, to pay the call equal to the subscription “paid or payable by each ordinary member in the 2000 calendar year”. That resolution was not, in its terms, sufficient to impose a levy on all persons whose names appeared on the register of ordinary members. Nor would identification of a name on the register, even with a copy of the resolution, have provided conclusive evidence of the amount of the debt. It would have been necessary for UMP to prove the amount of the subscription “paid or payable” by that member for the particular year and also to prove that the person was not excluded from the category of ordinary members on whom the call was imposed. (For example, members employed in public hospitals and those who joined UMP on or after 1 July 1999, were excluded from the call.) Further, the payment arrangements contained in the resolution assumed that all persons paying the call were members renewing their membership during 2001. Thus, provision was made for payment, either on 1 June 2001 or 1 December 2001, or by instalments extending until 2005. For members paying by instalments, but only for such members, there was provision that, “upon ceasing to be a member ..., the balance of all payments owing under the call shall be immediately due and payable”.

65 The terms of the resolution thus indicate that the levy was not, in its terms, intended to apply to former members. Accordingly, whatever power UMP may have had to impose a levy on persons who were not current members as at the date of the levy, the resolution did not extend so far and did not operate in relation to persons who were not current members as at the date of the resolution. If leave were granted, the appeal must be upheld.

66 In relation to costs, it would follow that, if the appeal is upheld, Dr Stylis should have his costs in this Court. He also seeks costs in the Common Law Division and in the Local Court. In the Common Law Division, he sought by way of summons to challenge the conclusion of the magistrate in relation to both the call and the instalment due and payable in December 1999. He was successful only in relation to the call, although that appears to have been the primary issue in dispute. He should be allowed two-thirds of his costs of that proceeding. So far as the Local Court is concerned, the proceedings were commenced by UMP seeking a judgment in respect of the call and each of the unpaid instalments due and payable during the year 2000. In the event, it has retained a judgment for two quarterly instalments only. It should pay Dr Stylis one-half of his costs in that Court.

67 If leave is to be granted, I would propose the following orders:

(1) Grant leave to appeal from the judgment and orders made in the Common Law Division on 18 September 2006.

(2) Direct that the draft notice of appeal be filed within seven days.

(3) Allow the appeal and set aside the judgment and orders made in the Common Law Division.

(4) In lieu thereof:

(a) set aside order 2(a) made by the Local Court on 17 November 2005 (for the amount of the call);

(b) order that UMP pay Dr Stylis one-half of his costs in the Local Court, and

(c) otherwise dismiss the appeal from the judgment and orders of the Local Court.

(5) Order that UMP pay Dr Stylis two-thirds of his costs in the Common Law Division.

(6) Order that UMP pay Dr Stylis his costs of the application for leave to appeal and the appeal in this Court.

68 YOUNG CJ in Eq: I have read in draft the judgment of Basten JA and because his Honour has dealt with the arguments fairly thoroughly I do not need to spend overmuch time dealing with the issues.

69 The issues before the Court were essentially twofold: (1) whether the decision below was wrong; and (2) whether, in view of the amount involved, $27,126, it was appropriate to give leave to appeal.

70 As to the first issue, I agree with Basten JA that if leave were granted, the appeal must be upheld. Basically, the proposition which appears to have been espoused by the learned Magistrate and the learned Associate Justice is, that, as the claimant's name appeared on the Register of Members, and as clause 28 of the opponent's Constitution had the purpose of avoiding disputes as to who was liable, there must be a verdict for the opponent. With respect, this must be incorrect.

71 It is rather odd that apart from the matter referred to by Basten JA, there was no canvassing before the courts below of the duty of the opponent to keep its Register in accordance with s 169 of the Corporations Act 2001 (Cth) which, inter alia, would have required it to mark who had ceased to be a member and keep a list of former members for seven years, vide s 169(7) of the Corporations Act. There was no argument put that clause 28 must have been subject to an implied term that the Register had been duly kept according to law. There was also no argument put that the effect of the Articles was affected in the present case by some principle of estoppel, vide Ho Tung v Man On Insurance Co Ltd [1902] AC 232 (PC).

72 I have found the second matter more difficult. There is, in the unreported decisions of this Court, considerable authority for the proposition that the Court should be slow to give leave to appeal where a verdict below is less than $100,000, a fortiori, when it is much less. However, there is also support for the proposition that where the decision below is clearly wrong, it is inimicable to the interests of justice that that verdict should remain. It is easier where the case involves some matter which could be called a test case, to grant leave to appeal. Mr R Marshall, for the opponent, says that the present case is not in this category. However, it does seem to me that to explode the myth that a clause such as clause 28 can operate in the way held below is of some value to the community generally.

73 It is a nice balancing exercise, but in my view, leave to appeal should be given on the usual terms as to filing a formal notice of appeal.

74 Accordingly, I join in the orders set out in the final paragraph of Basten JA's judgment.

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LAST UPDATED: 8 May 2007