Navigating complex legislation: when courts disagree about how to interpret defined terms

Understanding and applying complex legislative schemes to everyday business can be a fraught process for companies that requires careful planning, analysis, and advice. As difficult as the process is, it appears to have been compounded by a series of cases in which three different Australian appellate courts have disagreed about the correct approach for interpreting defined terms in legislation. This divergence may continue until the High Court confirms the correct approach.

DLA Piper’s Nick Wray-Jones recently authored an article on these cases in the Australian Law Journal.¹ Following on from that article, this update serves to raise awareness of the issue and provides practical guidance for general counsel and their companies when understanding and applying complex legislation to their businesses.

 

What are defined terms, and why are they important?

Defined terms are key words or phrases that Parliament specifically defines in legislation, with the aim of giving legislation a very precise legal meaning. For example, a simple definition might provide that “in this Act, ‘pets’ means cats and dogs”.² However, most definitions are far longer and more complex, such as the following definition of “financial service” from the Corporations Act, which is a “Russian Doll” definition (whereby the limbs of the definition in (a) – (f) include further defined terms):

(1) For the purposes of this Chapter, subject to paragraph (2)(b), a person provides a financial service if they:

1. provide financial product advice (see section 766B); or
2. deal in a financial product (see section 766C); or
3. make a market for a financial product (see section 766D); or
4. operate a registered scheme; or
5. operate the business and conduct the affairs of a CCIV; or
6. provide a custodial or depository service (see section 766E); or
7. provide a crowd-funding service (see section 766F); or
8. provide a claims handling and settling service (see section 766G); or
9. provide a superannuation trustee service (see section 766H); or
10. engage in conduct of a kind prescribed by regulations made for the purposes of this paragraph.

Defined terms often change the ordinary meaning of words, thereby giving the terms a special legislative meaning. Because of this, the overuse of defined terms can make it difficult to understand the requirements of legislation. The Australian Law Reform Commission has recently commented on the Corporations Act as an example of the overuse of definitions, and has recommended that defined terms in the Act are amended and simplified.³

For companies that are subject to complex regulatory frameworks (e.g. financial service providers or energy and resources companies), this means it can be difficult to understand what the law is and how it applies to their businesses.

 

Appellate courts disagree about how to interpret defined terms

In the 1994 High Court case of Owners of Ship Shin Kobe Maru v Empire Shipping Co Inc,⁴ (Shin Kobe Maru) the Court held that defined terms could not themselves be used to interpret their own definitions. So, using the example above, you cannot have regard to the ordinary meaning of the defined term “pets” to exclude untamed tigers as being “cats” or wild coyotes as being “dogs” for the purpose of the Act. This kind of “circular reasoning” is prohibited because definitions give defined terms a special, legislative meaning that may not align with the ordinary meaning of the defined term.

In May 2020, the Queensland Court of Appeal in BWP Management Ltd v Ipswich City Council⁵ endorsed Shin Kobe Maru as being a strict prohibition against circular reasoning. This was in part because of more recent cases from the High Court supporting the same view, and it means that, in Queensland, the ordinary meaning of the defined term needs to be disregarded when interpreting legislation – instead, the words of the definition are effectively inserted into the Act whenever the defined term is used, and then the words of the definition are interpreted in that context.⁶

However, two months later in July 2020, the New South Wales Court of Appeal in Singh v Lynch⁷ suggested that Shin Kobe Maru may be subject to qualifications and exceptions. In short, this is because, instead of being “mere placeholders” for the words of definitions, Parliament often chooses defined terms as “meaningful labels” that approximate the idea conveyed by their definitions, which makes them an important source of context.⁸ For example, when Parliament defines “pets” to mean “cats and dogs”, the ordinary meaning of the defined term “pets” may arguably be used as a source of context to exclude wild animals such as tigers and coyotes as cats and dogs. However, the Court of Appeal ultimately did not decide this issue, and it therefore remains unclear how defined terms should be interpreted in New South Wales.

Most recently, in 2021, the Full Court of the Federal Court has taken a further (third) stance on the issue. In Commissioner of Taxation v Auctus Resources Pty Ltd,⁹ (Auctus) the Full Court held that whether defined terms can themselves be used as context depends on the Act in question, read as a whole and in context. This means that defined terms can sometimes be used to help interpret their own definitions, but creates additional uncertainty for companies operating within regulatory frameworks, because the answer varies depending on the Act and defined term in question. However, a further decision of the Full Court of the Federal Court, Sunlite Australia Pty Ltd v Commissioner of Taxation,¹⁰ (Sunlite) has since suggested that Auctus stands for the proposition that circular reasoning is impermissible, but that there are exceptions to this prohibition.¹¹ We suggest that, on its face, Auctus supports the view that Acts must be read in context to determine whether Shin Kobe Maru applies, rather than the starting point being that circular reasoning is prohibited unless an exception can be established. It therefore remains to be seen whether the Federal Court will accept the more limited position in Sunlite or embrace the broader position apparently expressed in Auctus. This underlines the current state of uncertainty in this area of the law.

 

What this means for you

1. Modern legislation is increasingly complex, making it difficult for companies to understand their legal rights and obligations. For instance, complicated defined terms are used throughout legislation, typically to give words a precise, legal meaning. However, courts disagree about how to interpret defined terms, making it even more difficult for companies to comprehend and comply with legislation.

2. Until the High Court revisits the topic and resolves the tension that currently exists between these three appellate courts, it is not safe for businesses to assume that the ordinary meaning of the word or words used in a defined term (such as ‘pets’) can and should be used to provide context to the words comprising the definition.

3. When interpreting defined terms, general counsel and companies can work through the following steps:

• Are there any cases considering the defined term in question? Alternatively, has the same or a similar definition from another Act been considered in case law? In either case, be mindful that some courts may have engaged in “circular reasoning” when interpreting definitions, and this should generally be avoided unless and until the issue is resolved by the High Court. (Also remember that, even if courts have considered the meaning of the same or a similar definition from another Act, that doesn’t necessarily mean that the definition you’re considering will have the same meaning. You still need to consider the context of the particular Act and its purpose – therefore, continue through the following steps.)
• What purpose(s) can be derived from the words of the Act? Remember that Acts can have multiple purposes (e.g. a stated purpose for the whole Act, and more specific purposes for particular sections), and Parliament may seek to balance competing policy goals.
• Insert the words of the defined term’s definition into the body of the Act whenever the defined term is used, and then reconsider the meaning of the relevant provision(s) and their immediate context – what do the surrounding words say about Parliament’s intention?
• Consider the broader context of the Act read as a whole – e.g. consider how a particular operative provision (in which the defined term appears) fits into its Division, Part, and Chapter, and how these and other components seek to achieve the Act’s purpose(s).
• If the defined term is used in a variety of contexts throughout the Act, also consider its definition separately from the context of operative provisions – this can help promote consistency of interpretation throughout the Act.

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¹Nick Wray-Jones, “Defined Terms in Legislation: Mere Placeholders or Meaningful Labels? Revisiting the Principle from Shin Kobe Maru” (2023) 97 The Australian Law Journal 196. Available online for Australian Law Journal subscribers.
²Perry Herzfeld and Thomas Prince, Interpretation (Thomson Reuters, 2nd ed, 2020) 49 [3.50].
³Australian Law Reform Commission, Interim Report A: Financial Services Legislation (ALRC Report No. 137, November 2021) [7.1] – [7.223].
⁴(1994) 181 CLR 404.
⁵ (2020) 4 QR 353.
⁶Kelly v The Queen (2004) 218 CLR 216, 253 [103]; cf Hastings Co-op Ltd v Port Macquarie Hastings Council (2009) 171 LGERA 152, 157 [17].
⁷(2020) 103 NSWLR 568.
⁸Nick Wray-Jones, “Defined Terms in Legislation: Mere Placeholders or Meaningful Labels? Revisiting the Principle from Shin Kobe Maru” (2023) 97 The Australian Law Journal 196.
⁹(2021) 284 FCR 294.
¹⁰(2023) FCAFC 43..
¹¹Ibid [9].