FEDERAL COURT OF AUSTRALIA
Carpathian Resources Ltd v Hendriks [2012] FCA 496
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- AGLC
- Carpathian Resources Ltd v Hendriks [2012] FCA 496
- Case
- [2012] FCA 496
- Decision Date
CaseChat Overview and Summary
The Federal Court found that the question of the directors' authority could only be resolved through a trial and the examination of evidence. The court held that the solicitors were not guilty of a serious dereliction of duty because the issue of authority could not be determined at the outset. The court noted that the solicitors were informed of the potential for a costs claim against them at the time they accepted the retainer and commenced proceedings. The court reasoned that since the respondents were successful in their claim and there was no evidence of impropriety or resource wastage, the usual rule that costs follow the event should apply. Accordingly, the applicants were ordered to pay the costs of the respondents.
The court's decision highlighted that the circumstances did not warrant an exception to the usual rule on costs. The court did not find any basis to apportion costs or to award costs against the solicitors. The court concluded that the respondents had complete success and there was no evidence of any significant misconduct or improper conduct by their solicitors.
The final orders of the court required the applicants to pay the costs of the respondents. This included the costs of the proceedings, which were to be taxed if not agreed upon by the parties.
Orders
Orders of the court
1. The applicants/cross-respondents do pay the costs of the respondents/cross-claimants of the proceedings to be taxed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
Ratio Decidendi
Legal Principle Established
The respondents rely upon the observations of Bryson J in Zimmerman Holdings v Wales [2002] NSWSC 447 (at [11]-[17]) where his Honour ordered solicitors to pay the costs of the defendants on the basis that they were aware from early in the piece that there was an issue as to the capacity of two directors to properly retain the solicitors and the latter were in a better position than the defendants to determine whether they were retained with authority. In his Honour’s view the solicitors’ responsibility was to determine whether those purporting to retain them were authorised to do so particularly ‘as there were means of inquiry … available to them which they did not follow up in an effectual way’ (at [17]). The respondents contend that the Court should infer, as Bryson J did in Zimmerman, that no steps were taken, or taken in any effectual way, by the Solicitors to satisfy itself that it was properly retained to pursue the proceeding. CONSIDERATIONThe circumstances in which instructions were taken An important feature of this debate is the timing of events and relative speed with which the parties acted following the highly unsatisfactory AGM of Carpathian on 17 December 2010. The key findings and conclusions of the trial judge illustrate the chaotic circumstances which were urgently required to be resolved. Those findings and conclusions are:The course of the AGM157 What occurred at the offices of Carpathian on 17 December, in an attempt to conduct the AGM, was variously intemperate, confused, unruly and disorderly. By reason of reg 40, as I have construed it, the members who were present were required to choose one of their member to be chairperson. The attempts to achieve that were ambulatory. Mr Hammer voted for himself. Mr Robertson said words to the effect that he "nominated" Mr Hammer. No show of hands as to this nomination was called for by anyone. Mr Robertson did not raise his hand. Indeed, Mr Hammer called for a show of hands from those who were against his appointment. Ms Davies raised her hand and said she voted against Mr Hammer's appointment and said she supported Mr Hendriks. Mr Hammer said the motion to appoint him chairperson had been carried. There were then heated exchanges between Mr Beaumont and Mr Hammer concerning the application of the constitution. Mr Beaumont called for a poll. Mr Robertson then said that he withdrew his support for Mr Hammer. Poll forms were distributed by Mr Beaumont and his assistant. A poll was purportedly taken following which everyone except Mr Hammer left the room.158 In my opinion the members who were present did not choose one of their number to be chairperson. Whilst Mr Robertson "nominated" Mr Hammer he then withdrew this because the meeting was in such disorder. There was no "motion" as Mr Hammer had described it. He had actually called for a show of hands from those against his appointment rather than for his appointment. A number of those there were talking over one another. The events I have described occurred over a very short period of time. In these circumstances it is artificial to say, as the applicants do, that Mr Robertson could not withdraw his nomination of Mr Hammer once it had been initially given. Mr Wrigley, a solicitor, and one of HBC's corporate representatives, according to Ms Davies, whose evidence I accept, stated at the meeting that it did not have a chairman. What occurred was, in the overall, a confused attempt by the members present to choose a chairperson. It failed. The appointment of a chairperson is an indispensable part of any meeting: Colorado Constructions Pty Ltd v Platus [1966] 2 NSWR 598 at 600. 159 It was, by the terms of the several proxies which he held, only if he was appointed chairperson that Mr Hammer would have become the duly appointed proxy of 5 members. That did not occur. 160 Mr Beaumont's interventions, whether in what he said variously to Mr Hammer, or in his calling for a poll were without authority under the constitution. I do not doubt that he thought he was acting appropriately on behalf of his client but his actions were ill advised, misinformed and significantly added to the disorder. He was a stranger to the meeting. This is not a case where a group of members deliberately orchestrated events in order to disrupt the meeting. Mr Hammer, on the other hand, was intent on purporting to act as chairperson in circumstances where it was, or should have been, clear to him that he did not have the support of the members who were present for his chairmanship at a time before he purported to conduct the business of the meeting in the absence of those others who had been present at the beginning. 161 I find that Mr Beaumont had no authority to purport to close the meeting pursuant to reg 42.162 Rather, the meeting, in the circumstances which I have described, fell into complete disarray and should be treated as adjourned: Colorado Constructions at 601. 163 I regard the purported poll taken as tainted by fundamental procedural irregularity. It was called by Mr Beaumont who had no authority to do so. Only Mr Hammer or Ms Davies could have called for a poll under reg 44.1 of the constitution. Neither did so. Under reg 44.2 only the chairperson had authority to direct when and where a poll shall be taken. It was called for at a time when Mr Hammer was claiming to be chairperson. That was in dispute. Neither Mr Hammer nor the members he purported to represent by proxy participated in the poll. Resolutions purportedly carried as a result of the purported poll are of no effect. More importantly, I have found that the indispensable requirement that the AGM have a chairperson had not been met. I do not regard that merely as a procedural irregularity. I do not regard the relief, in these circumstances, under s 1322 of the Corporations Act as apt. 164 It follows for all these reasons that the AGM effected no business on the 17 December. None of the resolutions in the Notice of AGM nor those purportedly put by Mr Hammer were validly carried. It will be necessary for Carpathian to convene a further AGM.