Anglo Australian Resources N.L. v Bloom Financial Advice Pty Ltd [No 2]

[2019] WASC 480

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   ANGLO AUSTRALIAN RESOURCES N.L. -v- BLOOM FINANCIAL ADVICE PTY LTD [No 2] [2019] WASC 480

CORAM:   HILL J

HEARD:   17 DECEMBER 2019

DELIVERED          :   17 DECEMBER 2019

PUBLISHED           :   3 JANUARY 2020

FILE NO/S:   COR 232 of 2019

BETWEEN:   ANGLO AUSTRALIAN RESOURCES N.L.

Plaintiff

AND

BLOOM FINANCIAL ADVICE PTY LTD

First Defendant

PETER ANDREW STERN

Second Defendant

SUPERMAN INVESTMENTS PTY LTD

Third Defendant

LOIS LANE INVESTMENTS PTY LTD

Fourth Defendant

BRAHAM INVESTMENTS PTY LTD

Fifth Defendant

BRAHAM CONSOLIDATED PTY LTD

Sixth Defendant

A & R SUDWEEKS PTY LTD

Seventh Defendant

ANGELA AND JOSEPH CHRISTOPHER ORSARIS AND MARSILI

Eighth Defendant

C THWAITES PTY LTD

Ninth Defendant

D & P BUCKLEY PTY LTD

Tenth Defendant

PEGGY PATRICIA BUCKLEY

Eleventh Defendant

FE & RB PTY LTD

Twelfth Defendant

M & A ISAACS PTY LTD

Thirteenth Defendant

M & R HADDON PTY LTD

Fourteenth Defendant

MATTHEW LLOYD HADDON

Fifteenth Defendant

S LOADER PTY LTD

Sixteenth Defendant

SANDRA KAYE LOADER

Seventeenth Defendant

PA & RL WINES PTY LTD

Eighteenth Defendant

TERINGA GEORGE PTY LTD

Nineteenth Defendant

K & F FALCONER PTY LTD

Twentieth Defendant

KEITH WILLIAM FALCONER

Twenty First Defendant

MATTHEW STEPHEN WRIGHT

Twenty Second Defendant

ANDREW JAMES KIBBIS

Twenty Third Defendant

A KIBBIS SUPER PTY LTD

Twenty Fourth Defendant

BORIS AND BETTY PTY LTD

Twenty Fifth Defendant

CASEY WILLIAM MCGRATH

Twenty Sixth Defendant

DEMASIADO PTY LTD

Twenty Seventh Defendant

DOMINIQUE ALEXANDRA GAUCI

Twenty Eighth Defendant

WILLIAM LAMONT AND HAJIJAH AMORY

Twenty Ninth Defendant

CASSIE AMORY

Thirtieth Defendant

KAYE MARIA SHEPPARD

Thirty First Defendant

JOSHUA MARK TWELFTREE

Thirty Second Defendant

Catchwords:

Corporations law - Whether appointment of directors invalid due to material personal interest of existing directors - Whether effective ratification of commencement of proceedings - Whether stay of proceedings should be lifted

Legislation:

Corporations Act 2001 (Cth), s 195(1), s 1322(2)

Result:

Stay of proceedings lifted

Category:    B

Representation:

Counsel:

Plaintiff	:	M L Bennett
First Defendant	:	S K Dharmananda SC & A J Papamatheos
Second Defendant	:	S J Penrose
Third Defendant	:	S J Penrose
Fourth Defendant	:	S J Penrose
Fifth Defendant	:	D B Shaw
Sixth Defendant	:	D B Shaw
Seventh Defendant	:	No appearance
Eighth Defendant	:	No appearance
Ninth Defendant	:	No appearance
Tenth Defendant	:	No appearance
Eleventh Defendant	:	No appearance
Twelfth Defendant	:	No appearance
Thirteenth Defendant	:	No appearance
Fourteenth Defendant	:	No appearance
Fifteenth Defendant	:	No appearance
Sixteenth Defendant	:	R J Black
Seventeenth Defendant	:	R J Black
Eighteenth Defendant	:	No appearance
Nineteenth Defendant	:	No appearance
Twentieth Defendant	:	No appearance
Twenty First Defendant	:	No appearance
Twenty Second Defendant	:	No appearance
Twenty Third Defendant	:	No appearance
Twenty Fourth Defendant	:	No appearance
Twenty Fifth Defendant	:	No appearance
Twenty Sixth Defendant	:	No appearance
Twenty Seventh Defendant	:	No appearance
Twenty Eighth Defendant	:	No appearance
Twenty Ninth Defendant	:	No appearance
Thirtieth Defendant	:	No appearance
Thirty First Defendant	:	No appearance
Thirty Second Defendant	:	No appearance

Solicitors:

Plaintiff	:	Bennett + Co
First Defendant	:	DLA Piper Australia - Perth
Second Defendant	:	Tottle Partners
Third Defendant	:	Tottle Partners
Fourth Defendant	:	Tottle Partners
Fifth Defendant	:	Gandhi and Shaw
Sixth Defendant	:	Gandhi and Shaw
Seventh Defendant	:	In person
Eighth Defendant	:	In person
Ninth Defendant	:	In person
Tenth Defendant	:	In person
Eleventh Defendant	:	In person
Twelfth Defendant	:	In person
Thirteenth Defendant	:	In person
Fourteenth Defendant	:	In person
Fifteenth Defendant	:	In person
Sixteenth Defendant	:	Norton Rose Fulbright Australia
Seventeenth Defendant	:	Norton Rose Fulbright Australia
Eighteenth Defendant	:	In person
Nineteenth Defendant	:	In person
Twentieth Defendant	:	In person
Twenty First Defendant	:	In person
Twenty Second Defendant	:	In person
Twenty Third Defendant	:	In person
Twenty Fourth Defendant	:	In person
Twenty Fifth Defendant	:	In person
Twenty Sixth Defendant	:	In person
Twenty Seventh Defendant	:	In person
Twenty Eighth Defendant	:	In person
Twenty Ninth Defendant	:	In person
Thirtieth Defendant	:	In person
Thirty First Defendant	:	In person
Thirty Second Defendant	:	In person

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

Clamp v Fairway Investments Pty Ltd (1971-1973) CLC 40-077

Claremont Petroleum NL v Cummings (1992) 110 ALR 239; (1992) 9 ACSR 1

Cummings v Claremont Petroleum NL (1992) 9 ACSR 583

Danish Mercantile Co Ltd v Beaumont [1951] Ch 680

Massey (trading as Massey Bailey, Solicitors & Consultants) v Wales [2003] NSWCA 212; (2003) 57 NSWLR 218

McCarthy v Wheeler and Wongan Hotels Pty Ltd [1998] VSC 67

McEvoy v Body Corporate for No 9 Port Douglas Road [2013] QCA 168

Ox Operations Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (in liq) [2007] FCA 1221

Re North Eastern Insurance Co Ltd [1919] 1 Ch 198

HILL J:

(This judgment was delivered extemporaneously on 17 December 2019 and has been edited to correct matters of grammar and so as to include complete references in the form of footnotes).

1. On 12 December 2019, on the application of the second to fourth defendants, I ordered that these proceedings be stayed on the basis that Bennett + Co had not been properly authorised by the plaintiff to commence these proceedings. The basis for that decision was twofold: first, Mr Stern, a director of the plaintiff, had not been given notice of any directors' meeting and second, each of Mr Jones and Mr Smith had a material personal interest in the commencement of the proceedings and could not, by reason of s 195(1) of the Corporations Act 2001 (Cth), participate in any meeting that considered a resolution concerning the commencement of these proceedings.

2. On 13 December 2019, the plaintiff, by email to my associate, applied to lift the stay of these proceedings.  The basis for the application was that at a directors' meeting held on Friday, 13 December 2019, the directors of the plaintiff resolved to appoint two directors namely Mr Andrew Barclay and Mr Michael Hardisty, and that Mr Barclay and Mr Hardisty (with Mr David Varcoe abstaining) had resolved to authorise the commencement of these proceedings.

3. The application to lift the stay was opposed by the first to sixth and sixteenth and seventeenth defendants who asserted that:

   (a)the resolution to appoint Mr Hardisty and Mr Barclay as directors of the plaintiff was invalid as Mr Jones and Mr Smith had a material personal interest in this resolution;

   (b)Mr Hardisty and Mr Barclay had breached their directors' duties in resolving to ratify the commencement of these proceedings;

   (c)there had been no valid or effective ratification of the commencement of these proceedings.

Evidence before the court

1. In support of its application, the plaintiff relied on the sixth affidavit of Graeme Ian Smith sworn 13 December 2019, the affidavit of Andrew Christian Barclay sworn 16 December 2019 and the affidavit of Matthew David Hardisty sworn 16 December 2019.

2. The second to fourth defendants relied on the affidavit of Karen Louise Smith sworn 16 December 2019 which annexed a document purporting to be a transcript of the directors' meeting held 13 December 2019.  Initially, the plaintiff objected to Ms Smith's affidavit being read.  This objection was withdrawn after the second to fourth defendants agreed that the comments in square brackets in the document should be deleted.

Summary of facts

1. From these affidavits, it is clear that on 12 December 2019, a notice of meeting was emailed to each of the directors of the plaintiff giving notice that a meeting of directors would be held at 9.15 am on 13 December 2019. 

2. The notice of meeting specified that the resolutions to be considered at the meeting were:

   1.To consider the appointment of Mr Andrew Barclay and Mr Matthew Hardisty as directors or alternate directors to ensure shareholders' interests are protected.

   2.To consider and if thought fit to ratify the commencement of the proceedings in the Supreme Court COR 232 of 2019 and the appointment of Bennett + Co to represent the company so as to protect the position of the shareholders of the company.

3. The meeting of directors commenced at 9.34 am on 13 December 2019.  Each of the directors of the plaintiff, namely Mr Jones, Mr Varcoe, Mr Smith and Mr Stern, were present at the commencement of the meeting.

4. Mr Jones moved a resolution that Mr Andrew Barclay and Mr Matthew Hardisty be appointed as directors of the plaintiff.  Mr Jones and Mr Smith voted in favour of the resolution, Mr Varcoe abstained and Mr Stern voted against the resolution.  On this basis, Mr Jones declared the resolution passed.[1]

   [1] Affidavit of Karen Louise Smith filed 16 December 2019, p 7.

5. Mr Barclay and Mr Hardisty were then invited to join the meeting.  The next resolution was to consider the ratification of the commencement of these proceedings and the appointment of Bennett + Co to represent the plaintiff.  Each of Mr Jones, Mr Smith and Mr Stern declared they had a material personal interest in the resolution and left the meeting.[2]  Mr Barclay was appointed by the other directors to chair the meeting.  Mr Barclay stated that the purpose of the resolution or action was to protect shareholders' interests seeking an injunction to protect them from a change of control in the company through a change in the directorship of the company.  There was no other discussion in respect of the resolution.  Mr Barclay and Mr Hardisty voted in favour of the resolution; Mr Varcoe abstained.  On this basis the resolution was declared to have passed.[3]

   [2] Sixth Affidavit of Graeme Ian Smith filed 13 December 2019 [7.6].

   [3] Affidavit of Karen Louise Smith filed 16 December 2019, p 9.

6. Mr Barclay and Mr Hardisty have each sworn affidavits in support of the plaintiff's application. 

7. Mr Barclay is an experienced corporate solicitor having previously been a partner of Mallesons Stephen Jaques and in‑house counsel with Fortescue Metals Group Ltd and Roy Hill Holdings Pty Ltd.  Mr Barclay denied that he was 'simply doing the bidding of Mr Smith and Mr Jones' and testified that he acted with due care and diligence in resolving to ratify the commencement of these proceedings by the plaintiff.[4]

   [4] Affidavit of Andrew Christian Barclay filed 16 December 2019 [8.2] and [10].

8. Mr Hardisty is a chartered accountant by profession.  Mr Hardisty denied that he was 'simply doing the bidding of Mr Smith and Mr Jones' or that he has breached his fiduciary duties to the plaintiff.[5]

   [5] Affidavit of Matthew David Hardisty filed 16 December 2019 [6.1].

Validity of appointment of Mr Hardisty and Mr Barclay

1. The defendants contend that the appointments of Mr Hardisty and Mr Barclay were invalid as Mr Jones and Mr Smith had a material personal interest in the resolution to appoint them as directors.  In this regard, it was asserted that the resolution was passed with 'the interconnected purpose of ratifying an earlier invalid decision to commence proceedings to prevent their removal as directors'.[6]

   [6] First Defendant's Submissions filed 16 December 2019 [7a].

2. The plaintiff denies that Mr Smith and Mr Jones had a material personal interest in the appointment of Mr Barclay and Mr Hardisty as directors.  In this regard, the plaintiff submits that decisions may need to be made in connection with the general meeting to be held 20 December 2019 and that, prior to the appointment of Mr Barclay and Mr Hardisty, there was only one director of the plaintiff who did not have a material personal interest in considering any matter associated with the general meeting.  With the appointment of Mr Hardisty and Mr Barclay, there was now a quorum of directors to deal with any such issues.[7]

   [7] Plaintiff's submissions filed 16 December 2019 [10].

3. Counsel for the first defendant referred me to the decision of Re North Eastern Insurance Co Ltd.[8]  In that case, the court held that the resolutions passed at a meeting of directors were not valid as they were part of one transaction in which two of the four directors present at the meeting were jointly interested.  As a consequence, there was no valid quorum at the directors' meeting and the resolutions were invalid.

   [8] Re North Eastern Insurance Co Ltd [1919] 1 Ch 198.

4. The limits of this case were considered by Wilcox J in Claremont Petroleum NL v Cummings as follows:[9]

   So far as the question of quorum is concerned, the case illustrates the point that a quorum resolution may be infected by interest.  However, Lawrence J held that this was only the case where the resolution was passed for the sole purpose of procuring a substantive resolution in which a director had a financial interest.  Where the quorum resolution was one of general application, it was not rendered invalid by the mere circumstance that it would facilitate the adoption of a resolution in which a director was financially interested.  It seems to me that this distinction is sound.  While it is important to uphold the principle that what cannot be done directly may not be done indirectly, it is undesirable to apply that principle so widely as to invalidate resolutions in which no director has a financial interest.  As counsel point out, that would be the result, in the present case, of holding the 4 May quorum resolution invalid.  It appears that some subsequent resolutions, not involving the financial interests of any director, have been passed by two directors.

   The quorum resolution of 4 May 1989 is in general terms, intended to apply to all future resolutions until changed.  I hold, therefore, that it was valid, notwithstanding that its motivation and timing were linked to the proposed consultancy and motor vehicle agreements.

   [9] Claremont Petroleum NL v Cummings (1992) 110 ALR 239; (1992) 9 ACSR 1, 262.

5. This part of the decision was not the subject of appeal.  The Full Court commented on his Honour's reasons in Cummings v Claremont Petroleum NL as follows:[10]

   His Honour held that the resolution of the meeting of directors on 4 May 1989 that the quorum for a meeting of directors be reduced from three to two was valid and rejected the argument that Fuller and Cummings each had an interest in such a resolution so as to disqualify them from voting upon it.  But in respect of the resolutions of that meeting that the common seal of the company be affixed to agreements for the supply of consultancy services to Claremont by Fuller Services and Jurisprudence and to agreements for Claremont to provide motor vehicles for the use of Fuller and Cummings, his Honour held that each of those resolutions was invalid notwithstanding that Fuller and Cummings respectively did not form part of the quorum which voted on the particular resolution in which each held a direct interest.  His Honour found that the agreements were presented to the meeting, and dealt with thereafter, as a package of arrangements and that the relationship between Fuller and Cummings was such that in respect of each separate resolution by the directors of Claremont a quorum of disinterested directors was absent.  His Honour held that by virtue of the disability of Fuller and Cummings none of the agreements was binding on Claremont.  Those findings have not been challenged on this appeal and we agree with them.

   [10] Cummings v Claremont Petroleum NL (1992) 9 ACSR 583, 589.

6. The evidence before me is that the appointment of Mr Barclay and Mr Hardisty was of general application.  That is, they were not appointed solely to consider the second resolution and continue to be directors of the plaintiff.  On this basis, I do not consider that the resolution considering their appointment as directors was linked to the second resolution to be considered at the meeting or that Mr Jones and Mr Smith had a material personal interest in this resolution.  In addition, I do not consider that the resolution for the appointment of Mr Barclay and Mr Hardisty is rendered invalid because it would facilitate the adoption of a resolution in which Mr Jones and Mr Smith had a material personal interest. 

7. For these reasons, I find that the resolution to appoint Mr Barclay and Mr Hardisty as directors of the plaintiff was valid.

Alleged breach of duty by Mr Barclay and Mr Hardisty

1. The defendants contend it is arguable that Mr Barclay and Mr Hardisty have breached their fiduciary and statutory duties to the plaintiff on the basis that there was no evidence they properly considered the resolution to ratify the commencement of these proceedings, the proceedings provide no practical benefit to the plaintiff, and each of Mr Barclay and Mr Hardisty have connections to Mr Jones.  The defendants submit that these matters are relevant to the exercise of my discretion on whether to lift the stay.

2. The plaintiff denies that there has been any breach of duties by Mr Barclay and Mr Hardisty and rely on the evidence filed by each of them.  In this regard, Mr Barclay and Mr Hardisty specifically deny any breach of the duties that they owe the plaintiff and provide reasons as to why each voted in favour of the resolution. 

3. I note that it is not possible on an interlocutory application to attempt to resolve this factual dispute.  At its highest, the defendants contend that the directors may have breached their duties as directors; a contention which is specifically denied by the directors. 

4. The effect of s 1322(2) of the Corporations Act is that there is a presumption of validity to any proceeding under the Act including a meeting of directors.  This presumption is only displaced by an actual declaration of invalidity.  This is not a case where I consider there is a procedural irregularity in the holding of the meeting of directors and accordingly it is not necessary for me to consider whether the irregularity has caused substantial injustice to the defendants.

5. At present, there is no evidence before this court on which I could conclude at an interlocutory stage of proceedings that Mr Barclay and Mr Hardisty have breached their directors' duties and that the resolution is invalid.  For this reason, the resolution of directors is presumed to be valid. 

Decision to ratify the commencement of proceedings and appointment of Bennett + Co

1. The defendants contend that the resolution of the board of directors on 13 December is ineffective as there was no decision to be ratified as the previous meeting was inquorate.  In support of their position the defendants referred me to the decision of Holland J in Clamp v Fairway Investments Pty Ltd[11] which was followed by Hedigan J in McCarthy v Wheeler and Wongan Hotels Pty Ltd.[12]

   [11] Clamp v Fairway Investments Pty Ltd (1971-1973) CLC 40-077.

   [12] McCarthy v Wheeler and Wongan Hotels Pty Ltd [1998] VSC 67 [35].

2. The plaintiff submitted that the question as to whether the directors could ratify the previous conduct depended on the act that was sought to be ratified.  The plaintiff drew a distinction between the ratification of a previous resolution of directors at an inquorate meeting and the ratification of a decision to commence proceedings in this court. 

1. In my view this distinction is an important one.  The issue for my consideration is whether the act falls within the authority of the directors.  If an act falls within the authority of directors, it is open for a properly constituted meeting of directors to ratify the act.  However, a resolution passed at a meeting at which there is no quorum is a nullity.  As such, there is nothing to ratify and any resolution purporting to be a ratification can only operate as a fresh decision.[13]

   [13] Clamp v Fairway Investments Pty Ltd; McCarthy v Wheeler and Wongan Hotels Pty Ltd [35].

2. In Massey (trading as Massey Bailey, Solicitors & Consultants) v Wales,[14] the NSW Court of Appeal considered whether a general meeting of shareholders can authorise the commencement of legal proceedings that had previously been commenced.  Hodgson JA (with whom Meagher JA and Beasley JA agreed) held that where proceedings are commenced in the name of the plaintiff without proper authority, it is a nullity and can be stayed at any time.[15]  It is, however, open at any time to the purported plaintiff to ratify the act of the solicitor who started the action and to adopt the proceedings.  When that has been done, in accordance with the ordinary law of principal and agent and in accordance with the ordinary doctrine of ratification, the defect in the proceedings as originally constituted is cured.[16]  Specifically, the NSW Court of Appeal held in that case that the general meeting of shareholders did not have power to ratify the commencement of legal proceedings; this decision concerned the management of the company which, pursuant to the articles of association, was vested in the directors.[17]

   [14] Massey (trading as Massey Bailey, Solicitors & Consultants) v Wales [2003] NSWCA 212; (2003) 57 NSWLR 218.

   [15] Massey (trading as Massey Bailey, Solicitors & Consultants) v Wales [55] ‑ [59].

   [16] Danish Mercantile Co Ltd v Beaumont [1951] Ch 680.

   [17] Massey (trading as Massey Bailey, Solicitors & Consultants) v Wales [23].

3. The issue was also considered by Finkelstein J in Ox Operations Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (in liq).  His Honour stated:[18]

   The usual course when a company is improperly made a plaintiff is to stay or dismiss the action and require the solicitor who purported to act for the company to pay the costs.  The cases also show that the action though brought without authority is not a nullity in the sense that it is void ab initio without the possibility of subsequent ratification.  To the contrary, it is well established that it is possible for the company to ratify the unauthorised act of the solicitor in bringing an action in its name without its actual or implied authority.  And, because ratification is possible, a practice has developed that when an action is brought without authority it will not be stayed or dismissed forthwith, but the company will be permitted to convene a general meeting or a meeting of its directors to consider whether to adopt the action.  (citations omitted)

   [18] Ox Operations Pty Ltd v Land Mark Property Developments (Vic) Pty Ltd (in liq) [2007] FCA 1221 [2].

4. A similar approach was adopted by the Queensland Court of Appeal in McEvoy v Body Corporate for No 9 Port Douglas Road.[19]

   [19] McEvoy v Body Corporate for No 9 Port Douglas Road [2013] QCA 168 [28] ‑ [32].

5. On the basis of these authorities, I consider that it was open to the directors of the plaintiff to ratify the unauthorised act of Bennett + Co in commencing these proceedings in the name of the plaintiff without authority. 

6. In this case, the resolution of the directors of the plaintiff was not to ratify the decision of the inquorate meeting.  Rather it was 'to ratify the commencement of the proceedings in the Supreme Court COR 232 of 2019 and the appointment of Bennett + Co to represent the company'.

7. In my view, the resolution that was passed sufficiently manifested an intention to ratify the commencement of the proceedings and the authorisation of Bennett + Co to represent the company.  I do not accept the submission of the second to fourth defendants that the resolution was defective.

8. For these reasons, it is appropriate that the stay that I ordered on 12 December 2019 be lifted. 

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

MG
Research Orderly to the Honourable Justice Hill

3 JANUARY 2020