Correa v Whittingham - [2013] NSWCA 263

Court of Appeal

Supreme Court

New South Wales

Amendment notes

Medium Neutral Citation: Correa v Whittingham [2013] NSWCA 263
Hearing dates: 16 - 17 May 2013
Decision date: 15 August 2013
Before: Barrett JA at [1];
Gleeson JA at [9];
Tobias AJA at [304]
Decision:
1. Grant leave to the respondent to file the notice of contention dated 17 May 2013.
2. Appeal allowed.
3. Set aside the orders and declaration of Black J made on 21 June 2012.
4. In lieu thereof, declare that the respondent was, by reason of contravention of s 41 of the Registered Clubs Act 1976, not capable of being appointed as voluntary administrator of The Spanish Club Limited (the Club), by instrument of appointment dated 17 November 2008, or of acting as such voluntary administrator.
5. Direct that the proceedings be remitted to the primary judge to determine the respondent's claim in paragraphs 4, 5 and 6 of the amended interlocutory process filed 20 February 2012, that the respondent is entitled to be paid out of the assets of the Club his reasonable remuneration, costs and expenses, including legal expenses for work performed pursuant to his purported appointment as voluntary administrator and as deed administrator of the Club, on a quantum meruit basis.
6. Reserve questions of costs.
7. Grant leave to the appellants to file and serve short written submissions in relation to the costs of the appeal and at first instance within 14 days of the date of delivery of judgment. Any such written submissions are to set out both the orders sought and the reasons why those orders are sought.
8. Grant leave to the respondent to file and serve short written submissions in reply within 14 days after service on him of the appellants' written submissions contemplated by the previous order, with the appellants to have a further seven days after receiving those submissions to reply.
9. Note that the Court will determine the issue of costs on the papers.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords:
CORPORATIONS - voluntary administration - administrator - s 41 Registered Clubs Act 1976 - whether administrator validly appointed

CORPORATIONS - voluntary administration - administrator - s 447A Corporations Act 2001 - s 1322 Corporations Act - whether primary judge erred in exercising his discretion to make curative orders

CORPORATIONS - voluntary administration - administrator - s 128 Corporations Act 2001 - s 129 Corporations Act - whether administrator entitled to rely on statutory assumptions
CORPORATIONS - voluntary administration - administrator - attempted sale of core property without member approval - whether attempted sale was conduct prejudicial to the interests of club members
Legislation Cited: Bankruptcy Act 1924
Corporations Act 2001 (Cth)
Insolvency Act 1986 (UK)
Law Reform (Miscellaneous Provisions) Act 1946
Registered Clubs Act 1976
Supreme Court Act 1970
Valuers Act 2003
Cases Cited: ABC Broadcasting Corporation v Redmore Pty Ltd (1989) 166 CLR 454
Australian Education Union v Department of Education and Children's Services [2012] HCA 3; 285 ALR 27
Australasian Memory Pty Ltd v Brien [2000] HCA 30; 200 CLR 270
Barclays Finance Holdings Ltd v Sturgess (1985) 3 ACLC 662
Beach Petroleum NL v Abbott Tout Russell Kennedy (1997) 26 ACSR 114
Beach Petroleum NL v Abbott Tout Russell Kennedy [1999] NSWCA 908; 33 ACSR 1
BE Australia WD Pty Ltd v Sutton [2011] NSWCA 414; 82 NSWLR 336
Beck v L W Furniture Consolidated (Aust) Pty Ltd [2012] NSWCA 76
Breen v Williams (1996) 186 CLR 71
Bristol & West Building Society v Mothew [1998] Ch 1
Calabretta v Redpen Developments Pty Ltd (in liq) [2010] FCA 81; 183 FCR 47
Care Matters Partnership Ltd [2011] EWHC 2543 (Ch)
Deputy Commissioner of Taxation v Portinex Pty Ltd (No 2) [2000] NSWSC 557; 34 ACSR 422
Eden Energy Ltd v Drivetrain USA Inc [2012] WASC 192; 90 ACSR 191
Gould v Companies Auditors & Liquidators Disciplinary Board [2009] FCA 475; 71 ACSR 648
Gosford Christian School Ltd v Totonjian [2006] NSWSC 725; FLR 424
Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; 201 FLR 456
Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; 156 CLR 41
House v The King (1936) 55 CLR 499
In Re Sly, Spink and Co [1911] 2 Ch 430
John Alexander's Clubs Pty Ltd v White City Tennis Club Limited [2010] HCA 19; 241 CLR 1
Kazaar v Duss [1998] FCA 1378; 29 ACSR 321
Maguire v Makaronis [1997] HCA 23; 188 CLR 449
Master Education Services Pty Ltd v Ketchell [2008] HCA 38; 236 CLR 101
Metwally v University of Wollongong [1985] HCA 28; 60 ALR 68 at 71
Natarajan v ACIB Accumulus Pty Ltd [2006] VSC 22; 56 ACSR 356
National Australia Bank Ltd v Horne [2011] VSCA 280; 253 FLR 205
National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400
Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1
Oris Funds Management Ltd v National Australia Bank Ltd [2003] VSC 315
Panasystems Pty Ltd v Voodoo Tech Pty Ltd [2003] FCA 428; 21 ACLC 842
Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; ACSR 109
Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; 207 CLR 165
Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355
Queensland Bacon Pty Ltd v Rees [1966] HCA 21; 115 CLR 266
Re Australian Art Investment Pty Ltd (Admin Apptd) [2012] VSC 18
Re Australian Property Custodian Holdings Ltd (Admins Apptd) (Recs and Mgrs Apptd) [2010] VSC 492
Re Colorbus Pty Ltd; Mentha v Colorbus Pty Ltd (in liq) [2004] VSC 486; 51 ACSR 677
Re Continental Pacific Insurance Co (Aust) Ltd [2002] NSWSC 789
Re New Tel Ltd [2004] FCA 1154; 210 ALR 270
Re Octaviar Ltd (No 8) [2010] QCA 45; 237 FLR 315
Re Priceright Construction Pty Limited [2006] NSWSC 324; 57 ACSR 206
Shirlaw v Graham [2001] NSWSC 612
Silver v Dome Resources NL [2007] NSWSC 455; 62 ACSR 539
Singh v Singh [2008] NSWSC 386
Sixty-Fourth Throne Pty Ltd v Macquarie Bank (1996) 130 FLR 411
Soyfer v Earlmaze Pty Ltd [2000] NSWSC 1068
Tasker v Fullwood [1978] 1 NSWLR 20
The Queen v Toohey; Ex parte Northern Land Council [1981] HCA 74; 151 CLR 170
Weinstock v Beck [2013] HCA 14; 87 ALJR 554; 93 ACSR 231
Wilson v Manna Hill Mining Co Pty Ltd [2004] FCA 1663; 51 ACSR 404
Xie v Crisp [2011] VSC 154; 248 FLR 265
Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; 212 CLR 484
Texts Cited: Justice R P Austin "The Legal Standard of Loyalty and Professional Guidelines", Supreme Court of New South Wales, IPAA National Conference 12-13 October 2006
Meagher, Gummow and Lehane's Equity Doctrines and Remedies 4th ed, (2002) Lexis Nexis
P D Finn, "The Fiduciary Principle" in T G Youdan (ed), Equity, Fiduciaries and Trust (1989), Casswell
Young, Croft, Smith, On Equity (2009) Thomson Reuters
Category: Principal judgment
Parties: Dolores Correa (First Appellant)
The Spanish Club Limited (Subject to a Deed of Company Arrangement) (Second Appellant)
Kenneth Michael Whittingham (Respondent)
Representation: Counsel:
B W Walker SC with V R W Gray and
M J Stevens (Appellants)
S D Robb QC with G E S Ng (Respondent)
Solicitors:
Somerset Ryckmans (Appellants)
Norton Rose (Respondent)

File Number(s): 2012/190786
Decision under appeal

Citation:

[2012] NSWSC 526

Date of Decision:

2012-05-21 00:00:00

Before:

Black J

File Number(s):

2009/290732

headnote

[This headnote is not to be read as part of the judgment]

The first appellant, Ms Correa, is a member of the second appellant, the Spanish Club. The respondent, Mr Whittingham, was purportedly appointed as voluntary administrator of the Club sometime between 14 November 2008 and 17 November 2008. Mr Whittingham did not obtain approval under s 41 of the Registered Clubs Act 1976 from the Casino Control and Gaming Authority (Authority) to act in the capacity of administrator of the Club until 27 November 2008.

On 27 February 2009, a meeting of creditors of the Club resolved that the Club execute a proposed deed of company arrangement (DoCA). On 16 March 2009, Mr Whittingham executed the DoCA on behalf of the Club and himself as deed administrator.

On 3 June 2010, Mr Whittingham handed back control of trading of the Club to the new board in accordance with the terms of the DoCA, which had been varied on two occasions, once by a resolution of creditors and once by order of the Court made under s 447A of the Corporations Act 2001 (Cth).

Ms Correa and the Club challenged the validity of Mr Whittingham's appointment on a number of grounds including contravention of provisions of the Constitution of the Club, contraventions of Pt 5.3A of the Corporations Act and contravention of s 41 of the Registered Clubs Act. They also challenged various aspects of Mr Whittingham's conduct of the administration of the Club under s 447E of the Corporations Act, asserting that he had managed the Club's affairs in a manner prejudicial to the interests of its members.

The primary judge:

1 Found that it was not open to Ms Correa and the Club to assert any failure to comply with the requirements of the Club's constitution in respect of the minimum number of directors or quorum requirements for directors meetings to invalidate Mr Whittingham's appointment as administrator since he was entitled to rely on the statutory assumptions under ss 128 and 129 of the Corporations Act.

2 Found that Mr Whittingham had complied with s 448A of the Corporations Act, which required the administrator's written consent to the appointment prior to the appointment.

3 Found that Ms Correa and the Club failed to establish the absence of a resolution of directors of the club as required to engage s 436A(1)(a) of the Corporations Act.

4 Made curative orders under ss 447A and 1322 of the Corporations Act to validate Mr Whittingham's appointment insofar as, contrary to his conclusions, there was a contravention of s 448A of the Corporations Act, or a failure to hold a meeting of creditors of the Club by 19 December 2008, as required by s 439A(5) of the Corporations Act.

5 Found that s 41 of the Registered Clubs Act 1976 did not invalidate Mr Whittingham's appointment because approval to act in the capacity of administrator of the Club was subsequently given by the Authority.

6 Found that Mr Whittingham had not managed the Club's affairs contrary to s 447E of the Corporations Act in a manner prejudicial to the interests of its members.

7 Concluded that Mr Whittingham was entitled to pursue a claim for remuneration under s 449E of the Corporations Act, which had been made in separate proceedings.

The appellants appealed. The key issue on appeal was whether the respondent was validly appointed as administrator of the Club. Additionally, the appellants challenged the curative orders made by the primary judge.

Held (by the Court), appeal allowed:

1 The appellants' challenge to the primary judge's finding that the respondent had been validly appointed was successful on the ground that, by reason of contravention of s 41 of the Registered Clubs Act, the respondent was not capable of being appointed to act in the capacity of voluntary administrator of the Club, or of acting as such voluntary administrator [63]-[96].

Considered: National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400; Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355; Master Education Services Pty Ltd v Ketchell [2008] HCA 38; (2008) 236 CLR 101; Australian Education Union v Department of Education and Children's Services [2012] HCA 3; (2012) 285 ALR 27; Tasker v Fullwood [1978] 1 NSWLR 20; ABC Broadcasting Corporation v Redmore Pty Ltd (1989) 166 CLR 454; House v The King (1936) 55 CLR 499.

2 Section 447A of the Corporations Act does not authorise the Court to validate the invalidity of an administrator's appointment arising from a contravention of s 41 of the Registered Clubs Act [2]-[8] and [97]-[106].

Considered: Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270; Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 201 FLR 456; BE Australia WD Pty Ltd v Sutton [2011] NSWCA 414; (2011) 82 NSWLR 336; National Australia Bank Ltd v Horne [2011] VSCA 280; (2011) 253 FLR 205; Re Octaviar Ltd (No 8) [2010] QCA 45; (2010) 237 FLR 315; Re Priceright Construction Pty Limited [2006] NSWSC 324; (2006) 57 ACSR 206.

3 The respondent was entitled to rely on the statutory assumptions in ss 128 and 129 of the Corporations Act [107]-[169].

Considered: Soyfer v Earlmaze Pty Ltd [2000] NSWSC 1068; Oris Funds Management Ltd v National Australia Bank Ltd [2003] VSC; Eden Energy Ltd v Drivetrain USA Inc [2012] WASC 192; (2012) 90 ACSR 191 315; Barclays Finance Holdings Ltd v Sturgess (1985) 3 ACLC 662; Deputy Commissioner of Taxation v Portinex Pty Ltd (No 2) [2000] NSWSC 557; (2000) 34 ACSR 422; Beach Petroleum NL v Abbott Tout Russell Kennedy (1997) 26 ACSR 114; Beach Petroleum NL v Abbott Tout Russell Kennedy [1999] NSWCA 908; (1999) 33 ACSR 1; Wilson v Manna Hill Mining Co Pty Ltd [2004] FCA 1663; (2004) 51 ACSR 404; Breen v Williams (1996) 186 CLR 71; Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165; Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1; Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41; John Alexander's Clubs Pty Ltd v White City Tennis Club Limited [2010] HCA 19; 241 CLR 1; Maguire v Makaronis [1997] HCA 23; 188 CLR 449; Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; 212 CLR 48; Bristol & West Building Society v Mothew [1998] Ch 1; Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; (1994) ACSR 109; Queensland Bacon Pty Ltd v Rees [1966] HCA 21; (1996) 115 CLR 266; Oris Funds Management Ltd v National Australia Bank Ltd [2003] VSC 315; Silver v Dome Resources NL [2007] NSWSC 455; (2007) 62 ACSR 539; Sixty-Fourth Throne Pty Ltd v Macquarie Bank (1996) 130 FLR 411.

4 The appellants' challenge to the respondent's appointment on the ground of the absence of a resolution that would be capable of engaging s 436A of the Corporations Act failed [170]-[178].

Considered: In Re Sly, Spink and Co [1911] 2 Ch 430; Gosford Christian School Ltd v Totonjian [2006] NSWSC 725; (2006) FLR 424; Singh v Singh [2008] NSWSC 386; Kazaar v Duss [1998] FCA 1378; (1998) 29 ACSR 321.

5 The appellants' challenge to the respondent's appointment on the ground that he did not provide his written consent prior to the appointment as per s 448A of the Corporations Act should be upheld [179]-[193].

Considered: Gould v Companies Auditors & Liquidators Disciplinary Board [2009] FCA 475; (2009) 71 ACSR 648; Calabretta v Redpen Developments Pty Ltd (in liq) [2010] FCA 81; (2010) 183 FCR 47.

6 The appellants' failed to establish their alternative claim that the respondent ceased to be an administrator as per s 435C of the Corporations Act because he failed to hold a meeting of creditors by the 19 December 2009 [194]-[200].

7 All other challenges to the primary judge's exercise of discretion to make curative orders were rejected [201]-[254].

Considered: Re Australian Art Investment Pty Ltd (Admin Apptd) [2012] VSC 18; Xie v Crisp [2011] VSC 154; (2011) 248 FLR 265; Care Matters Partnership Ltd [2011] EWHC 2543 (Ch); Re Continental Pacific Insurance Co (Aust) Ltd [2002] NSWSC 789; Panasystems Pty Ltd v Voodoo Tech Pty Ltd [2003] FCA 428; (2003) 21 ACLC 842; Re Australian Property Custodian Holdings Ltd (Admins Apptd) (Recs and Mgrs Apptd) [2010] VSC 492; Re Colorbus Pty Ltd; Mentha v Colorbus Pty Ltd (in liq) [2004] VSC 486; (2004) 51 ACSR 677; Natarajan v ACIB Accumulus Pty Ltd [2006] VSC 22; (2006) 56 ACSR 356; Calabretta v Redpen Developments Pty Ltd (in liq) [2010] FCA 81; (2010) 183 FCR 47; Beck v L W Furniture Consolidated (Aust) Pty Ltd [2012] NSWCA 76; Weinstock v Beck [2013] HCA 14; 87 ALJR 554; 93 ACSR 231.

8 The appellants' failed to establish that the respondent's attempted sale of the core property of the Club without member approval was prejudicial to the interests of its members [255]-[291].

Costs at first instance and on appeal were reserved. The proceedings were remitted to the court below to determine the respondent's alternative quantum meruit claim for remuneration and expenses.

Judgment

BARRETT JA: I have had the advantage of reading in draft the comprehensive judgment prepared by Gleeson JA. I agree, for the reasons his Honour gives, that leave to file the notice of contention should be granted, the appeal should be allowed and the other orders he proposes should be made.

I wish to add some brief comments about the operation of s 447A of the Corporations Act 2001 (Cth) the very broad scope of which was, as Gleeson JA notes, confirmed by the High Court in Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270.

In Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 201 FLR 456, Brereton J said at [66], in reliance on Re New Tel Ltd [2004] FCA 1154; (2004) 210 ALR 270 at [7], that "an order under s 447A must have a nexus with how Part 5.3A is to operate in relation to a particular company". That led Campbell JA to say (with the concurrence of McColl JA) in BE Australia WD Pty Ltdv Sutton [2011] NSWCA 414; (2011) 82 NSWLR 336 (at [194]):

"However, whether it is as part of the process of applying the 'nexus' test, or whether it is simply as a limitation that arises as a matter of construction on the scope of the power under s 447A, or whether it is part of the court's obligation to exercise the power under s 447A in a judicial manner, that power cannot properly be used in a way that is foreign to the purpose for which it is inserted in the Corporations Act."

That observation recognises that the power vested in a court by s 447A is a statutory power which may be exercised only for the purpose for which it was granted: The Queen v Toohey; Ex parte Northern Land Council [1981] HCA 74; (1981) 151 CLR 170. The "nexus" with the operation of Part 5.3A to which reference is made in the decided cases must be understood accordingly. The relevant purpose is to be ascertained by reference to the language of the statute, its subject matter and objects and the consequences of a decision that the power has been exceeded: Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355. The principal source of constraint and limitation upon the power is therefore the statement of the object of Part 5.3A in s 435A, coupled with the nature, incidents and aims of the particular form of external administration as gathered from the provisions of Part 5.3A as a whole.

The proper purpose limitation upon s 447A is not exceeded in the frequently encountered case of an order repairing or validating the appointment (or purported appointment) of an administrator which is defective because some element required by Part 5.3A itself is lacking. In circumstances of that kind, the s 447A order causes Part 5.3A to operate even though its own terms are not fully satisfied. An example is found in National Australia Bank Ltd v Horne [2011] VSCA 280; (2011) 253 FLR 205 where the appointor, although a chargee of the company's property, did not, as envisaged by s 436C(1), hold a charge "on the whole, or substantially the whole, of a company's property". Almond AJA (with the concurrence of Buchanan and Mandie JJA) said (at [33]):

"In my opinion it is clear from the decision of the High Court in Australasian Memory that the Court has power to alter how Part 5.3A, specifically how s 436C in Part 5.3A, is to operate in relation to the Company and could exercise that power by ordering that Part 5.3A is to operate as though the purported appointment of the administrators by the chargee on 18 October 2010 was valid."

The proper purpose limitation does not mean that s 447A is confined to modifying what would otherwise be the operation of a provision within Part 5.3A itself. In Re Octaviar Ltd (No 8) [2010] QCA 45; (2010) 237 FLR 315, the section was held to allow an order making inoperative in relation to the particular company not only a provision within Part 5.3A but also a related and complementing provision of the Corporations Regulations 2001 (Cth) (see also Re Priceright Construction Pty Limited [2006] NSWSC 324; (2006) 57 ACSR 206 at [8] - [11]). In cases of that kind, the s 447A order facilitates the operation of Part 5.3A within the whole of the context envisaged by the Act of which it forms part.

In the present case, it would be possible, as a matter of drafting, to fashion an order to the effect that Part 5.3A is to operate in relation to the Club as if there were inserted into it a provision that a person deemed by s 41 of the Registered Clubs Act 1976 (NSW) to be incapable of being appointed as administrator of the Club and of acting as such administrator is, by force of the provision so inserted (and notwithstanding the contrary provision of State law), taken always to have been capable of being so appointed and of so acting.

Such an order would, however, exceed the proper purpose limitation. It would do nothing to promote any object for which Part 5.3A exists or to facilitate or assist the form of external administration for which it provides. The purpose of the order would be to seek to neutralise the State law provision. Nor, despite its form, would the postulated order be an order about how Part 5.3A was to operate in relation to the Club. It would be an order about how the State law was to operate in relation to the Club. For those two reasons, the order would not be authorised by s 447A.

GLEESON JA: This appeal primarily concerns a challenge to the validity of the purported appointment of an administrator under s 436A of the Corporations Act 2001 (Cth) on various grounds, including contravention of the constitution of a company, contravention of various provisions of Pt 5.3A of the Corporations Act and contravention of s 41 of the Registered Clubs Act 1976 (NSW).

In addition, this appeal is concerned with a related challenge to the exercise of discretion by the primary judge when making curative orders under s 447A and s 1322 of the Corporations Act against the contingency that he was wrong, insofar as he rejected the challenges to the validity of the administrator's purported appointment, which relied upon contravention of the constitution of the company and contraventions of the Corporations Act.

Subject to the Court permitting the respondent to file the notice of contention referred to below (which leave I would grant), this appeal also concerns the Court's power to make curative orders under s 447A of the Corporations Act in respect of invalidity of an administrator's appointment arising under s 41 of the Registered Clubs Act, if the challenge to the appointment on this ground is upheld on appeal.

The parties

The first appellant (Ms Correa) is a member of the second appellant (the Club). The respondent (Mr Whittingham) was purportedly appointed administrator of the Club sometime between 14 November 2008 and 17 November 2008 by a purported resolution of directors of the Club under s 436A of the Corporations Act.

On 27 February 2009, a meeting of creditors of the Club pursuant to s 439A of the Corporations Act, resolved that the Club execute a proposed deed of company arrangement (DoCA). On 16 March 2009, Mr Whittingham executed the DoCA on behalf of the Club and himself as deed administrator.

The terms of the DoCA were varied on two occasions in the circumstances referred to further below. Ultimately on 3 June 2010, Mr Whittingham handed back control of trading of the Club to the new board in accordance with the terms of the varied DoCA.

When these proceedings were first commenced by Ms Correa, the Club was joined as a defendant. Subsequently, on 29 February 2012, the board of directors of the Club resolved to apply to the Court to remove the Club as a defendant and join the Club as a plaintiff, and further resolved that all steps taken by Ms Correa in the proceedings be treated as if they were steps taken by the Club in the proceedings.

On 13 March 2012, being the first day of the hearing below, the primary judge made orders as sought by Ms Correa, that the Club be removed as first defendant and joined as second plaintiff in the proceedings (see [2012] NSWSC 794).

Decision below

On the issue of the validity of the administrator's appointment, the primary judge found (see [2012] NSWSC 526) that:

(1) the board of the Club did not comply with the requirements as to the minimum number of directors specified in its constitution at the time of the purported appointment of Mr Whittingham as administrator. However, Mr Whittingham was entitled to rely on the statutory assumptions under s 128 and s 129 of the Corporations Act with the consequence that the appellants could not rely on any failure to comply with the requirements of its constitution in respect of the minimum number of directors or the quorum requirements for directors' meetings to invalidate Mr Whittingham's appointment as administrator;

(2) Mr Whittingham gave his written consent as required by s 448A of the Corporations Act prior to his purported appointment as administrator;

(3) the appellants had not established that there was no proper resolution of insolvency by the directors of the Club as required by s 436A(1)(a) of the Corporations Act;

(4) in any event, orders should be made under s 447A and s 1322 of the Corporations Act validating Mr Whittingham's appointment, to the extent necessary, as administrator of the Club on 17 November 2008;

(5) further, the absence of an approval to act as administrator of the Club under s 41 of the Registered Clubs Act until 11 days after Mr Whittingham's appointment, did not invalidate the appointment under Pt 5.3A of the Corporations Act where such approval was in fact subsequently given by the relevant authority referred to in s 41.

On the issue of the conduct of the administration of the Club, the primary judge held that the numerous criticisms of Mr Whittingham's conduct (most of which are not pressed on appeal) were not established. Accordingly, he rejected the appellants' claim under s 447E of the Corporations Act that Mr Whittingham should be deprived of his remuneration on the basis that he had managed the Club's affairs in a manner prejudicial to members.

On the issue of Mr Whittingham's remuneration, the primary judge held that he was entitled to pursue a claim for remuneration under s 449E of the Corporations Act. That claim had been made by Mr Whittingham in separate proceedings. The primary judge did not consider it necessary to determine Mr Whittingham's alternate quantum meruit claim, which was advanced in the proceedings below, if the Court found that his appointment was invalid but did not make curative orders.

Basic background facts

The basic background facts concerning the purported appointment of Mr Whittingham as administrator of the Club are not in dispute and may be summarised as follows.

The Club is a company limited by guarantee and a registered club under the Registered Clubs Act. The constitution of the Club required a minimum of seven directors to constitute a board, with four directors needed for a quorum.

Appointment of administrator

On 12 November 2008, Mr Whittingham attended a meeting with Ms Yolanda Sanchez, a director of the Club. Prior to this meeting, Mr Whittingham knew nothing about the Club or its affairs. The financial records of the Club were not provided to Mr Whittingham during the course of this initial meeting, however he discussed with Ms Yolanda Sanchez the Club's two properties, 86 and 88 Liverpool Street, Sydney; the level of its debt to its secured lender; the fact that there were issues between members; that two proceedings had been brought against the Club in the Land and Environment Court for fire ordinance issues; that the proceedings had also been brought against the Club by a member, Mr Martin, in relation to its failure to prepare accounts and conduct annual general meetings; and that claims of creditors of the Club were unpaid, and they were demanding payment. At the conclusion of the meeting Mr Whittingham recommended that a voluntary administrator be appointed.

On the same day, Mr Whittingham obtained an Australian Securities and Investment Commission (ASIC) search of the Club. The ASIC search showed that the Club had four directors: Faustino Garcia, Daniel Garcia, Maria Sanchez and Yolanda Sanchez. In his notes of the meeting on 12 November 2008, Mr Whittingham wrote "Board 7/4".

Between 12 and 14 November 2008, Mr Whittingham gave or sent Ms Yolanda Sanchez draft minutes of a directors' meeting and a draft instrument appointing him as administrator. The draft minutes were partially completed; it named the four directors listed in the ASIC search as being "Present" and it contemplated that Faustino Garcia would be the "Chairperson" of the directors' meeting at which the resolution to appoint Mr Whittingham as administrator would be considered.

On 14 November 2008 at 4.52pm, Ms Yolanda Sanchez emailed two documents to Mr Whittingham. The first document entitled "Resolution of Directors of the Spanish Club Limited" was signed by Yolanda Sanchez as "Chairperson". The second document entitled "Instrument of Appointment of Administrator" was signed by both Yolanda Sanchez and Maria Sanchez as directors. The documents were different from the drafts provided by Mr Whittingham. The first document did not state the names of those in attendance, nor the date, time or location of the board meeting. Nor did it record the passing of a resolution appointing Yolanda Sanchez as the "Chairperson" of the meeting, or that the Chairperson had declared that a quorum was present. However, it recorded a resolution that - the opinion of the directors the company was insolvent or likely to become insolvent at some future time and a resolution that the company appoint Mr Whittingham as administrator pursuant to s 436A of the Corporations Act.

Mr Whittingham could not recall when precisely he read the documents which had been emailed to him on Friday 14 November 2008. However at 9.26am on Monday 17 November 2008, he faxed a letter to the Office of Liquor Gaming and Racing (the OLGR) advising that he had been "appointed Administrator of the [Spanish Club] on 17 November 2008," and to ask the OLGR to note his "interest on the liquor and gaming licence". On the same day he faxed a letter in similar terms to the Casino Liquor and Gaming Control Authority (the Authority).

On 17 November 2008, Mr Whittingham raised a question as to the form of the minutes of the directors' resolution with Ms Yolanda Sanchez and asked her to advise who was present at the directors meeting. Ms Yolanda Sanchez responded "I phoned the other two directors and they indicated that they were in agreement with the appointment". Based on this response, Mr Whittingham made the following assumptions:

a meeting of the board was properly convened and validly took place;
the "other two directors" were Faustino Garcia and Daniel Garcia;
Yolanda Sanchez and Maria Sanchez were both present at a validly convened meeting;
Faustino and Daniel Garcia were contacted by Yolanda together in a single place (by way of speakerphone or conference call) while the meeting was taking place.

Mr Whittingham acknowledged in cross-examination that he did nothing to ascertain the correctness of the above assumptions. Nor did Mr Whittingham ascertain if the "other two directors" held the opinion, and had resolved to the effect that they held the opinion, that the Club was insolvent or was likely to become insolvent. Mr Whittingham's evidence was that, after his conversation with Ms Yolanda Sanchez, he inserted the date "17 November 2008" into the signed directors' resolution and instrument of appointment. He then gave a signed consent to act as administrator to Ms Yolanda Sanchez.

Later on 17 November 2008, Mr Whittingham had a telephone conversation with Mr Transfield of the OLGR concerning his appointment as administrator of the Club. There was a conflict in the evidence of Mr Whittingham and Mr Transfield as to the content of the conversation. The primary judge found (at [21]) that Mr Whittingham was mistaken in his evidence that Mr Transfield gave him express oral approval for him to be appointed as administrator. He considered there was a degree of reconstruction in Mr Whittingham's recollection of events but did not accept the appellants' submission that Mr Whittingham was untruthful and dishonest in that evidence.

In the afternoon of 17 November 2008, Mr Whittingham telephoned his lawyer, Chris Cruikshank, "to check to make sure that [he] was validly appointed". Mr Whittingham sought that advice because of the form of the minute and the instrument of appointment which he had received from Ms Sanchez, and because a former director of the Club, Mr Martin, had brought proceedings against the Club in respect of matters such as its failure to hold annual general meetings and prepare accounts, and because he had arranged a meeting with Mr Martin and his legal advisors on the following day. Mr Whittingham disclosed to his solicitor the relevant matters concerning his conversation with Ms Yolanda Sanchez. Mr Cruikshank expressed a preliminary view that Mr Whittingham had been validly appointed. Mr Cruikshank later reviewed the Club's constitution and considered the issue of the validity of Mr Whittingham's appointment. On 18 or 19 November 2008, Mr Cruikshank advised Mr Whittingham: "Ken, you have been validly appointed".

Also on 17 November 2008, Mr Whittingham sent letters to Mr Faustino Garcia and Mr Daniel Garcia, the two directors of the Club whose signatures did not appear on the instrument of appointment, to advise them of his appointment and that they were not entitled to exercise any of their functions and powers as officers of the Club without his approval. On the same date, the ASIC wrote to each of Mr Faustino Garcia and Mr Daniel Garcia advising them of Mr Whittingham's appointment as administrator.

On 26 November 2008, Mr Whittingham applied for the approval of the Authority to act as administrator of the Club under s 41 of the Registered Clubs Act. On 28 November 2008, the Authority gave that approval.

Meetings of creditors of the Club and the DoCA

On 27 November 2008, the first meeting of creditors of the Club was held. On 11 December 2008, notice was sent to creditors of the Club convening the second meeting of creditors for 22 December 2008. On that date, the creditors resolved to adjourn the second meeting to 27 February 2009.

On 17 February 2009, notice of the adjourned second meeting of creditors of the Club was sent, together with a supplementary report, convening a meeting for 27 February 2009. At the adjourned second meeting of creditors, it was resolved that the Club execute a proposed DoCA. The DoCA was executed on 16 March 2009.

The terms of the DocA are referred to in detail below under Issue 7. Relevantly for present purposes, they provided for the sale of the Club's "core" property, being 88 Liverpool Street, subject to the approval of members as required by the Registered Clubs Act or the Club's constitution. The sale of the Club's "non-core" property, which included 86 Liverpool Street, was not subject to the approval of members under the Registered Clubs Act. However, prior to sale the deed administrator was obliged to seek member approval to the sale but was not bound by the failure of that resolution or even a resolution to the contrary.

On 15 September 2009, a meeting of creditors of the Club resolved to vary the terms of the DoCA. This included varying the termination provisions to effectively provide for control of the Club to be handed back to the new board of directors sooner than under the original DoCA, upon sufficient assets being realised to enable Mr Whittingham to pay all of the debts owing to creditors.

Sale of the Club's "core" property

On 1 July 2009, Mr Whittingham entered into a contract to sell two properties (the properties) of the Club (86 and 88 Liverpool Street in one line) for $9,200,000 (plus GST) to G&J Drivas Pty Ltd (Drivas). The terms of this contract, and the subsequent dispute which arose between Ms Correa and Mr Whittingham as to whether the approval of members of the Club was required to the sale, is referred to in detail below under Issue 7. It is sufficient to record at this stage that a meeting of members of the Club held on 31 July 2009 resolved overwhelmingly not to approve the sale. Mr Whittingham subsequently received advice from the Director-General of Communities New South Wales that s 41J of the Registered Clubs Act had no application to the disposal of core property of the Club by the administrator.

Injunction proceedings

On 30 September 2009, Ms Correa instituted proceedings for an injunction to restrain the sale of the properties to Drivas, and for an order that Mr Whittingham be removed as deed administrator of the Club. Significantly, Ms Correa did not at that time seek declarations that Mr Whittingham was not validly appointed as administrator and deed administrator. An injunction restraining the sale to Drivas was made by Brereton J (see [2009] NSWSC 1225).

On 13 November 2009, the annual general meeting of the Club was held and a new board of directors comprising Ms Correa and six other members were appointed as directors.

Applications for directions and other relief

On 27 November 2009, Mr Whittingham filed an application for directions regarding the holding of a meeting of creditors to vary the terms of the DoCA to enable the completion of the sale of the properties to Drivas, or alternatively to place the Club into liquidation.

On 3 December 2009, Brereton J declined to give the direction sought by Mr Whittingham (see [2009] NSWSC 1426).

On 15 February 2010, Mr Whittingham filed an application seeking an order under s 447A of the Corporations Act deleting cl 5.1 and cl 5.2 of the DoCA, and in the alternative seeking an order under s 445D terminating the DoCA and an order under s 447A appointing Mr Whittingham as liquidator of the Club.

On 17 March 2010, Ms Correa's solicitors sent a draft further amended originating process (in the injunction proceedings referred to at [38] above) to Mr Whittingham's solicitors which, for the first time, sought declarations that Mr Whittingham was not validly appointed as administrator or deed administrator, and an order that the administration and the DocA were nullities. On the same date, Mr Whittingham's solicitors sent a draft originating process to Ms Correa's solicitors seeking an order under s 447C that Mr Whittingham was validly appointed, and an order under s 447A that Mr Whittingham was validly appointed.

On 18 March 2010, Mr Whittingham's originating process filed on 15 February 2010 came before Palmer J. The underlying dispute between Ms Correa and Mr Whittingham was whether Mr Whittingham ought be permitted to sell the properties without the consent of members. Counsel for Ms Correa sought leave to file a further amended originating process in the injunction proceedings. This sought declarations that Mr Whittingham was not validly appointed as administrator or deed administrator, and an order that the administration and the DoCA are nullities. In response, Counsel for Mr Whittingham informed the Court that if such leave was granted to Ms Correa, then Mr Whittingham sought leave to file an amended originating process seeking curative orders. Palmer J declined to grant leave to Ms Correa to file the further amended originating process. Mr Whittingham did not pursue his foreshadowed application under s 447C and s 447A. The proceedings were stood over to 22 March 2010. On that date, the secured creditor of the Club filed an application seeking an order under s 447A varying the DoCA so that it no longer be bound by the DoCA or, alternatively, an order under s 447D terminating the DoCA.

On 28 March 2010, Mr Whittingham ceased trading the Club because of continuing significant costs being incurred by the Club, the cost of completing the annual fire statement on 31 March 2010, and the inability to obtain insurance cover past 30 April 2010, without certain work being carried out.

On 15 April 2010, the secured debt owed by the Club was paid out by Trantin Pty Ltd (Trantin), which took a transfer of the secured creditor's mortgage.

On 6 May 2010, Palmer J made orders by consent (which included the consent of Ms Correa) dismissing the interlocutory process filed by the Club's former secured creditor, and further amending the terms of the DoCA pursuant to s 447A of the Corporations Act, to the following effect:

amended the definition of "secured creditor" to mean "Trantin";
replaced cl 5 of the DocA with a term which permitted Trantin to sell either or both of the properties, with terms governing the sale process;
effectively deleted the term of the DoCA giving members a right to approve the sale of 88 Liverpool Street;
required that the sale proceeds be sufficient to cover the estimated pre-administration creditors of $335,000, the amount of Mr Whittingham's reasonably estimated entitlements under the DoCA and an additional $100,000, being the estimated costs of Mr Whittingham completing his duties as deed administrator;
required Trantin, at settlement of any contract of sale, to pay to Mr Whittingham these amounts;
permitted Mr Whittingham to sell either or both of the properties if Trantin did not exchange contracts for sale before 18 June 2010;
required the Club to pay interest from 21 April 2010 to the date of payment of dividends to unsecured creditors at the rates prescribed by the Supreme Court Act.

On 20 May 2010, Trantin, as mortgagee, entered into a contract for the sale of the "non-core" property (86 Liverpool Street) to Drivas for $3,500,000. This contract was completed on 3 June 2010. Mr Whittingham agreed to accept $3,200,000 from the proceeds of sale of 86 Liverpool Street, to permit the balance to be paid by Trantin to the Club to enable it to recommence trading. This was on the condition that he be entitled to a lien over 88 Liverpool Street and any GST refund payable to the Club.

On 3 June 2010, Mr Whittingham handed back control of trading of the Club to the board of directors in accordance with the terms of the varied DoCA.

On and after 4 June 2010, Mr Whittingham paid post-administration creditors amounts totalling approximately $2,240,000 plus interest at the rate of 9 per cent per annum from 21 April 2010 to the date of payment.

On and after 12 August 2010, Mr Whittingham paid dividends to pre-administration unsecured creditors totalling $500,128.67 plus interest of $18,082.74 to the date of payment.

Mr Whittingham's s 449E proceedings

On 27 October 2010, Mr Whittingham filed an application in separate proceedings for approval of his remuneration under s 449E of the Corporations Act for the period 22 July 2009 to 22 August 2010.

Amended claim by Ms Correa challenging validity of Mr Whittingham's appointment

On 28 February 2011, Ms Correa filed an amended originating process and points of claim in the proceedings below seeking a declaration that Mr Whittingham was not validly appointed as administrator or deed administrator, and deleting her previous claim that Mr Whittingham be removed as deed administrator.

On 19 July 2011, Mr Whittingham filed an interlocutory process in the proceedings below seeking an order under s 447C of the Corporations Act that he was validly appointed as administrator of the Club on 17 November 2008. Alternatively he sought curative relief under s 447A and s 1322(4)(a) of the Corporations Act and further and alternatively to that relief, an order that he was entitled to be paid out of the assets of the Club his reasonable remuneration and costs and expenses.

Issues on appeal

The appellants' amended notice of appeal contained 27 grounds of appeal. It is unnecessary to set out all these grounds. They may be grouped together under the issues raised by the appeal as follows:

(1) Whether, by way of answer to the appellants' contention that the steps taken in appointing him were not in compliance with the Club's constitution, Mr Whittingham is entitled to assert reliance upon s 128 and s 129 of the Corporations Act, having regard to the absence of an explicit reference to those provisions in his points of defence (Ground 1A(a)).

(2) If the answer to (1) is yes, whether, having regard to the statutory assumption set out in s 129(1) of the Corporations Act, it is open to the appellants to rely on any failure by the Club's directors to comply with the requirements of its constitution for the purpose of contending against the validity of Mr Whittingham's appointment (Grounds 1A(b)-(d), 1B, 1C, 1D and 1E).

(3) Having regard to the answers to (1) and (2) above, whether Mr Whittingham's appointment was preceded by a resolution of the Club's directors capable of engaging s 436A of the Corporations Act (Ground 8).

(4) Whether the circumstance that Mr Whittingham did not consent to his appointment as required by s 448A of the Corporations Act until 17 November 2008 had the effect of rendering that appointment invalid (Grounds 9, 9A, 11, 12, 12A and 12B).

(5) Whether if Mr Whittingham was validly appointed as voluntary administrator, it was by an instrument of appointment executed pursuant to a resolution of the directors which was passed no later than 14 November 2008 and, consequently, Mr Whittingham was required to convene a meeting of creditors in accordance with s 439A(5) of the Corporations Act by 19 December 2008, but failed to do so with the consequences that on that date the administration came to an end and Mr Whittingham ceased to be administrator pursuant to s 435C(3)(b)(i) of the Corporations Act (Ground 13).

(6) Whether, in the exercise of the discretion conferred by s 447A and s 1322 of the Corporations Act to make curative orders, the primary judge erred by applying the wrong principle, or by taking irrelevant considerations into account, or by failing to consider relevant matters when making curative orders. Further, whether the primary judge erred in declaring that Mr Whittingham was entitled to be reimbursed and indemnified out of the assets of the Club in respect of his remuneration, legal costs and disbursements as administrator (Grounds 16-20, 26-28).

(7) Related to (6) above, whether Mr Whittingham's conduct of the administration of the Club in attempting to sell the Club's core property (88 Liverpool Street) without member approval was prejudicial to the interests of its members and, if so, whether this was a factor that was sufficiently taken into account by the primary judge in the course of exercising his discretion under s 447A and s 1322 (Grounds 21-25).

(8) Irrespective of the answers to (1) to (7) above, whether the circumstance that the Authority referred to in s 41 of the Registered Clubs Act did not approve Mr Whittingham to act as administrator of the Club until 28 November 2008 had the effect rendering his appointment invalid (Grounds 10 and 10A).

(9) Whether the primary judge should have ordered Mr Whittingham to pay the appellants' costs regardless of the making of curative orders, on the basis that he was seeking an indulgence and ought therefore pay these costs (Grounds 28 and 29).

No submissions were made by the appellants in support of Grounds 14 and 15. Ground 14 contended that the primary judge erred in not holding that Mr Cruikshank's advice that Mr Whittingham was validly appointed was wrong, and should have found that Mr Whittingham's remedy was an action against his solicitor for professional negligence, not an action to validate his appointment so as to render the Club liable for his fees and expenses of an (otherwise) invalid administration. Ground 15 contended that the primary judge erred in refusing leave to amend the appellants' points of claim to plead that the directors of the Club all ceased to hold office after 31 December 2007.

There is no appeal in relation to the primary judge's rejection of the appellants' claim under s 447E of the Corporations Act alleging conduct by the administrator prejudicial to the interests of members. However, one aspect of this claim, being Mr Whittingham's conduct in attempting to sell the Club's core asset, is relied upon by the appellants as militating against the making of curative orders below (see [55](7) above).

Notice of contention

During the hearing of the appeal, the respondent sought leave to file a notice of contention asserting that if his appointment as administrator of the Club is invalid by reason of the failure to comply with s 41 of the Registered Clubs Act, the primary judge should have made an order, pursuant to s 447A of the Corporations Act, curing this contravention. The order sought was "that Pt 5.3A of the Act is to operate in relation to the Club as if the delegate of the Authority had approved the respondent to act in the capacity of administrator of the Club prior to the appointment of the respondent to act in that capacity".

The filing of the notice of contention was opposed by the appellants on the ground that it was a new issue not raised by the respondent below. Indeed the contention was contrary to the parties' common position below, which the primary judge accepted (at [102]), that there is no power under s 447A of the Corporations Act to validate the invalidity of an administrator's appointment arising from s 41 of the Registered Clubs Act.

A party is bound by the conduct of their case and except in the most exceptional circumstances, should not be permitted to raise a new argument which, whether deliberately or by inadvertence, they failed to put during the hearing when they had an opportunity to do so: see Metwally v University of Wollongong [1985] HCA 28; (1985) 60 ALR 68 at 71. Counsel for Mr Whittingham frankly acknowledged that the argument was not raised below because a view was taken, albeit with some diffidence, that s 447A of the Corporations Act gave way to s 41 of the Registered Clubs Act having regard to s 5E(2)(e)(ii) of the Corporations Act.

In my view, the respondent should be granted leave to file the notice of contention for the following reasons. First, it raises a pure question of law which is relevant to the orders which should be made by this Court if the appeal is upheld in relation to invalidity based on s 41 of the Registered Clubs Act, and the related issue of whether the curative orders made below in respect of contraventions of the constitution of the Club and the Corporations Act should be set aside. Secondly, the appellants did not point to any prejudice occasioned by this late contention.

Invalid appointment

It is convenient to first deal with the challenge to Mr Whittingham's appointment based on s 41 of the Registered Clubs Act (Issue 8). This issue is in a different category to the other challenges, because it is beyond the curative reach of s 447A of the Corporations Act, unless the respondent's notice of contention is upheld.

Issue 8: Section 41 of the Registered Clubs Act 1976

Section 41 of the Registered Clubs Act is contained in Pt 4 of that Act headed "Management of registered clubs", and provides:

"A person is not capable of being appointed to act in the capacity of the administrator ... of a registered club that is a company within the meaning of the Corporations Act ... or of acting in any such capacity unless the person has been:

(a) appointed to act in that capacity by the Supreme Court, or

(b) approved to act in that capacity by the Authority."

The "Authority" referred to in s 41 is the Casino Liquor and Gaming Control Authority, although it appears that relevant functions are carried out by the OLGR.

Section 41A of the Registered Clubs Act authorises the Authority to appoint a person to administer the affairs of a registered club until an appointment is made under s 41, or the Authority orders otherwise (whichever occurs first), but only if the Authority is of the opinion that the governing body of the Club has ceased to be an effective governing body.

In this case, the Authority granted approval under s 41 of the Registered Clubs Act for Mr Whittingham to act as administrator of the Club by an Instrument of Approval dated 28 November 2008. That is, the approval was granted after the purported appointment of Mr Whittingham as administrator of the Club.

Primary judge's reasoning

The primary judge correctly observed (at [105]) that the question of whether s 41 of the Registered Clubs Act invalidates an appointment of an administrator which occurs prior to the giving of the relevant approval is to be determined by reference to the principles identified by the High Court in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 at 390-391, where the plurality observed that (citations omitted):

"... [a] court, determining the validity of an act done in breach of a statutory provision, may easily focus on the wrong factors if it asks itself whether compliance with the provision is mandatory or directory and, if directory, whether there has been substantial compliance with the provision. A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid. This has been the preferred approach of the courts in this country in recent years, particularly in New South Wales. In determining the question of purpose, regard must be had to 'the language of the relevant provision and the scope and object of the whole statute'."

The primary judge expressed the view (at [106]) that the purpose of s 41 of the Registered Clubs Act requires that an administrator's appointment be treated as invalid in circumstances where no approval was "ever" given for that appointment. (It may be immediately observed that the word "ever" is a significant gloss on the language used in s 41.)

The primary judge acknowledged (at [107]) that the language "a person is not capable of being appointed" in s 41 of the Registered Clubs Act, speaks as at the date of the administrator's appointment, but held that the section does not in terms require a prior application for such approval. Rather, the question of whether a person was capable of being appointed as at the date of his or her appointment may be determined by reference to subsequent events, including a grant of approval made after his or her appointment. The primary judge's reasoning (at [107]-[109]) to this conclusion was as follows:

(a) An appointment can be treated as if in a state of "suspended validity" pending the relevant approval, such that it will be valid if approval is later granted, and invalid if such approval is either not sought or sought but not later granted.

(b) This approach to s 41 was consistent with that contemplated by Glass JA in National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400 at 408, and the similar approach adopted by the Court in granting leave, with retrospective effect, for the appointment of an administrator under s 448C of the Corporations Act.

(c) It was also consistent with the statutory purpose of s 41 because if the Authority was unable to give immediate approval to an administrator's appointment, but ultimately considered that the circumstances warranted giving such approval, it would frustrate and not promote the objectives of the Registered Clubs Act and the objects of Pt 5.3A of the Corporations Act to treat that appointment as invalid when the Authority in fact approved it "with the intent that it have effect".

(d) The contrary approach to s 41 would have the result that, if the Authority could not (or considered that it should not without some further inquiry) immediately approve the appointment of an administrator, then an administrator could not immediately be appointed in circumstances of a registered club's insolvency, notwithstanding that the Corporations Act contemplates that such an appointment can be made in accordance with the objects of Pt 5.3A in that situation, and such an appointment is a means of directors avoiding continuing liability for insolvent trading. Although directors of such a registered club could apply to the Court for the appointment of a provisional liquidator, they would be denied the benefit of utilising the administration procedure under Pt 5.3 of the Corporations Act.

The primary judge held alternatively (at [110]) that even if s 41 of the Registered Clubs Act had any invalidating effect in the present case, it ceased to have that effect when the Authority provided formal approval for Mr Whittingham's appointment 11 days after the appointment. The reasons given for this conclusion were that any lack of approval for those 11 days did not cause any practical prejudice to any party. This was in circumstances where Mr Whittingham had advised OLGR and the Authority in writing, and Mr Transfield of OLGR orally, of his appointment on the day it occurred, and none of them had taken any objection to that appointment.

Submissions

The appellants submitted that: (a) ordinary principles of construction required that effect be given to the clear words of the prohibition in s 41 of the Registered Clubs Act, which are directed to the suitability of a named person to be appointed administrator of a registered club; (b) the primary judge's reasoning based on the "suspended validity" of an appointment pending the relevant approval by the Authority, or that a subsequent approval by the Authority could take effect nunc pro tunc, was inconsistent with the clear language of the statute; (c) the construction adopted by the primary judge would produce great uncertainty as to the timing and validity of an administrator's purported appointment as it would depend on later circumstances whether an approval was "ever" given by the Authority; and (d) the absence of remedies in s 41 of the Registered Clubs Act was indicative of an intention that non-compliance with s 41 will result in invalidity, in contradiction with s 34 which provided that a person who acts as secretary of a club without being approved by the Authority is guilty of an offence.

The respondent contended that s 41 should be construed against the background that the appointment of an administrator to a registered club may occur in circumstances of no less urgency than it might in relation to any other form of company. However, because (for the purposes of the respondent's argument, assuming his notice of contention is rejected) a failure to comply with s 41 of the Registered Clubs Act is beyond the curative reach of s 447A of the Corporations Act, the legislative intention of the New South Wales Parliament could not have been to impose, in relation to registered clubs, a further requirement of approval by the Authority for the appointment of an administrator, a breach of which would be incapable of subsequent cure, notwithstanding that such a purported appointment might be attended by urgency.

In oral submissions, the respondent raised various arguments to the effect that treating the appointment as in a state of "suspended validity" pending the Authority's approval could be justified on the grounds of flexibility, practicality and convenience.

Consideration

Non-compliance with a statutory requirement or pre-condition - including a requirement or pre-condition to obtain an approval to act in a particular capacity - does not necessarily result in invalidity of an appointment to act in that capacity. Whether or not the failure to comply with the statutory requirement or pre-condition exposes the appointment to invalidity is ultimately a matter of statutory construction.

The proper approach is not determined by whether the statutory requirement is characterised as directory or mandatory. Rather, it is necessary to ask whether it was a purpose of the legislation that an act performed in breach of the provision should be invalid. In determining the question of purpose, regard must be had not only to the language of the relevant provision but also to the scope and object of the whole statute: see Project Blue Sky at 390-391; Master Education Services Pty Ltd v Ketchell [2008] HCA 38; (2008) 236 CLR 101 at 112 [26].

The process of construction begins with a consideration of the ordinary and grammatical meaning of the words of the provision having regard to their context and legislative purpose. Further, in construing a statute it is not for a court to construct its own idea of desirable policy, impute it to the legislature, and then characterise it as a statutory purpose: see Australian Education Union v Department of Education and Children's Services [2012] HCA 3; 285 ALR 27 at 35 [28].

I have reached the view that the legislative purpose of s 41 of the Registered Clubs Act requires that non-compliance with the statutory requirement to obtain approval from the Authority to act in the capacity of administrator prior to such appointment by a registered club, renders such person incapable of appointment and hence results in invalidity of the appointment. My reasons have regard to first, the language of s 41, secondly, the scope and object of the Registered Clubs Act, thirdly, the consequences for the affected company, its creditors and other interested persons and fourthly, other relevant considerations.

Language of s 41

Section 41 is directed to the capacity of a person to be appointed, or to act, relevantly as an administrator of a registered club. The language of the prohibition in s 41 speaks both as at the date of the administrator's appointment ("a person is not capable of being appointed") and thereafter ("a person is not capable ... of acting in any such capacity").

It will be observed that two means of lifting the prohibition in s 41 are given: either an appointment to act in that capacity by the Supreme Court or an approval to act in the capacity given by the Authority. The Authority approves people to act in the relevant capacity, it does not approve appointments. The temporal implication in the language used to lift the prohibition ("unless the person has been: appointed to act ... or approved to act ...") read with the opening statement in s 41 ("a person is not capable of being appointed to act"), emphasises that the approval by the Authority must be given before a person is capable of being appointed and acting as administrator.

Contrary to Mr Whittingham's submissions, the language of s 41 does not permit a suspensory effect to be given to the approval requirement so as to allow an administrator's appointment to be treated as if it is in a state of "suspended validity" which will come to an end if the required approval is not obtained within an unspecified time. Nor do the comments of Glass JA in National Mutual Fire Insurance Co Ltd v Commonwealth of Australia at 408F-G, support the application of such reasoning to s 41.

In National Mutual, the question was whether the failure to obtain leave of the Court in advance under s 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 to commence an action to enforce a statutory charge under s 6(1) against an insurer, invalidates any action taken and renders it incapable of being revived by leave given retrospectively. This Court held that failure to obtain leave invalidated the action, and leave could not be given retrospectively. The reasoning of Glass JA (with whom Moffitt P and Samuels JA agreed) was as follows:

(a) The inquiry properly to be made did not turn on classification of mandatory and directory requirements. Rather the question posed was a matter of construction as to whether there was a legislative intention that a failure to obtain leave should nullify the act in question. This was to be determined having regard to the nature of the pre-condition, its place in the legislative scheme and the extent of the failure to observe the requirement. This was the approach mandated in earlier decisions including Tasker v Fullwood [1978] 1 NSWLR 20 at 23 and 24 and, I would add, subsequently confirmed by the High Court in Project Blue Sky.

(b) The requirement of leave under s 6(4) did not involve any question of strict or substantial compliance. The action was either commenced with leave or was not.

(c) Three possibilities arose if a proceeding was commenced without leave: the proceeding was either a complete nullity, or else it remained valid irrespective of whether or not leave was subsequently granted, or else it continued in a state of suspended validity, which would come to an end if leave was not obtained within an unspecified time.

(d) Nothing in the language of s 6(4) supported the attribution of a legislative intention of the last two kinds; thus a failure to obtain leave of the Court under s 6(4) in advance invalidated the action and rendered it incapable of being revived by leave retrospectively given.

Likewise in the present case, nothing in the language of s 41 supports the attribution of a legislative intention that the appointment of an administrator of a registered club without the prior approval of the Authority to act in that capacity, continues in a state of suspended validity which will come to an end if approval is not granted by the Authority within an unspecified time.

Further, and again contrary to Mr Whittingham's submissions, there is no proper analogy in terms of either context or subject matter, between a subsequent approval given by the Authority under s 41, and the Court's power to grant leave, with retrospective effect, for the appointment of an administrator under s 448C of the Corporations Act. The former involves the giving of an approval by an administrative body, which lifts the prohibition contained in s 41 on the capacity of a person to act as an administrator of a registered club. The Authority is not given any power of dispensation in the case of non-compliance with s 41. The latter involves the exercise of a discretionary power conferred on a court to permit certain categories of persons who would otherwise be disqualified from seeking or consenting to act as administrators because they have a prescribed connection with the subject company, to give the necessary consent to so act.

Scope and object of Registered Clubs Act

The scheme of the Registered Clubs Act as a whole and in particular, the function of Pt 4 (Management of registered clubs) in which s 41 is contained, makes clear the scope and purpose of the statutory requirement in s 41. First, the Authority has an important role in approving the persons who are to have responsibility for management of registered clubs. This is apparent from the other provisions in Pt 4 relating to:

(a) the requirement of the registered club to have a secretary who is to be the chief executive officer of the club (s 32(1)), and the role of the Authority in granting or refusing approval for persons to act as the secretary of a registered club (s 33);

(b) the prohibition on unapproved persons acting as secretary of a registered club (s 34); and

(c) the power of the Authority to appoint a person to administer the affairs of a registered club, where the governing body of the club has, in the opinion of the Authority, ceased to be effective as a governing body (s 41A).

Secondly, the statutory requirement in s 41 is to be understood in the context of the far ranging effects which the appointment of an administrator has on the management of a registered club. Under Pt 5.3A of the Corporations Act, the administrator takes control of the club's business, property and affairs, may carry on that business and manage that property and those affairs, may terminate or dispose of all or part of that business and may dispose of any of that property and may perform any function, and exercise any power, that the registered club or any of its officers could perform or exercise if the registered club was not under administration (s 437A, Corporations Act). Further, while a club is under administration, a person (other than the administrator) cannot perform or exercise, and must not purport to perform or exercise, a function or power relevantly as an officer of the company, except with the administrator's written approval (s 437C, Corporations Act).

Thirdly, the prohibition in s 41 is directed to securing compliance by the proposed appointee with the requirement to obtain approval of the Authority before such person takes control of the management of the affairs of the registered club.

The evident purpose of s 41 is to require that a change in the control of a registered club's business, property and affairs, brought about upon the appointment of an administrator under Pt 5.3A of the Corporations Act, only occurs where the identity and qualities of the person to occupy such position (in place of the secretary of the registered club previously approved by the Authority), has been approved by the Authority. The Authority's functions include deciding which persons are fit and proper to be given responsibility for management of registered clubs.

Insofar as the primary judge had regard to the objects of separate legislation, being Pt 5.3A of the Corporations Act, or perceived inconvenience or frustration of the purposes of that separate statutory regime in the case of urgent appointments if approval was required prior to the administrator's appointment, he was in error. First, it is necessary to focus solely on the objects of the statutory provision under consideration. Secondly, as noted above, s 41 is not directed to approval by the Authority of an appointment of an administrator by a registered club. Rather it is directed to approval of a person to act in the capacity of an administrator of a registered club. Nothing in s 41 suggests that the urgency of an appointment of an administrator by a registered club somehow removes the incapacity of a person to so act in the absence of such approval having first been given by the Authority.

I also respectfully disagree with the alternative construction given to s 41 by the primary judge (at [110]), that any invalidating effect on Mr Whittingham's capacity to act as administrator of the Club, ceased to have that effect when the Authority subsequently provided its approval to Mr Whittingham's appointment.

Like the provision considered in National Mutual, the terms of s 41 do not involve any question of strict or substantial compliance. The purported appointment of administrator is either made with the approval of the Authority or not. The absence of any practical prejudice to any party, or any objection having been taken by the Authority to the purported appointment is not to the point. There is no warrant, in my view, for giving s 41 an interpretation that late compliance is sufficient.

Consequences of non-compliance

Prima facie, a statutory requirement that a party not act in a particular capacity unless given approval to so act by a specified body, must be construed as having some legal effect. If contravention of the requirement is not an offence, and if there be no other penalty for contravening the requirement, the only legal effect which can be attributed to the prohibition on acting without the required approval is that the contravention should invalidate any appointment to so act (compare the statement of Brennan and Dawson JJ in ABC Broadcasting Corporation v Redmore Pty Ltd (1989) 166 CLR 454 at 463, who were in dissent on the question of construction in that case).

However, s 41 does not provide any offence for non-compliance. This is in marked contrast to s 34 of the Registered Clubs Act (which is also contained within the same Pt 4 of the Act), which provides that a person who acts as secretary of a club without being approved by the Authority, is guilty of an offence. The fact that contravention of s 41 is not stated to be an offence, and otherwise attracts no remedy, supports the construction that non-compliance results in the invalid appointment of a person as administrator of a registered Club.

Other considerations

There are a number of other relevant considerations which highlight the difficulties with the approach of the primary judge in construing the statutory requirement in s 41 as only having "suspensory effect". First, this approach disregards the significance of the time periods imposed by Pt 5.3A for the taking of various steps in relation to an administration including the convening of creditors meetings to make decisions as to the fate of the company's affairs and the giving of relevant notices by the administrator. These include the following:

(a) the first meeting of creditors must be held eight days after the administration begins (s 436E(2));

(b) the second meeting of creditors must be held within five business days before, or after, the end of the convening period (s 439A(2)), which is generally 20 business days beginning on the day after the administration begins (s 439A(5));

(c) in each case, notice of such meetings must be given at least five business days before the meeting (s 436E(3) and s 439A(3));

(d) the rights of secured creditors, owners and lessors under Div 7 of Pt 5.3A; and

(e) the power of administrators to give notice to an owner or lessor of property used or occupied by the company within five days after the beginning of the administration, stating that the company does not propose to exercise rights in relation to the property (s 443B(3)).

On the primary judge's preferred construction, because s 41 does not specify the time in which an approval by the Authority must be given after an appointment, the administrator, creditors and members, as well as owners and lessors would be left in a state of not knowing whether the administrator's appointment might be subsequently rendered invalid because either an approval had not been sought, or if sought, had not been granted. A construction productive of such great uncertainty is to be avoided.

Secondly, the nature of the statutory requirement in s 41 is not such that circumstances may arise where compliance will not be possible (compare Tasker v Fullwood at [24], where the relevant requirement for approval of transfer of a liquor licence included that the applicant produce to the Licensing Court an agreement between any person interested in the business or the profits of the business and the applicant. If the party interested declined to execute an agreement, there would be no way in which such party could be compelled to do so). By contrast, s 41 simply requires the giving of an approval by the Authority to the proposed appointee acting in the capacity as administrator of a registered club. The statutory requirement in s 41 does not involve the need to procure any act or consent of a third party which may or may not be forthcoming.

For the above reasons, Grounds 10 and 10A of the amended notice of appeal must be upheld.

Notice of contention - ambit of s 447A

In support of the notice of contention, the respondent submitted that the Court could make an order under s 447A of the Corporations Act to the effect that Pt 5.3A is to operate in relation to the Club as if the approval given under s 41 of the Registered Clubs Act had been given prior to the date of the purported appointment of Mr Whittingham.

The respondent accepted that s 447A of the Corporations Act and s 41 of the Registered Clubs Act operate concurrently having regard to the terms of s 5E(2)(e)(ii) of the Corporations Act. However, the respondent submitted that s 447A enables the Court in relation to matters concerning the effectiveness of the appointment of an administrator to create an artificial effect by its order.

The appellants' response to the notice of contention highlighted the limit of operation of s 447A(1), being to make orders about how "this Part", that is, Pt 5.3A is to operate in relation to a particular company: see Australasian Memory Pty Ltd v Brien [2000] HCA 30; 200 CLR 270 at 279 [18]. It was submitted that s 447A of the Corporations Act was incapable of curing non-compliance with s 41 of the Registered Clubs Act because no provision of Pt 5.3A concerns the subject matter of non-compliance with s 41 of the Registered Clubs Act.

The appellants also noted that the Corporations Act expressly provides that it is not intended to exclude or limit the concurrent operation of a law of a State or Territory which, amongst other things, prevents a person from being involved in the management or control of a company (s 5E(2)(e)(ii)). They submitted that s 41 of the Registered Clubs Act is such a law and hence has concurrent operation with s 447A of the Corporations Act.

The respondent did not suggest that the concurrent operation of s 41 of the Registered Clubs Act was not preserved by s 5E of the Corporations Act. Nor did the respondent submit that there was any direct inconsistency between s 447A of the Corporations Act and s 41 of the Registered Clubs Act: see s 5E(4) of the Corporations Act.

The respondent's notice of contention should be rejected, essentially for the reasons advanced by the appellants.

First, whilst the powers under s 447A are wide, they are not entirely without limit. In particular, s 447A is not a general power standing apart from the scheme found in Pt 5.3A of the Corporations Act: see Australasian Memory Pty Ltd v Brien at 280 [20] and 281 [24].

Secondly, s 447A(1) speaks of orders about how "this Part" is to operate in relation to a particular company. The reference "this Part" is to be understood as a reference to each of the provisions in it: see Australasian Memory Pty Ltd v Brien at 279 [18]. Clearly, s 41 of the Registered Clubs Act is not a provision contained in Pt 5.3A. Thus, there is no power under s 447A of the Corporations Act to validate the invalidity of an administrator's appointment arising under s 41 since the former section is directed to how Pt 5.3A of the Corporations Act operates in relation to a company, not the operation of separate State or Territory legislation.

The conclusion that there is no power under s 447A to validate an invalidity under s 41 of the Registered Clubs Act means that the appeal must be allowed, the declaration and orders of the primary judge be set aside and the proceedings remitted to the Court below to determine the respondent's quantum meruit claim in relation to his remuneration and expenses, which was not dealt with by the primary judge.

The appellants' remaining challenges to the validity of Mr Whittingham's appointment only require determination if the above conclusions are wrong and insofar as they are relevant to the question of costs at first instance and on appeal.

Issues 1 and 2: Reliance upon statutory assumptions

Issues 1 and 2 may be considered together. First, the pleading point by the appellants raises the issue of whether the primary judge erred in permitting Mr Whittingham to assert reliance upon s 128 and s 129 of the Corporations Act, in the absence of an explicit reference to those provisions in his points of defence filed 10 May 2012 (Issue 1).

Secondly, if the pleading point is not upheld, the issue arises as to whether the statutory assumptions set out in s 129(1) of the Corporations Act precluded the Club from challenging the validity of Mr Whittingham's purported appointment as administrator on the ground that the Club did not comply with the requirements as to the minimum number of directors or quorum requirements specified in its constitution at the time of the purported appointment (Issue 2). This in turn raises three main sub-issues:

(a) Whether Mr Whittingham was on notice of the possible invalidity of his appointment and breached his duty to inquire as to the validity of his appointment so that s 128 and s 129 of the Corporations Act had no application.

(b) Whether the statutory assumptions under s 128 and s 129 of the Corporations Act can be relied upon at all by a person who owes an independent or fiduciary duty to the company and is alleged to have breached that duty.

(c) Alternatively, whether the Club had established the exception under s 128(4) of the Corporations Act that Mr Whittingham had either actual knowledge or suspected that the relevant assumption in s 129(1) was incorrect, and accordingly was disqualified from relying upon it.

It will be observed that cl 5.1 and cl 5.2, set out above, referred to provisions of the Registered Clubs Act. Relevantly, s 41J(3) of that Act provided that a registered club must not dispose of any "core property" of the Club unless three preconditions were satisfied: (a) that the property had been valued by a registered valuer within the meaning of the Valuers Act 2003; (b) the disposal has been approved at a general meeting of the ordinary members of the Club at which a majority of the votes cast supported the approval; and (c) any sale is by way of public auction or open tender conducted by an independent real estate agent or auctioneer.

The expression "core property" is defined in s 41J(1) of the Registered Clubs Act as any real property owned or occupied by the Club that comprises the defined premised of the Club, or any facility provided by the Club for the use of its members and their guests, or any other property declared, by resolution passed by a majority of the members present at a general meeting of ordinary members of the Club, to be core property of the Club. However, it does not include any relevant property that is declared by such a resolution not to be core property of the Club.

The expression "dispose" of property is defined in s 41J(1) to mean to sell, lease or licence the property or otherwise deal with the property in such manner as may be prescribed by the regulations.

The Registered Clubs Regulation 2009 provided in reg 19(1)(h), that s 41J(3) of the Registered Clubs Act does not apply in relation to the disposal of any core property of a registered club in circumstances where the Director-General has, on application by the registered club, approved the disposal of the property otherwise than in accordance with s 41J(3) of the Act.

Sale of core property

In this case, Mr Whittingham, as deed administrator, entered into a contract for sale of both 86 and 88 Liverpool Street to Drivas for the price of $9,250,000. On 31 July 2009, a meeting of members of the Club was convened for the purpose of obtaining members' approval of the contract. The meeting resolved overwhelmingly not to approve the sale.

Subsequently, on 11 August 2009, the delegate of the Director-General of Communities New South Wales, being the Director-General referred to in reg 19, wrote to the solicitors for the deed administrator as follows:

"It is my view, that where an administrator of a company that is a registered club is acting in that capacity, that the administrator is not required to comply with the requirements of section 41J of the Registered Clubs Act whilst the administrator is exercising a power of sale pursuant to the Corporations Act.

Accordingly, neither the administrator nor the registered club is contravening the provisions of the Registered Clubs Act should a sale not comply with the requirements of section 41J.

As I consider section 41J has no application to the disposal of land in this matter, there is no requirement to consider any exemption."

The Director-General's opinion that s 41J had no application to the disposal of core property of a registered club by an administrator exercising a power of sale pursuant to the Corporations Act was apparently founded on the view that the administrator being given that power by the Corporations Act, prevailed over any restriction imposed by State legislation. Mr Whittingham did not contend on appeal that this view was correct, but submitted that it was reasonable for him to rely on the Director-General's opinion at the time.

Injunction proceedings

As noted earlier, subsequently on 30 September 2009, Ms Correa sought and obtained an interlocutory injunction restraining Mr Whittingham, the Club and the purchaser from carrying into completion the contract for sale dated 1 July 2009 insofar as it related to the land situated at 86 Liverpool Street, being core property of the Club (see [2009] NSWSC 1225).

In respect of Ms Correa's application, Brereton J concluded that it was at least seriously arguable that the sale of the core property, without the approval of the members of the Club as envisaged by cl 5.1 of the DoCA, would be an act prejudicial to the interests of some or all of the Club's members. This was on the basis that the terms of cl 5.1 provided members with a right of veto over a proposed sale of the core property. However, this was subject to the deed administrator's entitlement to form the view that this would make continuation of the deed impractical or undesirable and thus entitle him to convene a meeting to consider terminating the deed.

That is, Brereton J expressed the view that the purpose of cl 5.1 did not merely reflect an assumption that s 41J applied so as to require compliance with it where applicable. On this view, any "dispensation" on the part of the Director-General under reg 19(1)(h) was beside the point.

Administrator's application for directions

Mr Whittingham, as deed administrator, applied for directions pursuant to s 447D of the Corporations Act to the effect that he be permitted to hold a meeting of creditors of the Club to consider varying the DoCA, or alternatively terminating the DoCA and placing the Club into liquidation.

The proposed resolution to vary the DoCA, in substance involved deleting the requirement for member approval for a sale of the core property, and permitting Mr Whittingham as deed administrator to cause the Club to enter into and complete a new contract of sale with Drivas on essentially the same terms as the existing contract, after consensual rescission of that contract. Ms Correa opposed the application for directions on the grounds that termination of the DoCA was not authorised in the circumstances and the proposed variation ought not properly be the subject of directions to the deed administrator.

Mr Whittingham's application for directions came before Brereton J who decided that the conditions which would justify a resolution under s 445C(b) varying the DoCA were not satisfied, and hence convening a creditors meeting to consider such a resolution would not be justified. His Honour also held that because a variation to remove the members' right of veto under the DoCA would be amenable to challenge under s 445B and s 447E, the variation ought not be pre-empted by judicial advice given to the deed administrator. Rather it was, appropriately, the subject matter of ordinary adversarial litigation: see [2009] NSWSC 1426.

Primary judge's reasons

The primary judge gave detailed and careful consideration (at [127]-[171]) to the appellants various complaints as to Mr Whittingham's conduct in respect of the sale of Club properties. He concluded (at [171]) that:

(a) while the sale to Drivas was not consistent with the views of the majority of members who had not approved the sale, it had not been established that Mr Whittingham's conduct in that regard was in fact prejudicial to the interests of the Club's creditors or members for the purposes of s 447E of the Corporations Act;

(b) in particular, the evidence did not establish any real prospect that a new sales campaign, conducted after 31 July 2009, could realistically have been funded by the Club or would have generated a significantly different (and more advantageous) offer which would have met with members' approval, given the circumstances of the rejection of the Drivas contract by members on 31 July 2009, or that such a prospect warranted the loss of the benefit to the Club of the existing binding sales contract with Drivas.

The appellants do not challenge these findings.

The primary judge went on to consider the alleged breach of cl 5.1 of the DoCA and held (at [174]) that this clause was directed to the possibility that member approval of the sale of the core property of the Club was required under the Registered Clubs Act, but should not be read as establishing an independent requirement for member approval which did not arise under the Registered Clubs Act and the Club's constitution. Had that been the intention of the clause, the primary judge considered that the words "as required by" and the references to the Registered Clubs Act and the Club's constitution in cl 5.1 would be wholly superfluous.

The primary judge considered (at [175]), that cl 13 of the DoCA did not require the contrary result, and in this respect, differed from the view expressed by Brereton J (see [270]-[271] above). The primary judge reasoned that cl 13 would apply if the Registered Clubs Act required member approval for a sale. However, it did not require that cl 5.1 of the DoCA be treated as an independent requirement for approval of a sale of core property if the Registered Clubs Act did not require such approval. The primary judge also noted that reliance on cl 13 in construing cl 5.1 of the DoCA had the further difficulty that cl 13 implicitly assumed that creditors were free to terminate the DoCA in the situation where Mr Whittingham considered it no longer practicable to implement the DoCA if members did not approve a sale of the core property, whereas it later emerged in the application for directions before Brereton J that s 445CA of the Corporations Act would not permit creditors to do so in the absence of an unremedied breach of the DoCA.

The primary judge concluded (at [178]) that the appellants had not established that the Club or its members were actually prejudiced by Mr Whittingham's efforts to sell the core property, or would have been in a better position had he acted differently after 31 July 2009. In doing so, his Honour applied the approach adopted to s 447E of the Corporations Act in Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; (2006) 234 ALR 765 at [82].

Submissions

The appellants submitted that the primary judge's construction of cl 5.1 of the DoCA was wrong, because it did not give sufficient attention to cl 5.2 or cl 13 of the DoCA and, further that the primary judge failed to appreciate that the delegate's letter of 11 August 2009 was not an approval for the purposes of reg 19(1)(h), which therefore meant that the property at 88 Liverpool Street could not be disposed of except in accordance with s 41J(3)(b), that is, with the approval of the members.

Thus it was submitted that even on the primary judge's view that cl 5.1 of the DoCA only required member approval if required by the Registered Clubs Act, member approval was required here, because the exception to s 41J, being an approval under reg 19, did not apply.

The appellants further submitted that the primary judge should have determined that Mr Whittingham's efforts to sell 88 Liverpool Street without member approval, his opposition to the application for an injunction and his further application to vary the terms of the DoCA to delete the requirement for member approval for the sale of core property, were all acts prejudicial to the interests of members and unnecessarily augmented the costs of an invalid administration. It was submitted that Mr Whittingham's prejudicial conduct ought to have weighed against a favourable exercise of discretion under s 447A and s 1322 of the Corporations Act.

Mr Whittingham's submissions noted that the appellant's criticisms of his conduct of the administration had been advanced unsuccessfully below in the context of an application for an order under s 447E seeking to deprive Mr Whittingham of his remuneration. It was submitted that the test for prejudice for the purposes of s 447E in Honest Remark, should also apply when evaluating the alleged prejudicial conduct for the purposes of the exercise of discretion to make curative orders. On this basis, it was submitted that it was insufficient for the appellants to show that Mr Whittingham was involved in some breach of either cl 5.1 of the DoCA or s 41J of the Registered Clubs Act in his efforts to sell the core property. Rather, assuming a breach did occur, it was submitted that it was necessary for the appellants to demonstrate that the position of the Club's members would have been improved if Mr Whittingham had not proceeded with the sale of the Club's property without their approval.

Mr Whittingham also submitted that there was no wilful breach of cl 5.1 of the DoCA. In this regard, he accepted that the delegate's letter of 11 August 2009 did not constitute, for the purposes of reg 19(1)(h) of the Registered Clubs Regulation, a grant of approval in respect of the proposed disposal of the Club's premises by him. Nevertheless, the letter was said to have provided him with a reasonable basis for thinking that the sale of the Club's premises without approval of the Club's members would not give rise to a contravention of s 41J of the Registered Clubs Act.

Mr Whittingham also referred to the absence of any challenge by the appellants to a number of significant findings of the primary judge relating to the circumstances in which he conducted the sale process of the Club's properties. This included the absence of evidence of any real prospect, following the refusal of members on 31 July 2009 to approve the sale of 88 Liverpool Street, that a new sales campaign could realistically be funded by the Club or would have generated a significantly enhanced offer which would have met with members' approval or that such a prospect warranted the loss of the benefit to the Club of an existing binding sales contract with Drivas.

Consideration

The appellants' primary complaint is based upon an alleged breach of either cl 5.1 of the DoCA or s 41J of the Registered Clubs Act. Whether or not some breach occurred by Mr Whittingham's conduct in entering into a contract of sale of the Club's core property, the appellants did not challenge the primary judge's finding that they failed to demonstrate that the position of the Club's members would have been improved if Mr Whittingham had not proceeded with the sale of the Club's property without their approval. Simply stated, the appellants did not establish that prejudice to the Club's members flowed from Mr Whittingham's actions (assuming a breach of either cl 5.1 or s 41J).

If it were necessary to reach a view on the proper construction of cl 5.1 of the DoCA, I consider that the primary judge correctly concluded (at [174]) that the clause did not impose, in relation to the sale of the Club's core property, a requirement to obtain the approval of members, independent of any equivalent requirement to be found in the Registered Clubs Act. That is, cl 5.1 did no more than "pick up" provisions in the Registered Clubs Act such as s 41J. Were it otherwise, I agree with the primary judge that the reference to the Registered Clubs Act in cl 5.1 would be otiose.

It is necessary to next consider s 41J of the Registered Clubs Act. On the construction of cl 5.1 of the DoCA accepted by the primary judge, member approval was still required for the sale of the Club's core property because an exemption under the Registered Clubs Act was never granted. The opinion expressed in the delegate's letter of 11 August 2009, that s 41J had no application to the sale of the Club's core asset, did not constitute an approval by the Director-General under reg 19(1)(h) of the Registered Clubs Regulation. Therefore the attempt by Mr Whittingham to sell the core property without the approval of members was contrary to s 41J(3), and consequently a breach of cl 5.1 of the DoCA.

In my view, Grounds 23 and 24 of the amended notice of appeal should be upheld.

However, Mr Whittingham's submission that there was no wilful breach of cl 5.1 of the DoCA or s 41J should be accepted. In my view, the delegate's letter of 11 August 2009 did provide Mr Whittingham with a reasonable basis at the time for thinking that the sale of the Club's core property without approval of members would not give rise to a contravention of s 41J of the Registered Clubs Act. There was no suggestion that Mr Whittingham acted unreasonably in accepting that opinion.

In summary, no error has been shown in the primary judge's conclusion that Mr Whittingham's conduct was not prejudicial to the interests of the Club's members. In my view, Grounds 21, 22 and 25 of the amended notice of appeal have not been made out.

Issue 9: Costs

The primary judge delivered a separate judgment dealing with questions of relief including costs and, relevantly, made an order that Ms Correa pay Mr Whittingham's costs incidental to the proceedings as agreed or assessed: see [2012] NSWSC 677.

These orders were made upon the express basis of a notation to the orders that the appellants' consent to the orders was without prejudice to their rights to appeal from the decision of the primary judge. This was to the intent that if this Court reversed or set aside the judgment of the primary judge and made an order that Mr Whittingham is only entitled to his remuneration, legal costs and disbursements assessed on a quantum meruit or incontrovertible benefit basis, the appellants would be entitled to have Mr Whittingham's remuneration, legal costs and disbursements reassessed and to claim back any over-payment paid to Mr Whittingham pursuant to the orders below.

The appellants submitted that the costs discretion of the primary judge miscarried because the usual rule that where an indulgence is sought, the party seeking the indulgence pays the costs, ought to have been followed. The appellants further submitted that regardless of the making of the curative orders, the primary judge should have ordered Mr Whittingham to pay the appellants' costs of the proceedings without recourse to the assets of the Club for the recovery of such costs.

The respondent referred to the fact that Ms Correa was given an opportunity to resist an order for costs below on the basis that the primary judge had granted an indulgence to Mr Whittingham. However, Ms Correa proceeded on the basis that an appropriate order consequential upon the indulgence was that she pay Mr Whittingham's costs of and incidental to the proceedings below. Thus, the respondent submitted that it was not open to Ms Correa to now seek a different outcome as to costs, even if this Court were to affirm the substance of the primary judge's decision, particularly as to the making of curative orders.

The respondent also submitted that the reservation of rights the subject of the notation to the orders made on 21 June 2012 did not extend to matters the subject of a consent which were not covered in the principal judgment of the primary judge, including the appropriate order for costs that should follow the making of curative orders.

If the respondent had been successful on the appeal, I would not be minded to disturb the primary judge's cost discretion for the reasons advanced by the respondent. However, as the Court has not had submissions on costs taking into account the outcome on the appeal, it is appropriate to revisit the matter of costs at first instance and on appeal.

It is appropriate that the appellants serve any short written submissions on costs outlining the costs orders sought and the reasons for those orders within 14 days of the date of these reasons, and Mr Whittingham within 14 days after receiving the appellants' submissions, with the appellants to have a further 7 days after receiving those submissions to reply. I would propose that any such application be dealt with on the papers.

Conclusions and orders

The challenge to the primary judge's finding that Mr Whittingham was validly appointed administrator of the Club succeeds, but solely on the ground of contravention of s 41 of the Registered Clubs Act (Issue 8). The orders and declaration of the primary judge should be set aside and an appropriate declaration should be made concerning the respondent's incapacity to act as administrator of the Club.

The respondent's notice of contention that curative orders may be made under s 447A of the Corporations Act, such that Pt 5.3A of the Act is to operate in relation to the Club as if the delegate of the Authority had approved Mr Whittingham to act in the capacity of administrator of the Club prior to his appointment to act in that capacity, should be rejected. There is no power under s 447A of the Corporations Act to validate an invalidity of an administrator's appointment arising from s 41 of the Registered Clubs Act.

The other challenges by the appellants to the validity of Mr Whittingham's appointment as administrator of the Club may be now summarised:

(a) The challenge based upon contravention of the requirements of the constitution of the Club in relation to the minimum number of directors and quorum, fails as Mr Whittingham is entitled to assert reliance upon s 128 and s 129(1) of the Corporations Act. That is, the pleading point taken by the appellants fails (Issue 1) and the substantive objection to reliance by Mr Whittingham upon on the statutory assumptions also fails (Issue 2).

(b) The challenge to Mr Whittingham's appointment on the ground of absence of a resolution of the Club's directors capable of engaging s 436A of the Corporations Act fails (Issue 3).

(c) The challenge to Mr Whittingham's appointment on the ground that he did not provide his written consent as required by s 448A of the Corporations Act prior to his appointment succeeds (Issue 4), but was properly the subject of curative orders made by the primary judge, albeit those orders should now be set aside on appeal having regard to the successful challenge to Mr Whittingham's appointment arising under s 41 of the Registered Clubs Act.

(d) The appellants' alternative contention that Mr Whittingham ceased to be administrator pursuant to s 435C(3)(b)(i) of the Corporations Act because he failed to convene a meeting of creditors by 19 December 2008 also fails (Issue 5).

(e) The challenge to the primary judge's exercise of discretion to make curative orders fails on all grounds raised by the appellants, other than the ground of invalidity on which they have succeeded on appeal based on the contravention of s 41 of the Registered Clubs Act (Issue 6).

(f) The appellants' contention that Mr Whittingham's conduct of the administration of the Club in attempting to sell the Club's core property, 88 Liverpool Street, without member approval, was prejudicial to the interests of its members also fails (Issue 7).

(g) It is appropriate that in light of the foregoing findings the matter of costs at first instance and on appeal be reserved and the parties be permitted to make short written submissions on the question of costs orders (Issue 9).

The proceedings should be remitted to the Court below for the determination of Mr Whittingham's alternative quantum meruit claim advanced in the amended interlocutory process filed 20 February 2012, against the contingency that he was not validly appointed. This claim was not determined by the primary judge.

I propose that the appeal be disposed of as follows:

(1) Grant leave to the respondent to file the notice of contention dated 17 May 2013.

(2) Appeal allowed.

(3) Set aside the orders and declaration of Black J made on 21 June 2012.

(4) In lieu thereof, declare that the respondent was, by reason of contravention of s 41 of the Registered Clubs Act 1976, not capable of being appointed as voluntary administrator of The Spanish Club Limited (the Club), by instrument of appointment dated 17 November 2008, or of acting as such voluntary administrator.

(5) Direct that the proceedings be remitted to the primary judge to determine the respondent's claim in paragraphs 4, 5 and 6 of the amended interlocutory process filed 20 February 2012, that the respondent is entitled to be paid out of the assets of the Club his reasonable remuneration, costs and expenses, including legal expenses for work performed pursuant to his purported appointment as voluntary administrator and as deed administrator of the Club, on a quantum meruit basis.

(6) Reserve questions of costs.

(7) Grant leave to the appellants to file and serve short written submissions in relation to the costs of the appeal and at first instance within 14 days of the date of delivery of judgment. Any such written submissions are to set out both the orders sought and the reasons why those orders are sought.

(8) Grant leave to the respondent to file and serve short written submissions in reply within 14 days after service on him of the appellants' written submissions contemplated by the previous order, with the appellants to have a further seven days after receiving those submissions to reply.

(9) Note that the Court will determine the issue of costs on the papers.

TOBIAS AJA: Like Barrett JA I have also had the advantage of reading in draft the thorough and comprehensive judgment of Gleeson JA. Subject to one reservation, I agree with the manner of disposal of the appeal proposed by his Honour at [303] of his reasons. I also agree with the additional remarks of Barrett JA on the operation of s 447A of the Corporations Act 2001 (Cth).

My only reservation arises under Issue 2 and relates to the question of actual suspicion within the meaning of the s 128(4) exception dealt with by Gleeson JA at [165]-[168] of his reasons. Prima facie it seems to me that the evidence is capable of supporting the inference that Mr Whittingham did in fact suspect that the board of directors of the Club was invalidly constituted at the time of his purported appointment as administrator: see, for example, the evidence referred to at [23] of his Honour's reasons.

However, there are two considerations which militate against that prima facie view. The first is that it cannot be said that it was not open to the primary judge to find (as he did at [55] of his reasons) that Mr Whittingham did not in fact know or suspect that his appointment did not comply with the Club's constitution in terms of the minimum number of directors required to form the board of the Club.

The second is, I think, more fundamental. Mr Whittingham was cross-examined on certain aspects of the evidence as recorded by Gleeson JA at [27] and [28] of his reasons. But having re-read his cross-examination, it does not seem to me that Mr Whittingham was directly challenged with s 128(4) in mind except tangentially at Black 1/91-104. In those circumstances it would be unfair to Mr Whittingham to accept the submission now advanced by the appellants that he did actually suspect that his appointment was invalid because he knew that there were only four appointed directors of the Club rather than the seven required by its constitution. If that submission was to succeed, at the very least the matter had to be put to Mr Whittingham directly and it was not.

**********

Amendments

11 September 2013 - Changed date "17 November 2013" to "17 November 2008"

Amended paragraphs: Coversheet and [303(4)]

Decision last updated: 11 September 2013

Medium Neutral Citation:	Correa v Whittingham [2013] NSWCA 263
Hearing dates:	16 - 17 May 2013
Decision date:	15 August 2013
Before:	Barrett JA at [1]; Gleeson JA at [9]; Tobias AJA at [304]
Decision:	1. Grant leave to the respondent to file the notice of contention dated 17 May 2013. 2. Appeal allowed. 3. Set aside the orders and declaration of Black J made on 21 June 2012. 4. In lieu thereof, declare that the respondent was, by reason of contravention of s 41 of the Registered Clubs Act 1976, not capable of being appointed as voluntary administrator of The Spanish Club Limited (the Club), by instrument of appointment dated 17 November 2008, or of acting as such voluntary administrator. 5. Direct that the proceedings be remitted to the primary judge to determine the respondent's claim in paragraphs 4, 5 and 6 of the amended interlocutory process filed 20 February 2012, that the respondent is entitled to be paid out of the assets of the Club his reasonable remuneration, costs and expenses, including legal expenses for work performed pursuant to his purported appointment as voluntary administrator and as deed administrator of the Club, on a quantum meruit basis. 6. Reserve questions of costs. 7. Grant leave to the appellants to file and serve short written submissions in relation to the costs of the appeal and at first instance within 14 days of the date of delivery of judgment. Any such written submissions are to set out both the orders sought and the reasons why those orders are sought. 8. Grant leave to the respondent to file and serve short written submissions in reply within 14 days after service on him of the appellants' written submissions contemplated by the previous order, with the appellants to have a further seven days after receiving those submissions to reply. 9. Note that the Court will determine the issue of costs on the papers. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	CORPORATIONS - voluntary administration - administrator - s 41 Registered Clubs Act 1976 - whether administrator validly appointed CORPORATIONS - voluntary administration - administrator - s 447A Corporations Act 2001 - s 1322 Corporations Act - whether primary judge erred in exercising his discretion to make curative orders CORPORATIONS - voluntary administration - administrator - s 128 Corporations Act 2001 - s 129 Corporations Act - whether administrator entitled to rely on statutory assumptions CORPORATIONS - voluntary administration - administrator - attempted sale of core property without member approval - whether attempted sale was conduct prejudicial to the interests of club members
Legislation Cited:	Bankruptcy Act 1924 Corporations Act 2001 (Cth) Insolvency Act 1986 (UK) Law Reform (Miscellaneous Provisions) Act 1946 Registered Clubs Act 1976 Supreme Court Act 1970 Valuers Act 2003
Cases Cited:	ABC Broadcasting Corporation v Redmore Pty Ltd (1989) 166 CLR 454 Australian Education Union v Department of Education and Children's Services [2012] HCA 3; 285 ALR 27 Australasian Memory Pty Ltd v Brien [2000] HCA 30; 200 CLR 270 Barclays Finance Holdings Ltd v Sturgess (1985) 3 ACLC 662 Beach Petroleum NL v Abbott Tout Russell Kennedy (1997) 26 ACSR 114 Beach Petroleum NL v Abbott Tout Russell Kennedy [1999] NSWCA 908; 33 ACSR 1 BE Australia WD Pty Ltd v Sutton [2011] NSWCA 414; 82 NSWLR 336 Beck v L W Furniture Consolidated (Aust) Pty Ltd [2012] NSWCA 76 Breen v Williams (1996) 186 CLR 71 Bristol & West Building Society v Mothew [1998] Ch 1 Calabretta v Redpen Developments Pty Ltd (in liq) [2010] FCA 81; 183 FCR 47 Care Matters Partnership Ltd [2011] EWHC 2543 (Ch) Deputy Commissioner of Taxation v Portinex Pty Ltd (No 2) [2000] NSWSC 557; 34 ACSR 422 Eden Energy Ltd v Drivetrain USA Inc [2012] WASC 192; 90 ACSR 191 Gould v Companies Auditors & Liquidators Disciplinary Board [2009] FCA 475; 71 ACSR 648 Gosford Christian School Ltd v Totonjian [2006] NSWSC 725; FLR 424 Honest Remark Pty Ltd v Allstate Explorations NL [2006] NSWSC 735; 201 FLR 456 Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; 156 CLR 41 House v The King (1936) 55 CLR 499 In Re Sly, Spink and Co [1911] 2 Ch 430 John Alexander's Clubs Pty Ltd v White City Tennis Club Limited [2010] HCA 19; 241 CLR 1 Kazaar v Duss [1998] FCA 1378; 29 ACSR 321 Maguire v Makaronis [1997] HCA 23; 188 CLR 449 Master Education Services Pty Ltd v Ketchell [2008] HCA 38; 236 CLR 101 Metwally v University of Wollongong [1985] HCA 28; 60 ALR 68 at 71 Natarajan v ACIB Accumulus Pty Ltd [2006] VSC 22; 56 ACSR 356 National Australia Bank Ltd v Horne [2011] VSCA 280; 253 FLR 205 National Mutual Fire Insurance Co Ltd v Commonwealth of Australia [1981] 1 NSWLR 400 Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 Oris Funds Management Ltd v National Australia Bank Ltd [2003] VSC 315 Panasystems Pty Ltd v Voodoo Tech Pty Ltd [2003] FCA 428; 21 ACLC 842 Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; ACSR 109 Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; 207 CLR 165 Project Blue Sky v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 Queensland Bacon Pty Ltd v Rees [1966] HCA 21; 115 CLR 266 Re Australian Art Investment Pty Ltd (Admin Apptd) [2012] VSC 18 Re Australian Property Custodian Holdings Ltd (Admins Apptd) (Recs and Mgrs Apptd) [2010] VSC 492 Re Colorbus Pty Ltd; Mentha v Colorbus Pty Ltd (in liq) [2004] VSC 486; 51 ACSR 677 Re Continental Pacific Insurance Co (Aust) Ltd [2002] NSWSC 789 Re New Tel Ltd [2004] FCA 1154; 210 ALR 270 Re Octaviar Ltd (No 8) [2010] QCA 45; 237 FLR 315 Re Priceright Construction Pty Limited [2006] NSWSC 324; 57 ACSR 206 Shirlaw v Graham [2001] NSWSC 612 Silver v Dome Resources NL [2007] NSWSC 455; 62 ACSR 539 Singh v Singh [2008] NSWSC 386 Sixty-Fourth Throne Pty Ltd v Macquarie Bank (1996) 130 FLR 411 Soyfer v Earlmaze Pty Ltd [2000] NSWSC 1068 Tasker v Fullwood [1978] 1 NSWLR 20 The Queen v Toohey; Ex parte Northern Land Council [1981] HCA 74; 151 CLR 170 Weinstock v Beck [2013] HCA 14; 87 ALJR 554; 93 ACSR 231 Wilson v Manna Hill Mining Co Pty Ltd [2004] FCA 1663; 51 ACSR 404 Xie v Crisp [2011] VSC 154; 248 FLR 265 Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; 212 CLR 484
Texts Cited:	Justice R P Austin "The Legal Standard of Loyalty and Professional Guidelines", Supreme Court of New South Wales, IPAA National Conference 12-13 October 2006 Meagher, Gummow and Lehane's Equity Doctrines and Remedies 4th ed, (2002) Lexis Nexis P D Finn, "The Fiduciary Principle" in T G Youdan (ed), Equity, Fiduciaries and Trust (1989), Casswell Young, Croft, Smith, On Equity (2009) Thomson Reuters
Category:	Principal judgment
Parties:	Dolores Correa (First Appellant) The Spanish Club Limited (Subject to a Deed of Company Arrangement) (Second Appellant) Kenneth Michael Whittingham (Respondent)
Representation:	Counsel: B W Walker SC with V R W Gray and M J Stevens (Appellants) S D Robb QC with G E S Ng (Respondent) Solicitors: Somerset Ryckmans (Appellants) Norton Rose (Respondent)
File Number(s):	2012/190786
Decision under appeal	Citation: [2012] NSWSC 526 Date of Decision: 2012-05-21 00:00:00 Before: Black J File Number(s): 2009/290732