Federated Farmers of New Zealand Incorporated v Federated Farmers of New Zealand (Northland Province) Incorporated [2005] NZCA 165 (23 June 2005)

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Federated Farmers of New Zealand Incorporated v Federated Farmers of New Zealand (Northland Province) Incorporated [2005] NZCA 165 (23 June 2005)

Last Updated: 29 June 2005

IN THE COURT OF APPEAL OF NEW ZEALAND

CA144/04

BETWEEN FEDERATED FARMERS OF NEW ZEALAND INCORPORATED
Appellant

AND FEDERATED FARMERS OF NEW ZEALAND (NORTHLAND PROVINCE) INCORPORATED
Respondent

Hearing: 12 April 2005

Court: Glazebrook, Hammond and O'Regan JJ

Counsel: D J White QC and M V Smith for Appellant
C R Pidgeon QC for Respondent

Judgment: 23 June 2005

JUDGMENT OF THE COURT

A The appeal is allowed.

B The appellant will have costs of $6,000 and its usual disbursements.

REASONS

(Given by Hammond J)

Table of Contents

Para No.
Introduction [1]
Background
A dispute arises [2]
The parties go to arbitration [24]
A subsidiary question arises [30]
The Federation decides to appeal [41]
The High Court [43]
The Federation seeks leave for a second appeal [52]
Should this appeal be dismissed at the outset? [55]
The question(s) for determination [58]
The estoppel issue [61]
The membership issue [62]
The relevant legislation [63]
The factual context [67]
The arbitrator's conclusion on the membership question [71]
The High Court view on the membership question [72]
Discussion
Introduction [75]
The context and legislative history of the 1920 Act [78]
The conceptual scheme of the 1920 Act [90]
The textual argument [97]
This case [101]
Some miscellaneous matters [102]
Conclusion [104]

Introduction

[1]	This appeal raises a point of law, arising out of an arbitration between two incorporated societies, as to the interpretation of s 7 of the Incorporated Societies Amendment Act 1920.

Background

A dispute arises

[2]	The appellant, Federated Farmers of New Zealand Incorporated ("the Federation"), is a parent body incorporated under the Incorporated Societies Act 1908.
[3]	Federated Farmers of New Zealand (Northland Province) Incorporated ("Northland"), is a branch of that parent society. It is thought to be separately incorporated as a branch society under the Incorporated Societies Amendment Act 1920. We use the term "thought to be" advisedly, and will outline a possible problem under this head later in this judgment.
[4]	The Federation had operated for many years throughout New Zealand on a federal basis, whereby each of 24 "provinces" in New Zealand operated as branch incorporated societies. Each province had its own separate office, and staff who provided services to members in their respective provinces.
[5]	The Federation had its national office in Wellington. It was managed by a Chief Executive. The Wellington office represented members’ interests nationally and internationally. It also provided co-ordination amongst the various provincial branches.
[6]	The Federation was funded principally by a statutory levy imposed under the Meat Act 1981. A small capitation fee was placed on the provinces’ subscription income. The provinces passed this on to the Federation.
[7]	As a result of a legislative change, the meat levy was removed. This meant that the Federation’s reserves began to run down. Steps had to be undertaken to restructure the funding basis of the Federation.
[8]	A report was commissioned from Ernst and Young. That report recommended a national restructuring. There would be a national staff structure, the establishment of a national member database, and a uniform national subscription. The practical effect of this proposal was that many activities which had been administered locally by provinces would be assumed by the Federation, and administered at a national level.
[9]	Northland opposed these proposals. It also opposed amendments which were introduced in 1997 to effect changes in the constitution of the Federation in order to introduce the national subscription, payable to the Federation.
[10]	The 1997 subscription arrangements were further changed by amendments made in 2000 whereunder, if a member’s subscription fell into arrears of more than 24 months, that member’s name was to be removed from the roll of membership.
[11]	Relations between the Federation and Northland as to these events had been, and remained, very difficult. It is not necessary to recite the factual detail in depth. The parties endeavoured to resolve their differences and it suffices, for present purposes, to indicate that on 3 February 2000 the Federation and Northland reached an agreement.
[12]	It is necessary to say more about this agreement, because, as the arbitrator said, it "forms the foundation to [the] arbitration".
[13]	The agreement was entered into between Northland, the Federation and the Waikato Province (which was a party because it held the Northland members’ database). It recorded the parties’ agreement to discontinue certain legal proceedings brought by Northland against Waikato with respect to that database.
[14]	Clause 1 of the agreement dealt with a number of matters which are the subject of ongoing dispute in relation to the use of the membership database. Clause 1 also acknowledged that Northland was not to be required to use any of the Federation’s services "except by agreement".
[15]	Clause 2 of the agreement provided for the parties to meet at an early date and negotiate on two matters. First, the extent to which the Federation services would be utilised in future by Northland and the cost of such services. Secondly, "to advance in good faith the process of reconciliation between the Federation and Northland".
[16]	Clause 3 set out the procedures to be adopted towards those ends.
[17]	Clause 4 provided that if the Federation and Northland were able to reach agreement concerning "the full integration of Northland into the Federation" then Northland would be entitled to seek the approval of its members by way of a poll or otherwise before such an agreement would be binding on Northland.
[18]	Clause 5 provided as follows:

While negotiations continue towards a "binding contractual relationship agreement" and full integration:

(a) Northland agrees to maintain its affiliate status with the Federation; and
(b) The Federation will not seek to recruit Federation members from the Northland geographical area referred to in paragraph 1(a) of this agreement.

[19]	Clauses 6 and 7 dealt with costs and a media release.
[20]	Clause 8 set out provisions for the resolution of differences between the parties in the event of there being any dispute arising out of the agreement, and made provision for the conduct of a mediation, and in the event of the dispute not being resolved thereby, then the conduct of an arbitration.
[21]	Clause 9 of the February 2000 agreement provided:

In the event of a irrevocable breakdown of the negotiations ... the Federation undertakes not to solicit or campaign to seek membership from the Northland Regional Council geographical area as defined by Parliament before 1 March 2002.

[22]	The negotiations did not go well. In the result, by December 2000 the Federation at least had come to the view that the negotiations between the parties had irrevocably broken down.
[23]	A confidential mediation was eventually held in June of 2002 before an Auckland mediator. But it did not result in the dispute between the parties being resolved.

The parties go to arbitration

[24]	The Federation and Northland then entered into an unsigned agreement - although it was common ground that this was the agreement of the parties - which referred to arbitration the following matters:

The issues in dispute between the Federation and Northland are whether in terms of clause 9 of the agreement -

(i) The negotiations between the parties pursuant to clauses 2 and 5 of the agreement have irrevocably broken down; and
(ii) Whether the Federation is now entitled to solicit and/or campaign for membership in the Northland region.

[25]	Mr P D McKenzie QC of Wellington was appointed as arbitrator. The arbitration was to be a relatively formal one, with formal statements of claim and defence, openings by counsel, briefs of evidence, cross-examination, and related arrangements.
[26]	It was common ground that, during the course of the hearing itself, and by agreement between counsel, the issues to be resolved by the arbitrator were further refined, as follows:

(1) Have the negotiations under clauses 2 and 5 of the February 2000 agreement irrevocably broken down?
(2) If so, was the breakdown caused by a failure of the Federation to act in good faith?
(3) Did the agreement of 11 December 1998 contain an implied term preventing the Federation from soliciting for members in Northland and, if so, is that implied term still applicable or has it been overriden by clause 9 of the February 2000 agreement?
(4) Is the Federation estopped in any relevant way by the decision of Tompkins DCJ of 10 September 1998 as pleaded by Northland?
(5) If the Federation is able to solicit for members in Northland, do those members belong to Northland?

[27]	We interpolate here that the reference to the judgment of Judge Tompkins was to Federated Farmers of New Zealand Incorporated v Federated Farmers of New Zealand (Northland Province) Incorporated [1988] DCR 1044, which related to a summary judgment application by the Federation against Northland to recover subscriptions. That application was dismissed.
[28]	The arbitrator dealt fully with each of those five issues. He answered them in the following manner:

(1) The negotiations under clauses 2 and 5 of the February 2000 agreement have irrevocably broken down.
(2) The breakdown was not caused by a failure on the part of the Federation to act in good faith.
(3) The agreement of 11 December 1998 did not contain an implied term preventing the Federation from soliciting for members in Northland, but in any event any implied term of that kind has been replaced by clause 9 of the February 2000 agreement.
(4) The Federation is estopped by the decision of Tompkins DCJ of 10 September 1998 from the finding made in that decision:

(a) That Northland, not being a member of the Federation, was not, in the absence of any contract, bound by the rules of the Federation, or without any further consent on its part bound by any change in the rules of the Federation and in particular by amendment to the rules in November 1997;
(b) Northland, as a branch society under the Incorporated Societies Amendment Act 1920 is not by virtue of that fact under a legal obligation to comply with the constitution of the Federation or with any changes made to the constitution of the Federation in November 1997 or subsequently.

(5) The Federation is required by Rule 13(b) of its constitution to allocate members which have been solicited in November to a province. Northland is not and has not been since at least 9 April 1999 a province to which members can be allocated. The Federation is required under Rule 13 to allocate members to a province on a geographical basis but in the absence of a province in the Northland geographical area, any allocation under Rule 13(b) is in abeyance until such time as either Northland is re-integrated into the Federation as a province, or the Federation has made changes to its provincial structure so as to provide for a province in the Northland geographical area. This may only be done on the request of members (which can be expressed through their provincial delegates) and with National Council approval under Rule 13(a).

[29]	No challenge was made thereafter by the Federation to the arbitrator’s decision on any of the five issues which it had been expressly agreed were for his determination.

A subsidiary question arises

[30]	To appreciate the context in which the question which this Court is now asked to determine arises, it is necessary to add some further detail as to what transpired before the arbitrator.
[31]	Northland had taken the position in the arbitration that any members that the Federation might be entitled to campaign for in Northland had to be allocated to Northland. This was because Rule 13 of the Federation’s current constitution provided that " all members of the Federation shall be allocated to a province".
[32]	A report as to membership commissioned from a Whangarei solicitor had suggested that there might be 86 Federation members who should have been allocated to Northland under this provision. This would also have the important consequence of maintaining membership above the statutory floor requirement of 15 members (s 4 Incorporated Societies Act 1908).
[33]	The Federation had responded to this argument by, amongst other submissions, suggesting that there were only between seven and ten persons who had paid the national membership subscription to the Federation and that, in consequence, Northland had (in law) insufficient members to sustain its continued registration as a branch society. In effect, it was being said, Northland members had inadvertently "shot themselves in the foot", to employ the vernacular, by not paying their national subscriptions.
[34]	There had also been argument about the various changes to the Federation rules and where the Northland members (whoever they might be) stood in relation thereto at different points of time.
[35]	These various arguments led to a recognition by the arbitrator that there might be some complex issues under this head. In particular, for present purposes, there could be an issue as to the status of Northland members (whoever they might be) who had lost their membership in the Federation through non-payment of the new national subscription.
[36]	There was therefore a question whether the arbitrator should tackle this question, even though it was not specifically included in the list of agreed issues for his determination. It will be recalled that the arbitrator had reached the view that Northland is not presently a province under the Federation’s constitution, and persons who are accepted as members by the Federation were not required to be allocated to Northland under Rule 13(b) of that constitution. It followed, as the arbitrator said, that "it [was] not, therefore, strictly necessary ... to proceed to determine this further ground on which the Federation argues that Northland is not an entity to which members should be allocated".
[37]	However, having recognised that this "loss of membership" point could well be of some practical importance, the arbitrator (after the hearing, but before delivering an award), requested counsel to file further submissions as to the interpretation (amongst other things) of s 7 of the Incorporated Societies Amendment Act 1920. Counsel filed supplementary submissions.
[38]	In his award the arbitrator said:

This was an issue to which both parties gave considerable attention. It was also one of the issues on which I requested and was provided with supplementary submissions by both parties. It is appropriate, therefore, for me to deal with this issue and to determine whether the Federation is correct in its submissions that persons on the Northland membership database who have not paid the national subscription are in law neither members of the Federation or Northland and for that reason also Northland is not entitled to be allocated to it those members of the Federation resident in Northland who do pay the national membership subscription.

[39]	Whether the arbitrator was wise to tackle this issue without having a precisely framed and agreed "sixth issue" may be open to question. However he did do so, and he did so without any objection being raised then - or even on the delivery of the award - by counsel for Northland.
[40]	In the result, Mr McKenzie QC expressed the view that the expulsion of a member from the Federation by virtue of the clause in the constitution of the Federation did not automatically terminate that person’s membership of Northland. However he said that this gave rise to an anomaly, which the arbitrator described in these terms:

This outcome on the present facts gives rise to an anomaly under s 7. Northland members who fail to pay the national subscription are in breach of their membership obligations to the Federation and have thereby ceased to be members of the Federation. Nonetheless, s 7 still deems such persons to be members of the Federation. That deemed membership goes hand-in-hand with the statutory consequence that the person is liable to all the obligations of membership. Those obligations immediately result in Federation membership being lost. What the statute confers on one hand is immediately taken away by the Federation constitution on the other. This, however, is a consequence which arises not directly from the statute itself but from the termination provision in the rules of the Federation. In the absence of more direct authorisation to support termination, a person’s membership rights in Northland remain.

The Federation decides to appeal

[41]	It was common ground that the parties to this arbitration were entitled to appeal to the High Court on any question of law determined by the arbitrator in the course of his award.
[42]	The Federation determined to appeal, on two issues, which were framed in this way:

(1) Did the arbitrator err in deciding in paragraph 248(i) of his award of 14 August 2003 that persons who paid annual membership subscriptions to [Northland] but not to [the Federation] remained (or became) members of [the Federation] and
(2) If so, is [the Federation] estopped from contesting the finding appealed from by the judgment in Federated Farmers of New Zealand Incorporated v Federated Farmers of New Zealand (Northland Province) Incorporated [1998] DCR 1044.

The High Court

[43]	It was in this context that the appeal came before MacKenzie J. The Judge delivered a judgment on 27 May 2004 in CIV-2003-485-2637.
[44]	The Judge indicated that he was troubled at the outset by three things.
[45]	First, the Judge thought that "the arbitrator’s decision on the question which is now raised before [me] was in the nature of obiter dicta". In other words, the Judge thought the question not to be central to what the arbitrator had to decide. By "the question" he clearly had in mind the first question in [42] above.
[46]	Second, since the arbitration, as a result of inquiries made of the Registrar of Incorporated Societies, Mr Pidgeon QC had raised concerns that Northland might be incorporated not as a branch society under the 1920 Amendment Act, but as a society under the principal Act. Solely for the purposes of the appeal, it was agreed that it should be assumed that Northland is a branch society. But effectively that question was not determined by the arbitrator.
[47]	Thirdly, Mr Pidgeon pointed out in the High Court that the members of Northland were not represented in any way in the arbitration between the Federation and Northland. He submitted that any decision of the arbitrator could not therefore be binding on the members of Northland who were not a party to the arbitration. He said it was quite undesirable that an order should be made affecting their status in proceedings in which they had not had a proper opportunity to be represented; and that the factual position on membership remained to be resolved.
[48]	The Judge said:

The three matters that I have mentioned mean that, in my view, this appeal is not an appropriate way to deal with the question. This Court is not in a position where it could, or should, make any binding decision. It is not asked to vary the findings of the arbitrator on any of the issues on which he ruled. All that it is asked to do is to decide whether one of his reasons for arriving at his decision on one of the issues is correct or not. Furthermore, this Court is asked to decide that question on the basis of a fundamental factual premise which may or may not be correct. It is also asked to decide that question when the members of Northland who may be affected by the decision have not been separately represented.

[49]	The Judge then said:

In those circumstances, it may well be preferable not to venture into the issues which were argued before me. However that would be less than helpful to the parties, and I therefore proceed to deal with those issues.

[50]	Without reciting the arguments at this point on the issue which has so troubled the Federation, and on which they desire the views of this Court, the High Court Judge came to the view that the arbitrator was right. In the result, the Judge dismissed the appeal.
[51]	We think a fair reading of MacKenzie J’s judgment is that what the Judge had elected to do was to indicate that he should not deal with the appeal. But, in a desire to assist the parties to resolve a long-running dispute, he gave them the "benefit" of what, in one sense, was an obiter dictum on an obiter dictum, for whatever that might be worth to the parties.

The Federation seeks leave for a second appeal

[52]	The Federation was dissatisfied with that outcome and sought leave for a second appeal, to this Court.
[53]	This placed MacKenzie J in an unenviable position, given the course he had adopted in the High Court, but he decided to grant leave.
[54]	In so doing, the Judge said:

[7] I repeat the reservations which I expressed in my judgment as to whether it was appropriate to deal with the matter in that way. The purpose of the arbitration, and of the appeal to this Court, was to obtain what was in the nature of a declaratory judgment. Had the matter originated in this Court, by means of an application under the Declaratory Judgments Act, I think that it would not have fallen within the usual principles for the exercise of the discretion to make a declaration under that Act, for two reasons. Firstly, at least one important issue of fact is in issue, namely whether the defendant is a branch incorporated society under the Incorporated Societies Amendment Act 1920, or a society under the principal Act. Second, the decision will affect the interests of persons who are not party to the proceedings, namely the members of Northland, who may have different interests, and who may not all be adequately represented by the defendant.
[8] Despite these reservations, however, I consider that, in view of the fact that I did proceed to deal with the matter, and to express a view on the question of law raised in the appeal, the better course now is to continue down that path, and to grant leave to appeal, on the grounds that the question of law involved meets the normal criteria for the grant of leave.
[9] In granting leave, I do not wish to be seen as in any way seeking to fetter the approach which the Court of Appeal might take on an appeal. That Court will have to form its own view, in the light of the unusual features which I have mentioned, as to how it should deal with the appeal.

Should this appeal be dismissed at the outset?

[55]	Leave having been granted, we consider that this Court must now deal with the matter. Save, perhaps, in the exceptional circumstance that it can be shown that the High Court had no jurisdiction to deal with the appeal before it, once leave is given for an appeal to this Court, this Court has to deal with it. It appears to us that MacKenzie J was under a misapprehension in para [9] of his judgment ([54] above) as to the position of this Court.
[56]	Even if that were not so, it could be said that the argument about the construction of s 7 of the Incorporated Societies Amendment Act 1920 was, in the end, intertwined into the resolution of the matters raised by issue five. The status of Northland was assumed, for the purpose of the arbitration (and it is distinctly arguable that it was thereby assumed for all purposes associated with the arbitration, including appeals). And, on the third matter which troubled the Judge, it is hard to see that there are any arguments which could be raised for individual members of Northland which have not been raised to date by senior counsel. If, therefore, we had a discretion, we would likely have exercised it in favour of endeavouring to dispose of the point raised. Courts do exist to solve problems, wherever possible, and not create them by in effect putting the parties in the position of having to commence a fresh set of proceedings in the High Court, to get an answer to the question which has arisen.
[57]	That said, the issue of what is supposed to be determined on the second appeal was left lamentably loose.

The question(s) for determination

[58]	This is because the pleadings and orders as sealed in relation to the appeals were less than satisfactory. Precision is always required as to the leave actually granted, and as to the questions to be determined.
[59]	To recapitulate, in MacKenzie J’s judgment of 27 May 2004, on the merits of the appeal the Judge said that there were two issues for him to decide (see para [42] above). We have not been provided with a copy of the application for leave to appeal, but MacKenzie J recorded (in his judgment of 9 July 2004 granting leave) that the application was for leave to appeal to the Court "against my judgment dated 28 May 2004". And at various points in the leave judgment His Honour used the term "the issues", which in the plural must be taken to refer to both of those two issues. Yet, towards the end of the judgment MacKenzie J referred to "the question of law" (in the singular). The leave order as sealed is drafted as granting leave to appeal to this Court "against the judgment [in the High Court]", which might be taken as the "whole" of the judgment. This Court could therefore be forgiven for wondering what it is supposed to be dealing with.
[60]	It is timely to remark that leave judgments should be framed, and orders sealed in consequence thereof drafted, in precise terms. The appeal to this Court is not a general appeal, nor is this Court a continuous forum for the resolution of incidental points. The ability to appeal under clause 5 of the Second Schedule to the Arbitration Act 1996 is limited to (precise) questions of law, which must be carefully framed.

The estoppel issue

[61]	In the end, the estoppel issue was not pursued at the hearing of the appeal, and we say no more about it.

The membership issue

[62]	In fairness to Mr White, in his submissions he did endeavour to frame this issue more precisely, in these terms:

The question of law for determination on this appeal is whether under the provisions of s 7 of the Incorporated Societies Amendment Act 1920 membership of a parent incorporated society is a prerequisite or condition precedent to membership of a branch of that parent.

The relevant legislation

[63]	It is convenient at this point to set out the relevant legislation. The 1920 Amendment Act (the "1920 Act") provides that any society registered under the Incorporated Societies Act 1908:

May apply to the Registrar ... for the incorporation of any local branch [having not less than 15 members, or for the incorporation of a group or groups of such branches of that society] (s 2).

[64]	Section 3 of the 1920 Act provides how such an application is to be made and what is required to be delivered to the Registrar.
[65]	Under s 4 of the 1920 Act, if the Registrar is satisfied that the requirements of the Act have been observed, and that the rules of the branch are not inconsistent with the provisions of the principal Act or with the rules of the registered society, the Registrar is then required to do certain things. These include the entry of the name of the branch on a special register, the issuance of a certificate of incorporation, and the registration of the rules of the branch.
[66]	The 1920 Act then goes on to provide:

5. Application of provisions of principal Act - All the provisions of the principal Act relating to societies registered under that Act (including the powers conferred on such societies to hold land) shall, so far as applicable, and with the necessary modifications, apply to branches of societies or to groups of such branches incorporated under this Act.
6. Members of branches not to be relieved of obligations as members of societies - The incorporation of a branch of a society under this Act shall not relieve the members of that branch from any liabilities or obligations incident to their membership of the registered society, whether under the principal Act, or the rules of the society, or otherwise howsoever.
7. Evidence of membership of branch - For the purposes of this Act membership of a branch of a society shall be determined in accordance with the general rules of the society and the special rules (if any) of the branch in that behalf, and not otherwise, and every member of a local branch shall be deemed to be a member of the society and liable to all the obligations of membership.

The factual context

[67]	By way of recapitulation and so that the thrust of what is really being put to the Court is brought into relief, we note that as at 6 May 2003 there appears to have been 588 members of Northland; 489 were financial members and 99 were still to pay. A small number had paid double subscriptions by paying a subscription to Northland, and a similar amount by way of subscription to the Federation.
[68]	After the change of the constitution of the Federation other branch societies did not collect their own membership subscriptions. They were content for members to pay a subscription to the national body, which then passed a significantly reduced sum back to the branches.
[69]	Northland’s factual position is that it wishes to still be a branch society of the national body, provided it is granted sufficient funds to carry on the wide range of activities it has always carried on, unlike the other branches who have ceased to carry out those activities. This is the heart of the "factual" or "political" scrap between Northland and the Federation.
[70]	For its part, the Federation is now contending that members of Northland who had not paid subscriptions to the Federation have lost both their status in the Federation, and Northland.

The arbitrator’s conclusion on the membership question

[71]

In his award, the arbitrator concluded that the statutory provisions did not "expressly address the question of termination of membership in either the parent or the branch" and that, bearing in mind the cautious approach of courts to "membership expulsion cases", a person who did not comply with the membership obligations of the parent society could still retain membership of the branch. The arbitrator, for the reasons we have already recited (para [40] above), recognised that this outcome was "an anomalous and unsatisfactory one". But he considered that the Federation was not without remedy. He said it could take steps under the "just and equitable" winding-up provision (s 25(e) of the Incorporated Societies Act 1908) to have the issue addressed on a winding up application.

The High Court view on the membership question

[72]	On the appeal in the High Court, MacKenzie J held that the reference in s 7 to the "general rules of the society" was qualified by the words "in that behalf" which "clearly" related back to the words "membership of a branch of a society". The consequence, in the Judge’s view, is that:

... the relevant rules which are included within that phrase are the relevant membership rules of the parent society as to membership of a branch. Not all of the membership rules of the parent society are to be considered in determining membership of a branch. Only those membership rules of the parent society which deal with membership of a branch are relevant.

[73]	The Judge also agreed with the arbitrator’s cautious approach to the expulsion of a member, and with the arbitrator’s reference to the possible availability of a winding up application.
[74]	The Judge also suggested that the whole problem in this case had arisen because of amendments to the Federation’s rules, which might not themselves be valid. But this was not an issue before his Court, nor is it before us.

Discussion

Introduction

[75]	The heart of the present dispute is that the Federation maintains, based on its view of the legislation, that: membership of the Federation is required as a condition precedent to membership of Northland; and that a member of Northland who pays a substantial subscription to Northland, but not to the Federation, cannot remain a member of Northland.
[76]	Implicit - if not explicit - in those propositions is a broader thesis that in a parent/branch society situation there is "primacy" in the parent society.
[77]	As Mr White correctly said, whether these propositions are correct must turn on a consideration of the text of the 1920 Act, "in the light of its purpose" (s 5 Interpretation Act 1999). We would add, and in the context of the Incorporated Societies legislation, as a whole.

The context and legislative history of the 1920 Act

[78]	In New Zealand, there is a distinction between incorporated entities - which are governed solely by legal principles developed by the courts - and incorporated societies.
[79]	For over a century now New Zealand has provided for non-profit associations to acquire the benefits of corporate status, either under the Incorporated Societies Act 1908 or the Charitable Trusts Act 1957.
[80]	There was an early New Zealand statute - the Unclassified Societies Registration Act 1895 - but that was superseded (with very substantial modifications) by the Incorporated Societies Act 1908. This statute has no counterpart in the United Kingdom. Various Australian states developed roughly similar legislation, but essentially the 1908 New Zealand Act is unique.
[81]	The statute is an example of what, today, would be called "light-handed regulation". It is a "bare bones" kind of legislation which was intended to be easily operated by laypersons. There are not therefore many detailed provisions in the statute.
[82]	The chief legal consequences of incorporation for non-profit associations under the 1908 Act are that the incorporated society has a separate legal identity from its members, perpetual succession, and the members of the society enjoy "limited liability".
[83]	Subject to its particular rules, an incorporated society can enter into contracts in its own name, buy or sell or rent property, borrow or lend money, and sue or be sued in its own name.
[84]	The statute has been resorted to by a wide variety of groups of persons associated for common purposes in the arts, sport, politics, social groupings and the like. As of January 2000 there were almost 24,000 registered incorporated societies in New Zealand (which could be compared to almost 223,000 registered companies). We have not been able to locate how many societies have branches.
[85]	One matter which was not contemplated when the statute was enacted in 1908 was the idea that there might be "branch societies" of the parent societies. How this came about is documented in the Parliamentary Debates relating to the 1920 Act. This Act enabled branch societies to be formed. This concept appears to have no counterpart in other jurisdictions.
[86]	On moving that the relevant Bill be read a second time, the Attorney-General, Sir Francis Bell, said:

[The] Bill [is] purely technical. It had been asked for by the Farmers Union and by one other society which had a large number of branches in various districts and desired that each branch should hold for its own the offices, and so on, of the branch. Now this could not be done if they were not incorporated, and the object of the Bill [is] to enable the incorporation of a branch of such society, which must have a membership of not less than 500. ((1920) 188 NZPD at 844-845.)

[87]	On the third reading of the Bill the Attorney-General is also recorded as having said:

A point had been raised with regard to this Bill that in its form it might facilitate the creation of large unions. He had looked into that point. As he had informed the Council, the Bill was to enable such bodies as the Farmers Union to incorporate their branches for the purpose of vesting property in the branches. It was therefore obvious that the effect of the Bill was to break up and not to enlarge, and therefore he hoped the Council would proceed with the Bill in committee. ((1920) 189 NZPD 201.) (Emphasis added.)

[88]	The Prime Minister, the Rt Hon Mr Massey, said in the course of the debate on the Bill:

As the Incorporated Societies Act now stands, there is no power by which an incorporated society may legally establish branches, and this Bill is introduced for the purpose of facilitating the registration of branches of large societies which have separate branch funds and local officers of management, such as farmers’ unions guilds, sports leagues, and similar organizations. The mode of registration of branches is to be practically on the same lines as that of a society, and there is also provision for a group of branches in any district forming a federal incorporation. Most of the societies that will benefit by the passing of this amendment are already registered under the main Act, but cannot complete their branch organization or procure the necessary legal security for the holding funds and property of their branches without such provision is made as set out in this Bill. ((1920) 189 NZPD 372-373.)

[89]	The Member for Dunedin South, Mr Sidey MP - somewhat presciently it might be thought - said:

If this Bill had been on the statute-book earlier a good deal of trouble should have been saved to the Society for the Health of Women and Children in registering their society. There was no provision to register their branches as branches all over the country. However, they managed to do it; but even now the members of the various branches of the society are not members of the whole organization. If this Bill does go through it will enable membership of the individual branches to constitute also membership of the New Zealand society, for clause 7 provides that every member of a local branch shall be deemed to be a member of the society. I am not certain whether it is clear as to what has to be done when rules have to be altered. That point ought to be looked into. ((1920) 189 NZPD 373). (Emphasis added.)

The conceptual scheme of the 1920 Act

[90]	We have set out the relevant provisions of the 1920 Act at [63] to [66] of this judgment.
[91]	In the points on appeal, Mr White QC suggested that the purpose of this Act "was not to enable a branch to be established as an independent autonomous incorporated society", and that "branches were made subservient to the parent society, consistent with the position at common law ...".
[92]	If it was intended to be conveyed by those propositions that, for all purposes, the parent society enjoys "primacy", then we do not agree. The 1920 Act has to be taken in its own terms, and it creates an unusual hybrid situation.
[93]	The 1920 Act appears to have been drafted - consistently with the view expressed by Sir Francis Bell - on a "top down" basis. It assumes there is a "parent" society, which wishes to incorporate branches, and which will therefore "sponsor" the branches under ss 2 and 3 of the 1920 Act. This of course puts the parent society in a strong position as to the initial rules to be presented to the Registrar for registration. But once formed, a branch is "truly" incorporated with its own separate corporate personality, which enables it to own its own property, and to attend to financial matters. The legislation itself recognises this "separateness": s 5 of the 1920 Act applies the provisions of the 1908 Act to branches, including the legal consequence of separate corporate personality.
[94]	The necessary "linkage" between two separate corporate personalities could, and can, be achieved by contract, or interlocking rules. It is also achieved by s 7 of the 1920 Act, whereby members of branches are deemed to be members of the parent body, thereby creating a dual membership scheme.
[95]	We will come to what that section "means" shortly. But for present purposes we reject the argument - if such it is - that for all legal purposes the parent or originating society is "primary" or "superior" to the branch. There are two incorporations - each separate in law - and the relationship between them must necessarily be regulated by private ordering, or by statute. In most areas, the branch is completely autonomous. But in the area of "membership" there is an interlocking relationship. Hence, in our view, the 1920 Act created what we have described as a "hybrid" situation - for some, but not all purposes, the branch society is truly independent.
[96]	Even when that concept is acknowledged, the "bare bones" character of the legislation means that there will be situations which are essentially unregulated. There appears for instance to be nothing in the legislation that requires a branch to continue to ensure its rules are consistent with the parent’s rules after incorporation, or to stop the parent changing its rules to the detriment of a branch (as was pointed out long ago by Mr Sidey MP). This appears to have come about because Parliament thought branch societies would be created "top down", and it was not anticipated that the internecine warfare to which the affairs of societies can sometimes degenerate might come about in the day-to-day operation of the statute.

The textual argument

[97]	In our view, the approach adopted by the High Court Judge was in error. To qualify the words in the way the Judge did (see [72] above) was wrong. The words "in that behalf" qualify the reference to the branch and not the rules of the parent.
[98]	It follows that what s 7 provides is that "membership" of the new branch society is determined first, by looking to the rules of the parent society, and then, to any special rules that branch may have. Hence if the parent society rules said, "You must be a farmer", the branch society rules might (additionally) say, "Yes, but you must also be an active (not retired) farmer in the Wairarapa, or have other (specified) qualifications, to be a member of this branch".
[99]	What the section is determining is what status a person must have to be a member of the branch. But to achieve the statutory "linkage" of dual membership, the branch member must also comply with the membership rules of the parent body. That "linkage" is effected, if necessary, by the deeming provision at the close of s 7.
[100]	We use the term, "if necessary" advisedly. On the interpretation adopted by this Court, the deeming provision in s 7 is not reached if the rules of both the parent and the branch have not been complied with. Hence the circularity which so troubled the arbitrator does not arise: the membership criteria in both the parent and the branch must be met. In this case, they include the paying of a fee to the parent branch, and actual membership then arises.

This case

[101]

It follows that Mr White is correct. In this case, the Northland members must first comply with the membership rules of the parent society. A number have not done so, insofar as they have not paid their (required) national subscriptions. The Northland members must also comply with any local membership rules. If these things are complied with, they are then "deemed" to be members of the Federation (even though, ironically in this case, they are "actual" members of the Federation by virtue of having paid their national subscriptions).

Some miscellaneous matters

[102]	We make no comments on the merits of this dispute, particularly since it was intimated that other proceedings might follow on this proceeding. However, we do say that it is plainly in the interests of these long standing antagonists to come to terms, and devote their undoubted industry to something other than litigation.
[103]	We were not asked to consider what the position is if there is any conflict between the rules, or as to the validity of particular rules. Given the way this appeal has come about, we should deal only with the simple question which was advanced, tortuously, to this Court.

Conclusion

[104]	The appeal is allowed, on the express basis we have noted, viz., that the membership of Northland is to be determined by ascertaining: first, whether those persons have complied with the membership rules of the Federation, and then, any relevant special rules that Northland may have.
[105]	The Federation will have costs of $6,000 and its usual disbursements.

Solicitors:
Michael V Smith, Wellington for Appellant
Urlich McNab Kilpatrick, Whangarei for Respondent