Gudgeon v Gudgeon

Case [2020] FCA 680

FEDERAL COURT OF AUSTRALIA

Gudgeon v Gudgeon [2020] FCA 680

File number: NSD 2158 of 2019
Judge: MARKOVIC J
Date of judgment: 20 May 2020
Catchwords: CORPORATIONS – determination of separate question – whether removal of director of a company at a meeting of the company’s members was valid – where no quorum present at the meeting – where notice of meeting was defective – removal of director was not valid  
Legislation:

Corporations Act 2001 (Cth) ss 135, 251A, 1322, 1378

Corporations Law (Cth) (repealed) ss 249, 1415, Sch 1 Table A regs 41-43, 62

Federal Court Rules 2011 (Cth) r 30.01

Cases cited:

Clarke v Australian Computer Society Incorporated [2019] FCA 2175

Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361

Moala v Free Wesleyan Church of Tonga in Australia (Victoria) Inc [2019] VSC 205

Date of hearing: 29 April 2020
Registry: New South Wales
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 58
Counsel for the Plaintiff: Mr G Babe
Solicitor for the Plaintiff: Corbett Jessop Law
Solicitor for the First Defendant: Mr B Long of Celtic Legal

ORDERS

NSD 2158 of 2019
BETWEEN:

MAURICE GUDGEON

Plaintiff
AND:

PETER GUDGEON

First Defendant

P & M GUDGEON PTY LTD ACN 061 799 746

Second Defendant

AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

Third Defendant

JUDGE:

MARKOVIC J

DATE OF ORDER:

20 MAY 2020

THE COURT ORDERS THAT:

1.The separate question the subject of Order 2 made pursuant to r 30.01 of the Federal Court Rules 2011 (Cth) on 27 February 2020, that is:

“Was the plaintiff validly removed as a director of the second defendant at a meeting of the second defendant’s members on 27 June 2018?”

be answered “No”.

2.The first defendant pay the plaintiff’s costs of the hearing of the separate question.

3.The parties are jointly to approach the Associate to Markovic J to arrange for the proceeding to be listed for case management hearing on a mutually convenient date.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

MARKOVIC J:

  1. By originating process filed on 24 December 2019 Maurice Gudgeon commenced this proceeding against Peter Gudgeon and P & M Gudgeon Pty Ltd (P & M Gudgeon) as first and second defendants respectively.  Maurice Gudgeon and Peter Gudgeon, who without meaning any disrespect I will refer to as Maurice and Peter, are brothers and equal shareholders in P & M Gudgeon, each holding one share.

  2. In his originating process Maurice seeks relief in relation to two matters: first, in relation to his purported removal as a director of P & M Gudgeon; and secondly, in the form of access to P & M Gudgeon’s books and records.

  3. On 27 February 2020, by consent between the parties, I ordered that pursuant to r 30.01 of the Federal Court Rules 2011 (Cth) the following question (Separate Question) be heard separately from…

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AGLC
Gudgeon v Gudgeon [2020] FCA 680
Case
[2020] FCA 680
Decision Date

CaseChat Overview and Summary

The case of Gudgeon v Gudgeon involves a dispute between Maurice Gudgeon and Peter Gudgeon regarding Maurice's removal as a director of P & M Gudgeon. The matter was heard by the Federal Court, where the primary issue was whether Maurice's removal as a director was valid, given the circumstances surrounding the meeting at which it was decided. The court had to determine whether the removal was valid despite the lack of a quorum and the defective notice of the meeting. The court was also required to assess the validity of the removal under the company's Articles of Association, specifically clause 25, which deals with the disqualification of directors.

The court examined the procedural requirements set out in the Corporations Act 2001 and the company's Articles of Association. It noted that Maurice had received notice of the meeting, but the form of the notice was defective. The court found that the notice did not comply with the requirements of the Corporations Act, which necessitated proper notice to all shareholders. Furthermore, the court found that the meeting was not properly convened as there was no quorum present. Consequently, the court concluded that the removal of Maurice as a director was not valid. The decision hinged on the procedural shortcomings in the notice and the absence of a quorum, rendering the meeting and the subsequent resolution ineffective.

The court ruled that Maurice's removal as a director was not valid, answering the separate question in the negative. The court further directed that Peter should pay Maurice's costs associated with the hearing of the separate question. Additionally, the court ordered that the parties were to jointly approach the Associate to arrange for a case management hearing to be scheduled at a mutually convenient date. This decision ensures that the procedural integrity of the company's governance is upheld and highlights the importance of compliance with statutory and constitutional requirements in corporate meetings.

Orders

Orders of the court

1. The separate question the subject of Order 2 made pursuant to r 30.01 of the Federal Court Rules 2011 (Cth) on 27 February 2020, that is:

“Was the plaintiff validly removed as a director of the second defendant at a meeting of the second defendant’s members on 27 June 2018?”

be answered “No”.

2. The first defendant pay the plaintiff’s costs of the hearing of the separate question.

3. The parties are jointly to approach the Associate to Markovic J to arrange for the proceeding to be listed for case management hearing on a mutually convenient date.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

In their concise statement in response in relation to the issue of Maurice’s purported removal as a director of P & M Gudgeon, Peter and P & M Gudgeon say that:(1)the Articles contain cll 24 and 25 under the heading “disqualification of directors” and cl 25 only operates to disqualify a director or to remove a disqualified director;(2)on 21 August 2018 the Form 484 was lodged with ASIC and confirmed that Maurice had ceased to be a director;(3)Maurice failed to attend a meeting on 27 June 2018, despite written notice of the meeting being sent to him;(4)the agenda item for the meeting, as circulated to Maurice, more than 21 days prior on 5 June 2018 was:The sole item on the Agenda is the future of the company and in particular section 24-28 of the Company’s Articles regarding a matter of fraud and a breach of Director’s Duties under the Corporations Act 2001 (Cth) s181.(5)Maurice was aware of the meeting as his solicitor replied on 21 June 2018, seeking to appear at it by telephone. That request was not granted; and(6)Maurice failed to appear at the meeting of P & M Gudgeon on 27 June 2018 and P & M Gudgeon passed a motion on that date to remove Maurice as a director. BACKGROUND FACTS Maurice and Peter have been P & M Gudgeon’s sole directors since 15 December 1993. On 21 August 2018 the Form 484 recording Maurice’s removal as a director of P & M Gudgeon was lodged with ASIC. Historically, P & M Gudgeon’s business was the operation of an orchard at 31 Balgal Beach Road, Balgal Beach, Queensland, which Peter operated on a day to day basis and where Peter lived with his wife. For a number of years, because of distance, Maurice had very little direct role in P & M Gudgeon’s affairs, trusting Peter to operate its business and manage its day to day affairs. For reasons that are not explained, over the years Maurice’s and Peter’s relationship has unfortunately deteriorated and, in recent years, they have not spoken directly at all. By letter dated 5 June 2018 from Brendan Long of Celtic Legal, Peter’s solicitors, Maurice was informed that:Please note we act for Mr Peter Gudgeon, co-director of P & M Gudgeon Pty Ltd (A.C.N. 30 061 799 746).1.Meeting: Please be advised our client Mr Peter Gudgeon has called a General Members Meeting as per the Company Memorandum and Articles of Association section 16-21 (Articles).2.Notice: As required under the Corporations Act 2001 (Cth) s249H (1), you have been given 21 days notice to attend the meeting which will be held on Wednesday 27 June 2018.3.Venue: The meeting will be held at the Celtic Legal office - Level 5, 49 Sherwood Road, Brisbane as it is conveniently located between your respective residences being Townsville and Sydney.4.Agenda: The sole item on the Agenda is the future of the company and in particular section 24-28 of the Company’s Articles regarding a matter of fraud and a breach of Director’s Duties under the Corporations Act 2001 (Cth) s181. On 21 June 2018 Paul Jessop of Corbett Jessop Law, Maurice’s solicitors, sent an email to Alec Spencer of Celtic Legal, which included:We are instructed that attending the meeting proposed by your client in Brisbane is an expense that our client docs not wish to incur and the alternative of a telephone conference for the purposes of any meeting is preferred, as it would reduce our client’s exposure lo legal and other costs.Would you please have your client confirm that the proposed meeting can take place by telephone conferencing on the proposed meeting date. Our client will attend our office for that purpose.We look forward to your client’s response to this request well in advance of the proposed meeting date of 27 June 2018.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

However, assuming that the meeting was held for the purposes of the Corporations Act and/or it was a meeting notice of which was required to be given in accordance with its provisions, s 1322(3) of the Corporations Act has no application here. Maurice does not contend that he did not receive notice of the meeting. Rather his contention, which is made out, is that the notice is defective as to its form. CONCLUSION For those reasons the answer to the Separate Question is “no”. As Peter has been unsuccessful, he should pay Maurice’s costs of this aspect of the proceeding. The proceeding should be listed for case management hearing before me on a date to be determined in consultation with the parties. I will make orders accordingly.

Ratio Decidendi

Legal Principle Established

Peter submits that cl 25 of the Articles is not the appropriate framework for the removal of a director because the heading under which that clause appears clearly outlines that cl 25 is to deal only with the “disqualification of directors”. Peter notes that this was not a disqualification matter. CONSIDERATION The first matter raised by Maurice is that there is insufficient evidence for the Court to find that any resolution was passed to remove Maurice as a director of P & M Gudgeon on 27 June 2018. Peter’s evidence in relation to what occurred at that meeting, which was admitted over objection by Maurice, is set out at [15] above. There are no minutes of the meeting in evidence and Peter conceded that no minutes had been prepared. Thus the only record of what occurred is that given by Peter for the purpose of this proceeding. The failure to prepare minutes of a meeting constitutes a breach by P & M Gudgeon of s 251A of the Corporations Act which requires that a company must keep minute books in which it records within one month, among other things, proceedings and resolutions of meetings of the company’s members. Maurice says that the failure to comply with s 251A goes to the lack of weight that I would afford Peter’s evidence of what occurred at the meeting. I accept that there is no corroborating evidence of what occurred at the meeting and that the only account is that given by Peter. That is not surprising as he was the only person present. While P & M Gudgeon has breached s 251A of the Corporations Act by failing to enter a record of the meeting in P & M Gudgeon’s minute books within one month of the meeting taking place, that does not lead me to afford little weight to Peter’s evidence. P & M Gudgeon is a family held company where the two shareholders, who were at least until the meeting in issue in this proceeding also its directors, have fallen out and are no longer speaking directly to one another. While its failure to follow the legislative obligations imposed on it is a matter of concern and one to be taken seriously, it is not surprising in the circumstances. The second matter raised by Maurice relies on the decision in Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361 (Kuhl) at [63] where Heydon, Crennan and Bell JJ said:The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party’s case. That is particularly so where it is the party which is the uncalled witness. The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn. These principles have been extended from instances where a witness has not been called at all to instances where a witness has been called but not questioned on particular topics. Where counsel for a party has refrained from asking a witness whom that party has called particular questions on an issue, the court will be less likely to draw inferences favourable to that party from other evidence in relation to that issue. That problem did not arise here. The plaintiff’s counsel did ask the plaintiff relevant questions.(Footnotes omitted.) (Emphasis added.)