BI Constructions Pty Ltd v Shad

[2010] NSWSC 484

CITATION:	BI Constructions Pty Ltd v Shad & Anor; Bayeh v BI Constructions Pty Ltd [2010] NSWSC 484 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	9, 12 & 17 March 2010 & 16 April 2010
JUDGMENT DATE :	18 May 2010
JURISDICTION:	Equity
JUDGMENT OF:	Slattery J at 1
DECISION:	ORDERS: a) The trust proceedings are stayed for 21 days. b) Direct the parties to the trust proceedings bring in a management plan within 21 days in accordance this judgment. c) Make orders 1 and 2 on Mr Barrak’s motion of 17 March 2010. d) Grant liberty to apply.
CATCHWORDS:	PROCEDURE - challenge to retainer of solicitors of corporate plaintiff - alleged defect in resolution to commence proceedings - CORPORATIONS - removal of director by meeting of the board - constitution and replaceable rules only authorise removal of director by a meeting of members - HELD - director's removal invalid - no proper notice given of meeting to authorise commencement of the proceedings - no valid retainer of solicitors for the plaintiff
LEGISLATION CITED:	Corporations Act ss 203C, 243C, 248C, 249H, 249J, 1322 Legal Profession Act 2004 (NSW) s 728
CATEGORY:	Principal judgment
CASES CITED:	Brown v DML Resources Pty Ltd (No 6) (in liq) (2002) 166 FLR 393 Hawksford v Hawksford (2005) 191 FLR 173 Poliwka v Heven Holdings Pty Limited (1992) 7 ACSR 85 Re Chevron Furnishers Pty Ltd (in liq) [1994] 2 Qd R 475 Re PW Saddington & Sons Pty Ltd (1990) 19 NSWLR 674 Re Pembury Pty Limited [1993] 1 Qd R 125
PARTIES:	BI Constructions Pty Ltd v Shad & Anor: Plaintiff: BI Constructions Pty Ltd First Defendant: George Shad Second Defendants: Chikal Pty Ltd Bayeh v BI Constructions Pty Ltd: Plaintiff: Samir Bayeh Defendant: BI Constructions Pty Ltd
FILE NUMBER(S):	SC 2009/291340 BI Constructions Pty Ltd v Shad & Anor; 2009/291705 Bayeh v BI Constructions Pty Ltd
COUNSEL:	BI Constructions Pty Ltd v Shad & Anor: Plaintiff: Mr C Robinson First Defendant: Mr T Cavanagh (solicitor) Second Defendant: Mr M Condon Applicant on Motion: Mr M A Robinson Bayeh v BI Constructions Pty Ltd: Plaintiff: Mr M Condon Defendant: Mr C Robinson Applicant on Motion: Mr M A Robinson
SOLICITORS:	BI Constructions Pty Ltd v Shad & Anor: Plaintiff: Cambridge Law First Defendant: Mullane & Lindsay Second Defendant: Thurlow Fisher Lawyers & Consultants Pty Ltd Applicant on Motion: Barrak Lawyers Bayeh v BI Constructions Pty Ltd: Plaintiff: Thurlow Fisher Lawyers & Consultants Pty Ltd Defendant: Cambridge Law Applicant on Motion: Barrak Lawyers

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY LIST

SLATTERY J

TUESDAY 18 MAY 2010

2009/291340 BI CONSTRUCTIONS PTY LTD v GEORGE SHAD AND CHIKAL PTY LTD

2009/291705 SAMIR BAYEH v BI CONSTRUCTIONS PTY LTD

JUDGMENT

1 HIS HONOUR: This is a judgment on an application brought by a defendant challenging the retainer of the solicitors for the corporate plaintiff.

Introduction

2 BI Constructions Pty Limited (“BI Constructions”) and Chikal Pty Limited (“Chikal“) are equal joint-venturers in a residential and retail property development at Bankstown. A builder, Bidana Constructions Pty Limited (“Bidana”), constructed the development for the joint venturers. Construction of the Bankstown development commenced in December 2007 and was completed by June 2009. Sales of all development units have now settled. The proceeds of these sales have been paid into the trust account of Mr George Shad of Shad Partners solicitors. BI Constructions seeks the distribution of its capital outlay and any profits from the joint venture. Because of disputes between the three directors of BI Constructions, Mr Shad has refused to distribute the funds he holds either to BI Constructions or to Chikal. BI Constructions has now brought proceedings [2009/291340] seeking a declaration that Mr Shad holds one half of the funds from the development on trust for BI Constructions (“the trust proceedings”).

3 In July 2009 the three directors of BI Constructions were Mr Samir Bayeh, Mr Youseff (“Joe”) Bayeh; and Mr Issam Issa. Mr Samir Bayeh was closely associated with the builder of the development, Bidana. In mid 2009 construction of the development was coming to a close. Mr Joe Bayeh and Mr Issa sought an accounting from Mr Samir Bayeh about the profitability of and likely distributions from the project. Mr Samir Bayeh did not satisfy their requests for information or for substantiation of project expenditure. Mr Joe Bayeh and Mr Issa contend that on 13 July 2009 Mr Samir Bayeh was properly removed as a director of BI Constructions. Mr Joe Bayeh and Mr Issa remain as directors. Mr Samir Bayeh challenges his removal as a director. He says that all the board resolutions of BI Constructions made after his removal are invalid. One of those was the resolution to commence the trust proceedings. Mr Samir Bayeh now brings a motion in the trust proceedings challenging BI Constructions’ retainer of its attorneys.

4 The parties to the trust proceedings are BI Constructions as plaintiff, the solicitor Mr Shad as the first defendant and Chikal Pty Ltd as second defendant. BI Constructions responded to Mr Samir Bayeh’s motion challenging the retainer of the Cambridge Law Group, by questioning Mr Samir Bayeh's standing as a non-party to bring such a motion. Mr Samir Bayeh’s motion anticipated this difficulty and sought his joinder as a defendant to the trust proceedings. For abundant caution Mr Samir Bayeh also commenced a parallel set of proceedings [2009/291705] seeking final relief similar to that sought in the motion in the trust proceedings, including the making of declarations that BI Constructions’ retainer of its attorneys in the trust proceeding was invalid [“the declaration proceedings”]. At the hearing of the motion on 10 March 2009 the Court ordered that the trust proceedings and the declaration proceedings be heard together. This allowed the issue of the validity of the retainer to be determined without being hampered by procedural issues in relation to Mr Samir Bayeh's standing.

Barrak Lawyers Join the Proceedings

5 At the hearing on 9 March 2010, the Court gave leave to BI Constructions to move under s 728 Legal Profession Act 2004 (NSW) for orders against the former solicitor for BI Constructions Mr Benjamin Barrak, for production of documents in the proceedings. Mr Barrak claims a lien over documents he holds under his retainer from BI Constructions. Later in the week on 12 March 2010, Mr C Robinson appeared before the Court proposing s 728 orders. The Court did not make s 728 orders in Mr Barrak’s absence. Notice of the application was served upon him with an indication that I was minded to make the orders unless he sought to oppose them. The application for s 728 orders was returned before the Court on 17 March 2010 at which time Mr Barrak indicated that he wished to file a motion and take an active part in the proceedings. He did that. His motion of that date sought the payment or securing of his extra legal fees. I ordered that Mr Barrak’s motion be heard with the rest of the proceedings and that evidence in one be evidence in the other.

6 The strategic change which brought Mr Barrak into the proceedings also provided another source of evidence for the Court to determine the issues on Mr Samir Bayeh’s motion. Mr Barrak provided affidavit and oral evidence about his dealings with the directors of BI Constructions. This evidence assisted the Court in ascertaining what had happened.

The Issues

7 The principal question for determination on the motion is whether BI Constructions now validly retains Cambridge Law Group in the trust proceedings. The outcome of that question depends upon the validity of a resolution of the board of BI Constructions to commence the trust proceedings and to retain those solicitors. That raises several issues for present consideration. The first issue is whether Mr Samir Bayeh ceased to be a director of BI Constructions on 13 July 2009. If Mr Samir Bayeh’s directorship was validly determined on that date there was no need to give him notice of any subsequent directors’ meetings including the meeting to consider the commencement of the trust proceedings. If Mr Samir Bayeh's directorship was not determined on 13 July 2009, then the second issue becomes whether BI Constructions validly resolved to commence the trust proceedings and retain Mr Raed Rahal of the Cambridge Law Group to conduct them. The third issue is what is to be the future course of the trust proceedings, and the declaration proceedings, including the position of Mr Barrak. The underlying disputes between Mr Samir Bayeh, Mr Joe Bayeh and Mr Issa will not be resolved by the present procedural motion. The Court will make directions for their resolution.

Background to the Dispute

8 BI Constructions was incorporated in November 2002. The company commenced operation with three directors, Mr Samir Bayeh, Mr Issa and Mr Joe Bayeh. Those three directors each held two shares in BI Constructions. Those six shares constituted the total capital of the company. Since 2002 BI Constructions has undertaken multiple property developments. Between December 2007 and June 2009 BI Constructions undertook the Bankstown development using as the builder a company in which Mr Samir Bayeh had an interest, Bidana.

9 The three directors of BI Constructions made different capital contributions to fund the development. Mr Samir Bayeh advanced $600,000 personally and through Bidana he contributed expertise to the project. Mr Joe Bayeh and Mr Issa contributed $1,260,000 and $690,000 respectively. The financial arrangements between the three directors and shareholders were that they should each contribute one third of the capital to the project. These financial arrangements, overlapping as they did with the engagement of Bidana, caused tension among the directors during the mutual accounting that was required at the end of the development. The parties are in contest about substantial proceeds of sale, of the order of approximately $8 million. Chikal is entitled to 50% of the sum. The parties are in contest about the other approximately $4 million. Consent orders on 16 December 2009 in the trust proceedings ordered Shad Partners to pay various sums totalling a little over $5 million into Court.

10 It is not necessary to identify all points of tension between the directors for present purposes. Principal among them were the following:

a. Mr Joe Bayeh claims that he is owed $1 million at the end of the Bankstown development project in addition to the return of capital on his one-third interest. Mr Samir Bayeh disputes this claim.

b. Mr Joe Bayeh and Mr Issa seek a full accounting on the project from Mr Samir Bayeh including a substantiation of all expenses Mr Samir Bayeh claims that he has incurred. Mr Samir Bayeh directs their inquires to the joint venture accountant, Mr Arraj, who is also the accountant for Bidana. But Mr Joe Bayeh and Mr Issa cannot access documents through the accountant because he has not yet been fully paid for his services and does not wish to give up any original documents. Mr Samir Bayeh also declines to provide information directly to Mr Joe Bayeh and Mr Issa because he claims that there is personal information on his computer that should not be shared with them.

c. Mr Samir Bayeh and Bidana have acted on a scheme to increase the liquidity of the development by claiming back the GST paid to the Australian Taxation Office (“ATO”) during the development. They propose that the GST be paid to the ATO at the end of the project out of the sale proceeds. At the conclusion of the project the ATO assessed the joint venture for this GST liability in the sum of $1,965,596. The consent orders of 16 December 2009 authorised payment of this sum to the ATO. Mr Joe Bayeh and Mr Issa were very reluctant to agree that this sum be paid to the ATO without a full accounting from Mr Samir Bayeh and Bidana in respect of the underlying payments made by Bidana that triggered the GST liability. They also deny approving this GST scheme. They say that BI Constructions not Bidana was entitled to claim the GST. No accounting has yet been ordered.

11 It is unsatisfactory that these substantive issues are still largely unresolved. Neither side wants to authorise any distributions to the joint venturers until the issues are resolved. The fact that they are still outstanding is generating procedural disputes between the parties. Once the procedural disputes are resolved by this judgment the parties will be directed to advance the resolution of the substantive issues.

A Short Chronology of the Principal Disputed Events

12 The compass of the events in dispute in these proceedings is narrow. It spans a period between mid-June and mid-July 2009. Three important meetings are said to have taken place in this period. The first meeting was a meeting said to have taken place between Mr Issa and Mr Samir Bayeh and Mr Joe Bayeh at Mr Issa’s office in Hunter St. Parramatta. This was a heated meeting in which Mr Issa and Mr Joe Bayeh sought an understanding from Mr Samir Bayeh of the revenue and expenditure of the Bankstown development project. They wanted a full accounting of Bidana’s expenditure, substantiated by documents. They were not satisfied as a result of this meeting.

13 The second meeting took place on 7 July 2009. Mr Samir Bayeh was already overseas at this time. He was not present at the meeting. He had gone overseas on 29 June as a result of the requests made of him at the meeting on 26 June Mr Samir Bayeh was supposed to bring project documents to the meeting which would satisfy Mr Issa’s and Mr Joe Bayeh’s requests for information. Unsurprisingly as he was overseas he neither attended the meeting nor produced documents. As a result of Mr Samir Bayeh’s non attendance though, Mr Issa says he communicated with Mr Barrak to get advice about what to do next. The communications with Mr Barrak resulted in another meeting taking place on 13 July 2009. It was the character of this meeting which was in strong dispute in the proceedings.

14 The third meeting was convened on 13 July 2009. Present were Mr Issa, Mr Joe Bayeh and Mr Barrack. The meeting resolved to remove Mr Samir Bayeh as a director. Exactly what the meeting resolved and the precise form of the minutes are of some importance for the issues to be determined in the proceedings. The minutes of that meeting were signed as a correct record the following day, 14 July 2009, in the following form:

MINUTES OF A MEETING OF THE DIRECTORS OF
BI CONSTRUCTIONS PTY LTD
ACN 102 756 169




 HELD AT:

Suite 13, Level 2, 27 Hunter Street, Parramatta at 4.30pm

ON: 

13 July 2009

PRESENT:

Sam Issa
Joe El-Bayeh

CHAIR:

Joe El-Bayeh took the chair.

ACCEPTANCE OF SHORT NOTICE:

IT WAS RESOLVED that the Directors hereby accept short notice for this meeting.

BREACH OF DIRECTORS DUTIES BY MR SAMIR BAYEH:

IT WAS NOTED that Mr Samir Bayeh has acted in breach of his fiduciary duties as a Director of the company.

REMOVAL OF MR SAMIR BAYEH FROM HIS OFFICE AS DIRECTOR:

IT WAS RESOLVED that Mr Samir Bayeh be and is hereby removed from his office as Director of the Company.

CLOSURE:

There being no further business the meeting terminated.

Signed as a correct record

Signature
Chair
Date: 13 July 2009

15 Tensions came to a head in July 2009, when the events the subject of these proceedings took place. The course of those events will be considered below with each of the questions for determination.

Did Mr Samir Bayeh Cease to be a Director of BI Constructions on 13 July 2009?

16 Mr Joe Bayeh and Mr Issa claim that a meeting of the members of BI Constructions removed Mr Samir Bayeh as a director on 13 July 2009. Mr Samir Bayeh responds that the meeting on that date was only a meeting of BI Constructions’ directors, which had no power to remove him as a director. He also says that even if it was a shareholders meeting he was not given adequate notice of the meeting. The positions taken by the parties raise issues of both fact and law.

The Power to Remove a Director of BI Constructions

17 The Constitution of a proprietary company may empower the Board to remove a director. The Constitution of BI Constructions does not contain a power authorizing the board to remove a director. The company’s corporate governance rules are the replaceable rules contained in the Corporations Act. Clause 9 of BI Constructions’ Constitution permits the members by resolution to remove a director. The Constitution does not empower a meeting of directors to remove another director. The Corporations Act itself only gives members the power to remove a director: s 203C. Only a meeting of the members of BI Constructions could remove Mr Samir Bayeh as a director.

Meeting of Directors or Members?

18 Mr Samir Bayeh's contention is that the meeting purporting to remove him as a director on 13 July 2009 was a meeting only of the directors of the Company, not a general meeting of members.

19 The meeting that removed Mr Samir Bayeh on 13 July 2009 was a directors’ meeting. I do not accept Mr Issa’s contention that a general meeting of members removed Mr Samir Bayeh as a director. I reach this conclusion for the following reasons.

20 First, it is difficult to accept that the 13 July meeting was even conceived and convened as a general meeting. Mr Issa’s version of his first discussing the holding of such a meeting with Mr Samir Bayeh was that on 26 June 2009 he said to him,

“ I put to you Samir that we should convene a general meeting of BI. We want you to go to Arraj and collect all the documentation and bring it to my office by 7 July 2009 and the issue of your directorship should be voted on at meeting which will be held here on 13 July 2009 at 2 pm.”

21 This version of Mr Issa seems inherently improbable. At the time that this conversation is said to have occurred the occasion for Mr Samir Bayeh to deliver the requested accounting and financial documents to Mr Issa and Mr Joe Bayeh had not yet arrived. Before Mr Issa received and examined the documents to be supplied by Mr Samir Bayeh it is difficult to see why he would have made up his mind to call a general meeting to remove Mr Samir Bayeh. Mr Issa is a solicitor and a person of apparent intelligence and business sophistication. I do not accept that he prejudged the issue of what kind of documents Mr Samir Bayeh was going to produce even before they were produced. The logical course was to examine the documents produced on 7 July, determine their adequacy and then decide whether or not it was necessary to convene a general meeting of members afterwards. I accept that Mr Joe Bayeh and Mr Issa were keen to get an understanding of Mr Samir Bayeh's accounting for the project. But I do not accept that Mr Issa had actually formulated the idea by 26 June 2009 that a general meeting of the members of BI Constructions should be called as distinct from his planning to hold another directors meeting in order to discuss the consequences of what had been produced on 7 July.

22 Second, the pattern of advice Mr Issa and Mr Joe Bayeh say that they had received from their solicitor, Mr Barrak, also suggests that they had not made up their minds about holding a general meeting of BI Constructions at the time that Mr Issa had a conversation with Mr Samir Bayeh on 26 June 2009. Mr Samir Bayeh failed to attend the directors meeting on 7 July 2009. As a result, according to Mr Issa and Mr Joe Bayeh they contacted Mr Barrak and sought advice about "Mr Samir's non-attendance and non-production of the documentation that was requested of him". Mr Barrak advised according to Mr Issa on 7 July “ to call a general meeting on the 13th and pass a resolution as to a number of matters." If there was a conversation with Mr Barrak on 7 July after Mr Samir Bayeh failed to attend the scheduled meeting, it was a conversation with the solicitor about holding a directors meeting, not the holding of a general meeting. The fact that according to Mr Issa, a conversation with the company’s solicitor took place on 7 July makes it even more improbable that Mr Joe Bayeh and Mr Issa had equipped themselves before meeting Mr Samir Bayeh on the 26th June with the necessary legal advice to tell Mr Samir Bayeh on that day that they were proposing to call a general meeting. Their evidence is consistent with their finding out for the first time on 7 July 2009 that the next step was to be a general meeting on 13 July. Given their state of knowledge on 26 June it seems unlikely that they would have pointed out to Mr Samir Bayeh that early, that a general meeting would be held.

23 Third, if the general meeting was to be held on 13 July 2009 the requisite notice had to be given to members. Mr Barrak, BI Constructions’ then solicitor was not instructed on or about 7 July to send out notices for a general meeting on 13 July. He says he was not so instructed and I accept his evidence as to this. He neither prepared nor set out any notice of a general meeting of BI. I also accept his evidence to this effect. He was not asked to prepare for a general meeting of BI. Mr Barrak says that he only became involved in issues concerning Mr Samir Bayeh as a director on 14 July. I accept his evidence as to this.

24 Fourth, after the meeting of 13 July, Mr Issa and Mr Joe Bayeh all thought that a directors meeting had taken place, not a meeting of members. The minutes of the 13 July meeting are described as "minutes of a meeting of the directors of “BI Constructions Proprietary Limited". Neither Mr Barrak in creating the minutes or Mr Joe Bayeh later in signing them as a correct record of the meeting apparently noticed that they incorrectly only recorded the holding of a directors meeting. The existing form of minutes does not describe a member's meeting or a meeting of directors and members. If communications had taken place on 7 July (or even as early as 26 June) to the effect stated by Mr Issa, that a meeting of members was to be called, it is unlikely that the distinction between a directors meeting and the members meeting of members would have escaped their attention when the minutes came to be signed. The participants were confronted with many immediate reminders of what kind of meeting they were recording. The minutes were signed the very next day. The minutes of 13 July accurately record what a directors meeting of BI Constructions was held on 13 July 2009.

25 Fifth, between 7 July 2009 and 10 March 2010 no one within BI Constructions seems to have been troubled about the existing minutes and set in motion the creation of another set of minutes for a member's meeting on 13 July 2009 as evidence that such a meeting had taken place. The importance of the distinction between the holding of members meeting and a directors meeting to remove Mr Samir Bayeh as a director did not seem to be apparent to Mr Issa or Mr Joe Bayeh until the Court hearing in March 2010 when Mr Samir Bayeh’s lawyers took the point. Mr Issa seemed somewhat taken by surprise by the issue. If Mr Barrak had adverted to the distinction in communications with Mr Issa and Mr Joe Bayeh in July 2009 it is to be expected that one of them might have noticed before March 2010 the absence of minutes of a meeting of members on 13 July.

26 Mr Issa then moved position and sought to say in evidence that he thought the meeting of 13 July was in fact two meetings, one a meeting of directors and one a meeting of members. This explanation is not credible. It does not stand with his affidavit sworn in November 2009, which only refers to one directors meeting held on the day. Nor does it stand with Mr Issa's professed concern about properly documenting the holding of the meeting of 13 July, "We wanted to do it properly. We wanted to do the right thing --". I accept Mr Issa's evidence that he wanted to document the meeting properly. But he received the documentation that reflected the meeting that he understood had taken place, a directors meeting. That is why he did not move to change it.

27 Sixth, in Mr Issa's own affidavit sworn in November 2009 he deposes to the nature of the meeting on 13 July accurately. He deposed "the board resolved to terminate Samir Bayeh's directorship of the plaintiff". This is what Mr Issa believed happened.

28 Seventh, the Form 484 return to ASIC signed by Mr Issa also only refers to a directors meeting. It is to be expected that a person of Mr Issa’s professional legal qualifications would be likely to check and ensure the accuracy of such a return to ASIC. I find that the return accurately stated what he thought, namely that a directors meeting had taken place.

Lack of Notice of 13 July 2009 Meeting

29 Mr Samir Bayeh’s alternative complaint is that even if the meeting on 13 July 2009 was a meeting of members, he did not receive notice of the meeting required by law. I have already found that the meeting convened on 13 July 2009 was a meeting of directors not of members. As only a meeting of members is empowered to remove Mr Samir Bayeh as a director he has not been validly removed. It is therefore not strictly necessary to decide whether Mr Samir Bayeh had adequate notice of the 13 July 2009 meeting. But it is useful for me to state my conclusions on this issue.

30 Even if Mr Issa were to establish that the meeting of 13 July 2009 was a meeting of members, it was not one convened in accordance with the requirements of the Corporations Act. This is so for the following reasons.

31 A director of a proprietary company may call a meeting of the company's members: Corporations Act s 243C. At least 21 days notice must be given of a meeting of the company’s members: Corporations Act s 249H. The required period of notice of the meeting can be abridged but only if members with at least 95% of the votes that may be cast at the meeting agree to the abridgment of time: Corporations Act s 249H(2)(b). Notice of the meeting of members of the company must be in writing and must be given to each member entitled to vote at the meeting and to each director: Corporations Act s 249J(1). Written notice of the meeting of members must include the place, date and time of the meeting, the general nature of the business to be conducted at the meeting, and details of any special resolution proposed to be passed. If a meeting of members of BI Constructions were held on 13 July 2009, it failed to conform to most of these requirements.

32 Neither the company nor any of its other directors gave written notice of the meeting to Mr Samir Bayeh. BI Constructions first advanced a case that Mr Issa gave Mr Samir Bayeh verbal notice of the meeting to be held on 13 July 2009. Mr Issa gave evidence of having given such verbal notice. Verbal notice was insufficient. Such a form of notice did not comply with s 249J Corporations Act. I do not accept that Mr Issa gave Mr Samir Bayeh verbal notice of the meeting. Even on Mr Issa’s version that he told Mr Samir Bayeh that a members’ meeting was to take place on 13 July 2009, that version did not include clear notice of the proposal to remove Mr Samir Bayeh as a director of BI Constructions.

33 BI Constructions alternatively advanced a case that the company did give written notice of the proposed meeting of 13 July 2009 to Mr Samir Bayeh. The case was that BI Constructions’ lawyers Barrak Lawyers gave written notice to Mr Samir Bayeh. This case failed after the involvement of Mr Barrak in the proceedings. Mr Samir Bayeh denied receiving any written notice. He was in Lebanon at the time. I accept his denial. Mr Barrak also denied having been given instructions to send such a notice to Mr Samir Bayeh. No notice was ever produced, even after an order was made to Barrak Partners under s 728 Legal Profession Act 2004 (NSW) for its production. This was not surprising given that Mr Barrak said he did not create such a notice.

34 Mr Barrak’s version of events in relation to the holding of these meetings, which I wholly accept, was that he was first told about the removal of Mr Samir Bayeh from the board of BI Constructions the day following the meeting of 13 July 2009. He could not have been involved in preparing any notice of the meeting.

35 In any event there was only a week between the instructions that Mr Issa claims were given on 7 July to Mr Barrack and the proposed meeting on 13 July. This was insufficient to give Mr Samir Bayeh 21 days notice of the meeting: Corporations Act s 249H. Although the minutes of the 13 July meeting refer to the abridgment of time for the giving of notice of that meeting the abridgment resolution was itself ineffective because it was not passed by at least 95% of the votes that may be cast at the meeting: Corporations Act s 249H(2)(b). Mr Samir Bayeh held one third of the votes that might be cast at a general meeting of BI Constructions.

36 It was put on behalf of BI Constructions that these deficiencies were curable by an application of Corporations Act s 1322. It was said that these were mere procedural irregularities and that a want of notice of a meeting is the kind of procedural irregularity that may be cured by the application of Corporations Act s 1322 unless substantial injustice were shown: Poliwka v Heven Holdings Pty Limited (1992) 7 ACSR 85 at 97. The Court was urged to treat Corporations Act s 1322 as a remedial provision to be construed liberally and that it is not restricted to instances of inadvertence or accidental non-compliance: Brown v DML Resources Pty Ltd (No 6) (in liq) (2002) 166 FLR 393; [2002] NSWSC 6 and Re Pembury Pty Limited [1993] 1 Qd R 125 at 126.

37 However where the irregularity results in a decision adverse to the interests of those complaining of the irregularity and the irregularity also constitutes a denial of the opportunity to speak against the decision, the Court is likely to make a declaration of invalidity no matter how unlikely it is that the complainant will be able to persuade a future meeting to vote against the same decision: Re Chevron Furnishers Pty Ltd (in liq) [1994] 2 Qd R 475; (1992) 8 ACSR 726. Where the irregularity arises from a deliberate informed decision to create an irregularity s 1322 will not be able to be used to excuse the irregularity: Re PW Saddington & Sons Pty Ltd (1990) 19 NSWLR 674; (1990) 8 ACLC 1722. That principle has application here.

38 In failing to give notice to Mr Samir Bayeh of the 13 July meeting, Mr Joe Bayeh and Mr Sam Issa excluded him from an opportunity to defend his position as a director and his conduct in relation to BI Constructions generally. There is an additional factor. They also deliberately pursued a course of action of removing Mr Samir Bayeh from the Board of BI Constructions on 13 July 2009 at a time when he was known to them to be in Lebanon and was unlikely to be able to come to the meeting. They knew that they were holding a directors meeting not a members meeting. I accept Mr Barrak’s evidence that he neither attended nor gave legal advice to Mr Joe Bayeh or Mr Issa about the 13 July 2009 meeting before it occurred. They proceeded without his assistance. None of these circumstances would attract the Court’s intervention under Corporations Act s 1322. I decline to excuse the irregularity under the section.

Did BI Constructions Validly Resolve to Commence the Trust Proceedings and Retain Cambridge Group Lawyers?

39 I have found that Mr Samir Bayeh continued as a director of BI Constructions after 13 July 2009. He was not given notice of any directors meetings after that date. One of those meetings was a meeting, which resolved to commence the trust proceedings. As he remained a director he should have been given reasonable notice of such meetings: Corporations Act s 248C and see clause 14 of the Constitution of BI Constructions. The question now arises whether or not a resolution passed by a directors meeting of which he had no notice is a valid resolution sufficient to authorize the commencement of the trust proceedings?

40 It is important to focus on several relevant facts before deciding this question. Those relevant facts are that Mr Joe Bayeh and Mr Sam Issa deliberately pursued a course of action of removing Mr Samir Bayeh from the Board of BI Constructions on 13 July 2009. Their chosen means of doing so was invalid. They then excluded Mr Samir Bayeh from further involvement in directing the affairs of BI Constructions by not giving him notice of subsequent directors meetings. They took this course acting upon their invalid decision to remove him as a director. Consistent with their case that Mr Samir Bayeh had been validly removed as a director on 13 July they did not seek to propound a case that they had notified him of any subsequent directors meeting. Further I can infer that the removal and exclusion were deliberate because they were openly motivated by Mr Issa’s and Mr Joe Bayeh’s displeasure at Mr Samir Bayeh’s refusal to give them an account of Bidana’s financial dealings with and on behalf of the building and development joint venture at Bankstown. The other directors made a deliberate strategic decision not to give notice to Mr Samir Bayeh of all subsequent directors’ meetings of BI Constructions.

41 These circumstances do not warrant any application of s 1322 to cure the irregularity in the failure to give notice to Mr Samir Bayeh of the directors meeting purporting to authorise commencement of these proceedings. The decision was invalid.

42 Were the validity of the decision to commence the trust proceedings merely a question of ostensible authority the want of actual authority to BI Construction’s solicitors to commence would not invalidate subsequent action. However where the question of the authorisation of a solicitor to commence proceedings is in question, once there is some evidence sufficient to infer a want of authority, the party challenged must establish actual authority to commence: Hawksford v Hawksford (2005) 191 FLR 173; [2005] NSWSC 463. Here BI Constructions has not established that it gave actual authority to Cambridge Law to commence these proceedings.

The Future Course of these Proceedings

The Relief

43 The first issue to be considered is whether, in light of my conclusions, the trust proceedings should now be struck out or an opportunity should now be afforded to BI Constructions to convene a directors meeting to ratify the otherwise invalid decision to commence these proceedings.

44 The most efficient and least expensive solution to the problem which has been raised by Mr Samir Bayeh is for the trust proceedings to be stayed. That is the order that I will make. The stay will only be imposed though for a limited period. The reason I have imposed a limited stay is that it may yet be possible for the directors of BI Constructions to agree upon the continuation of the proceedings. They should be given an opportunity to see if that is possible. If it is not then the proceedings will be struck out. I will only allow the parties a period of 21 days to attempt to agree on the continuation of the proceedings. If they cannot, then the proceedings will be struck out. Thus in substance this is an order that the proceedings be struck out but the operation of that order is stayed for a period of 21 days.

Resolving the Real Matters in Issue

45 Disputes between the parties to the declaration proceedings and possibly the trust proceedings will continue unless all parties are required to address the disputes that really divide them.

46 Within 21 days after the date of this judgment I require the parties to bring in draft directions constituting a management plan for the future course of the remaining proceedings to deal with the matters raised here. If the parties cannot agree upon a satisfactory management plan between themselves, I will make directions to impose one. The management plan should cover the following matters that currently lie unresolved at the periphery of the argument on the motion.

47 First, the parties do not have access to all documents required for a final accounting in relation to this project, partly because the joint venture accountant, Mr Arraj, has not been paid. Understandably he does not appear to be actively cooperating in supplying requested documents. Disputes about who engaged this accountant, whether his engagement was properly authorised and whether his fees are reasonable are relatively minor especially compared with the quantum of the funds the distribution of which is being delayed by these proceedings. On the evidence before the Court so far he appears to have done some work, which has benefited the joint venture. If the issue of payment of the accountant cannot be resolved the sensible course would be to set aside a fund from the funds held by Mr Shad or in Court that is sufficient to meet the accountants’ claims.

48 If necessary, the Court can give directions to the parties to consider and deal with the accountants’ claims for payment out of the fund in Court. If both parties do not have sufficient confidence in the accountant continuing in a role to act for the joint venture then an application can be made to have the disputed documents, when they are made available, analysed by independent accountants by whichever party wishes that course to occur. If either party foresees that this kind of dispute is likely to arise then the jointly agreed management plan for the future of the proceedings should include directions to cover that eventuality.

49 Second, Mr Samir Bayeh’s claims that the personal information held on his computer justifies Mr Joe Bayeh and Mr Issa not having access to data related to the Bankstown development. If the parties cannot agree upon a form of access to the computer that protects Mr Samir Bayeh’s confidentiality in the private material, then the Court will consider the appointment of an expert to take possession of his computer and sift the contents so as to delete private material and give the material relating to the Bankstown development to Mr Joe Bayeh and Mr Issa. Mr Joe Bayeh and Mr Issa’s lack of access to this material is inhibiting their evaluation of the real issue with Mr Samir Bayeh about his and Bidana’s expenditure on the Bankstown development project. Until they have reviewed this material they will not be in a position to submit to the Court the extent of the accounting that is required. They must be put in the position for this to occur rapidly.

50 Third, within a short time after Mr Joe Bayeh and Mr Issa have reviewed the material that Mr Samir Bayeh makes available they should be required either to plead their case seeking an account or to identify to the Court and to Mr Samir Bayeh the issues they wish to raise against Mr Samir Bayeh.

51 Fourth, in order to prevent a multiplicity of future proceedings, it is desirable that all parties to this dispute who need to be bound by the result should be joined as parties to the one single proceeding. The parties should confer as to how this can be most efficiently done.

Mr Barrak’s Position

52 There was ultimately no real opposition to orders 1 and 2 on Mr Barrak’s principal motion dated 17 March 2010 in relation to his fees. I will make those orders. I am not yet satisfied that order 3 on Mr Barrak’s motion should be made. I am not prepared to determine Mr Barrak’s final entitlement to fees until an assessment has taken place, which is underway. Most of the contentions in these proceedings related to whether the evidence that Mr Barrak advanced on his motion could be more widely used by Mr Samir Bayeh on his motion. The final management plan for orders in these proceedings should include directions to enable Mr Barrak’s costs position to be resolved in the long term. Protection in the short term will be achieved by making orders 1 and 2 on Mr Barrak’s motion.

Conclusion and Orders

53 In the result I have found that the meeting of 13 July 2009 convened by BI Constructions was a meeting of directors and that it did not remove Mr Samir Bayeh as a director. There was no power in a meeting of directors to so remove him. No notice was given to Mr Samir Bayeh of any subsequent meeting of the directors of BI Constructions, including in respect of the meeting that authorised the commencement of the trust proceedings. There was therefore no proper authorisation of Mr Barrak to commence the trust proceedings and they will be stayed pending their either being struck out or ratified. Issues of costs will need to be argued. Cambridge Law Group may want to put submissions on its own behalf about costs. A date for such argument will need to be appointed.

54 In the result therefore, the orders that the Court will make are the following:

a) The trust proceedings are stayed for 21 days.
b) Direct the parties to the trust proceedings bring in a management plan within 21 days in accordance this judgment.
c) Make orders 1 and 2 on Mr Barrak’s motion of 17 March 2010.
d) Grant liberty to apply.

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28/05/2010 - Amendment to headings above paragraphs - Paragraph(s) 45, 52