Allied Mining & Processing Ltd v Boldbow Pty Ltd - [2002] WASC 195

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: ALLIED MINING & PROCESSING LTD & ANOR -v- BOLDBOW PTY LTD [2002] WASC 195

CORAM: ROBERTS-SMITH J

HEARD: 26 JULY 2002

DELIVERED : 26 JULY 2002

FILE NO/S: COR 209 of 2002

BETWEEN: ALLIED MINING & PROCESSING LTD (ACN 002 594 872)
First Plaintiff
MARK VICTOR CARUSO
Second Plaintiff
AND
BOLDBOW PTY LTD
Defendant

Catchwords:

Corporations - Removal of directors - General meeting of shareholders - Section 203D Corporations Act 2001 (Cth) - Constitution of company providing for removal of directors - Whether s 203D is exclusive means of removal of directors - Whether constitutional provision available as an alternative means of removal

Corporations - Removal of directors by shareholders - Whether s 203D Corporations Law 2001 (Cth) sets minimum standard of procedural requirements for removal

Corporations - "Replaceable rule" - Whether provision in company constitution providing for removal of directors by shareholders "displaces or modifies" s 203D of the Corporations Law 2001 (Cth)

Corporations - Section 1322 of the Corporations Law 2001 (Cth) - Procedural irregularity - Whether notice of general meeting given to shareholder invalid

Injunction - Declaration - Invalidity of shareholders' notice calling general meeting

Legislation:

Corporations Act 2001 (Cth), s 249F, s 173, s 203D, s 135, s 1322

Result:

Application dismissed

Category: A

Representation:

Counsel:

First Plaintiff                :     Mr M J McCusker QC
Second Plaintiff            :     Mr M J McCusker QC
Defendant:     Mr G R Donaldson

Solicitors:

First Plaintiff                :     Clayton Utz
Second Plaintiff            :     Clayton Utz
Defendant:     Fearis Salter Power Shervington

Case(s) referred to in judgment(s):

Browne and Anor v Panga Pty Ltd and Anor (1995) 17 ACSR 75
Bushell v Faith [1970] AC 1099
Holmes v Life Funds of Australia Ltd (1971) 1 NSWLR 860
Link Agricultural Pty Ltd v Shanahan and Others (1998) 16 ACLC 1462
Shanahan and Anor v Pivot Pty Ltd (1998) 16 ACLC 859
Taylor v McNamara (1974) 1 NSWLR 164

Case(s) also cited:

Nil

ROBERTS-SMITH J: This matter first came on before me as a hearing of an application for an interlocutory injunction, but on counsel for the parties suggesting it be adjourned for a special appointment to be heard as the trial of the action proper and all parties consenting, I agreed to that course and accordingly have tried the substantive application.
The originating process seeking injunctive relief pursuant to s 1324 of the Corporations Act 2001 (Cth) was filed on 19 July 2002. The application seeks injunctive relief in relation to a meeting of the members of the first plaintiff which, as is asserted by way of notice dated 27 June 2002, the defendant has purported to call and declaratory relief in relation to the defendant's notice of the meeting.
On the application the plaintiff seeks the following orders of substance:
(1)the defendant be restrained from proceeding to arrange or hold a general meeting of the first plaintiff in purported reliance on a notice of meeting dated 27 June 2002 and despatched to members of the first plaintiff on or about that date;
(2)interim injunctive relief in relation to the notice in terms of a minute of proposed orders accompanying the Chamber summons for interim injunction filed herein.
An undertaking as to damages in the usual form has been filed on 18 July 2002 signed both on behalf of Allied Mining and Processing Ltd ("Allied") and the second plaintiff. On the same date as the above documents, Allied filed a document entitled "Interlocutory Process Seeking an Interim Injunction", seeking interim injunctive relief, and by that application the plaintiffs sought interim injunctive relief in the terms already described.
The application is supported by a 142‑page affidavit of Mark Victor Caruso sworn 18 July 2002 and a few minutes before the hearing of this matter on 24 July I was handed a 46‑page affidavit of Nicholas Henry Brown dated that day filed on behalf of Boldbow Pty Ltd ("Boldbow") in opposition to the application and at the commencement of the hearing Mr McCusker QC handed up a 39‑page affidavit of Peter Christopher Wall also sworn on 24 July 2002. As events transpired, counsel agreed that Mr Wall's affidavit need not be read and so I have made no reference to it.
Mr Donaldson, counsel for the defendant, said it was not necessary that Mr Brown's affidavit be read, as the content of two annexures "NHB1" and "NHB2" would be sufficient. However, Mr McCusker wished to rely on other parts of Mr Brown's affidavit and so I have had regard to it.
I turn to the facts. The second plaintiff, Mark Victor Caruso, is a director of the first plaintiff, Allied. Allied is an Australian public company officially listed on the Australian Stock Exchange. There are presently three directors. The other two are Gregory Hugh Steemson and David Andrew Limbourn.
Boldbow is the registered holder and beneficial owner of more than 5 per cent of the issued share capital of Allied. On 6 June 2002 Boldbow's solicitors Ferris Salter Power Shervington, to whom I shall refer as FSPS, wrote to the directors of Allied advising that Boldbow proposed to convene a general meeting of Allied shareholders in accordance with s 249F of the Corporations Act 2001 to consider resolutions to replace the existing board of directors and requiring, pursuant to s 173(3) of the Corporations Act, that Allied provide a copy of its register of members within 7 days.
The letter further advised that in the circumstances the current board should regard itself as acting in a caretaker role only, pending the outcome of the general meeting, and specifically that in that role it would be inappropriate for the board to enter into any transaction or take any action other than in the ordinary course of business.
There were other cautionary admonitions expressed which for present purposes it is not necessary for me to mention. That letter was received by Allied the same day. By letter dated 7 June 2002 the plaintiffs' solicitors Steinepreis Paginal wrote to the defendant's solicitors advising that the register of members would be provided and that they did not consider the board of Allied was acting in a caretaker capacity.
Also on 7 June 2002 Allied announced a placement of 6,663,000 shares representing approximately 15 per cent of Allied's issued share capital, and a one‑for‑five rights issue. The prospectus for the rights issue was actually published on 25 June 2002 and the closing date was 29 July 2002. There was further correspondence which came, on 10 June 2002, to a letter from Allied's solicitors to Boldbow's solicitors under cover of which were enclosed nominations and consents of proposed directors in accordance with article 21.10 of Allied's constitution, which I shall refer to as the constitution. Those were consents by Peter George Cordon, Alan David Hill, Max Dirk Jan Kosin and Neil Christian Ferris.
Allied's solicitors wrote to Boldbow's solicitors on 18 June 2002 forwarding a copy of Allied's register of members. They further advised that the board of Allied had resolved to proceed with the placement that was contemplated on 7 June 2002 prior to receipt of the letter from Boldbow's solicitors dated 6 June. They went on to express the view that Boldbow had not complied with s 230D of the Corporations Act and that in the absence of confirmation that Boldbow intended to proceed with its proposal to convene a shareholders meeting to replace the existing board, Allied was of the view it was not in possession of any information which should be disclosed to the ASX under ASX listing rule 3.1.
They concluded that on the assumption Boldbow intended to proceed with its proposal, then Allied requested a draft copy of the notice of meeting prior to dispatch to the shareholders in order that they could provide notice of the intention to move a resolution seeking the removal of a director from office to the particular director or directors in question. The director or directors could include a written statement putting their case to members in the text of the notice of meeting and the solicitors could review the notice of meeting and explanatory material to confirm that none of the information included was defamatory in nature.
The question of compliance with ASX listing rule 3.1 is not something which bears on the issues I have to decide, and so although it was addressed in subsequent correspondence between the parties' solicitors I will not trouble with it further.
By letter dated 21 June 2002 FSPS reiterated Boldbow was not relying on s 203D but article 21.8 of the constitution. They pointed out that even assuming the notification requirements in article 21.8 applied to a meeting convened by a shareholder pursuant to s 249F, (which they did not concede), in their submission those requirements were complied with by the delivery of their letter of 6 June 2002 which was addressed to the directors of Allied. They went on to say that notwithstanding that, if any of Allied's directors wished to provide material to Boldbow for circulation with Boldbow's notice of meeting, Boldbow would be happy to consider that request if the material was received by it by close of business on Monday, 24 June.
Allied's constitution had been adopted at an AGM of the company on 29 November 1999. Article 21.8 reads as follows:
"The company may (in addition to any powers conferred by the Corporations Law) by Ordinary Resolution remove a Director (other than an Alternate Director) and by Ordinary Resolution appoint a person as a replacement Director but only where the Director the subject of the removal resolution, not less than five Business Days before notice of the General Meeting at which the resolution is to be considered is dispatched, has been given notice by the Company of the proposed resolution and, if in the period of three Business Days after the Director that has been given notice gives to the Board a written statement of not more than 1500 words relating to the proposed resolution, containing no defamatory material to the Company, a copy of that statement will be dispatched with the notice of the General Meeting at which the resolution is to be considered."
On 24 June 2002 Allied's solicitors wrote to FSPS setting out their reasons for taking the position that s 203D of the Corporations Act provided the only method of removal of directors by ordinary resolution. They went on to write that on the basis Boldbow was attempting to remove Allied directors pursuant to article 21.8 - which they reiterated was to be read subject to section 203D - they were requesting Boldbow provide Allied with notice of the resolutions proposed by Boldbow at least 5 business days before dispatch of the notice of general meeting, "in order that Allied can comply with the provisions of cl 21.8 of its constitution".
Allied's solicitors added that notwithstanding those comments, in the event Boldbow intended to proceed to convene a meeting of shareholders, they were again requesting a copy of the draft notice of meeting, "for review", prior to dispatch:
"… to avoid any unnecessary remedial action which may be required in the event any of the information contained within the notice of meeting is of a defamatory nature or otherwise contravenes any other provision of the law".
FSPS maintained their position. They did so in a letter to Allied's solicitors dated 27 June 2002 in which they set out their reasons for their view that Boldbow was entitled to proceed under article 21.8 which operates independently of s 203D.
With respect to the 5 days' notice of the resolutions, they claimed that had been complied with by delivery of their letter dated 6 June addressed to Allied's directors. They declined to provide a draft notice of meeting for review and advised they would dispatch notices of the general meeting and associated documents to Allied shareholders that afternoon. The Boldbow Notice to Shareholders dated 27 June 2002 was attached to Annexure "A" of Caruso's affidavit.
On 28 June 2002 Allied's solicitors wrote to FSPS acknowledging the latter's advice that they had dispatched the notice of meeting and associated documents to shareholders the previous afternoon, and requesting copies of them so that Allied could make an appropriate announcement to the ASX. Copies of the documents were obviously provided immediately thereafter because by letter to FSPS faxed the same day, Allied's solicitors referred to them and reiterated their view that the notice and resolutions proposed by Boldbow did not comply with the Corporations Act.
They then set out their legal reasoning for that view and sought Boldbow's immediate confirmation that it would withdraw the notice documents until such time as the provisions of s 203D were complied with. FSPS replied to that by letter dated 16 July 2002. They maintained their earlier view that section 203D had no application to the meeting. They further pointed out that Allied and its directors had been aware of Boldbow's intention to convene a general meeting for nearly 6 weeks and had a copy of the notice of meeting for almost 3 weeks.
This prompted an immediate response from Allied. That same day Allied's solicitors wrote to FSPS repeating their view that the resolutions proposed by Boldbow were invalid. They further asserted that article 21.8 was not available to a shareholder of the company that convenes a general meeting in accordance with s 249F of the Corporations Act and that the power in article 21.8 to remove a director was available only where the company itself convenes a general meeting to consider a resolution to remove a director.
By letter dated 17 July 2002 FSPS wrote to Allied's solicitors pointing out that the latter's letter of the previous day had raised an entirely new objection to Boldbow's notice of meeting, which they noted had been in Allied's hands since 27 June 2002. They expressed disagreement with Allied's solicitors' interpretation of article 21.8 and disputed that it was available only where the relevant meeting had been convened by the company itself rather than by a shareholder relying on s 249F of the Corporations Act.
Allied subsequently - I have been unable to ascertain the date - sent a letter to all its shareholders headed Update of Activities to Shareholders, the purpose of which was said to be to provide them with an update on the company's recent activities and also to respond to the Boldbow letter to shareholders dated 27 June 2002 enclosing the Notice of General Meeting convened for Tuesday, 30 July 2002. The letter then set out in some detail the objections of the Allied board to Boldbow's proposals and its strategy for the future. Under the heading "Requisition of General Meeting by Boldbow" the letter stated that Allied's solicitors were of the view that the notice of meeting and some, if not all, of the resolutions proposed by Boldbow may be invalid and foreshadowing the present proceedings.
The letter then turned to what were described as the claims made by Boldbow and went on to respond to them. The substance of all of that is not pertinent to this application. It is enough to say the claims were responded to with some particularity, including specific reference to the directors Boldbow were seeking to replace and those nominee directors it was seeking to have appointed. The letter concluded with a statement of the reasons why shareholders should reject the resolutions proposed by Boldbow.
Finally, so far as the factual narrative is concerned, Boldbow wrote to all shareholders of Allied by letter dated 18 July 2002 on Boldbow letterhead and headed "Important Update For Your Immediate Attention". The letter was signed by Alan Hill as Managing Director of Boldbow. In content, it was a response to the matters raised in Allied's letter to shareholders.
I turn now to the law. The Corporations Act commenced operation on 15 July 2001. It replaced the Corporations Law which applied in Western Australia by s 7 of the Corporations (Western Australia) Act 1990. Section 203D is in broadly similar terms although there are some relevant differences to which I will refer below to its predecessors, s 227 of the Corporations Law and s 120 of the Companies Act 1961.
Section 203D of the Corporations Act is in the following terms.
"Removal by members - public companies
203D  (1) Resolution for removal of director   A public company may by resolution remove a director from office despite anything in:
(a)the company's constitution (if any); or
(b)an agreement between the company and the director; or
(c)an agreement between any or all members of the company and the director.
If the director was appointed to represent the interests of particular shareholders or debenture holders, the resolution to remove the director does not take effect until a replacement to represent their interests has been appointed.
203D  (2) Notice of intention to move resolution for removal of director Notice of intention to move the resolution must be given to the company at least 2 months before the meeting is to be held. However, if the company calls a meeting after the notice of intention is given under this subsection, the meeting may pass the resolution even though the meeting is held less than 2 months after the notice of intention is given.
203D  (3)   Director to be informed The company must give the director a copy of the notice as soon as practicable after it is received.
203D  (4)   Director's right to put case to members The director is entitled to put their case to embers by:
(a)giving the company a written statement for circulation to members (see subsections (5) and (6)); and
(b)speaking to the motion at the meeting (whether or not the director is a member of the company.)
203D  (5)   [Circulation of director's written statement] The written statement is to be circulated by the company to members by:
(a)sending a copy to everyone to whom notice of the meeting is sent if there is time to do so; or
(b)if there is not time to comply with paragraph (a) - having the statement distributed to members attending the meeting and read out at the meeting before the resolution is voted on.
203D   (6)   [When written statement not required to be circulated] The director's statement does not have to be circulated to members if it is more than 1,000 words long or defamatory.
203D  (7)   Time of retirement If a person is appointed to replace a director removed under this section, the time at which:
(a)the replacement director; or
(b)any other director;
is to retire is to be worked out as if the replacement director had become director on the day on which the replaced director was last appointed a director.
203D  (8)   Strict liability offences An offence based on subsection (3) or (5) is an offence of strict liability."
So far as is relevant, s 227 of the Corporations Law provided:
"SECTION 227    REMOVAL OF DIRECTORS
227(1)   [Resolution of public company] A public company may, by resolution, remove a director before the end of the director's period of office, notwithstanding anything in its constitution or in any agreement between it and the director.
227(2)  [Not effective until successor appointed] Where a director so removed was appointed to represent the interests of a particular class of shareholders or debenture holders, the resolution to remove the director does not take effect until a successor has been appointed.
227(3)  [Special notice] Special notice is required of:
(a)a resolution to remove a director under this section; or
(b)a resolution to appoint a person in place of a director so removed at the meeting at which the director is removed.
227(3A) [When notice must be given] Notice of the intention to move the resolution must be given to the company at least 2 months before the meeting is to be held. However, if the company calls a meeting after the notice of intention is given under this subsection, the meeting may pass the resolution even though the meeting is held less than 2 months after the notice of intention is given.
227(4) [Copy of notice to director] As soon as practicable after receiving notice of an intended resolution to remove a director under this section, the company shall send a copy of the notice to the director concerned, and the director (whether or not a member of the company) is entitled to be heard on the resolution of the meeting.
227(5) [Representations by director] Where notice is given in accordance with subsection (3) and the director concerned makes with respect to the notice written representations to the company (not exceeding a reasonable length) and requests that the representations be notified to members of the company, the company shall, unless the representations are received by it too late for it to do so:
(a)state, in any notice of the resolution given to members of the company, that the representations have been made; and
(b)send a copy of the representations to every member of the company to whom notice of the meeting has been or is sent.
…
227(11) [Compensation or damages] Nothing in the preceding provisions of this section:
(a)…
(b)derogates from any power to remove a director that may exist apart from this section."

It is necessary also to set out the terms of s 249F(1) and (2) of the Corporations Act. They provide as follows:
"249F (1) [Members who may call a meeting at their own expense] Members with at least 5% of the votes that may be cast at a general meeting of the company may call, and arrange to hold, a general meeting. The members calling the meeting must pay the expenses of calling and holding the meeting.
249F 20 [Method of calling meeting] The meeting must be called in the same way - so far as is possible - in which general meetings of the company may be called."
The short points upon which this application were said to turn are:
(1)whether s 203D of the Corporations Act provides an exclusive means for the removal of directors of a public company;
(2)if not, and if article 21.8 of Allied's constitution affords the defendant an alternate means of removing directors of Allied, whether that has complied with?
In relation to the first, Mr Donaldson relies on a number of authorities under the statutory predecessors to s 203D which have held that those provisions did not constitute an exclusive mode of removing directors.
Mr McCusker QC, for Allied, says those authorities are of no assistance because section 203D is now both in different terms to its predecessors in significant respects and appears in a different statutory context, both of which considerations lead to the conclusion that the legislative intent was that it should constitute an exclusive procedure for the removal of directors.
In Shanahan and Anor v Pivot Pty Ltd (1998) 16 ACLC 859, Beach J was dealing with a number of issues, one of which was whether s 227 necessarily excluded the calling of a meeting and removal of directors under a power provided in articles of the company.
Pivot, the defendant, argued that the resolution was not governed by s 227 but by article 95 of the company's articles which required the removal and replacement of a director to be by special resolution.
His Honour held that the company in fact had a choice to bring the resolution replacing one director with another under either s 227 or article 95. He held further that the company had chosen s 227 and the resolution was therefore framed by the requirements of that provision which did not require a special resolution in that case.
I refer specifically to what his Honour said at 866 of that report but for present purposes it is perhaps sufficient to observe that the procedure under article 95 of the articles of association was more onerous than the procedure prescribed under s 227. Furthermore no authority was cited and no reason was given by his Honour for the conclusion arrived at and it could have been justified on the basis that s 227 simply set a minimum standard which had clearly been more than met by the more onerous requirements of article 95. That case went on appeal.
In Link Agricultural Pty Ltd v Shanahan and Others (1998) 16 ACLC 1462 the Full Court of the Supreme Court of Victoria upheld (inter alia) his Honour's view of s 227 and its interrelationship with a company's articles giving power to remove directors. At 1477 her Honour Kenny JA said at [52] and [53]:
"Section 227 of the Corporations Law confers a right on a public company constituted by the members in general meeting, to remove a director by ordinary resolution. The importance of the statutory right is that it is to be enjoyed by the members 'notwithstanding anything in its articles or in any agreement between it and the director': see s 227(1)."
Her Honour went on to say at the same page:
"Neither provision prevents recourse to the other. Section 227 and Article 95 create concurrent and alternative procedures pursuant to which the company in general meeting may remove a director and appoint another in his place. The members have a choice, whether to proceed under s 227 (and subject themselves to the requirements of the section) or to proceed under Article 95 (and subject themselves to the requirement of the article): cf Claremont Petroleum NL v Indosuez Nominees Pty Ltd(1986) 4 ACLC 315; [1987] 1 Qd R 1 and Vision Nominees Pty Ltd & Anor v Pangea Resources Ltd & Ors (1988) 14 NSWLR 38.
In effect, as the respondents contended, s 227 provides a procedure for the removal of a director (and implicitly for the appointment of a new one) which is additional to the procedure laid down in Article 95. Where the members choose to proceed under s 227, not Article 95, the requirements of Article 95 are not relevant: cf Holmes v Life Funds of Australia Ltd (1971-1973) CLC 40-013 at 27,179; [1971] 1 NSWLR 860 at 862 per Street J. Likewise, of course, if the members choose to proceed under Article 95, then the requirements of s 227 have no application and the company's board of directors does not have the right to pre‑empt the members' choice of procedure."
Similar observations as I have made with respect to Shanahan v Pivot may be made in respect of what her Honour said on the appeal.
In Browne and Anor v Panga Pty Ltd and Anor (1995) 17 ACSR 75 the argument before Ipp J on an application for an urgent injunction was somewhat different. The articles of association of the relevant company, pertinently to the present point, provided that:
"Subject to these articles and the Code the company in general meeting may at any time by ordinary resolution remove any director before the expiration of his period of office."
As his Honour observed, article 61 contained no requirement as to notice. Mr Heenan QC, as he then was, accepted that directors could be removed under either the statutory power of s 227 or under power conferred by the articles of association provided that the articles contained such a power.
As I say, however, the argument put before his Honour was somewhat different to that in the present case. The submission was that the wording of article 61 was such that it rendered the power to remove a director thereunder subject to s 227. The submission was further put that in removing a director under article 61 notice would have to be given in terms of s 227(3).
His Honour held that the correct construction was that the words "subject to these articles and the Code" did not import the procedure laid down by s 227 of the Corporations Law and that the phrase was intended to mean no more than subject to any contrary provisions contained in the articles or the relevant statute.
That of course was a decision of a single Judge and his Honour acknowledged at 76 that the matter was complex and difficult and he was not in a position to deal fully with all of the arguments. Further on this issue, as I have mentioned, counsel accepted that the directors could be removed under either the statutory procedure or that available in the articles.
In other words, it seems the proposition of law for which the defendant relies upon this case and for which it seems to have often been cited as authority was simply assumed without argument.
The first question I think is whether the principle embodied in s 203D is to set a minimum standard. I think not.
In my opinion it is to do no more than prevent directors becoming entrenched and to ensure that even though a company's constitution may contain articles which would have that effect the shareholders could always in the last resort have recourse to s 203D which could never be excluded but may be supplemented by constitutional articles providing alternative ways, whether more or less rigorous than s 203D, by which shareholders may remove directors.
The rationale for the previous provision in section 120 of the Companies Act was explained by Street J as he then was in Holmes v Life Funds of Australia Ltd (1971) 1 NSWLR 860. At page 862 his Honour said:
"Section 120(7) provides, so far as is presently relevant: 'Nothing in the foregoing provisions of this section shall be taken as … derogating from any power to remove a director which may exist apart from this section.'
In the light of this clear provision in s 120(7) I find it difficult to see any merit in the proposition that the terms of s 120 require special notice to be given in connection with the resolution to remove the directors of this company. Section 120 is intended to confer a statutory right on shareholders in a public company to remove a director by ordinary resolution. The exercise of this statutory right requires the giving of special notice. The importance of this section is that the statutory right requires the giving of special notice. The importance of this section is that the statutory right is available to shareholders 'notwithstanding anything in its articles …'. The section denies to a public company the freedom to insert in its articles any provision which would secure the directors in the occupancy of their offices in the face of a properly expressed resolution by shareholders seeking their removal. But the section is not in my judgment intended to provide the whole code for the removal of directors such as was at one stage submitted on behalf of the defendants. It is made expressly clear by sub‑s (7) that nothing in s 120 is to be taken as derogating from any power to remove a director which may exist apart from the section. In the present company such a power does exist in art 90. It is a power exercisable by ordinary resolution, and the question of special notice under s 120 has no relevance whatever to the exercise of that power. I do not agree with the argument that has been put to the effect that a purported exercise of power under art 90 must expressly proceed as such. This would appear to me to introduce a quite unreal and unnecessary element of legalism into the ordinary conduct of company meetings. The motion was put, and the chairman was in error in ruling it out of order by reference to the requirements of s 120."
I recognise of course that the decision in that case turned principally on the clear terms of s 120(7) of the Companies Act and there is no equivalent provision in s 203D of the Corporations Act, although as Mr McCusker pointed out, there was a corresponding provision in s 227(11) of the Corporations Law.
Nonetheless I consider the legislative intent and rationale as expressed in that portion of the judgment of Street J, which I have emphasised above, has as much application to s 203D of the Corporations Law as it did to s 120 of the Companies Act.
There is a tension between preventing directors being able to become entrenched by giving shareholders the power to remove directors, (see Bushell v Faith [1970] AC 1099), on the one hand and guaranteeing directors' natural justice when shareholders move to remove them on the other, but that tension is, I think, to be resolved in favour of the shareholders.
As Mr Donaldson submitted, directors and shareholders are in a contractual relationship the terms of which are contained in the constitution of the company. Subject only to the requirements of the law they are free to determine their own procedures for the removal of directors. The overriding interest of the Corporations Act in this regard, in my view, is to ensure that shareholders retain ultimate control of the company and the appointment or removal of directors. The purpose of s 203D, as with its statutory predecessors, is to give effect to that object by preventing directors becoming entrenched in their positions.
Thus the proper construction of section 203D(1) when it says that a public company may remove a director from office despite anything in the company's constitution is to take it as meaning notwithstanding any provision in the constitution which would prevent such removal, as in Taylor v McNamara (1974) 1 NSWLR 164.
I do not accept the submission of senior counsel for the plaintiffs that the introduction of the concept of replaceable rules by s 135 of the Corporations Act leads to any different conclusion.
A replaceable rule is a section or subsection of the Corporations Act the heading of which describes it as such, (s 135(1)). By s 135(2) a company's constitution can displace or modify a replaceable rule. Section 203C, which states that a private company may by resolution remove a director from office and appoint another person as director, is a replaceable rule. Section 203D, which deals with the removal of directors of a public company by members, is not.
What this means is that the constitution of a public company cannot displace or modify s 203D. A constitutional article which provides for an alternative means of removing a director does not in my view displace or modify s 203D. It still remains to fulfil its legislative function, namely, to ensure that despite the provisions of the constitution the shareholders will always retain the ultimate right to remove directors.
I reject the plaintiffs' submission that the defendant was obliged to proceed under and in compliance with s 203D of the Corporations Act. It was open to Boldbow to move under s 249F and article 21.8 and that is the course it chose.
Mr McCusker's next submission was that article 21.8 has not been complied with in any event in that it is the company which may remove a director and appoint another and only where the company has given notice to the director whose removal is proposed not less than five business days before notice of the meeting is despatched, and it is the company which is to convene the meeting. Here the company has given no such notice to the directors and it is not the company which is convening the meeting.
Mr Donaldson's first response to this is that the meeting has been called pursuant to s 249F of the Corporations Act and it is common ground that the requirements of that section have been (or, I assume, will be) complied with. He then says the power to remove the directors is to be found in article 21.8.
I accept Mr Donaldson's submission that if and when the meeting comes to be held and if the resolutions are passed, they would be passed by the company constituted by the shareholders in general meeting and it would matter not by whom the meeting was convened, provided of course it was convened in accordance with the constitution.
I do not accept that the power in article 21.8 to remove a director is available only where the company itself convenes a general meeting to consider such a resolution. There is no reason why it should not be available where a general meeting is called by a shareholder pursuant to s 249F.
As to the argument that there has been non‑compliance with article 21.8 in that the company has not given each of the directors whose removal is proposed the requisite 5 business days' notice of that proposal, Mr Donaldson makes a number of points. He submits it cannot be said the directors have been given no notice. They have been given some 6 weeks' notice by Boldbow and they have responded by writing to shareholders saying why they should not be removed. Boldbow could do no more to comply with article 21.8. The obligation is upon the company to give the notice. The company has not done that. The company now seeks to stymie the efforts of a shareholder, Boldbow, to remove directors by relying upon its own failure to do something only it could do. In my view there is merit in this submission.
I note s 203D(2) and (3) require that notice of intention to move the resolution must be given to the company at least 2 months before the meeting is to be held and that the company must give the director a copy of the notice as soon as practicable after it is received. Section 1322(2) of the Corporations Act provides as follows:
"A proceeding under this act is not invalidated because of any procedural irregularity unless the court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the court and by order declares the proceeding to be invalid."
I think strict compliance with the requirement would involve provision of a copy of the proposed resolution. That would be a normal and reasonable expectation. Although that appears not to have been done, it is clear from Allied's letter to shareholders in "HB1" that Allied and the individual directors were given notice by Boldbow of exactly what resolutions were proposed, had the opportunity to put their own representations before the shareholders and have in fact done so.
So far as is presently pertinent a reference to a procedural irregularity includes a reference to a defect, irregularity or deficiency of notice or time (s 1322(1)(b)(ii)). Section 1322(6) sets out certain requirements for making orders. Again so far as is relevant here, that provides:
"The court must not make an order under this section unless it is satisfied (a) in the case of an order referred to in paragraph (4)(a), (i) that the act, matter or thing or the proceeding referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly, or (iii) that it is just and equitable that the order be made, and (b) and (c) in every case that no substantial injustice has been or is likely to be caused to any person.
The declaration sought by the plaintiffs is that the notice convening the meeting is invalid. The plaintiffs have not in terms sought an order under section 1322(2) but if they had, I would not have been prepared to make such an order. In the circumstances as they have been put before me, I would not be of the opinion that the irregularity - that is, the failure of the company to give the directors 5 business days' notice - has caused or may cause substantial injustice, nor would I be satisfied that it would be just and equitable for such an order to be made.
I appreciate that Allied's solicitors wrote to FSPS (see in particular annexure "H" to Caruso's affidavit) requesting a draft copy of the notice of meeting prior to dispatch so that, inter alia, they could provide the requisite notice to the directors but in fact, as I have mentioned, they already had the necessary information, as had the company itself, and there was no reason the company could not have given formal notice to the directors if that was required.
I say "if that was required" because Mr Donaldson argued as FSPS had in their letter dated 21 June 2002, (annexure "I" to Caruso's affidavit), that assuming the notification requirements in article 21.8 applied to a meeting convened by a shareholder pursuant to s 249F, which was not conceded, those requirements were complied with by the delivery of their letter dated 6 June 2002 which was addressed to Allied's directors.
Given that the defendant now firmly puts its claim of authority to move the resolutions removing the directors on article 21.8, I would have thought it could hardly maintain it does not have to comply with the procedural requirements of that article. In my view, they must apply, but I do accept the submission that they were substantially complied with by Boldbow giving notice of its intention to move the resolutions.
As far as the making of the declaration sought is concerned, even though there has been a breach of article 21.8 it would, in my view, be unjust and inequitable to declare the notice of meeting invalid when the responsibility for the invalidity is that of the plaintiffs, and I would accordingly refuse the declaration in the exercise of my discretion.
For the foregoing reasons, I would dismiss the plaintiffs' application entitled Originating Process Seeking Injunctive Relief Pursuant to Section 1324 of the Corporations Act 2001 filed 19 July 2002.