In the matter of Maleny Tricorp Hotel Pty Ltd

[2020] NSWSC 1699

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Maleny Tricorp Hotel Pty Ltd [2020] NSWSC 1699

Hearing dates:

13, 14, 15 October 2020

Date of orders:

02 December 2020

Decision date:

02 December 2020

Jurisdiction:

Equity

Before:

Emmett AJA

Decision:

See paragraph [94].

Catchwords:

CORPORATIONS — meeting of members — resolutions — resolutions for removal of director —exercise of rights under shareholders’ agreement — interaction between company constitution and shareholders’ agreement — whether company has power to pass resolutions

Legislation Cited:

Corporations Act 2001 (Cth), ss 134, 140, 232, 233

Cases Cited:

Almarie Investments Pty Ltd v Misidaro Pty Ltd [2018] NSWSC 804

Elders Forestry Ltd v BOSI Security Services Ltd [2010] SASC 223; 242 FLR 360

Levin v Clark [1962] NSWR 686; (1960) 80 WN (NSW) 485

Re A & BC Chewing Gum Ltd [1975] 1 All ER 1017; 1 WLR 579

Category:

Principal judgment

Parties:

Ross Frank Harding (First Plaintiff)
Richard James Harding (Second Plaintiff)
Maleny Tricorp Hotel Pty Ltd (First Defendant)
Anthony Francis Walsh (Second Defendant)

Representation:

Counsel:
Dr C J Birch with A J Byrne (First and Second Plaintiffs)
Submitting Appearance (First Defendant)
B A Coles QC with A J Grant (Second Defendant)

Solicitors:
Fishburn Watson O’Brien (Plaintiffs)
Waterford Ryan (First Defendant) (Submitting Appearance)
Norton Rose Fulbright Australia (Second Defendant)

File Number(s):

2019/153249

Judgment

Introduction

1. These proceedings are concerned with the internal management of the first defendant, Maleny Tricorp Hotel Pty Ltd (the Company). The Company is the registered proprietor of the Maleny Hotel, which is located in Maleny, in the hinterland of the Sunshine Coast in Queensland (the Hotel). More particularly, the proceedings are concerned with the purported removal of the second defendant, Mr Anthony Walsh (Mr Walsh), as a director of the Company and the appointment of Mr Peter Williams and Mr Warwick Williams as directors of the Company. The plaintiffs, Mr Ross Harding and Mr Richard Harding, are the executors of the will of the late Michael Harding who was, until the time of his death on 7 July 2014, registered as the holder of shares in the capital of the Company.

2. Ross Harding and Richard Harding claim that, at a general meeting of the Company held on 12 February 2019, resolutions were passed whereby Mr Walsh was removed as a director and each of Peter Williams and Warwick Williams was appointed as a director of the Company (the Impugned Resolutions). Mr Walsh, in reliance upon a shareholders’ agreement made on 27 September 2004 (the Shareholders’ Agreement), contends that the Impugned Resolutions were void and of no effect because they are contrary to and inconsistent with the provisions of the Shareholders’ Agreement. Ross and Richard Harding, on the other hand, contend that, irrespective of the provisions of the Shareholders’ Agreement, the Impugned Resolutions are effective in accordance with the constitution of the Company (the Constitution). They say, in addition, that the Shareholders’ Agreement was abandoned by its parties and that, in any event, they are not bound by the Shareholders’ Agreement.

3. By originating process filed on 16 May 2019, Ross and Richard Harding seek declarations as to the validity of the Impugned Resolutions. They also seek ancillary relief consequential upon such declarations being made. By cross-claim filed on 2 October 2020, Mr Walsh seeks contrary declarations concerning the Impugned Resolutions. He also seeks alternative relief, in the event that the Impugned Resolutions are held to be effective, that he be released from personal guarantees given by him in respect of obligations of the Company. Having regard to the lateness with which the cross-claim was filed, the parties agreed that it is convenient to deal initially with the principal question of the validity of the Impugned Resolutions. I shall then hear the parties in relation to the further relief that should be given in the light of the determination of the principal question. Quite properly, the Company has filed a submitting appearance and has not participated in the proceedings to any other extent.

Background

4. Mr Walsh is a solicitor, who practises at Coffs Harbour, New South Wales. In 1990, Mr Gary Brockenshire (Mr Brockenshire) was a client of the firm where Mr Walsh then worked. In about late 2003 or early 2004, Mr Brockenshire told Mr Walsh that the Hotel was for sale and asked whether he wanted to consider purchasing it with another investor. Mr Walsh was acquainted with Michael Harding, who had told him that he would be interested in investing money in a hotel. Michael Harding and Mr Brockenshire were also known to each other. The three, Mr Walsh, Michael Harding and Mr Brockenshire (together the Three Founders) investigated the Hotel and decided to invest in it. The then set about establishing the Company as the vehicle through which they would invest in the Hotel.

5. The Company was incorporated on 31 May 2004. On that day, resolutions were passed that one ordinary share be issued to each of the Three Founders and that each of them be appointed as a director of the Company. The Constitution of the Company adopted at the time of its incorporation relevantly provided for directors in Ch 3 as follows:

“5.   Number of Directors

The Company must have at least one Director. There is no maximum number of Directors unless the Company in General Meeting resolves otherwise.

6.   Company may appoint a Director

The Company may appoint a person as a Director by a resolution passed in General Meeting.

7.   Directors may appoint other Directors

7.1   The Directors may appoint a person as a Director by a resolution of the Board, whether to fill a casual vacancy or to make up a quorum for a Board meeting, even if the total number of Directors otherwise present is not enough to make up that quorum.

7.2   If a person is appointed as a Director under this clause, the Members must confirm the appointment by resolution within two months after the appointment is made. If the appointment is not confirmed, the person ceases to be a Director at the end of those two months.”

6. Relevantly, the Constitution provided for transmission of shares on death of a member as follows:

“90.   Transmission of Shares on death

90.1   If a Member who does not own Shares jointly dies, the Company must only recognise the personal representative of the deceased Member as being entitled so the deceased Member's interest in the Shares.

90.2   If the personal representative gives the Directors the information they reasonably require to establish the personal representative’s entitlement to be registered as holder of the Shares, the personal representative:

(a)   may:

(i)   by giving a written and signed notice to the Company, elect to be registered as the holder of the Shares; or

(ii) subject to clause 90.4, by giving a completed transfer form to the Company, transfer the Shares to another person; and

(b)   is entitled, whether or not registered as the holder of the Shares, to the same rights as the deceased Member.

90.3   On receiving an election under clause 90.2(a)(i), the Company must register the personal representative as the holder of the Shares.

90.4   A transfer under clause 90.2(a)(ii) is subject to the same rules as apply to transfers of Shares generally.

90.5   If a Member who owns Shares jointly dies, the Company will recognise only the survivor or survivors as being entitled to the deceased Member's interest in the jointly owned Shares.

90.6   The estate of the deceased Member is not released from any liability in respect of the Shares.”

7. In July 2004, the Company entered into a contract for the purchase of the Hotel and the business conducted at the Hotel. The purchase price was $3,800,000. In addition to the Hotel and its business, the Company also purchased related plant and equipment, stock and other items. Settlement of the purchase of the Hotel, the business and associated plant and stock took place on 30 September 2004.

8. Each of the Three Founders invested $600,000, which was applied towards the payment of the purchase price. The balance of the price paid for the purchase of the Hotel, the business and related plant, equipment and stock was provided by a loan to the Company of $2,500,000 by National Australia Bank Limited (the NAB). As security for that loan, the Company granted a mortgage over the Hotel to NAB. In addition, each of the Three Founders gave personal guarantees to NAB in respect of the obligations of the Company.

9. On 27 September 2004, in anticipation of completion of the purchase of the Hotel by the Company, the Three Founders entered into the Shareholders’ Agreement. By the Shareholders’ Agreement, it was recited that the Three Founders were existing shareholders of the Company, who wished to regulate the conduct of the business of the Company and agreed that, in addition to the Constitution, the terms of the Shareholders’ Agreement would govern their relationship as shareholders of the Company.

10. Clause 4 of the Shareholders’ Agreement relevantly provided that the shareholders must procure that on the effective date issued capital of the Company would be held legally and beneficially as follows:

“[Mr] Walsh          100 [shares]

[Mr] Brockenshire       100 [shares]

Michael [ ] Harding       100 [shares]”.

The Shareholders’ Agreement provided that, for that purpose, each shareholder must subscribe at par for that number of shares.

11. Clause 8 of the Shareholders’ Agreement provided as follows:

“8.   DIRECTORS

8.1   The Directors of the Company shall be [Mr] Walsh, [Mr] Brockenshire and Michael [ ] Harding.

8.2   The parties must unanimously agree on the appointment or removal of any person as a Director or alternate Director of the Company.

8.3   A quorum for a meeting of the Directors shall be 3 directors or his nominated alternate director.

8.4   Each of the Directors shall have one vote and the Chairman of the Directors shall not have a casting vote.

8.5   [Mr] Brockenshire shall be the initial Chairman of Directors. Thereafter the Chairmanship of the Directors shall rotate annually between [Mr] Walsh, Michael [ ] Harding] and [Mr] Brockenshire.”

12. Clause 9 provided that the directors were to have the control and management of the business of the Company except in respect of those matters that, pursuant to the Shareholders’ Agreement, were required to be decided by the parties. The term “parties” was not defined. However, the term “shareholder” was defined as meaning the Three Founders and any person who becomes a shareholder of the Company and agrees to be bound by the Shareholders’ Agreement.

13. Clause 9.2 provided that the directors were to delegate the day-to-day management of the business of the Company to Mr Brockenshire, who was to have full power and authority to conduct the business of the Company in the ordinary course and in accordance with “the [b]usiness [p]lan”. The first business plan was set out in Sch 1 of the Shareholders’ Agreement. That business plan relevantly provided for an identified person to be employed as manager for six months and for Mr Brockenshire or a related company to be paid a specified sum of money per annum as a consultant for supervising the business of the Hotel and relieving the manager from time to time. The provision stated that no employer/employee relationship was intended. The business plan also provided that Mr Brockenshire was to have use of the residence on the Hotel property.

14. Clause 13 of the Shareholders’ Agreement provided as follows:

“13.   ASSIGNEMNT [sic] OF THIS AGREEMENT

13.1   No party may assign any part of its rights and obligations under this Agreement unless;

(a)   the assignment is part of a transaction whereby shares in the Company are transferred to the assignee, and

(b)   the assignee covenants with every person who is then a party to this Agreement that it will be bound by the terms and conditions of this Agreement to the extent of the shares in the Company transferred to it.”

15. Clause 14 of the Shareholders’ Agreement dealt with rights of pre-emption. Clause 14.1 provided that a shareholder may not sell or transfer any shares, except as provided in cl 14. Clauses 14.11 to 14.13 provided as follows:

“14.11   A Shareholder who sells or transfer shares other than to an existing Shareholder must ensure that the transferee, before registration of the transfer of the shares, enters an agreement with the other parties agreeing to be bound by this Agreement amended as reasonably required by the other Shareholders to protect them from any consequence of the transfer.

14.12   Despite this clause, a Shareholder may sell or transfer shares if;

(a)   the transferee is a wholly-owned Subsidiary of the Shareholder; or

(b)   all other Shareholders give prior written approval.

14.13   The Directors may refuse to register the issue or transfer of any shares if this clause has not been complied with.”

16. Clause 15 of the Shareholders’ Agreement provided that the shareholders must ensure that the board considers and adopts a business plan in accordance with the procedures specified. Clause 15.2 provided that, if the board fails to adopt a business plan in accordance with cl 8(1), the business must be conducted on the basis of the then current business plan until a new business plan is adopted under “cl 8(1)”. [1] Clause 15.3 provided that the shareholders must procure that the Company provides to the directors sufficient management and financial information and reports to allow them to monitor the efficient conduct of the business.

    1. Clearly enough the reference to clause “cl 8(1)” was erroneous. It may have been intended to refer to cl 15.1.

17. Clause 18 of the Shareholders’ Agreement provided as follows:

“18.   DURATION

18.1 Subject to clauses 21, 22 and 18.3 the terms of this agreement do not bind a Shareholder who has transferred all of its shares in the Company as permitted by this agreement and the Constitution.

18.2   This agreement continues until:

(a)   terminated by agreement between the parties;

(b)   terminated at law;

(c)   one Shareholder holds all the issued shares in the Company; or

(d)   none [sic] Anthony Francis Walsh, Garry Parr Brockenshire and Michael John Harding are Shareholders.

18.3   Termination of this agreement does not affect any obligations or rights of any of the parties which have accrued prior to termination.”

18. On 6 September 2004, the Company issued a further 297 ordinary shares, making a total issued capital of 300 shares. Each of the Three Founders was allotted 99 of the new shares, with the consequence that each of them held 100 shares.

19. From about March 2005 until October 2005, Mr Brockenshire managed the Hotel and its business. However, on 18 April 2005, Mr Brockenshire served written notice of sale on Michael Harding and Mr Walsh in accordance with cl 14.2(a) of the Shareholders’ Agreement. By that provision, a shareholder who wants to sell or transfer any shares was required to serve a written notice to that effect on each shareholder specifying the number of shares available for sale (Sale Shares). Clause 14.2(b) relevantly provided that, on receipt of such a notice, each shareholder was to ensure that the market value of the Sale Shares be determined by the Company’s accountants. Pursuant to that provision, Mr Brockenshire sought a valuation of his 100 shares in the Company from Messrs Davies Knox Maynards (DKM), who were then the Company’s accountants. On 21 June 2005, Michael Harding and Mr Walsh accepted Mr Brockenshire’s offer to sell his shares at the valuation produced by DKM.

20. However, a dispute subsequently arose between Mr Brockenshire, on the one hand, and Michael Harding and Mr Walsh, on the other. The dispute was then referred to mediation in accordance with cl 23 of the Shareholders’ Agreement. Clause 23.1 relevantly provided that a shareholder must not start arbitration or court proceedings in respect of a dispute arising out of the Shareholders’ Agreement unless the procedure required by cl 23 had been complied with. The dispute was resolved at a mediation conducted on 5 September 2005 and, on 4 October 2005, Mr Brockenshire resigned as a director of the Company. As part of the settlement reached with Mr Brockenshire, he was to be released from or indemnified in respect of its obligations under the guarantees he had given in respect of the Company’s obligations.

21. However, although neither Michael Harding nor Mr Walsh wanted to purchase Mr Brockenshire’s shares in the capital of the Company, they believed that they were required, by the provisions of cl 14, to do so. They offered Mr Brockenshire’s shares to Peter Williams, whom they both knew and who had expressed an interest in purchasing an interest in a hotel. However, Peter Williams could not purchase more than 50 shares and Michael Harding and Mr Walsh therefore offered the other 50 shares to Phillip Bail and Sharon Bail, Mr Walsh’s brother-in-law and sister, who had previously expressed an interest in purchasing an interest in a hotel.

22. Both Peter Williams and Mr and Mrs Bail made it clear that they did not want to be personally liable for debts of the Company. Mr Walsh therefore told them that he and Michael Harding would continue to run the Hotel and be the only two directors of the Company and that they would not be required to “put up any guarantees”. Peter Williams and Mr and Mrs Bail accepted that proposal.

23. Accordingly, Mr Walsh and Michael Harding decided to establish a trust that would acquire the shares on trust for prospective purchasers and the Maleny Hotel Unit Trust (the Maleny Trust) was established by deed of trust dated 29 September 2005 (the Trust Deed). The trustee under the Trust Deed consisted of Mr Walsh and Michael Harding. Under the Trust Deed, Ms Mary Walsh settled the sum of $10 to be invested in “Authorised Investments”, as defined in the Trust Deed.

24. Schedule 1 of the Trust Deed provided for foundation unit holders as follows:

“Kriam Pty Limited ACN 083 093 814 (Kriam)       50 [units]

Almarie Investments Pty Limited ACN 114 869      50 [units]

466 (Almarie) as trustee for the Williams’ Family Trust    

Mahdeen Pty Limited 071 148 797 [sic] (Mahdeen) as    1 [unit]

trustee for the Walsh Family Trust, as trustee for the

Walsh Family Trust”.

Almarie is controlled by Peter Williams and his wife, Alana Williams. Kriam is controlled by Mr and Mrs Bail. Mahdeen is controlled by Mr Walsh.

25. The sale of Mr Brockenshire’s 100 shares in the capital of the Company was settled on 4 October 2005. Subsequently, Michael Harding and Mr Walsh were replaced as trustee of the Trust by Misidaro Pty Ltd (Misidaro). Mr Walsh has at all times since October 2005 been the only director and sole secretary of Misidaro. At that time, no attempt was made to comply with the provisions of cl 14.11 to cl 14.13, which required that, before registration of the transfer of Mr Brokenshire’s shares, the trustee of the Maleny Hotel Trust, the transferee of his shares, enter an agreement with the other parties to the Shareholders Agreement agreeing to be bound by it, amended as reasonably required by them to protect them from any consequence of the transfer. That may have been because, the transferees of the shares were Mr Walsh and Michael Harding, as the trustee of the Trust. More significantly, no attempt was made at the time when Misidaro was appointed as trustee of the Trust to have Misidaro enter such an agreement.

26. On 31 October 2005, Mr Walsh wrote to each of Almarie and Kriam in relation to the Company. In the letters, he confirmed that the purchase of 100 shares in the Company by the Trust had been completed on 4 October 2005. He said that the purchase price was $224,000 plus the repayment of the loan formerly made to the Company by Mr Brockenshire, such that the total amount paid out to Mr Brockenshire was $727,426.24. The balance of $27,426.24 was paid by the Company as a partial repayment of the loan from Mr Brockenshire. The individual contribution by Almarie and Kriam was $350,000. Of that sum, $112,000 was allocated to the purchase of shares and the balance as a loan to the Company. The letter said that, as a result, the unit holding in the Maleny Hotel Trust, which then owned the 100 shares in the Company, was as follows:

“[Kriam]      50 units

[Almarie]       50 units

[Mahdeen]       1 unit”.

27. Mr Walsh said in the two letters that he did not propose to make any charge for the work done to set up and finalise the Maleny Hotel Trust and to run it each year, apart from Mahdeen taking one unit. He said that Mahdeen would not share in the monthly distributions but would share in any extra distributions made or when the Trust was wound up. Mr Walsh said in the letters that he was the sole director of Misidaro, which had been set up for the purposes of acting as trustee of the Maleny Hotel Trust.

28. After October 2005, Michael Harding and Mr Walsh jointly made all decisions on behalf of the Company, usually meeting weekly in Coffs Harbour although occasionally meetings were more frequent. They discussed matters such as equipment leases, supplier guarantees, banking matters and made numerous trips to the Hotel together. The personal guarantees that each had given to the NAB remained in place and were updated from time to time. Michael Harding and Mr Walsh also gave further personal guarantees to equipment suppliers, trade creditors and others. At no time did Kriam, Mr and Mrs Bail, Almarie or Peter Williams or Alana Williams give personal guarantees in respect of any of the Company’s obligations.

29. After October 2005, Mr Walsh generally provided monthly accounts to all shareholders and holders of units in the Trust, which included a profit and loss statement and balance sheet. Generally, dividends were paid to shareholders monthly direct into bank accounts. Dividends paid to the Trustee were distributed to unit holders. There was some dispute about the regularity of the issuing of accounts and distributions.

30. Mr Walsh spoke regularly with Peter Williams and Mr and Mrs Bail about the affairs of the Hotel. He usually spoke with Peter Williams about once a week and with Phillip Bail about once a month. From time to time Peter Williams and Mr and Mrs Bail also visited the Hotel.

31. In February 2009, Michael Harding and his wife, Christine Harding (Mrs Harding) separated. During 2009 and 2010 they engaged in negotiations with a view to a property settlement. During that time, Michael Harding said to Mr Walsh on more than one occasion that he intended keeping his shares in the Company and did not intend to offer any of those to Mrs Harding as part of any property settlement. However, Michael Harding subsequently told Mr Walsh that he was being pressed to finalise a property settlement and did not think he would have sufficient liquid assets. He said that he was therefore going to offer Mrs Harding 50% of his shares in the Company. Mr Walsh responded that, according to the Shareholders’ Agreement, Mrs Harding should become a party to it. Michael Harding responded that he was concerned about dragging out the settlement even further. Mr Walsh said that they would not require Mrs Harding to be part of the Shareholders’ Agreement. Michael Harding said that he would let Mrs Harding know.

32. In 2010, Michael Harding transferred 50 of his 100 shares in the capital of the Company to Mrs Harding. From that time each of them was recorded in the register of members of the Company as the holder of 50 shares. No request was made to Mrs Harding for her to enter an agreement in compliance with cl 14.11 of the Shareholders’ Agreement.

33. In early 2010, Michael Harding and Mr Walsh decided to carry out renovations to the Hotel. They considered that the Company needed to raise $350,000 to cover the cost of the proposed renovations and decided to finance the renovations by issuing further shares in the Company rather than borrowing further funds from NAB. Ultimately, they decided to issue a further 50 ordinary shares in the capital of the Company, increasing the issued share capital to 350 shares.

34. Of the 50 further shares, 29 were issued to Mr Christopher Walsh, Mr Walsh’s brother, for the sum of $200,000 and 21  were issued to Mr Michael Rendell for the sum of $147,000. Those sums were paid to the Company on 21 May 2010 and 7 July 2010 respectively. The shares were formally issued some time later, on 6 February 2012. Subsequently, Michael Rendell transferred his 21 shares to Rendell Investments Pty Ltd (Rendell Investments), a company associated with him. The transfer was recorded on 3 August 2012. Significantly, at the time of the allotments and the transfer, no request was made to Christopher Walsh, Michael Rendell or Rendell Investments to enter an agreement in compliance with cl 14.11 of the Shareholders’ Agreement.

35. In October 2013, Michael Harding was diagnosed with a serious illness and, on 1 November 2013, he resigned as a director of the Company. Mr Walsh then arranged for a meeting with the Company’s shareholders and the holders of units in the Maleny Hotel Trust to be held on 6 November 2013. The meeting was held at the office of Ross Harding in Sydney and Mr Walsh flew to Sydney from Coffs Harbour to attend the meeting. The meeting was attended by Mr Walsh, Ross Harding, who represented Mrs Harding, Peter Williams, Warwick Williams, Warwick Williams’s accountant, Mr and Mrs Bail, Christopher Walsh and Michael Rendell’s brother, David Rendell. Michael Harding did not attend the meeting.

36. At the meeting, Mr Walsh told those present that Michael Harding was not well and that he had resigned as a director. Mr Walsh said that it would be good to have another director to take Michael Harding’s place. However, he received no response to that proposal. Nobody at the meeting indicated a wish to become a director.

37. In early 2014, Michael Harding was admitted to Baringa Hospital in Coffs Harbour. Mr Walsh visited him there several times a week after work. On 4 April 2014, Ross Harding sent an email to Mr Walsh saying that he was working to have his father’s affairs sorted out. He asked whether his father had been removed as a director from all of the entities involved with the Hotel. He also asked if he could have a copy of the Shareholders’ Agreement to which his father was a party that Mr Walsh had mentioned “at the last meeting”. Ross Harding said that he had no recollection of receiving the Shareholders’ Agreement. There is no documentary evidence of its having been provided to him.

38. On 11 June 2014, Mr Walsh had a discussion with Michael Harding in the hospital when Michael Harding said that he wanted Mr Walsh to talk to Ross Harding, because he wanted him to understand how Mr Walsh ran the Hotel. Michael Harding said that he wanted Mr Walsh to continue to operate the Hotel as he had done from the beginning. Mr Walsh responded that he would be happy to discuss anything about the Hotel with Ross Harding.

39. On 18 June 2014, Mr Walsh met Ross Harding, Richard Harding and Michael Harding’s third son, William Harding at Baringa Hospital. Mr Walsh and the three Harding sons left Michael Harding’s room for a short time and engaged in a discussion in the grounds of the hospital. Richard and William then moved away and Ross Harding said to Mr Walsh that he and his brothers had no problem with Mr Walsh continuing to run the Hotel. Mr Walsh suggested that one of the options would be for the Harding family’s interest in the Hotel to be sold. Ross Harding said that that was something that could be considered and discussed later. Mr Walsh and Ross Harding had a subsequent discussion outside Michael Harding’s room when Mr Walsh said that Michael Harding had asked him to speak to Ross Harding about continuing to run the Hotel. Mr Walsh said that he would continue to run the Hotel as normal. Ross Harding then left.

40. Michael Harding died on 7 July 2014. Probate of his will was granted to Ross Harding and Richard Harding on 30 September 2014. However, no application has been made by Ross Harding and Richard Harding to the Company in respect of the 50 shares registered in the name of Michael Harding, as contemplated by cl 90 of the Constitution. [2]

    2. See above at [6].

41. At some time in 2015, Mr Walsh met with Ross Harding in Ross Harding’s office in Sydney. Mr Walsh said that it would be good to have another director of the Company. Ross Harding replied that he had commitments to his personal business and to his partner in that business and that he would not and could not. Mr Walsh said that, in that case, his brother Christopher could be a director, since he had knowledge of the operation of the Hotel. Ross Harding did not express any disapproval at that suggestion.

42. In June 2016, Mr and Mrs Bail indicated that Kriam wished to sell its 50 units in the Maleny Hotel Trust. On 14 December 2016, Kriam gave formal notice that it wished to sell its 50 units at $7,400 per unit. On 23 December 2016, notice of that was given to Almarie in accordance with the pre-emption provisions in the Trust Deed. On 13 January 2017, Almarie gave notice that it wished to purchase 30 of Kriam’s 50 units. On 8 February 2017, the purchase by Almarie of 30 units from Kriam was completed. The remaining 20 units were acquired by Warwick and Susan Williams, as trustees for the Warwick Williams Superannuation Fund (No 3) (the Williams Fund). That purchase was completed on 16 February 2017, when Warwick and Susan Williams acquired the remaining 20 of the 50 units held by Kriam.

The Dispute

43. On 31 May 2018, the Supreme Court ordered that Misidaro take all steps and execute all documents necessary to cause a meeting of the unit holders of the Maleny Hotel Trust to be held on 25 June 2018. [3] The Court also declared that each of the proposed resolutions contained in the written application for meeting delivered on 8 January 2018 to Misidaro was a proper resolution to be considered and voted upon at any meeting of unit holders.

    3. See Almarie Investments Pty Ltd v Misidaro Pty Ltd [2018] NSWSC 804.

44. On 11 June 2018, Christopher Walsh executed a deed of accession “in favour of the parties to the Shareholders’ Agreement from time to time”. The deed of accession recited that the then shareholders of the Company had entered into the Shareholders’ Agreement, that Christopher Walsh had acquired or would acquire shares in the Company and that Christopher Walsh agreed to become a party to the Shareholders’ Agreement and to be bound by it. By cl 2, Christopher Walsh confirmed that he had been given and had read a copy of the Shareholders’ Agreement and covenanted and agreed, as from the date of the deed of accession, to be bound by, comply with and perform all of the terms of the Shareholders’ Agreement as fully as if he were a party to it from the date of the Shareholders’ Agreement. On the same day, Rendell Investments executed a deed of accession in the same terms. On 14 June 2018, Misidaro executed a deed of accession in the same terms.

45. On 25 June 2018, pursuant to the orders made on 31 May 2018, a meeting of the unit holders of the Maleny Hotel Trust was held at the offices of Mr Walsh in Coffs Harbour. The meeting was attended by Mr Walsh, who acted as chairman, Warwick Williams, Mr Jay Clowes, a solicitor who was present as proxy for Almarie, “Michael” Walsh, [4] who was present as proxy for Mahdeen, and Warwick Williams, who was present as proxy for the Williams Fund. At the meeting, five resolutions were passed on a poll as follows:

    4. The minutes of the meeting record the attendance of a Michael Walsh which was repeated in affidavit evidence. It is not apparent whether this was in fact intended to refer to Anthony (Mr Walsh) or Christopher Walsh, or indeed to a Mr Michael Walsh. However, nothing turns on the point.

1. That the Trustee vote in favour of any resolution removing Mr Walsh as a director of the Company.

2. That the Trustee vote in favour of any resolution appointing Peter Williams as a director of the Company.

3. That the Trustee vote in favour of any resolution appointing Warwick Williams as a director of the Company.

4. That the Trustee vote against any resolution removing Peter Williams as a director of the Company.

5. That the Trustee vote against any resolution removing Warwick Williams as a director of the Company.

46. On 4 December 2018, Ross Harding and Richard Harding gave notice convening a general meeting of the Company in Coffs Harbour on 12 February 2019. They did so as the legal personal representatives of Michael Harding. They were not registered as members of the Company. The business of the meeting was to consider the resolutions proposed at the meeting of the holders of units in the Maleny Hotel Trust held on 25 June 2018.

47. On 12 February 2019, a general meeting of the Company was held at the offices of Messrs Fishburn Watson O’Brien, solicitors, in Coffs Harbour. The meeting was convened pursuant to the notice of 4 December 2018. Mr Walsh chaired the meeting. Mr Walsh attended as the holder of 100 shares in the Company and as proxy for Misidaro. The others present at the meeting were Ross Harding, as proxy for the shareholding registered in the name of Michael Harding, Warwick Williams, as proxy for Mrs Harding, Michael Rendell, as proxy for Rendell Investments, and Christopher Walsh, as the holder of 29 shares in the Company. Peter Williams and Mr Clowes were also in attendance.

48. Prior to the commencement of the meeting, Mr Walsh said that he was not prepared to allow persons who were not shareholders or proxyholders to be present during the meeting. He requested Peter Williams and Mr Clowes to leave the meeting room. After a brief exchange, Mr Clowes and Mr Williams left the meeting room. Although 11.30am had been appointed as the time of the meeting, the meeting commenced at 11.22am, all present having consented to the commencement of the meeting early.

49. Mr Walsh put the first resolution in the notice convening the general meeting and asked whether anyone wished to speak for the motion. Nobody said anything. He then asked whether anybody wished to speak against the motion. Again nobody in the meeting said anything. Ross Harding and Warwick Williams then said that they wanted a poll. A poll was then taken. 200 votes were cast in favour of the motion as follows:

Misidaro          100 shares

Estate of Michael Harding    50 shares

Mrs Harding          50 shares

150 votes were cast against the motion as follows:

Mr Walsh          100 shares

Christopher Walsh       29 shares

Rendell Investments       21 shares

Mr Walsh then said words to the following effect:

“I note that I do not agree to the motion. Accordingly, pursuant to cl 8.2 of the Shareholders’ Agreement, the motion is lost.”

Ross Harding or Warwick Williams then said words to the effect:

“That’s not right. We would like to get Jay back in here to discuss this. We do not recognise the Shareholders’ Agreement.”

Mr Walsh said:

“The Shareholders’ Agreement is valid and has been in existence and acted upon for nearly 15 years. It is binding on the Company.”

However, Mr Walsh adjourned the meeting to allow Ross Harding and Warwick Williams to obtain advice from Mr Clowes.

50. After a discussion involving Mr Walsh, Mr Clowes, Ross Harding and Warwick Williams, the meeting recommenced. Mr Walsh then put the second resolution and the third resolution. Nobody spoke for or against either resolution. A poll was demanded and a poll was taken in respect of each motion. The result was the same as for the first resolution. Again, Mr Walsh indicated that each motion was lost on the basis of cl 8.2 of the Shareholders’ Agreement. Mr Walsh closed the meeting at 11.28am.

51. Mr Walsh prepared minutes of the meeting, which he signed. His solicitors sent a copy of the signed minutes to Messrs Fishburn Watson O’Brien on 13 February 2019. The minutes reflect the course of the meeting as outlined above.

The Issues in the Proceedings

52. The principal relief claimed by Ross Harding and Richard Harding in their statement of claim filed on 20 June 2019 consists of declarations that the Impugned Resolutions were valid and effective. In his cross-claim filed on 1 October 2020, Mr Walsh seeks a declaration that each of the Impugned Resolutions is contrary to and inconsistent with the provisions of the Shareholders’ Agreement and is therefore void and of no effect. In his cross-claim, Mr Walsh also relies on cl 16.2 of the Constitution. He says that, since he was appointed as a director to represent himself as a shareholder, his removal is not effective until a replacement to represent his interests has been appointed.

53. In their reply to Mr Walsh’s defence and in their defence to the cross-claim, Ross and Richard Harding assert that the Shareholders’ Agreement does not apply to or bind and has never applied to or bound them or their exercise of rights in respect of Michael Harding’s shares. Alternatively, they say, prior to 12 February 2019, the Shareholders’ Agreement was mutually abandoned and abrogated by the parties to it and that, as at 12 February 2019, the Shareholders’ Agreement did not govern the Company or its directors or members. Finally, Ross and Richard Harding say, even if the Shareholders’ Agreement has not been abandoned or abrogated and is binding upon them as executors of the will of Michael Harding, the Shareholders’ Agreement does not have the effect contended for by Mr Walsh. In their reply to Mr Walsh’s defence and in their defence to the cross-claim, Ross and Richard Harding dispute the effect of cl 16.2 contended for by Mr Walsh, but say, in the alternative, that if, cl 16.2 was applicable, they will take all steps reasonably available to them to cause a further director to be appointed to represent the interests of Mr Walsh.

54. Ross and Richard Harding also seek relief under s 232 and s 233 of the Corporations Act 2001 (Cth). Section 233 relevantly provides that the Court may make any order that it considers appropriate in relation to a company. Under s 232, the Court may make an order under s 233 if the conduct of a company’s affairs or an action or proposed act or omission by or on behalf of a company is either contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members, whether in that capacity or in any other capacity. That relief is sought on the basis that they are successful in establishing that Mr Walsh was removed as a director of the Company but has failed to accept the validity of the resolution and has continued to act as though he is the only director of the Company. In particular, he has declined to make available to Peter Williams and Warwick Williams the books and records of the Company.

Clause 8 of the Shareholders’ Agreement

55. It is convenient to address first the question of the interaction between the Shareholders’ Agreement and the Constitution. Thus, Ross and Richard Harding contend that, even if the Shareholders’ Agreement has not been abandoned and they are bound by it, the Shareholders’ Agreement does not affect the validity of the resolutions passed on 19 February 2019, even if they were passed in breach of the Shareholders’ Agreement.

56. A seat on the board of directors might be the most valuable attribute of membership of a company to ensure participation in management and sometimes to ensure distribution of profits in the form of directors’ remuneration rather than as dividends. [5] Such an agreement may not be effective in so far as it purports to fetter the discretion of a director in the capacity as director. On the other hand while the directors of a company must act in the interests of the company, it may be in the interests of the company that there be a member of the board who will represent an interest outside the company, such as a mortgagee or another trader or a particular shareholder and who will be acting solely in the interests of such third party but may nevertheless be regarded as properly acting in the interests of the company as a whole. [6]

    5. See Re A & BC Chewing Gum Ltd [1975] 1 All ER 1017; 1 WLR 579.

    6. See Levin v Clark [1962] NSWR 686 at 700-701; (1960) 80 WN (NSW) 485 at 494-495.

55. The interests of an individual shareholder, when protected only by the provisions of the constitution of a company, might be prejudicially affected, in so far as the constitution is subject to the power of the majority to alter it. For that reason, a shareholder may enter into a separate contract, either with the company, or with other shareholders, or with both to afford greater protection of that shareholder’s interests. Such an agreement might relate to the control or management of the company and, in particular, it might take the form of an agreement whereby each party to the agreement undertakes to vote for or not to oppose a candidate nominated by the other party or parties for election or appointment as a director.

56. For example, the constitution of a company may contain provisions requiring unanimous approval of the members or of the directors. That might be combined with an agreement among the shareholders not to vote for any proposed amendment to those provisions in the constitution. Such an agreement, however, will bind only the parties to the agreement. That deficiency can be overcome by a provision in the constitution prohibiting the transfer of shares to any but the existing members except with their unanimous consent. Such an agreement may be enforced by injunction. Repudiation of such an agreement by one of the parties may be grounds for winding up. [7] It is clear that such an agreement operates independently of the constitution of a company.

    7. See Re A & BC Chewing Gum Ltd [1975] 1 All ER 1017; 1 WLR 579.

57. There are statutory contractual arrangements between the company and its members and between the members of a company. Under s 140 of the Corporations Act, a company’s constitution has effect as a contract:

• between the company and each member;

• between the company and each director and company secretary; and

• between the member and each other member,

under which each person agrees to observe and perform the constitution and rules so far as they apply to that person. However, by a separate agreement between or among members, the members may bind themselves to act independently of the constitution and not to exercise rights or enforce obligations that arise under the constitution of a company. Such a shareholders’ agreement, provided it is clearly expressed, will be enforced by injunction either restraining conduct in breach of the agreement or compelling specific performance of positive obligations created by the agreement.

60. Thus, a shareholders’ agreement, as a contract, is, in principle, enforceable by all of the normal contractual remedies, including damages, mandatory and restraining injunctions and specific performance. A shareholders’ agreement can regulate virtually every aspect of internal management within a company so as to exclude or restrict the operation of the principles of majority rule and most other accepted fundamentals of corporate governance.

61. Even where a contractual obligation is created by a shareholders’ agreement, there may be circumstances where the beneficiary of an obligation may elect not to enforce it. Nevertheless, proposed actions may constitute a breach of the literal terms of the promise contained in the shareholders’ agreement. The fact that the action might be a breach, however, would not invalidate or render the action itself void or ineffective. The fact that the beneficiary of the obligation or promise chooses not to enforce it and, in effect, waives compliance with it, is a different question altogether from whether the action itself is valid and effective.

62. Clause 8 of the Shareholders’ Agreement must be understood in the context of the Constitution. Thus, under cl 5 of the Constitution, the Company must have at least one director and there is no maximum number of directors unless the Company in a general meeting resolves otherwise. Clause 8.1 of the Shareholders’ Agreement then provided that the directors of the Company were to be the Three Founders. When Mr Brockenshire resigned, there was, in effect, a breach of cl 8.1 of the Shareholders’ Agreement. Clearly Mr Brockenshire waived any breach, as did Mr Walsh and Michael Harding. That is also relevant to the question of abandonment. However, the fact that cl 8.1 was no longer complied with had no consequences so far as the Constitution was concerned. The Constitution required only that there be at least one director.

63. Clause 6 of the Constitution provides that the Company may appoint a person as a director by a resolution passed in general meeting and cl 7.1 provides that the directors may appoint a person as a director by resolution of the board, whether to fill a casual vacancy or to make up a quorum for a board meeting, even if the total number of directors otherwise present is not enough to make up that quorum. Under cl 7.2, if a person is appointed as a director under cl 7.1, the members must confirm the appointment by resolution within two months after the appointment is made. If the appointment is not confirmed, the person ceases to be a director at the end of those two months. Clause 16.1 of the Constitution provides that the Company may, by resolution of the members, remove a director from office and appoint another person as a director in that director’s place. Under cl 18(e), a director vacates office if the director is removed from the office by resolution of the members in accordance with cl 16.

64. Those provisions are quite inconsistent with cl 8.2 of the Shareholders’ Agreement, the effect of which is that “the parties” (which can only refer to the Three Founders) must unanimously agree on the appointment or removal of any person as a director or alternate director of the Company. The language of cl 8.2 is not felicitous. Clause 8.2 can only be construed as a promise by each of “the parties” that he will not propose or vote in favour of a resolution to remove a director from office or appoint another person as a director unless each of the other “parties” assents to that removal or appointment. However, whether or not that assent is given does not affect the validity of the resolution passed in accordance with cl 6.1 or the operation of cl 18 of the Constitution.

65. Clause 35.1 of the Constitution provides that, except where the Company has only one director and unless the directors “determine otherwise”, the quorum for a board meeting is two directors and the quorum must be present at all times during the meeting. Clause 8.3 of the Shareholders’ Agreement provides that a quorum for a meeting of the directors is to be three directors or “his nominated alternate director”. That may be capable of being construed as a determination “otherwise” by the directors, although the Three Founders were parties to the Shareholders’ Agreement as “existing shareholders of the Company”, and not as directors of the Company.

66. Clause 34 of the Constitution deals with chairing of board meetings. Under cl 34.1, the board may elect a director to chair board meetings and, under cl 34.2, the board may determine the period for which the director is to be the chair. Clause 8.5 of the Shareholders’ Agreement provides that Mr Brockenshire was to be the initial chairman and that thereafter the chairmanship of the directors was to rotate annually between Mr Walsh, Michael Harding and Mr Brockenshire. That provision was not observed. It could not be suggested that meetings that were held were therefore invalid or ineffectual. Clearly enough, the “parties” to the Shareholders’ Agreement waived any requirement for compliance with cl 8.5, whether or not that waiver constituted evidence of abandonment.

67. The interaction between the Constitution and the Shareholders’ Agreement is highlighted by the position of Mrs Harding. It is common ground that Mrs Harding is not a party to the Shareholders’ Agreement and it has not been suggested that, by acquiring shares from Michael Harding, who was bound by the Shareholders’ Agreement, she became bound by the Shareholders’ Agreement. It would be a curious consequence if Mrs Harding voted in favour of the resolution for the removal of Mr Walsh, in accordance with the Constitution, which, under s 140 of the Corporations Act, creates a contract between her and the Company and between her and the directors and the other shareholders, but the resolution, having been passed effectively and validly in accordance with the Constitution, was is invalidated by a contract to which she is not a party. That consequence emphasises the fallacy of the contention that the validity or effectiveness of a resolution passed in accordance with the Constitution might be impugned by a contract to which some shareholders are not parties and to which the Company itself is not a party.

68. There is a clear distinction between the interaction of the Constitution with the Shareholders’ Agreement, on the one hand, and the question of whether or not Ross and Richard Harding, as executors of their father’s will, are bound by the Shareholders’ Agreement in relation to the shareholding to which they have succeeded as executors. Thus, an assignee, whether absolutely or by way of mortgage, of shares from an assignor who is party to a Shareholders’ Agreement with all other shareholders may well be bound by the terms of that Shareholders’ Agreement. The Shareholders’ Agreement creates contractual obligations that are equally enforceable as the statutory contract created by s 140 of the Corporations Act. [8] Nevertheless, for the reasons outlined above, a Shareholders’ Agreement, albeit binding on all shareholders, does not affect the validity of actions that are otherwise in accordance with the constitution of the relevant company.

    8. See Elders Forestry Ltd v BOSI Security Services Ltd [2010] SASC 223; 242 FLR 360 at [128]-[129].

69. It follows that, even if Ross and Richard Harding are bound contractually by the provisions of the Shareholders’ Agreement in relation to the shares in the capital of the Company to which they have succeeded as executors of their father’s will, and on the assumption that the Shareholders’ Agreement has not been abandoned, I do not consider that cl 8.2 of the Shareholders’ Agreement affects in any way the validity and effect of the Impugned Resolutions. It follows that, subject to cl 16.2 of the Constitution, Mr Walsh has not been a director of the Company since their passing and Peter and Warwick Williams have each been a director of the Company since that time. It is, of course, unfortunate that it has taken more than 18 months for their status to be established. It is to be hoped that there are no complications arising from their performance or failure to perform duties as directors.

Clause 16.2 of the Constitution

70. Mr Walsh contends that the resolution for his removal was ineffective because of the operation of cl 16.2 of the Constitution, which relevantly provides that, if a director was appointed to represent the interests of particular members, the removal of that director under cl 16.1 has no effect until a replacement to represent the interests of those particular members has been appointed. Mr Walsh contends that an implication arises, from the provisions of the Shareholders’ Agreement, that he was appointed to represent his interests as a member.

71. As I have said, on the day of incorporation of the Company, a resolution was signed by each of the Three Founders appointing each of them as a director and allotting one share to each of them. No mention is made in that resolution that each director was appointed to represent that person in his capacity as a shareholder or member. Indeed, there is no express reference in the records of the Company to the appointment of any of the directors to represent the interests of any shareholder.

72. On one view, cl 8.2 of the Shareholders’ Agreement evidences an intention on the part of the Three Founders that each of them be represented on the board of the Company. The statement in cl 8.1 that the directors were to be Mr Walsh, Mr Brockenshire and Michael Harding and the requirement in cl 8.2 for those “parties” to agree unanimously on the appointment or removal of any person as a director evidences a clear intention that each of them would be a director for so long as he is prepared to act as such. While the Shareholders’ Agreement was not entered into until 27 September 2004, an inference might be drawn from the subsequent conduct of the parties that, at the time of their appointment, each was to represent his own interest in the affairs of the Company.

73. However, I consider that the Shareholders’ Agreement itself rebuts any implication that the Three Founders were appointed to represent their respective interests as members. That is precisely what the Shareholders’ Agreement was intended to do. That is to say, it might have been possible for the provisions of cl 8 and other provisions of the Shareholders’ Agreement to be incorporated in the Constitution. However, the parties elected to deal with their interests in a different way. Thus, the Shareholders’ Agreement laid down the regime whereby their respective interests would be protected. There was no need for Mr Walsh to be appointed to represent his interests as a member any more than there was a requirement or a need for Mr Brockenshire or Michael Harding to be appointed to represent their respective interests. Their interests were protected by the mutual promises given under the Shareholders’ Agreement. I do not consider the cl 16.2 had any effect in the present circumstances.

Abandonment of the Shareholders’ Agreement

74. Ross and Richard Harding contend that the Shareholders’ Agreement was abandoned prior to the deeds of accession being entered into in June 2018. They rely on a number of circumstances as constituting evidence of abandonment of the Shareholders’ Agreement. Some of the circumstances pleaded had no bearing on possible abandonment and some were not pressed in submissions. I shall deal with those that were pressed.

75. First, Mr Brockenshire acted as chairman of directors from the time of the Company’s incorporation until his resignation on 4 October 2005. Mr Walsh has acted as chairman since 4 October 2005. That is inconsistent with cl 8.5 of the Shareholders’ Agreement, which provides that the chairmanship was to alternate among the Three Founders.

76. Mr Walsh responds that, following Mr Brockenshire’s resignation, he and Michael Harding conducted the affairs of the Company more informally, at weekly meetings. Accordingly, there were very few formal meetings of directors. Following Michael Harding’s resignation on 1 November 2013, Mr Walsh was the only director.

77. Secondly, cl 15 of the Shareholders’ Agreement provided for the adoption of a business plan in accordance with the procedures specified. Clause 15.3 required the shareholders to procure that the Company provide sufficient management and financial information and reports to the directors to allow the directors to monitor the efficient conduct of the business of the Company. No amendments were made to the business plan annexed to and forming part of the Shareholders’ Agreement, notwithstanding the requirements of cl 15 that the business be conducted on the basis of the current business plan from time to time and the ability for Mr Brockenshire, under cl 15.4, to request a directors’ meeting on an urgent basis to examine and review the business plan in circumstances where it appeared to him likely that there would be any material variation. The business plan annexed to the Shareholders’ Agreement, by its contents, became otiose once Mr Brockenshire ceased to be involved in the affairs of the Company.

78. Mr Walsh responds that cl 15 was not invoked because it was not necessary in the circumstances of the Company as they evolved. He asserts that a business plan was prepared informally as part of the Company’s annual budget and that, while shareholders were consulted regularly, they never requested preparation of a formal business plan. Clause 15.2 actually acknowledged that a new business plan might not be prepared and Mr Walsh and his fellow directors did not at any stage consider that they had insufficient management and financial information.

79. Thirdly, cl 8.3 of the Shareholders’ Agreement provided that a quorum for a meeting of directors was to be three directors. Following Mr Brockenshire’s resignation as a director, there were only two directors until Michael Harding resigned. During that period, board meetings were held at which only Michael Harding and Mr Walsh were present. Thereafter, board meetings were held at which only Mr Walsh was present. Clearly enough, cl 8.3 could not be, and was not, complied with. However, that of itself does not indicate abandonment of the Shareholders’ Agreement, although it may point towards frustration of the Shareholders’ Agreement.

80. Fourthly, cl 10.1 of the Shareholders’ Agreement provided that a quorum for a general meeting was to consist of the Three Founders either in person or by proxy. The chairman of directors was to be entitled to chair a general meeting but was not to be entitled to a casting vote. Clearly, the Shareholders’ Agreement assumed the continuation of Mr Brockenshire and Michael Harding as members of the Company. After Mr Brockenshire ceased to be a member, there could no longer be compliance with that requirement. Once again, however, that suggests frustration rather than abandonment of the Shareholders’ Agreement.

81. Fifthly, cl 8.2 of the Shareholders’ Agreement provided that “the parties” must unanimously agree on the appointment of any person as a director. However, Mr Walsh unilaterally decided to appoint his brother, Christopher Walsh, as a director of the Company on 28 April 2016 and signed a board resolution to that effect.

82. Mr Walsh responds that he formed the view that, as the only director of the Company, he could appoint his brother as a director under cl 7.1 of the Constitution, although he appreciated that that appointment would require approval within two months by the shareholders under cl 7.2. He subsequently formed the opinion that it was unlikely that a majority of the shareholders would confirm his brother’s appointment. He accepts that the appointment lapsed after two months pursuant to cl 7.2.

83. The appointment of Christopher Walsh as a director was clearly valid under cl 7 of the Constitution. That also confirms that the Constitution operated independently of the Shareholders’ Agreement. By the time of the appointment of Christopher Walsh, Mr Walsh was the only director and the only one of “the parties” referred to the Shareholders’ Agreement, who had any involvement with the affairs of the Company.

84. Sixthly, cl 12.1(g) of the Shareholders’ Agreement relevantly provided that, in addition to several matters specified in other provisions of the Shareholders’ Agreement as requiring unanimous agreement of “the [s]hareholders”, such unanimous agreement was also required for each of the matters with respect to the Company set out in cl 12.1. The matters set out in cl 12.1 included issuing any shares, granting any option or other right in respect of the unissued share capital or altering rights attached to any shares. Shares were issued to Christopher Walsh and to Rendell Investments without the unanimous agreement of shareholders being obtained by any formal resolution.

85. Mr Walsh responds that the only two shareholders at the time when shares were issued to Christopher Walsh and Mr Rendell were Mr Walsh and Michael Harding, since Mr Brockenshire’s shares had been transferred in October 2005 and Mrs Harding was not a “shareholder” for this purpose, as she was not a party to the Shareholders’ Agreement. They did not oppose the issue and allotment of those shares. Thus, Mr Walsh contends, there was a unanimous agreement of the shareholders.

86. Seventhly, under cl 12.1(k) unanimity was also required for the incurring of any capital expenditure or liability of $10,000 or more for an individual transaction or for a series of transactions in aggregate in any financial year. The Company leased poker machines from finance companies or equipment supplies from time to time in excess of that amount. Mr Walsh responds that there was unanimous agreement by himself and Michael Harding for the reasons indicated above. He also contended that leasing poker machines was not a capital expenditure.

74. Eighthly, under cl 12.1(p), unanimity was also required for the execution of any service, employment or consultancy contract with a term of more than 12 months or a financial commitment of $10,000 or more. Mr Walsh received aggregate annual payments of between $85,000 and $100,000 for his part time services in managing the Hotel and as a director. Mr Walsh’s son, Simon Walsh, was employed by the Company as manager of the Hotel between November 2012 and January 2014. There has been no formal agreement for those matters. Mr Walsh responds that no formal management agreement has been entered into and that there was unanimous agreement by himself and Michael Harding for the reasons indicated above.

75. Ninthly, cl 14 of the Shareholders’ Agreement provides for rights of pre-emption. Clause 14.11 provides that a shareholder who sells or transfers shares other than to an existing shareholder must ensure that the transferee, before registration of the transfer of the shares, enters an agreement with the other parties agreeing to be bound by the Shareholders’ Agreement amended as reasonably required by the other shareholders to protect them from any consequence of the transfer. However, under cl 14.12, a shareholder may sell or transfer shares if all other shareholders have given prior written approval. The directors may refuse to register a transfer of any shares if cl 14 has not been complied with. Shares were transferred from Michael Harding to Mrs Harding without compliance with cl 14. Mrs Harding was never required or asked to enter into the Shareholders’ Agreement or a deed of accession binding her to it.

76. Further, shares were transferred to Misidaro on 4 October 2005. No Shareholders’ Agreement or deed of accession was executed by Misidaro until 14 June 2018, after the present dispute had erupted.

77. Mr Walsh responds that he acceded to Michael Harding’s request that Mrs Harding not be pressed to sign the Shareholders’ Agreement as it would drag out the property settlement negotiations further. That tends to support Mr Walsh’s contention that the Shareholders’ Agreement was not abandoned but that the “parties” who still had a connection with the Company waived compliance with cl 14.

78. The considerations set out above tend to suggest that the Shareholders’ Agreement was frustrated by the resignation of Mr Brockenshire and the transfer of his shares without formalising the arrangements in accordance with cl 14. The Shareholders’ Agreement simply made no sense once Mr Brockenshire was no longer involved with the affairs of the Company. Further, when Michael Harding died, it was impossible for the Shareholders’ Agreement to operate.

79. Three of the current shareholders of the Company have now purported to execute deeds of accession to the Shareholders’ Agreement and have agreed to be bound by the Shareholders’ Agreement. How those deeds would operate without substantial rewriting of the Shareholders’ Agreement is by no means clear. However, none of those shareholders is a party to these proceedings. In the circumstances, it would not be appropriate to express a view, without their participation, as to whether or not the Shareholders’ Agreement continues to have some operation.

80. Further, whether or not the Shareholders’ Agreement continues to have any force or operation, it is difficult to see why, if the Shareholders’ Agreement continues to be binding, Ross and Richard Harding, in their capacity as executors of the will of their father, would not be bound as the legal personal representatives of a party to the Shareholders’ Agreement. However, in the light of the conclusion that I have reached concerning the inter-relationship between the Constitution and the Shareholders’ Agreement, it is unnecessary to determine whether it is binding on them.

Conclusion

94. It follows that Ross and Richard Harding are entitled to the declarations sought in their originating process. The prayers for relief in the cross-claim concerning the effect of the three resolutions passed on 12 February 2019 should be dismissed. At this stage, however, I will not make any orders. Rather, it will be necessary to give directions for the hearing of the remaining issues in the proceedings.

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Endnotes

Decision last updated: 02 December 2020