Dhami v Martin

[2010] NSWSC 770

Reported Decision: 79 ACSR 121
241 FLR 165

New South Wales

Supreme Court

CITATION:	Dhami v Martin [2010] NSWSC 770
HEARING DATE(S):	02/07/10
JUDGMENT DATE :	13 July 2010
JURISDICTION:	Equity Division Corporations List
JUDGMENT OF:	Barrett J
DECISION:	1. Declare that Kay Dhami and Norman Brien were validly appointed as directors of Ace Developments Pty Limited on 21 May 2010. 2. Order that the claim of Rajinder Dhami for a declaration that Kay Dhami was validly appointed the agent of Ace Developments Pty Limited on issues concerning the debt owed to that company by Toukley Waters Pty Limited be dismissed. 3. Order that the claim of Rajinder Dhami for a declaration that Bruce Martin is no longer a director of Ace Developments Pty Limited be dismissed. 4. Order that the “cross-application” of Bruce Martin and Supanee Martin filed on 2 July 2010 be dismissed. 5. Order that the costs of the proceedings to date be reserved and that each party have liberty to apply in respect of costs.
CATCHWORDS:	CORPORATIONS - meetings of members - meeting called by a member under Corporations Act 2001 (Cth), s 249F - proposed resolution to appoint two persons as directors - whether a "proper purpose" - where proposed appointees are ex-wife and accountant of disqualified former director - whether they will act in the interests of the company - whether they will be puppets of ex-director - CORPORATIONS - declaratory relief as to efficacy of action to appoint directors - whether plaintiff has "clean hands" - CORPORATIONS - constitution - provision for rotation of directors at each "ordinary general meeting" - whether meeting called by member under s 249F is an "ordinary general meeting" - effect of automatic re-appointment provision - ASIC records prima facie evidence of directorship - CORPORATIONS - meeting of directors - one director calls meeting - that director gives explicit notice of purpose of meeting - meeting purports to resolve to authorise that director to act as representative of company in all aspects of certain matter - no such proposed authorisation included in statement of meeting's purpose - whether resolution valid
LEGISLATION CITED:	Companies Act 1936 Companies Act 1961 Companies (Application of Laws) Act 1981 Companies (New South Wales) Code Company Law Review Act 1998 (Cth). Corporations Act 2001 (Cth), Parts 2A.2, 2D.6, 5.3A, ss 206A(1). 206A(1A), 249F, 249Q, 1274B, 1378 Corporations Law of New South Wales Corporations (New South Wales) Act 1990
CATEGORY:	Principal judgment
CASES CITED:	Australian Securities Commission v A S Nominees Ltd (1995) 18 ACSR 459 Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] 2 Ch 34 Bennetts v Board of Fire Commissioners of New South Wales (1967) 87 WN (Pt 1) (NSW) 307 Blair Open Hearth Furnace Co Ltd v Reigart (1913) 108 LT 665 Capricornia Credit Union Ltd v Australian Securities and Investments Commission [2007] FCAFC 79; (2007) 62 ACSR 671 Club Flotilla (Pacific Palms) Ltd v Isherwood (1987) 5 ACLC 1027 Eastern Resources of Australia Ltd v Glass Reinforced Products (GRP) Pty Ltd [1987] 2 QdR 31 Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 Gosford Christian School v Totonjian [2006] NSWSC 725; (2006) 201 FLR 424 Gramophone and Typewriter Ltd v Stanley [1908] 2 KB 89 Grundt v Great Boulder Pty Mines Ltd [1948] Ch 145 Harris v S (1976) 2 ACLR 51 Hillig v Darkinjung Pty Ltd [2008] NSWCA 75 Integrated Medical Technologies Ltd v Macel Nominees Pty Ltd (1988) 13 ACLR 110 La Compagnie de Mayville v Whitley [1896] 1 Ch 788 McLure v Mitchell (1974) 24 FLR 115 Morris v Kanssen [1946] AC 459 National Roads and Motorists Association v Parker (1986) 6 NSWLR 517 Reefton Mining NL v Kimbriki Nominees Pty Ltd [2007] FCA 17; (2007) 61 ACSR 72 Re Morris [1995] 2 QdR 258 SGH Ltd v Commissioner of Taxation [2002] HCA 18; (2002) 210 CLR 51 Singh v Singh [2008] NSWSC 386 Turner v Berner [1978] 1 NSWLR 66 Worcester Corsetry Ltd v Witting [1936] Ch 640
TEXTS CITED:	R P Meagher, D J Heydon, M J Leeming, “Meagher Gummow & Lehane’s Equity Doctrines and Remedies”, fourth edition (2002)
PARTIES:	Rajinder Dhami - Plaintiff Bruce Martin - First Defendant Supanee Martin - Second Defendant Ace Developments Pty Limited - Third Defendant Toukley Waters Pty Ltd - Fourth Defendant
FILE NUMBER(S):	SC 2010/145976
COUNSEL:	Mr C D Wood/Ms I T M Catanzariti - Plaintiff Mr R D Marshall/Mr E A Walker - First and Second Defendants Mr S K Mullette - Fourth Defendant
SOLICITORS:	Harris Wheeler Lawyers - Plaintiff Patey & Murphy - First and Second Defendants Bartier Perry - Fourth Defendant

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

BARRETT J

TUESDAY 13 JULY 2010

2010/145976 RAJINDER DHAMI v BRUCE MARTIN & ORS

JUDGMENT

1 These proceedings concern the composition of the board of directors of Ace Developments Pty Ltd (“Ace”). The principal parties are Ace’s three members: Mr Dhami (plaintiff), Mr Martin (first defendant) and Mrs Martin (second defendant). At all material times, the shareholding and voting power of Mr Dhami were equal to the combined shareholdings and voting power of Mr Martin and Mrs Martin who are husband and wife.

2 Immediately before the events of April and May 2010 about to be described, Mr Martin and Mrs Martin were directors of Ace. Mr Dhami had been a director but his office became vacant in consequence of his disqualification on 22 July 2009 from managing corporations (Corporations Act 2001 (Cth), Part 2D.6).

3 On 15 April 2010, Mr Dhami took action under s 249F of the Corporations Act to convene a general meeting of Ace. Although Ace was incorporated on 2 August 1961 under the Companies Act 1936 (the Companies Act 1961 did not commence until 1 July 1962), it is now taken to be registered under Part 2A.2 of the Corporations Act 2001 (Cth). This is the effect of a combination of s 1378 of the last-mentioned Act and like transitional provisions of the Companies Act 1961, the Companies (New South Wales) Code (adopted by the Companies (Application of Laws) Act 1981 of New South Wales) and the Corporations Law of New South Wales (adopted by the Corporations (New South Wales) Act 1990 of New South Wales).

4 The notice of meeting given by Mr Dhami specified the following as the purposes of the meeting:

1. “To appoint two new directors (being Kay Dhami and Norman Brien) to provide balance in the direction of the Company and to protect the interests of the shareholders as permitted by Article 75 of the Company’s Articles of Association or otherwise.”

2. “The shareholders direct that the directors must:
1. do everything in their power to have the liquidator of Toukley Waters Pty Limited repay all debts outstanding to the Company and its shareholders in full (‘Debts’); and
2. on repayment of the Debts to the Company, such monies will be immediately distributed to the shareholders as dividends in accordance with their respective shareholding in the Company.”

5 At the time and place appointed by him for the holding of the meeting (10am on 14 May 2010), Mr Martin and Mrs Martin were not present. Mr Dhami himself was the only member present. Because the quorum of two members personally present required by Ace’s constitution had not been achieved, the constitution caused the meeting to be adjourned to the same time on the day fourteen days later. On that subsequent occasion (10am on 28 May 2010), Mr Dhami was again the only member present and the generally required quorum was again not achieved. The constitution provided, however, that in the special circumstances of a meeting already adjourned for want of a quorum, “the members present” should be a quorum. Mr Dhami then proceeded alone to adopt the two resolutions set out in the notice of meeting.

6 Mr Martin and Mrs Martin accept that, subject to one vital qualification, the actions of Mr Dhami were effective to cause the two resolutions to be duly passed and, in the case of the first of them, to cause Mrs Dhami and Mr Brien to become directors of Ace. Mrs Dhami is Mr Dhami’s former wife. Mr Brien is an accountant.

7 It appears, therefore, that Mr Martin and Mrs Martin are content not to argue several points including that there cannot be a meeting of one or a quorum of one and that, where the constitution empowers the directors to fill vacancies on the board and confers no power on a general meeting to increase the number of directors (see Blair Open Hearth Furnace Co Ltd v Reigart (1913) 108 LT 665 in contradistinction to Worcester Corsetry Ltd v Witting [1936] Ch 640), such a meeting may (perhaps on some basis such as that postulated in Integrated Medical Technologies Ltd v Macel Nominees Pty Ltd (1988) 13 ACLR 110) install new directors without first altering the constitution to create in itself a power to augment the board. I therefore do not pause to consider those matters.

8 Mr Martin and Mrs Martin argue, however, that neither of the proposed resolutions set out in the notice of meeting became a resolution of the company in general meeting through the assent given by Mr Dhami alone. The foundation of this argument is the proposition that the holding of the “meeting” (that is, in the event, the one-person “meeting” constituted by Mr Dhami) was inconsistent with s 249Q of the Corporations Act:

“A meeting of a company's members must be held for a proper purpose.”

9 This argument was developed only in relation to the proposed resolution for the installation of two new directors. It is, to my mind, beyond question that the second of the purposes set out at paragraph [4] above was not a “proper purpose”, given that Ace’s constitution, in the usual way, vests management of the company’s business in the directors. Under a constitution of that kind, the members in general meeting have no power to direct or control the exercise of the powers confided to the board of directors (see, for example, Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] 2 Ch 34; Gramophone and Typewriter Ltd v Stanley [1908] 2 KB 89) and a meeting of members convened for such a purpose can achieve no legally meaningful result (see, for example, Turner v Berner [1978] 1 NSWLR 66; National Roads and Motorists Association v Parker (1986) 6 NSWLR 517). It cannot be a “proper purpose” of a meeting of members to seek to do something that does not lie within the competence of such a meeting.

10 But, of course, the meeting had two purposes. The fact that one of them was not a “proper purpose” will not affect the holding of the meeting if the other was a “proper purpose”.

11 The argument that that other purpose (that is the first purpose at paragraph [4] above) was not a “proper purpose” is not based on any view that a meeting of members is not competent to install new directors (see paragraph [7] above). That this is, in the abstract, a “proper purpose” for s 249Q purposes was explicitly recognised in Reefton Mining NL v Kimbriki Nominees Pty Ltd [2007] FCA 17; (2007) 61 ACSR 72. The argument that it was, in the particular context, not “proper” was advanced by reference to a number of factual matters to which it is now necessary to turn as a preliminary to considering the scope and effect of s 249Q of the Corporations Act.

12 Ace is a creditor of Toukley Waters Pty Ltd (“Toukley”), a company subject to voluntary administration under Part 5.3A of the Corporations Act. Mr Martin and Mrs Martin are the directors of Toukley. Mr Martin and Mr Dhami are the shareholders. Toukley owes Ace some $740,000 for moneys borrowed and now overdue. Ace has a corresponding liability to La Trobe Finance for money borrowed. The indebtedness of Ace to La Trobe is guaranteed by all of Mr Dhami, Mr Martin and Mrs Martin. Ace has a separate debt of some $119,000 to Mr Dhami in respect of which he served a statutory demand in January 2010, which demand has been neither satisfied nor set aside.

13 Mr Dhami takes the view that, if Ace is to have any real chance of paying its own debts in full, it is necessary for Ace to recover the moneys owing to it by Toukley. Toukley appears to be insolvent. The prospects of full recovery by Ace therefore do not look promising. However a deed of company arrangement proposal has been advanced in relation to Toukley and is said by its proponent (Mrs Dhami) to be capable of yielding 61 cents in the dollar. The administrators have not been able to recommend adoption of the deed proposal as it is subject to contingencies which do not seem capable of being met.

14 Because of his disqualification under Part 2D.6 of the Corporations Act, Mr Dhami is constrained by s 206A(1):

“A person who is disqualified from managing corporations under this Part commits an offence if:
(a) they make, or participate in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or
(b) they exercise the capacity to affect significantly the corporation's financial standing; or
(c) they communicate instructions or wishes (other than advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors or the corporation) to the directors of the corporation:
(i) knowing that the directors are accustomed to act in accordance with the person's instructions or wishes; or
(ii) intending that the directors will act in accordance with those instructions or wishes.”

15 The offence created by s 206A(1) is a strict liability offence: s 206A(1A).

16 Mr Martin and Mrs Martin contend that the purpose of electing Mrs Dhami and Mr Brien as directors of Ace was not a “proper purpose” because it was in reality a purpose of installing directors who would act in accordance with Mr Dhami’s wishes and to protect his personal interests. Mr Marshall of counsel, who appeared for Mr Martin and Mrs Martin, put this submission on a twofold basis referring both to general principle and to the provisions of s 206A(1).

17 I digress at this point to say something about s 249Q of the Corporations Act, the terms of which are set out at paragraph [8] above. The provision is in the modern form that uses the word “must”. In many contexts, “must” is now used where “shall” would once have been used to impose an obligation. Here, however, the “must” is not directed at anyone: there is no one of whom it is said that they “must” (or “shall”) do something. The import of the provision therefore seems to be that if a purpose that is “proper” actuates a proposal that a meeting of members be held, then it is lawful for the meeting to be held in that the nature of the meeting’s purpose forms no basis to prevent its being held; whereas if the holding of the meeting is prompted by a purpose that is not “proper”, then the holding of the meeting is not lawful.

18 Section 249Q was introduced by the Company Law Review Act 1998 (Cth). The explanatory memorandum on the Bill that became that Act is of limited assistance in understanding s 249Q. It said that the section was designed to protect shareholders and directors “by preventing meetings being called for improper purposes”. This, I suppose, confirms the impression that lack of proper purpose (which includes the presence of some positively improper purpose) means that the meeting should not be allowed to occur or, if it has occurred, should be treated as if it had not occurred.

19 I turn therefore to the submission that the meeting in question, in so far as it dealt with the appointment of new directors, was infected by a purpose of creating a mechanism for producing two legally impermissible (and therefore not “proper”) consequences: first, that mere puppets would be installed on the board and, second, that Mr Dhami would be enabled to contravene s 206A(1).

20 In relation to the first allegedly impermissible consequence, Mr Marshall referred to the decision of the Full Federal Court in Capricornia Credit Union Ltd v Australian Securities and Investments Commission [2007] FCAFC 79; (2007) 62 ACSR 671 and, in particular, to the following observation at [64]:

“Pursuant to s 249Q of the Corporations Act , a meeting may only be called for a proper purpose. To convene a meeting to constitute a board who will act in breach of duty can hardly be proper.”

21 This was said after a finding (at [62]) that the particular proposal was “that the board be re-constituted to comprise directors who will act in accordance with members’ directions without exercising any personal judgment”. Such a director, it was said, does not propose to fulfil the obligations of a director. This is a reflection of the clear principle that a director is at all times required to act in the interests of the company itself and must, in case of conflict with the interests of any appointor or other outsider to whom he or she owes allegiance (and if he or she elects to participate at all), subordinate the latter interests: see, for example, Bennetts v Board of Fire Commissioners of New South Wales (1967) 87 WN (Pt 1) (NSW) 307. As was pointed out by all seven members of the High Court in SGH Ltd v Commissioner of Taxation [2002] HCA 18; (2002) 210 CLR 51 at [30], “the fact that a director of a body corporate is nominated by another does not permit the director to act in disregard of the interests of the company as a whole”.

22 Any conclusion that a meeting of members having as its purpose a proposed resolution for the election of Mrs Dhami and Mr Brien as directors was a meeting otherwise than for a proper purpose would depend on a finding that they would act in breach of duty because committed or intending to act otherwise than in the interests of the company as a whole. The fact, if it were established, that they intended blindly to implement Mr Dhami’s wishes, whatever they might be, would be sufficient to justify such a conclusion.

23 I do not consider myself able to reach any such conclusion in relation to either Mrs Dhami or Mr Brien. Mrs Dhami is the former wife of Mr Dhami. She has business interests of her own, mainly in the field of childcare or early childhood education and has been (and continues to be) involved in the ownership and commercial operation of centres for these activities. At an earlier time, she was also a director of some companies involved in Mr Dhami’s predominantly property development activities. She spoke of having outlaid funds of her own in her husband’s ventures. Mr Brien is an accountant who has had Mr Dhami, Mrs Dhami and their respective companies as his major clients in recent years. He also acts for other clients. Each is therefore a person with independent commercial capacity well able to engage in independent decision-making.

24 Mr Martin and Mrs Martin point to the second proposed resolution that Mr Dhami took steps to include in the note he issued pursuant to s 249F (see item 2 at paragraph [4] above). For reasons already mentioned, any resolution of members in those terms was beyond the capacity of the company in general meeting. The attempt by Mr Dhami to impose a requirement (or request) by that means therefore failed. It may be noted, in any event, that the requirement (or request) was directed to the directors as a body.

25 There is no doubt that both Mrs Dhami and Mr Brien have an affinity with Mr Dhami. But I do not think that the evidence allows me to find that either will, as a director of Ace, blindly follow the wishes of Mr Dhami or seek to act otherwise than in accordance with a proper assessment of Ace’s own interests. There is no basis for a finding that either has surrendered or will surrender his or her independence of decision making.

26 There is the added point that the terms of Mr Dhami’s attempt to impose a requirement or request on Ace’s directors are objectively rational and reasonable from Ace’s perspective. As a company owed $740,000 by Toukley and having as its main liability a debt of similar amount to La Trobe, any director of Ace might well be thought to be acting in Ace’s interests by seeking to recover what could be recovered from Toukley so that the debt to La Trobe and other liabilities of Ace could be reduced.

27 As Mr Marshall pointed out, it is improper for a director blindly to implement the wishes of an outsider, even where those wishes are entirely consistent with the interests of the company; the director’s duty being to exercise discretion and maintain the freedom and ability to do so. This may be accepted. But as I have said, I am not able to find that either Mrs Dhami or Mr Brien will, as a director, act otherwise than in accordance with his or her own assessment of where the interests of Ace lie.

28 These conclusions are also sufficient to dispose also of the second basis on which it is alleged by Mr Martin and Mrs Martin that the appointment of Mrs Dhami and Mr Brien was not a proper purpose for the holding of a general meeting of Ace. That second basis has regard to s 206A(1) of the Corporations Act set out at paragraph [14] above. The argument is that the installation of Mrs Dhami and Mr Brien as directors would enable or facilitate breach of s 206A(1)(c) by Mr Dhami, with the result that a purpose other than a “proper purpose” actuated the holding of the meeting of members. This argument cannot be accepted. The findings I have made in relation to Mrs Dhami and Mr Brien are inconsistent with it.

29 In the result, therefore, I am not satisfied that any inconsistency with s 249Q attended the events that saw Mr Dhami exercise his s 249F right to convene a general meeting of Ace and then act alone, in a manner not otherwise challenged, to approve a resolution for the appointment of Mrs Dhami and Mr Brien as directors of Ace.

30 It follows that, subject to a possible discretionary barrier to which I am about to refer, Mr Dhami is entitled to the principal declaration he seeks, that is, a declaration to the effect that Mrs Dhami and Mr Brien were validly appointed as directors of Ace on 21 May 2010.

31 The discretionary matter goes to a question of “clean hands” in relation to Mr Dhami. Mr Marshall submitted that Mr Dhami, by acting as he did, breached s 206A(1) of the Corporations Act in three ways: first, by making or participating in the making of decisions affecting the whole or a substantial part of Ace’s business; second, by exercising a capacity to affect significantly Ace’s financial standing; and, third, by communicating instructions or wishes to the directors of Ace knowing that the directors are accustomed to act in accordance with Mr Dhami’s instructions or wishes or intending that the directors will act in accordance with those instructions or wishes.

32 A threshold question here is whether the equitable “clean hands” defence is available in relation to a claim for declaratory relief. While the jurisdiction to grant declaratory relief is clearly discretionary (see, for a recent authoritative statement, Hillig v Darkinjung Pty Ltd [2008] NSWCA 75 at [118]), it is by no means clear that the traditional barriers to equitable relief apply to declaratory relief: R P Meagher, D J Heydon, M J Leeming, “Meagher Gummow & Lehane’s Equity Doctrines and Remedies”, fourth edition (2002) at p 642.

33 I do not pause, however, to decide that question as I am satisfied that the “unclean hands” defence would not be made out in any event. The installation of Ms Dhami and Mr Brien as directors does not carry with it the consequence that Mr Dhami will become a participant in decision-making in relation to Ace’s business or attain a capacity to affect in any way Ace’s financial standing. Nor will any communication of wishes (or even instructions) by Mr Dhami to “the directors of the corporation” (Ace) be in circumstances where he has knowledge as described in s 206A(1)(c)(i) or an intention within s 206A(1)(c)(ii). This is because those provisions (as well as the earlier part of s 206A(1)(c)) refer to “the directors” as a body and, broadly speaking, have in contemplation situations where the board of directors as a decision-making organ will dance to a tune called by the person in question: see, for example, Harris v S (1976) 2 ACLR 51 at 64; Australian Securities Commission v A S Nominees Ltd (1995) 18 ACSR 459 at 509. With Mr Martin and Mrs Martin – Mr Dhami’s opponents in this litigation – making up half that board, that simply cannot be possible, even apart from my findings concerning independence of thinking on the part of Mrs Dhami and Mr Brien.

34 There being no obstacle, the court will make the declaration sought by Mr Dhami concerning the valid appointment of Mrs Dhami and Mr Brien as directors of Ace.

35 The next matter for decision at this stage of the proceedings is whether Mr Martin ceased to be a director on 21 May 2010 (or some earlier date) and is no longer in office.

36 The argument that this is so is based on the following provisions of Ace’s constitution:

“85. At the ordinary general meeting of the Company in every year after there shall cease to be a Governing Director one-third of the Directors for the time being, or if their number is not three or a multiple of three, then the number nearest one-third shall retire from office.
86. The Directors to retire in every year shall be those who have been longest in office since their last election, but as between persons who become Directors on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot.
87. A retiring Director shall be eligible for re-election.
88. The Company at the General Meeting at which a Director retires in manner aforesaid may fill up the vacated office by electing a person thereto and in default the retiring Director shall be deemed to have been re-elected unless at such meeting it is resolved not to fill up such vacated office.”

37 It is common ground that there has not been a governing director of Ace for many years, so that article 85 has been operative for a long time. Mr Wood, counsel for Mr Dhami, showed, by reference to an ASIC search, that Mr Martin became a director on 2 August 1961, that is, on the date of incorporation. It is then submitted that, even if he did not, at some subsequent point, retire from office as required by article 85, his office nevertheless became vacant; and that this occurred, at the latest, on 21 May 2010.

38 Implicit in this last aspect is the submission that the meeting constituted by Mr Dhami alone on 21 May 2010 was an “ordinary general meeting” in terms of the constitution. As a matter of construction, I do not accept that that is so. Consistently with the scheme of the Companies Act 1936 in force at the time of Ace’s incorporation, the constitution provides as follows:

“45. A General meeting shall be held once in every calendar year at such time (not being more than fifteen months after the holding of the last preceding general meeting), and place as the Directors of the Company may from time to time appoint. In default of a general meeting being so held, the same may be convened by any two members qualified as prescribed in paragraph (c) of sub-section one of Section ninety-five of the Act in the same manner as nearly as possible as that in which meetings are to be convened by the Directors.
46. The abovementioned general meetings shall be called ordinary general meetings; all other general meetings shall be called extraordinary general meetings.

39 It is clear that the meeting of 21 May 2010 was not an “ordinary general meeting”. This is because it was not held at a time and place appointed by Ace’s directors, as envisaged by article 45. The timing and location were selected by Mr Dhami and included in the notice by which he exercised his s 249F right. The meeting of 21 May 2010 could thus not have been the occasion for any retirement under the rotation provisions in Ace’s constitution.

40 It is then said by Mr Dhami that, having regard to those rotation provisions, Mr Martin’s office must have become vacant at or after some earlier “ordinary general meeting” held since 1961 or even if no “ordinary general meeting” was ever held: see, for example, Morris v Kanssen [1946] AC 459; Club Flotilla (Pacific Palms) Ltd v Isherwood (1987) 5 ACLC 1027; Gosford Christian School v Totonjian [2006] NSWSC 725; (2006) 201 FLR 424 and Singh v Singh [2008] NSWSC 386.

41 This does not accommodate the operation of the default mechanism created by article 88. On any occasion on which Mr Martin was required to retire by rotation, no one else was elected to the resultant vacancy and there was no resolution not to fill the vacancy, Mr Martin was continued in office automatically by article 88. A default provision of that kind takes effect according to its terms (see, for example, Grundt v Great Boulder Pty Mines Ltd [1948] Ch 145; Re Morris [1995] 2 QdR 258) and must, in my view, overcome the effect of the cases mentioned in paragraph [40] if an “ordinary general meeting” is not actually held when it ought to be held. There is, in any event, no evidence from which any factual basis for an attack on Mr Martin’s tenure can be extracted. In the absence of such evidence, the prima facie presumption in favour of Mr Martin’s being a director created by s 1274B of the Corporations Act (having regard to the ASIC extract in evidence) must prevail.

42 The final question to be determined at this stage of the proceedings concerns a meeting of the directors of Ace called by Mrs Dhami by notice given on 21 May 2010. Under article 89, any director may summon a meeting of the directors. Mrs Dhami gave notice of a meeting of the directors to be held on 26 May 2010. The notice was addressed to Mr Martin, Mrs Martin and Mr Brien. The purposes of the meeting were stated by Mrs Dhami in the notice as follows:

“1. Bruce Martin is obliged to stand down as a Director of the Company immediately (and be entitled to re-election) because of the rotation provisions in the Company’s Articles of which the Company was presently in breach;
2. appoint an administrator to the Company;
3. discuss the debt owed by Toukley Waters Pty Limited (‘Toukley Waters’) to the Company; and
4. discuss the proposed Deed of Company Arrangement for Toukley Waters.”

43 At the appointed time and place on 26 May 2010, Mrs Dhami and Mr Brien were present but Mr Martin and Mrs Martin were not. Under article 75(c), the quorum for a meeting of directors is fixed at two. In the light of my earlier conclusions, there were, as at 26 May 2010, four directors: Mr Martin, Mrs Martin, Mrs Dhami and Mr Brien. The presence of Mrs Dhami and Mr Brien was therefore sufficient to allow the meeting to function.

44 The minutes of the meeting record the following:

“1. Resolved that Bruce Martin stand down as a Director of the Company.
2. Resolved to defer decision of appointing an administrator to the Company until an offer regarding settlement of the Toukley Waters Pty Ltd (‘Toukley Waters’) and the Company’s disputes has been put to Mr and Mrs Martin.
3. Discussed the debt owed by Toukley Waters to the Company.
4. Discussed the proposed Deed of Company Arrangement for Toukley Waters.
5. It was resolved that Kay Dhami be appointed as the authorised representative of the Company and its board to deal with the administrator of Toukley Waters on all matters in connection with the debt owed by Toukley Waters to the Company including, without limitation, attending and voting at all creditors’ meetings for and on behalf of the Company.”

45 It appears from the correspondence in evidence that Mr Martin and Mrs Martin were informed of the outcome of the meeting (and, in particular, of item 5 above) by means of a letter from Mr Dhami’s solicitors to their solicitors dated 4 June 2010.

46 Mr Dhami seeks a declaration that Mrs Dhami was “validly appointed as the Company’s authorised agent on issues concerning the debt owed by Toukley Waters Pty Ltd (Voluntary Administrators Appointed) (’Toukley Waters’) to Ace Developments”. This refers to item 5 in the minutes.

47 No provision of the constitution requires the notice by which a meeting of directors is convened to state the business proposed to be transacted. Nor is there any general law requirement to that effect, so far as meetings of directors are concerned: La Compagnie de Mayville v Whitley [1896] 1 Ch 788; Eastern Resources of Australia Ltd v Glass Reinforced Products (GRP)Pty Ltd [1987] 2 QdR 31. The general principle is that directors should come together whenever called on notice of reasonable length and without any expectation of being told why they are being summoned to a meeting.

48 But here, of course, the director summoning the meeting chose to notify the meeting’s purpose. In that respect, she went beyond the legal requirement. This brings different considerations into play. A director receiving the notice would have thought that the director summoning the meeting had done so with a view exclusively to the stated purposes. If it had been intended by the convening director that the meeting would potentially range over the whole of the company’s affairs and deal with anything and everything that might be brought up, the notice would either have stated no proposed business or concluded with words such as:

“To transact such other business as may be lawfully brought forward.”

49 Mrs Dhami neither desisted from stating any purpose nor chose to make the purpose open-ended by means of a concluding agenda item of this kind. She chose instead to notify specific and limited purposes, making it clear that, as far as resolutions and decision-making went, she envisaged only one decision within the competence of the board, being a decision whether or not to appoint an administrator of Ace (item 2 in the notice). Item 1 in the notice was not something that a decision of board could affect in any way. Items 3 and 4 foreshadowed merely discussion, without any indication that a decision of any kind was contemplated in relation to Toukley.

50 With boundaries thus set by Mrs Dhami, she and Mr Brien proceeded, in the absence of Mr Martin and Mrs Martin, to step beyond those boundaries. They did so by purporting to pass a binding resolution making one of them the “authorised representative of the Company and its board” for a particular purpose; and this was done in circumstances where the two who attended and participated in the decision must be taken to have known that the other two, if present, would not have (or very likely would not have) concurred in the result and that, disregarding any casting vote, the motion to make the agency appointment would not have been carried. While article 89 gives a casting vote to “the Chairman” (presumably the person referred to in article 53 as “the chairman, if any, of the Board of Directors”), there does not seem to be any provision for a standing appointment as chairman of the board – but if such an office did exist and was filled, it is certain that neither Mrs Dhami nor Mr Brien was the incumbent at 26 May 2010 since each had then been in office as a director for less than a week and the meeting of that date was the first since they had become directors. Thus, had all four directors been present and Mr Martin and Mrs Martin had cast negative votes, failure of the proposal to make the agency appointment would have been certain.

51 Where there is a requirement that the notice convening a meeting state the purpose of the meeting or the business proposed to be transacted, the position is as stated in McLure v Mitchell (1974) 24 FLR 115 at 140:

“The purpose of a notice of a meeting is to enable persons to know what is proposed to be done at the meeting so that they can make up their minds whether or not to attend. The notice should be so drafted that ordinary minds can fairly understand its meaning. It should not be a tricky notice artfully framed ( Henderson v Bank of Australia (1890) 45 Ch.D. 330 at 337)”.

52 The position must be the same where the person summoning the meeting chooses to state what is proposed to be done at the meeting, even though there is no requirement that he or she do so and the meeting would have been properly convened by a notice that did not state a purpose. A statement of purpose actually included by the summoning person, whether or not required, is put forward in order that those entitled to attend can decide whether or not to do so. Indeed, in the context of a board of directors where there is no requirement that the proposed business be stated, there is no other conceivable reason for a statement of purpose. The implied message conveyed by the statement of purpose and its inclusion is that the meeting is being summoned not to do anything and everything that the board of directors has power to do and may decide to do but for the particularly defined and limited purpose notified. The need for the statement to convey a fair description of the purpose on which a decision to attend or not may reliably be based is therefore both emphasised and obvious.

53 Directors who propose that a company’s members (as distinct from directors) take a particular course of action are under a duty to make full disclosure of all facts within their knowledge which are material to enable the members to determine what action to take. This duty “arises as part of the fiduciary duties of the directors to the company and its members in relation to proposals to be considered in general meeting”; and information must be given “such as will enable members to judge for themselves whether to attend the meeting and vote for or against the proposal or whether to leave the matter to be determined by the majority attending and voting at the meeting: Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 466 per Black CJ, von Doussa J and Cooper J.

54 An individual director convening a meeting of the board under a provision such as Ace’s article 89 does so in his or her capacity as a director. The constitution confers the convening power on a single director in the obvious expectation that any director choosing to exercise it will, as in all other matters, act in the interests of the company. The power is a fiduciary power. The interests of the company require, in the particular context, that the steps taken be such as to facilitate collective deliberation and informed decision-making of the board as a whole. The power to convene given to each director is not a personal proprietary right to be used for the director’s own ends. It is a power to facilitate the obtaining of an expression of the will of the board of directors.

55 The notice given by Mrs Dhami on 21 May 2010 was such as to engender in its recipients the expectation that, in relation to Toukley, there would be no more than discussion at the meeting of 26 May 2010. No proposed resolution was set out. Nothing beyond the exchange of views that discussion entails was foreshadowed. Knowing that Mr Martin and Mrs Martin had been given that expectation and that they would almost certainly have objected to any decision that Mrs Dhami be invested with Ace’s authority to act alone in any way in relation to Toukley, the two new directors present purported to cause the company to confer that authority on her. It may be inferred (and I find) that Mrs Dhami had it in mind to seek the authority when she issued the notice of 21 May 2010, assuming that circumstances at the meeting seemed conducive to success in that endeavour. Having thus abstained from telling the other directors (at least Mr Martin and Mrs Martin) what she intended, Mrs Dhami then pressed ahead with the proposal in their absence, knowing that they would almost certainly have objected and quite likely attended to vote against if aware of what was to transpire. The notice of meeting given by Mrs Dhami was thus misleading.

56 The consequence of a breach of duty in the form of materially misleading conduct in the convening of a meeting is that the consequent unfairness of the convening process infects the proceedings as a whole or, at least, the parts of it affected by the misleading conduct, which are therefore void. This is because the apparent decision is not a properly informed decision. That then is the fate of the purported appointment of Mrs Dhami as representative at the meeting of the directors of Ace on 26 May 2010.

57 It should not be assumed from anything I have said on this subject that I consider directors given notice of a meeting to have the same degree of freedom as members to choose whether or not to attend. The general expectation is that directors will, in accordance with their duties, be diligent in attending meetings of the board and will in that way give to the company the benefit of their participation. But the circumstances here were highly unusual. Mr Martin and Mrs Martin were of the view that Mrs Dhami and Mr Brien were not validly in office as directors. They faced a dilemma when they received the notice of meeting issued by Mrs Dhami. They knew that, if they attended, they would be compromising their stance against the validity of the appointments. They also knew, however, that the meeting had been convened for stated and confined purposes only and were entitled to believe that, if they were wrong in their views, their non-attendance could not have ramifications beyond those stated and confined purposes.

58 The conclusion in relation to the matters with which I have dealt is therefore as follows:

1. Declare that Kay Dhami and Norman Brien were validly appointed as directors of Ace Developments Pty Limited on 21 May 2010.

2. Order that the claim of Rajinder Dhami for a declaration that Kay Dhami was validly appointed the agent of Ace Developments Pty Limited on issues concerning the debt owed to that company by Toukley Waters Pty Limited be dismissed.

3. Order that the claim of Rajinder Dhami for a declaration that Bruce Martin is no longer a director of Ace Developments Pty Limited be dismissed.

4. Order that the “cross-application” of Bruce Martin and Supanee Martin filed on 2 July 2010 be dismissed.

5. Order that the costs of the proceedings to date be reserved and that each party have liberty to apply in respect of costs.

59 The balance of the originating process will be stood over to a date to be fixed.

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