Australian Karting Association Ltd v Karting (NSW) Incorporated

[2021] NSWSC 1075

Supreme Court

New South Wales

Medium Neutral Citation:

Australian Karting Association Ltd v Karting (NSW) Incorporated [2021] NSWSC 1075

Hearing dates:

16 August 2021

Decision date:

25 August 2021

Jurisdiction:

Common Law

Before:

Adamson J

Decision:

(1)   Judgment for the defendant on the plaintiff’s claim.

(2)   Judgment for the cross-claimant on the cross-claim, together with interest calculated from 11 October 2018 to the date of these orders.

(3)   Direct the parties to provide short minutes of order within seven days which set out the judgment sum together with interest calculated by reference to order (2) above.

(4)   Unless either party makes a written application to my Associate for a different order within seven days, order the plaintiff to pay the defendant’s costs of the proceedings, including the cross-claim.

Catchwords:

CONTRACTS — Whether accelerated payments and back-dated interest clauses of loan agreement amount to a penalty — Alleged default that the defendant ceased to be an Ordinary Member of the plaintiff — Provisions used to punish the defendant — Terms unenforceable as penalty

CONSUMER LAW — Unconscionable conduct — s 21 of the Australian Consumer Law — Plaintiff using powers to remove defendant who challenged its administration of trust — Trustee’s persistent misrepresentation of the legal position to defendant unconscionable

EQUITY — Trusts and trustees — Discretionary trust — Trustee’s powers to pay out capital and make distributions of trust property — Trust recorded income from interest and driver levies which it credited to the beneficiaries’ loan accounts — Allocation of trust property to the beneficiary’s loan account created a bare trust in favour of the beneficiary in the amount set out in loan account — Repayable on demand by the beneficiary — Beneficiary can bring a common law action for money had and received when a trustee admits a debt to the beneficiary in its financial statements

COMMERCE – money claims – money had and received — Defendant claimed the return of monies standing to its credit in loan accounts recorded in the plaintiff’s financial statements — Plaintiff contended that monies remained part of the trust property – Defendant’s cross-claim established

CORPORATIONS — Meeting of members — Validity of Special General Meeting — Not necessary to decide whether the Special General Meeting complied with requirements in the Constitution

Legislation Cited:

Corporations Act 2001 (Cth), ss 203D, 249F, 1305

Australian Consumer Law, s 21

Cases Cited:

Adams v AlemiteLubrequip Pty Ltd [1994] NSWCA 1

Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 213; [2016] NSWCA 328

Australian Competition and Consumer Commission v Medibank Private Ltd (2018) 267 FCR 544; [2018] FCAFC 235

Australian Securities and Investments Commission v Rich [2009] NSWSC 1229; (2009) 236 FLR 1

B.P. Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266

Chianti Pty Ltd v Leume Pty Ltd (2007) 35 WAR 488; [2007] WASCA 270

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; [1982] HCA 24

Edwards v Lowndes (1852) 1 El & Bl 81; 118 ER 367

Fischer v Nemeski (2016) 257 CLR 615; [2016] HCA 11

H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957] 1 QB 159

Hawkesley v May [1956] 1 QB 304

Hawkins v Clayton (1988) 164 CLR 539; [1988] HCA 15

Kellas-Sharpe v PSAL Ltd [2013] 2 Qd R 233; [2012] QCA 371

MYT Engineering Pty Ltd v Mulcon Pty Ltd (1997) 140 FLR 247

Olsson v Dyson (1969) 120 CLR 365; [1969] HCA 3

Roxborough v Rothmans of Pall Mall Australia Limited (2001) 208 CLR 516; [2001] HCA 68

Saunders v Vautier (1841) 49 ER 282

Category:

Principal judgment

Parties:

Australian Karting Association Ltd (Plaintiff / Cross-Defendant)
Karting (NSW) Incorporated (Defendant / Cross-Claimant)

Representation:

Counsel:
J Gooley (Plaintiff / Cross-Defendant)
S Snow (Defendant/ Cross-Claimant)

Solicitors:
Simpson & Philips Solicitors (Plaintiff / Cross-Defendant)
Johnson Winter & Slattery (Defendant / Cross-Claimant)

File Number(s):

2019/57852

Judgment

Introduction

1. The disputes between the parties arise against the background where the plaintiff, Australian Karting Association Ltd (Karting Australia), is the Australian body responsible for promoting the sport of karting in Australia and the defendant, Karting (NSW) Incorporated (Karting NSW), was, until 21 January 2019 when Karting Australia purported to expel it as an Ordinary Member, the NSW entity responsible for promoting the sport and conducting karting races in New South Wales and the Australian Capital Territory.

2. By statement of claim filed on 21 February 2019, Karting Australia claims monies said to be outstanding pursuant to three loan agreements with Karting NSW. Karting NSW defended Karting Australia’s claim on the basis that it was not in default of the loan agreements as Karting Australia had not validly expelled it as an Ordinary Member. Further, it argued that the terms for accelerated payment and interest in the loan agreements amounted to penalties and were therefore unenforceable. It also argued that Karting Australia’s conduct was unconscionable and that, accordingly, these provisions of the loan agreements ought not be enforced.

3. By cross-claim filed on 5 September 2019, Karting NSW claimed the return of monies which comprised driver levies which Karting NSW had, since prior to 2005, been obliged to collect on behalf of Karting Australia and its predecessor, Australian Karting Association Incorporated (AKA Inc). Karting NSW alleged that because, at the end of each financial year, Karting Australia had allocated these amounts in its financial statements to a loan account in favour of Karting NSW, the monies amounted to unpaid distributions under a trust created in 2005. In response, Karting Australia contended that no monies had ever been distributed under the trust and that, accordingly, the monies claimed remained part of the trust property.

The facts

4. Before turning to the evidence of witnesses, I propose to consider the relevant documents, both the transactional documents and the business records.

The background to the trust

5. Karting Australia tendered the minutes of the annual conference of AKA Inc, which took place on 13 August 1994. The minutes recorded that, relevantly, the following motions were carried: first, that AKA Inc set up a National Trust Fund on a trial basis for two years from 1 January 1995; and, secondly, that the income received by AKA Inc from the National Trust Fund be recorded monthly on a State by State basis with the Secretariat reporting to the National Karting Council (NKC) of AKA Inc on an annual basis on the funds collected.

6. It was common ground that Karting NSW and the other State karting associations formed the Track Development Fund, which was a collective fund financed by contributions from each member State of driver levies. The fund was used for the purposes of local track development through loans which were made by the fund to particular clubs. For many years, this arrangement remained informal. The practice was for State karting associations to remit driver levies into a designated bank account. On 24 November 2002, the NKC met and resolved to establish a discretionary trust known as the Track Development Fund, which would be subject to a Trust Deed. This did not occur until 2005.

The Trust Deed

7. On 21 October 2005, a discretionary trust, the AKA Track Development Fund Trust (the trust), was created of which AKA Inc was the trustee. The members of AKA Inc, which included Karting NSW and the other State karting associations, were specified as the Corpus and Specified Beneficiaries. The “Discretionary Class” was defined as the Specified Beneficiaries, the Corpus Beneficiaries and their lawful successors. The “Date of Vesting” was, relevantly (no date having been specified in the Schedule), 21 years “from the death of the last lineal descendant now living of his late Majesty King George IV”, or an earlier date which the trustee may appoint in writing. It was common ground that the trustee had not appointed an earlier date.

8. Clause 6 of the Trust Deed conferred extensive powers on the trustee, including powers to borrow, lend or guarantee (cl 6(b)) and to “appropriate assets” (cl 6(n)). The power to appropriate assets was to be exercised as follows:

“… by setting apart or crediting in the books or accounts of the trust any sum in or towards the satisfaction of any share whether vested or contingent to which any person may be entitled in the Trust Fund …”

9. Pursuant to cl 7 of the Trust Deed, the Trustee was also entitled to “pay to any one or more members of the Discretionary Class, or apply or settle on trust, for their benefit, the whole or any part of the Trust Fund.”

10. Clause 15 of the Trust Deed relevantly provides:

“15   Distribution

(a)    The Trustees shall hold the Trust Fund or such parts of the Trust Fund as have not been appropriated or distributed and which have not been vested absolutely; and

i)    Discretions

shall pay or apply or appropriate the whole or such part of the income of the Trust Fund and in such manner and at such times as the Trustees shall in their absolute discretion think fit to or for the benefit of one or more of the members of the discretionary class and if the Trustees shall think it desirable unequally between the members of such class or for or towards the maintenance, support, education, or benefit, of such one or more to the exclusion of the other or others of such members as the Trustees shall in their absolute discretion determine.

…

(b)   Vesting of Corpus

At the date of vesting the Trust Fund then held by the Trustees shall be held as to both capital and income upon trust for the corpus beneficiaries in the proportions set out in the Schedule.”

11. The Schedule to the Trust Deed provides that the settled sum is $1. As to “vesting of corpus”, it provides:

“The capital and income of the Fund is held on trust for the beneficiaries in the proportions contributed by the beneficiaries, by way of payment of levy or other charge for the specific purpose of the object known as Track Development.”

12. It was common ground that, on 12 November 2013, Karting Australia took over from AKA Inc as trustee.

The trust’s financial statements

13. Since the creation of the trust, the trustee has received money collected by its beneficiaries, the State karting associations, on which it has earned interest. The first accounts of the trust which are in evidence are the financial statements for the year ended 31 December 2006. They are referred to in more detail below. However, they record that for the previous year ended 31 December 2005, the balance of Karting NSW’s “loan account” was $230,374. This sum was described as “Capital Contributed”. The same description was applied to the sums for each of the other State entities. The blanks in other lines are consistent with the new system of dealing with the matter (from the financial year commencing 1 January 2006) by reference to the Trust Deed. I infer that the funds which had been held pursuant to the informal arrangement referred to above, which had been in place since 1 January 1996, were paid to AKA Inc. These funds, in the accounts of the trustee (AKA Inc and, subsequently, Karting Australia) from at least 1 January 2006, were treated as comprising loans to beneficiaries. From the outset, the net assets of the trust reported in its balance sheet was $1. Thus, it is plain from the balance sheet that the initial capital contributions were not treated as assets of the trust.

14. Every year, the trustee deducted from its receipts and income (which comprised the driver levies and interest on deposits) the expenses which it incurred and credited these amounts to the State karting associations. The monies were not actually paid to the State karting associations. Instead, the trustee increased their loan accounts, based on their respective contributions.

15. As referred to above, Karting NSW’s cross-claim is an action for money had and received against Karting Australia, as trustee, for the monies distributed to Karting NSW, but not yet paid. In order to address Karting NSW’s cross-claim, it is necessary to address the financial statements of AKA Inc and Karting Australia since the creation of the trust.

16. As the trust was created in 2005, it is necessary to start from the accounts that post-date the creation of the trust. It was common ground that AKA Inc was the trustee of the trust from its creation until November 2013 when it was replaced as trustee by Karting Australia.

The year ended 31 December 2006 (the first year after the creation of the trust)

17. The financial records of AKA Inc for the year ended 31 December 2006 recorded the following:

Total Equity (total assets minus total liabilities)	Total Liabilities	Net Profit Available for Distribution	Closing Retained Profits
$1	$747,805.44 (current liabilities, described in the balance sheet as “Beneficiaries Funds”)	$26,739.87	Nil (as net profit distributed to beneficiaries)

18. The assets of AKA Inc comprised cash at bank, trade debtors, other debtors and “loans at call - secured”. The amount for “loans at call - secured” was $155,840 which comprised the total of various loans which the trustee had made to karting clubs throughout Australia. The total figure for liabilities of $747,805.44 comprised the net figure for the “Beneficiaries Accounts” (in the notes to the accounts under the heading, “Movement in Beneficiaries’ Loan Accounts”), which was derived from the opening balance (from the previous year) to which was added an amount for “Driver Levy & Royalties” and “Share of Profit”. The figure for Karting NSW’s account for the year ended 31 December 2006 was $261,731.91, which comprised approximately one third of the total figure for “Beneficiaries Accounts”.

19. A person authorised by AKA Inc signed the accounts of the trust on 21 March 2007. The form of the declaration was as follows:

“The trustee of the trust declare that:

1.    The financial statements and notes, as set out on pages 1 to 6 present fairly the trust’s financial position as at 31st December 2006 and its performance for the year ended on that date in accordance with the accounting policies described in Note 1 to the financial statements;

…”

20. The trust’s accounts were subject to independent audit by Mr Walsh of G J Walsh & Co, who gave an unqualified audit opinion in respect of those accounts in the following terms:

“In our opinion, the financial report presents fairly, in accordance with the accounting standards and other mandatory professional reporting requirements and statutory requirements in Australia the financial position of Australian Karting Association Inc as trustee for the AKA Track Development Fund as at 31st December 2006, and the results of its operations and its cash flows for the year then ended.”

21. Although the wording of these declarations and opinions changed slightly over the years, it was not suggested that these changes were material.

The year ended 30 June 2009

22. The accounts for the year ended 30 June 2009 were in similar form to those considered above (assets of $1 and no retained profits). By that time, the total figure for current liabilities was $999,615.51, of which AKA Inc’s liability to Karting NSW amounted to $341,164.42. The figure of $341,164.42 comprised an opening balance from the previous year of $315,256.24 to which was added “Driver Levy & Royalties” of $16,911.73 and “Share of Profit” of $8,996.45. For this financial year, the declaration, which was made on 18 August 2009, was not expressed to be made by the “trustee”, but rather by the “directors of the trustee company”. The declaration was expressed to be “made in accordance with a resolution of the Board of Directors of the trustee company”. Once again, Mr Walsh gave an unqualified audit opinion in respect of these accounts.

The year ended 30 June 2010

23. The accounts for the year ended 30 June 2010 were in similar form to those considered above (assets of $1 and no retained profits). By that time, the total figure for current liabilities was $1,081,973.48, of which AKA Inc’s liability to Karting NSW pursuant to the loan account amounted to $361,857.14. The figure of $361,857.14 comprised an opening balance from the previous year of $341,164.42 to which was added “Driver Levy & Royalties” of $19,112.16 and “Share of Profit” of $1,580.56. On 13 August 2010, the directors of AKA Inc made a similar declaration to the one they had made the previous year. On the same day, Mr Walsh gave an unqualified audit opinion in respect of AKA Inc’s financial statements for the year ended 30 June 2010.

The year ended 30 June 2011

24. The accounts for the year ended 30 June 2011 were in similar form to those considered above (assets of $1 and no retained profits). By that time, the total figure for current liabilities was $1,189,970.11, of which AKA Inc’s liability to Karting NSW amounted to $396,997.56. The figure of $396,997.56 comprised an opening balance from the previous year of $361,857.14 to which was added “Driver Levy & Royalties” of $32,853.52 and “Share of Profit” of $2,286.90. On 19 August 2011, the “trustees” made a similar declaration to the one that was made the previous year, but it was said to have been made in accordance with a “resolution of the trustees”. This declaration was signed by five people, including Mrs Pam Arnett, who was then the National Secretary of AKA Inc. I accept Mrs Arnett’s evidence that she realised that it was an important matter to make such a declaration and that she would not have signed the declaration had she not believed the declaration to be true and correct. Also on 19 August 2011, Mr Walsh gave an unqualified audit opinion in respect of AKA Inc’s financial statements for the year ended 30 June 2011.

Further financial years

25. For each ensuing year the trust’s total equity was $1; the closing retained profit was nil; and the correctness of the financial statements was the subject of a declaration by the directors of the trustee and an unqualified audit opinion. The relevant figures for the ensuing years can be summarised in the following table:

Financial period	Liabilities comprising loans to beneficiaries	Portion of total liabilities owed to Karting NSW	Karting NSW’s share of the trustee’s profit for that year
Half year to 31.12.11	$1,200,561.96	$400,198.51	$1,354.45
Year to 31.12.12	$1,229,311.37	$409,122.43	$4,055.42
Year to 31.12.13	$1,350,405.02	$443,531.07	$4,718.68
Year to 31.12.14	$1,479,261.21	$484,423.97	$3,857.23
Year to 31.12.15	$1,613,385.95	$522,982.31	$3,662.34
Year to 31.12.16	$1,735,341.76	$558,773.79	$4,264.48
Year to 31.12.17	$1,844,086.69	$588,959.11	$4,154.32
Year to 31.12.18	$1,943,485.69	$616,065.06	$4,525.95
Year to 31.12.19	$2,009,493.33	$617,110.70	$1,045.64
Year to 31.12.20	$2,004,629.17	$602,509.69	($14,601.01)

26. I have included the figures for the last two financial years since they were in evidence but I note that Karting NSW’s cross-claim is limited to a claim for monies had and received by Karting Australia up to and including 11 October 2018. On that date Karting NSW demanded the amount of $616,065.06. It claims interest at court pre-judgment interest rates on that sum.

Changes to the wording of the accounts

Year ended 31 December 2014

27. The form of the accounts for the year ended 31 December 2014 changed somewhat. The loans to beneficiaries, which had formerly been described as “current liabilities” were reclassified (without explanation) as “non-current liabilities”. Under the heading “Beneficiaries Profit Distribution Summary”, the following note appeared:

“BENEFICIARIES SHARE OF PROFIT

The beneficiaries share the profit in the proportions contributed by the beneficiaries by way of payment of levy or other charge for the specific purpose of the object known as track development

The beneficiaries share in the net income generated from sources other than those imposed on the beneficiaries, primarily interest received less expenses, in proportions based on the prior year closing balances.”

28. Further, there was a new note 1 to the accounts, under the heading “Summary of Significant Accounting Policies”, which read:

“k.  Beneficiary Loans

The capital and income of the Fund is held on trust for the beneficiaries in the proportions contributed by the beneficiaries, by way of payment of levy or other charge for the specific purpose of the object known as Track Development.”

29. This note accorded with the way Karting Australia put its case in this Court. Karting NSW submitted that the note was incorrect as a matter of law and that the loan accounts to beneficiaries amounted to distributions from the trust which were accessible by the beneficiaries at any time on demand or recoverable in an action for monies had and received within the principles enunciated in Fischer v Nemeski (2016) 257 CLR 615; [2016] HCA 11 (Fischer). Alternatively, Karting NSW submitted that the note could only refer to the capital of the trust (which remained at the end of each financial year at $1) and to undistributed income (of which there was none, since all income had been distributed to the beneficiaries, by crediting their loan accounts).

30. Note 1(k) to the accounts for the year ended 31 December 2014 (extracted above) is to be contrasted with note 8(a), “Financial Liabilities”, which said:

“The beneficiary loans are the result of the income distributed to the beneficiaries but not yet paid.”

31. Karting NSW submitted that this note correctly states the legal position.

Year ended 31 December 2015

32. Changes were made to the notes for the year ended 31 December 2015. What had been “BENEFICIARIES SHARE OF PROFIT” in the previous year was changed to read as follows:

“BENEFICIARIES ACCUMULATION

The beneficiaries accumulate the income generated from driver levies charged for the specific purpose of the object known as track development, in the proportion to the amount contributed by each beneficiary.

The beneficiaries accumulate the net income generated from sources other than those imposed on the beneficiaries, primarily interest received less expenses, in proportions based on the prior year closing balances.”

33. Under note 1, “Summary of Significant Accounting Policies”, the following note appeared:

“k.  Beneficiary Accumulation

The capital and income of the Fund is held on trust for the beneficiaries until the Date of Vesting as detailed in the Trust Deed of the Trust.”

34. As is evident from what is set out above, this note accords with Karting Australia’s case at trial on the cross-claim and is at odds with what Karting NSW submitted was the correct legal position. Note 8(a), as set out above for the previous financial year, was in the same form for the year ended 31 December 2015 and accords with Karting NSW’s case at trial on the cross-claim.

35. The notes continued in a similar form in the ensuing years. The trustee’s declaration as to the correctness of the financial statements, and the unqualified audit opinion, for the year ended 31 December 2018 was signed on 24 April 2019, approximately three months after the purported expulsion of Karting NSW as an Ordinary Member (see below).

Year ended 31 December 2019

36. For the financial year ended 31 December 2019, the loans to beneficiaries, which had previously been described as “liabilities” or “financial liabilities” in the balance sheet, were described as “Beneficiary Accumulations”. However, their overall classification as liabilities in the balance sheet remained unchanged. The notes to the accounts were as set out above for the immediately previous years.

Year ended 31 December 2020

37. The notes for the trust’s financial statements for the year ended 31 December 2020 included the following note under “Expenses” (which included an amount of $78,846.97 for legal expenses):

“The Trust has continued to incur significant legal costs during the year as it deals with issues associated with the expulsion of Karting (New South Wales) Inc (KNSW) in 2019. Legal proceedings to recover loan funds and accrued interest related to loans made by the Trust to clubs affiliated with KNSW have been delayed as a result of a cross claim made by KNSW for more than $600,000 of Trust funds.

The majority of the expenses have been incurred in defending the claim made by KNSW for Trust funds in order to protect the funds held in the Trust for the benefit of ALL beneficiaries of the Trust and to uphold the intention and Purpose of the Trust as the Trustee is duty bound to do.”

38. The notes to the financial statements indicated that the total amount of loans made by the trustee to karting clubs throughout Australia was $299,052.28, which comprised loans to four clubs in New South Wales (Coffs Harbour, Combined Districts, North Shore and Tamworth), which totalled less than $80,000; one loan to the Go Kart Club of South Australia; loans to four clubs in Victoria (Albury Wodonga, Eastern Lions, South West and Goulburn Valley) and one loan to a club in Western Australia (Midwest). There were no loans to clubs in Queensland, Tasmania, the Australian Capital Territory or the Northern Territory. The figure for total loans to beneficiaries of $299,052.28 was to be contrasted with the total figure for the loan accounts from the beneficiaries, which, by this time, amounted to $2,004,629.17.

Karting NSW’s financial statements

39. Karting Australia tendered Karting NSW’s special purpose financial report for the year ended 30 June 2018. Ms Meyer (formerly Alsters), Karting NSW’s only lay witness, accepted that the financial statements attached to the report did not have an entry which corresponded with the liability figure in Karting Australia’s balance sheet which was referable to Karting NSW’s contributions to the trust. She explained that, at the time the accounts were prepared and declared to be correct, Karting NSW had not been provided with an executed copy of the Trust Deed (and therefore did not appreciate the correct legal position).

40. I do not regard what was contained in Karting NSW’s financial statements as bearing on the issue of the correct characterisation of the sums which Karting NSW had paid to AKA Inc and Karting Australia over the years. A trustee has fiduciary duties to identify the beneficiaries and inform them of the property held on their behalf and their entitlement to money in the hands of the trustee: Hawkesley v May [1956] 1 QB 304. If the beneficiary misapprehends the character or amount of monies or property to which it is entitled (and this misapprehension is reflected in the beneficiary’s financial statements), this cannot be held against the beneficiary by the trustee. In effect, the trustee is not permitted to profit from its own breach, as was held, in a different context, in Hawkins v Clayton (1988) 164 CLR 539 at 590 by Deane J; [1988] HCA 15.

Karting Australia’s constitution

41. Karting Australia’s constitution (the Constitution) commenced with a “Vision Mission Statement” which includes the following purpose:

“To promote, protect, administer and develop the sport of karting for all participants.”

42. The Constitution includes provisions for rules. Rule 2.2 provides that “Ordinary Members are the state and territory associations who have executed a Memorandum of Understanding under clause 8.5 herein.” It also provides that such members have a right to vote as well as be given notice of, and be heard at, a General Meeting. Rule 3(b) provides that a member ceases to be a member if “expelled for misbehaviour or being not of a fit and proper character to remain a member pursuant to the powers set out under rule 6”.

43. Rule 6, which provides for the discipline of members by the Board, contains an exception for Ordinary Members and provides that Ordinary Members may only be fined, suspended or expelled by a vote taken at a general meeting of Karting Australia. Because of its importance to Karting Australia’s claim with respect to the third loan agreement, it is necessary to set out r 6 in full:

“Discipline of Members

(a)    The Board may discipline a member of [Karting Australia] by:-

(i)    expelling the member; or

(ii)    warning the member that it may be expelled if it continues to act in the specified manner of which it disapproves; and/or

(iii)    fining the member up to a maximum of $500, such sum to be indexed …; and/or

(iv)    suspending the member.

(b)    If a motion is proposed at a meeting of the Board for the disciplining of a member the Chairman shall first put a motion that the member be called upon to explain its conduct to the Board.

(c)    If that motion is carried by a simple majority of those present and voting, the motion for the disciplining of the member must be adjourned to a meeting not less than fourteen days later.

(d)    The member named in the motion must be given notice by delivering to its contact address in the Register of Members:-

(i)    of the conduct complained of; and

(ii)    that the member is entitled to present oral or written evidence or arguments to the Board at a meeting on a given date.

(e)    At the later meeting, the Board must:

(i)    give the member, if requested, the opportunity to be heard; and

(ii)    consider any written document presented by the member or on its behalf.

(f)    The Board may then, by a majority of its members, determine:-

(i)    whether to discipline the member; and

(ii)    the penalty.

(g)    A decision of the Board in accordance with the procedure set out above to discipline a member and to impose a penalty is final and no appeal to a General Meeting is permitted.

(h)    The disciplinary powers contained in this Rule are separate from any disciplinary powers exercised under the competition rules of [Karting Australia].

(i)    This Rule does not authorise the Board to fine, suspend or expel an ordinary member. An ordinary member may only be fined, suspended or expelled by a vote taken at a general meeting of [Karting Australia].”

44. Rule 8.1 provides for the Board’s powers, which include the power to issue licences to drivers and permits to organisers (r 8.1(e)), and the imposition of levies (r 8.1(f)). Rule 8.4 empowers Karting Australia to allocate to Ordinary Members responsibilities in various areas, including “remittance of monies collected on behalf of [Karting Australia]”: r 8.4(e). Rule 21 provides for Special General Meetings and relevantly provides:

“A general meeting of [Karting Australia] may be called only in accordance with the provisions of division 2 of Part 2G.2 of the Corporations Act, 2001, save and except that:

(a)    the number of members required to call a meeting for the purposes of section 249D of the Act is 20% of the total number of voting members of [Karting Australia] …”

45. Provision is made for a quorum in r 25 and for proxies in r 26. Rule 27 provides that all decisions at General Meetings (other than certain irrelevant exceptions) are decided by simple majority of votes cast.

The loan agreements

46. From time to time, Karting Australia advanced funds to the State karting associations for the benefit of particular karting clubs within the corresponding State or Territory. These loans were the subject of written loan agreements. The following three loans are the subject of Karting Australia’s claim in the proceedings.

Loan agreement / club	Lender / Borrower / Guarantor	Date entered into / period of loan	Principal Advanced / date advanced	Principal outstanding	Amount of interest claimed to be outstanding
1/Tamworth Club	AKA Inc/ Karting NSW/ Tamworth Club	22 April 2010 / 120 months (10 years)	$100,000 / 18 May 2010	Nil (repaid in full on 17 May 2020)	$40,873.89 as at 17 May 2020
2/Coffs Harbour Club	AKA Inc/ Karting NSW/ Coffs Harbour Club	14 May 2012 / 10 years less one month	$100,000 / 14 May 2012	Nil (repaid in full on 21 January 2021)	$35,162.67 as at 21 January 2021
3/Combined Districts	Plaintiff/Karting NSW and Combined Districts Club/ no guarantor	20 September 2016 / 120 months (10 years)	$100,000 / 17 February 2017	$54,999.64 (as at 19 July 2021)	$26,792.00 as at 17 May 2020

The terms of the first two loan agreements

47. The benefit of the first two loan agreements (for which AKA Inc was the lender) was assigned by AKA Inc to Karting Australia by deeds of assignment dated 16 May 2014.

48. The terms of the first and second loan agreements were relevantly similar. The parties to the loan agreements were said to be the lender (being the party in item 2 of the Schedule), the borrower (being the party in item 3 of the Schedule) and the guarantor (being the party in item 8 of the Schedule). As is evident from the table set out above, in each of the first two loan agreements, the lender was AKA Inc.

49. Each loan agreement provided that interest was payable on the Principal Sum. However, interest was postponed as long as there was no breach of any term or condition of the loan agreement. In the event of breach, any amount outstanding together with interest accrued became immediately due and payable. Clause 5 made provision for repayment by instalments on particular dates set out in the schedule. Clauses 6, 7 and 8 relevantly provided:

“6    INTEREST

The Borrower shall pay interest on the Principal advanced to the Lender as and from the date and at the rate specified in Item 7 and such interest shall accrue from the date of this Agreement until the Principal is fully repaid. Provided that the Borrower and the Guarantor, jointly and severally, do not breach the provisions of this Agreement, then the Lender shall waive its right to interest as provided for in this clause 6.

7    EVENTS OF DEFAULT

The Borrower shall at the option of the Lender be immediately in default upon the occurrence of any of the following events:-

(a)    If there is default in the performance of any term, agreement or condition contained in or implied by this Agreement, the Security or any other collateral document or security;

…

(h)    If the Borrower or the Guarantor ceases to be an Affiliate of the Lender.

A determination by the Lender that any of these events has occurred shall be final and binding on the Borrower. ·

8    RIGHTS UPON DEFAULT

(a)    At anytime after default the Lender may in its absolute discretion but without any obligation to do so:-

(i)    cancel the loan and require payment of the Principal and recover the Principal from the Borrower and/or Guarantor;

…”

50. The word, “Affiliate” in cl 7(h) above was defined in cl 2(b) as follows:

“‘Affiliate’ means a person or entity who is bound by the Rules or Regulations or Constitution of [AKA Inc] and/or who is authorised to conduct [AKA Inc] sanctioned events.”

51. The interest rate provided for in the Schedule to each loan agreement was as follows:

“The cash rate target specified by the Reserve Bank of Australia increased by 5% on the balance owing and calculated monthly on the balance of the outstanding principal.”

52. Item 9 of the Schedule to the first loan agreement, “Repayment” provided:

“$873.00 payable on the 17^th June 2010 and then $833 on the 1^st of each month (119 months) until the total principal has been repaid.”

53. This item in the Schedule, when multiplied out, equates to the principal sum of $100,000; that is, there was no provision for interest in the repayment schedule.

The terms of the third loan agreement

54. The effect of the provisions of the third loan agreement was substantially similar to that of the first two loan agreements. However, for the third loan agreement, Karting Australia was the lender. The interest rate for the third loan agreement under cl 4.2 was 8% above the Cash Rate Target specified by the Reserve Bank Target (rather than 5% above as with the first two loan agreements). Further, the interest was said to be payable, under cl 4.2, but to be suspended, by cl 4.3 “subject to strict performance of the Borrowers of their obligations”.

55. Clauses 4.5 and 4.6 provided:

“4.5    If the Borrowers or any one of them defaults on any of its obligations under this Deed, then the provisions of clause 4.3 suspending the requirement for payment of interest shall have no force and effect in which case, interest shall be payable,

4.6    In the event of default by the Borrowers under the provisions of this Deed, then the Borrowers shall within 7 days of being served with a notice of default, make all payments referred to in clause 4.1 that were due and payable in accordance with that clause.”

56. Clause 6.1(a) provided:

“At any time after default the Lender may in its absolute discretion but without any obligation to do so:-

(a)   cancel the loan and require repayment of the Principal Sum and interest on the Principal Sum and recover these sums from the Borrowers …”

57. It is plain from the terms of the loan agreements that the nature of the breach relied on to trigger an immediate liability to pay accrued interest may be unrelated to the loan. Mr Snow, who appeared for Karting NSW, accepted that the evidence of what occurred in Queensland as set out below (to which no objection was taken) was only relevant as an example of the kind of breach which was in contemplation of the parties when loan agreements were entered into, which occurred before the example set out above.

58. On 21 March 2018, Karting Australia wrote to Australian Karting Association (Qld) Inc (Karting Queensland), as follows:

“On 7 April 2009, [Karting Queensland] entered into an agreement (the Loan Agreement) with [AKA Inc] whereby AKA Inc. advanced to [Karting Queensland] the sum of $100,000.00 (the Principal Sum) for the benefit of the Mackay Kart Club (Mackay). The rights of AKA Inc. pursuant to the Loan Agreement were assigned to [Karting Australia] pursuant to a Deed dated 16 May 2014.

On 10 March 2018, Mackay held a race meeting which was conducted without a [Karting Australia] Organising Permit, was not under the authority of, or with the written consent of, [Karting Australia] and in breach of Clause 3(a) of the Loan Agreement.

Pursuant to Clause 1 of the Loan Agreement, interest is payable on the Principal Sum. Pursuant to Clause 2 of the Loan Agreement, such interest is postponed for so long as there is no breach of any of the terms and conditions of the Loan Agreement.

Mackay has breached the Loan Agreement.

Pursuant to Clause 4 of the Loan Agreement, in the event of a breach, any amount outstanding together with interest accrued, becomes immediately due and payable.

[Karting Australia] hereby demands payment of the sum of $15,000.00, being that part of the Principal Sum still outstanding, together with interest in the sum of $64,800 payable pursuant to Clause 1, being a total of $79,800 by no later than 31 March 2018.”

59. In April 2018, following receipt of the letter, the treasurer of Karting Queensland reported to the members in part:

“Karting Australia has issued us with an invoice to pay out the outstanding Mackay Loan as well as $64,800 in interest. This will affect us financially in many ways, firstly our TDF fund will be significantly reduced down to $78,200 equating to instead of 3 clubs being able to access the TDF only 1. There is also potentially significant legal costs involved in recouping that interest from Mackay Kart Club.

Unfortunately, my report is rather doom and gloom. As we look to the rest of the year and work on reducing costs, I look forward to seeing the Profit & Loss turn from Red to Black.”

60. Mr Snow relied on this example to demonstrate that the terms of the loan agreement could be used oppressively by Karting Australia.

Other relevant events

The transfer of responsibilities from AKA Inc to Karting Australia

61. On 18 August 2012 a Special General Meeting of AKA Inc was held, during which a motion was passed that on 31 August 2013, or such earlier date as the board of Karting Australia and AKA Inc might agree, the operations of AKA Inc would be transferred to Karting Australia.

The Memorandum of Understanding between Karting Australia and Karting NSW

62. On 2 October 2013, a Memorandum of Understanding was executed by Karting Australia and Karting NSW (the MOU).

63. Clause 3.1(a) of the MOU provided that, pursuant to r 8.4 of the Constitution, Karting Australia would allocate to the Ordinary Members various responsibilities, including “remittance of monies collected on behalf of [Karting Australia].” Clause 3.1(b) provided that Karting Australia and the Ordinary Member (Karting NSW) agreed to comply with their respective responsibilities and obligations set out in Annexure A. Clause 3.7(c) provided that where an Ordinary Member has breached the MOU, Karting Australia’s board would impose a “suitable sanction in accordance with the Constitution and Regulations.” Annexure A included, as an obligation and responsibility of the Ordinary Member:

“Pay to [Karting Australia], on an annual basis (or frequency as otherwise requested by [Karting Australia’s] Board), the national membership levy for each member, of an amount determined by [Karting Australia’s] Board from time to time.

Maintain financial records as approved by an accredited auditor, and forward audited financial statements to [Karting Australia] as part of the annual report of the Member.

Complete an annual budget for the next financial period and forward to [Karting Australia] within 60 days of approval by the Ordinary Member.

Submit to [Karting Australia], an audited Profit and Loss Statement and Balance Sheet as at the end of the Ordinary Member’s financial year.”

64. On 12 November 2013, AKA Inc was replaced as trustee by Karting Australia. As referred to above, the benefit of the loan agreements entered into by AKA Inc was assigned to Karting Australia on 16 May 2014.

The genesis and development of the disputes between Karting Australia and Karting NSW

65. On 30 December 2013, Karting Australia issued an end-of-year update to its members in which it said:

“The challenges of transiting from the federated structure of AKA Inc to the new governance model of [Karting Australia] have been many and they have been varied. Deliberately the Board decided to accelerate the process so as to move out of transition by the end of the year. Key milestones for us have been:

*    All States and Territories signed up to the MOU with [Karting Australia] by mid-November;

*    Development and release of the new structure for [Karting Australia] that provides for an appropriate governance model for the sport of karting and the business of karting in Australia;

…

Track Development Fund Trust

For whatever reason, there appears to be some misinformation circulating amongst some people about the intention of the Board towards the AKA Track Development Fund Trust.

For the sake of absolute clarity and for the avoidance of doubt, any and all matters concerning the Track Development Fund Trust are governed by the AKA Track Development Fund Trust Deed. This is a Trust established in 2005 that will survive AKA Inc. The various State Associations as at the date of settlement of the Trust were then and still are the ‘Specified Beneficiaries’ of the Trust. AKA Inc will shortly cease to exist. [Karting Australia] has been appointed as a New Trustee of the Trust so as to ensure that all of the assets of the Trust are properly controlled and the legal responsibilities under the Trust Deed are continued to be fulfilled.

The Trustee is bound by the terms of the Trust Deed. The terms of the Trust Deed have not changed in any way. The Trust Deed requires that the funds of the Trust are to be maintained separately from any other bank accounts and that they are to be used in accordance with the law and the provisions of the Trust Deed.

The Board and Management of [Karting Australia] have adopted a very strong position with respect to the application of correct governance principles, to the control and management of our sport and its business and intends to apply the same standards of governance to its responsibilities as Trustee of the Trust.”

66. On 16 October 2014, Karting NSW wrote to Karting Australia raising concerns regarding the administration of the trust fund, which was referred to as the Track Development Fund or TDF. Its Chief Executive Officer wrote:

“At our recent SKC [State Karting Council] meeting, concern was raised regarding the future effectiveness of the Track Development Fund in relation to [Karting NSW] and its members, particularly its smaller member clubs. As a result of that meeting, we are now looking to understand the pros and cons of exiting the TDF and administering our own similar fund.

Apart from the $3.00 levy in the fee section on the Karting Australia web site I can find nothing that binds [Karting NSW] to contribute to the TDF and suggest that [Karting NSW] could cease its contributions to the fund effective October 31, 2014. As [Karting Australia] is not currently providing loans from the TDF the cessation of contributions should pose no impediment to the operation of the fund.

Should both parties agree that an exit strategy is inappropriate then KNSW will make good any outstanding contributions from the date of cessation.

So that both parties are able to gain a detailed understanding of this proposal I suggest the following actions would assist in formulating a way forward.

1.    The Trust Deed requires that the capital and income be held on trust in the proportions contributed by the beneficiaries. Can you please provide the quantum of contributions as well as the income derived from that contribution by [Karting NSW] since the inception of the fund.

2.    Please provide a balance owed by [Karting NSW] as at October 31, 2014.

3.    Please provide your thoughts regarding an instrument which would relieve [Karting NSW] of the TDF levy within the CMS [competitor management system] or the NCR’s.”

67. The minutes of Karting NSW’s board meeting of 13 January 2015 recorded:

“On the 14^th November [Karting Australia] advised that they are still looking at this matter as requested by [Karting NSW] and are awaiting legal advice.”

68. On 4 August 2016, Karting NSW wrote to Karting Australia, in the latter’s capacity as trustee of the trust, asking it to return funds held by the trust on its behalf so that it could conduct its own NSW-based Track Development Fund. This was its first demand for the funds. Karting Australia refused this request by letter dated 17 August 2016.

69. On 20 March 2017, Karting NSW wrote to Karting Australia and expressed its concern that Karting Australia might be acting ultra vires. It sought information from Karting Australia, including “copies of any and all documentation that confirms the transfer (assignment) of the Trust Deed of the above Fund from AKA Inc to [Karting Australia].” On 6 April 2017, Karting Australia responded in part as follows:

“[T]here was no ‘transfer (assignment)’ of the Trust Deed. … [T]he Trust Deed remains in force, as it has since it was established, save that pursuant to Clause 6(s) of the Deed, [Karting Australia] was properly appointed as the New Trustee in place of AKA Inc.

The Trust Fund assets are under the control of [Karting Australia] as Trustee for the Track Development Fund. They are properly managed, accounted for and utilised for the benefit of the specified beneficiaries of the Trust and their member clubs in accordance with the provisions of the Trust Deed. The Trustees publish fully audited accounts and financial statements for the Trust on an annual basis. … You will note that it is based on a much higher standard of reporting and audit than was ever the case prior to September 2013.”

70. In 2018 there was significant correspondence between Karting Australia and Karting NSW, some of which is referred to below.

71. On 9 May 2018, Karting NSW requested a copy of the Trust Deed from Karting Australia. On 24 May 2018, Karting Australia refused, saying:

“The Trustee is of the belief that there is no requirement to provide it to Karting NSW or any other person prior to the vesting date.”

72. On 7 August 2018, Karting NSW’s solicitors again wrote to Karting Australia, requesting a copy of the executed Trust Deed. On 28 August 2018, David Filipetto, Chairman of Karting NSW, wrote on behalf of Karting NSW to Karting Australia and requested information, which included the following:

“6.   Details of how and when AKA Inc. effected the transfer of its assets and operations to [Karting Australia] after the members resolution on 18 August 2012 and confirmation of what assets and operations were not transferred to [Karting Australia] and how and when that decision was made;

7.    Details of how and when [Karting Australia] was appointed as trustee of the Track Development Fund and whether AKA Inc. formally retired as trustee of the Track Development Fund (together with any documents effecting the change in trustee);

8.    A copy of the executed Trust Deed for the Track Development Fund (together with any amendments made to that deed). This has been requested several times, including by our lawyers, but never provided. This request made as a member of both AKA Inc. and [Karting Australia] and a beneficiary of the Track Development Fund …”

73. On 31 August 2018, Karting Australia responded by saying that it did not recognise Mr Filipetto “in any official capacity with regard to [Karting NSW]” because former directors’ appointments terminated in early August. On the same day, 31 August 2018, Karting Australia wrote to “NSW Affiliated Club Presidents” (meaning the Presidents of all karting clubs in New South Wales and the Australian Capital Territory affiliated with Karting NSW). The letter was highly critical of Karting NSW and attached a lengthy schedule entitled “ISSUES AND FACTS” which listed 21 “facts”, the last of which was headed “Track Development Fund”, and said as follows:

[Karting NSW] may be of the belief that TDF funds would become available to them if they break away from [Karting Australia].

They will not. They will be held in trust until the date of vesting of the Trust (a date that will survive everyone in the sport today).

• Distribution of the TDF funds remains at the sole discretion of the Trustees of the Trust ([Karting Australia]).

74. On 1 September 2018, being the date of its Annual General Meeting (AGM), Karting NSW proposed to its members that there be a vote of no confidence in Karting Australia’s board and a members’ resolution that Karting NSW cease to be a member of Karting Australia. The motion, which was expressed to be a single motion, had four aspects, as set out in an email dated 1 September 2018 to the members of Karting NSW:

“…

●   A vote of no confidence in the Board of [Karting Australia] be made.

● [Karting NSW] shall withdraw as an ordinary member of Karting Australia as soon as practicable and that the Secretary of [Karting NSW] be authorised to issue a notice of intention to withdraw from [Karting Australia] in accordance with its Constitution.

●   The Board of [Karting NSW] be authorised to take any steps they deem necessary or appropriate to withdraw as a member of Karting Australia and commence operation as an independent karting association, including termination of the MOU between [Karting NSW] and Karting Australia.

●   A General Meeting be held within 30 days after the issue of the notice of intention to withdraw from Karting Australia to discuss progress made, the plan going forward and to make any necessary amendments to the Constitution of [Karting NSW] resulting from no longer being a member of Karting Australia.”

75. In the covering email which proposed the motion, Karen Newton (State Secretary of Karting NSW) said:

“The Board of [Karting NSW] also intends to consult with all beneficiaries of the Track Development Fund, with a view to resolving issues relating to the ongoing administration of that fund.”

76. The motion was put to the members of Karting NSW to be voted on by electronic ballot, which remained open for three weeks until 22 September 2018.

77. Following its AGM, Karting NSW posted the following on its Facebook page:

“The major agenda item [at the AGM] was [Karting NSW’s] affiliation to Karting Australia.

Many things were discussed and much factual information was put to the member clubs to consider. This ultimately led to a motion from the floor to lodge a motion of no confidence the CEO and board of Karting Australia.

This also included a motion of no longer wanting to be a part of [Karting Australia].

‘We will however remain a part of [AKA Inc],’ stated Filipetto. ‘[AKA Inc] is the custodian of the National Track Development Fund (TDF). Karting NSW has a huge amount of members’·money in the TDF We have tracks in NSW that could utilize those funds but since the purported transfer of the TDF to [Karting Australia], the fund is getting fat and the tracks are net getting developed.’

…”

78. The reference in the email to the “fund … getting fat and the tracks are not getting developed” was a reference to the disproportionality between the total funds advanced by Karting Australia to Ordinary Members of Karting Australia ($475,649.95, as at 31 December 2017) and the total of the Ordinary Members’ loan accounts as at that date ($1,844,086.69). In other words, Karting Australia was only lending about a quarter of the funds at its disposal although the purpose of the trust was track development.

79. On 7 September 2018, Karting NSW sent an open letter to its members which outlined the reasons for dissatisfaction with Karting Australia’s conduct of the fund, as follows:

“Track Development Fund:

To be clear, the TDF is made up of member contributions over time. The Board of [Karting NSW] will move to protect the value of the Fund for its beneficiaries. In the end, that is You. It is important for those Clubs with TDF Loans to understand the legalities around the loan agreements that they have entered with [Karting NSW]. [Karting NSW] hold the loans with Karting Australia and so the issue of these loans is between [Karting NSW] and [Karting Australia]. Clubs should clearly understand their rights and obligations as a guarantor under those Agreements. We strongly encourage those Clubs to undertake their own due diligence and/or obtain advice on who has the authority to forgive loans (if this has been offered to you). We encourage you all to make fully informed decisions. Should [Karting NSW] withdraw its affiliation from [Karting Australia], it is our position that [Karting NSW] will continue to collect repayments from those Clubs at current levels and secure them by placing them into a Solicitors Trust account until the Trustee of the TDF Fund under AKA Inc. becomes clear.”

80. Also on 7 September 2018, Karting Australia wrote to “New South Wales Clubs, Drivers and Officials”. In a lengthy letter, Karting Australia listed various disputes, grievances and issues which it had with Karting NSW, including the trust. The letter explained that the trust had been established pursuant to a deed in October 2005 and that AKA Inc had appointed Karting Australia as a replacement trustee on 12 November 2013. It said in part:

“The Trust is a Discretionary Trust. This means that the Trustee may exercise its absolute discretion over the Trust and the Funds in the Trust. The Members of AKA Inc. at the date of settlement of the Trust are the Specified Beneficiaries of the Trust but they do not and cannot exercise any control over the Trust or the Trustee.”

81. On 11 September 2018, Karting NSW issued a media release to its members which announced that it had recently held its AGM and “with that came a motion to go it alone.”

82. In a letter dated 17 September 2018 to “New South Wales Clubs, Drivers and Officials” Karting Australia purported to pose and answer the most commonly asked questions, which included the following:

“3. What will happen with our Track Development Fund Loans, Safety Grants and Timing Systems?

Four (4) NSW Clubs currently have active TDF Loans. If a Club with a loan disaffiliates from Karting Australia, that is an event of Default. It triggers the repayment of both the principle [sic] of the loan and the accrued interest. The same applies to Clubs that received Safety Grants during 2017 and 2018 and to the timing system agreements.

Principle [sic] owing on the NSW TDF loans at 30 June*:   $174,992

Accrued Interest on the loans (approximate):      $122,000

Total Liability for NSW TDF Loans:            $297,000

*Reported in the [Karting NSW] audited accounts for the year ended 30 June 2018

Given [Karting NSW’s] current financial position it is difficult to see them being able to pay the interest accrued and the Principle [sic] of the loans on behalf of each Club that has received loans. It is even more difficult to imagine [Karting NSW] being able to justify to all the other member Clubs that the payment of $300,000 was in any way justified or a reasonable cost of doing business, as clearly a reasonable person would conclude that it is not.

If the loan runs its full term and there has been no default, and the Club remains affiliated, then the trustee forgives the interest, meaning that a loan of $100,000 is completed by the repayment of the principle of the loan only – with no interest.”

83. On 22 September 2018, Ms Newton, the returning officer of Karting NSW’s electronic ballot which opened on 1 September 2018, reported that the motion had been carried, with the final votes being 22 in favour, 3 against and no abstentions. On 26 September 2018, Mr Filipetto wrote to the members of Karting NSW to inform them of the steps that would be taken to implement their decision.

84. On 24 September 2018, Karting Australia sent a letter to its Ordinary Members, including Karting NSW, enclosing a copy of the executed Trust Deed dated 21 October 2013 and a copy of the deed appointing Karting Australia as the trustee of the fund. This was the first time Karting NSW had obtained an executed copy of the Trust Deed, notwithstanding that it had been requesting the document since at least 9 May 2018.

85. On 27 September 2018, Karting NSW wrote to Karting Australia asking questions, which arose from the documents provided on 24 September 2018, regarding the status of Karting Australia as trustee.

86. On 12 October 2018, Karting NSW demanded that Karting Australia pay it the amount of $588,959.11, being the then balance of its loan account with Karting Australia.

87. On 12 October 2018, Karting NSW gave notice to Karting Australia under s 203D of the Corporations Act 2001 (Cth) of its intention to call a general meeting of Karting Australia’s members under s 249F of the Corporations Act. It proposed six resolutions which, in substance, were that six of the directors of Karting Australia be removed as a director with immediate effect. The notice included the following paragraph:

“[Karting NSW] does not take this action lightly, but considers that under the stewardship of the incumbent Board there has been a series of decisions which have been materially prejudicial to [Karting Australia’s] current members, and have significantly departed from [Karting Australia’s] Vision, Mission and Statement of Purpose, together with significant unanswered corporate governance issues, all which are to the material detriment of all the [Karting Australia’s] stakeholders.”

88. The evidence does not reveal that this meeting was ever convened.

89. On 30 October 2018, Karting NSW issued a media release informing other clubs that it was considering whether to allow other karting clubs around Australia to become members of Karting NSW. At that time, Karting NSW’s members comprised clubs within New South Wales and the Australian Capital Territory.

90. In November 2018, Mr Filipetto sent a memorandum to Karting NSW’s members in which he notified them of the response to Karting NSW’s notice for a general meeting of Karting Australia as follows:

“… we have been in contact with representatives of other State Executive Committees in regards the Motion of No Confidence in the Board of Directors of Karting Australia - or at least those that would talk to us. We spoke to executive committee members of Tasmania, South Australia and Western Australia. In short and for a variety of reasons cited - there appears to be little support for this motion, despite the growing fragmentation of the sport around the country. The Board will proceed to call the Meeting nonetheless.”

145. As I have determined that the challenged provisions in the third loan agreement are unenforceable, it is not necessary to make orders under ss 237 or 243 of the Australian Consumer Law, varying the third loan agreement to delete the accelerated payment and interest provisions or ordering compensation to be paid to Karting NSW, since it is sufficient to enter judgment for the defendant on the plaintiff’s claim. Because no breach other than the affiliation breach is relied upon, it is not necessary to address what the terms would be if there was a breach in complying with the repayment schedule since this question is, in these circumstances, hypothetical.

Costs

149. At the conclusion of the hearing, I indicated to the parties that they would have an opportunity to be heard on the question of costs. Accordingly, I propose to make a provisional order, which is subject to the rights of either party to apply for a different order. In that event, I will make directions in chambers with a view to determining any outstanding question of costs on the papers.

Orders

150. For the reasons given above, I make the following orders:

1. Judgment for the defendant on the plaintiff’s claim.

2. Judgment for the cross-claimant on the cross-claim, together with interest calculated from 11 October 2018 to the date of these orders.

3. Direct the parties to provide short minutes of order within seven days which set out the judgment sum together with interest calculated by reference to order (2) above.

4. Unless either party makes a written application to my Associate for a different order within seven days, order the plaintiff to pay the defendant’s costs of the proceedings, including the cross-claim.

**********

Decision last updated: 25 August 2021