In the matter of New South Wales Leagues' Club Limited
[2014] NSWSC 1610
•14 November 2014
Supreme Court
New South Wales
Medium Neutral Citation: In the matter of New South Wales Leagues' Club Limited [2014] NSWSC 1610 Hearing dates: Thursday, 28 August 2014 Decision date: 14 November 2014 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Plaintiffs are entitled to declarations to the effect that: (1) the persons qualified to be "B" class members of the Club are the individuals who are entitled to participate in the general meeting of the League, being the Members' Representatives and the Life Members referred to in the 2013 constitution of the League; (2) the determination (referred to in clause 8 of the Club's Memorandum of Association) by the members of the Club as to the transferee of surplus property of the Club on winding up or dissolution is one to be made by resolution of the members eligible to vote, assembled in general meeting; (3) only the B members of the Club are entitled to vote on such a resolution; (4) the referendum conducted by the Club pursuant to Notice dated 23 July 2014 is not a determination for the purposes of clause 8 of the Club's Memorandum of Association. Application for winding up of defendant on just and equitable ground refused. Plaintiffs to bring in short minutes to give effect to judgment.
Catchwords: CORPORATIONS - constitution and replaceable rules - memorandum and articles of association - construction
CORPORATIONS - winding up - other grounds for winding up - just and equitable ground - alleged failure to comply with constitutional and statutory obligations - alleged failure of substratum - where plaintiffs comprise special majority of those entitled to vote on resolution to wind up - whether internal process of special resolution should be bypassedLegislation Cited: (CTH) Corporations Act 2001, s 249A, s 249D, s 249H, s 249L, s 249N, s 249O, s 461, s 491
(NSW) Registered Clubs Act 1976, s 41J
(UK) Companies Act 1862, s 79Cases Cited: Angostura Bitters Ltd v Kerr [1933] AC 550
In the matter of Austinmer Bowling Club Ltd (in liq); Russell v Rodden [2008] NSWSC 730
Re Buck [1964] VR 284
Re Giga Investments Pty Ltd (in admin) (1995) 58 FCR 106; 17 ACSR 472
Gregor v British-Israel-World Federation (2002) 41 ACSR 641
Khano v XL Cleaning Services Pty Ltd (2004) 51 ACSR 397
Kurilpa Protestant Hall Pty Ltd [1946] St R Qd 170
In re Langham Skating Rink Company (1877) 5 Ch D 669
Loch v John Blackwood Ltd [1924] AC 783
Lion Nathan Australia Pty Ltd v Coopers Brewery (2006) 156 FCR 1; 236 ALR 561; 59 ACSR 444
London Financial Assn v Kelk (1884) 26 Ch D 107
McMillan v Toledo Enterprises International Pty Ltd (1995) 18 ACSR 603
Re Surrey Garden Village Trust Ltd; Re Addington Smallholders Ltd [1964] 3 All ER 962
Thomas v Mackay Investments Pty Ltd (1996) 22 ACSR 294
Re Tivoli Freeholds Ltd [1972] VR 445
Re Wedgwood Coal and Iron Co (1877) 7 Ch D 75Category: Principal judgment Parties: New South Wales Rugby League Limited (first plaintiff)
Denis Fitzgerald (second plaintiff)
John Chalk (third plaintiff)
David Trodden (fourth plaintiff)
Ray Dib (fifth plaintiff)
Arthur Coorey (sixth plaintiff)
Yvonne Purtell (seventh plaintiff)
Steve Edge (eight plaintiff)
Nicholas Politis (ninth plaintiff)
Leslie Glen (tenth plaintiff)
Brian Canavan (eleventh plaintiff)
Robert Millward OAM (twelfth plaintiff)
William Johnstone (thirteenth plaintiff)
Deborah Jane Healey (fourteenth plaintiff)
Geoff Gerard (fifteenth plaintiff)
George Peponis OAM (sixteenth plaintiff)
Keith Barnes AM (seventeenth plaintiff)
Bob McCarthy MBE (eighteenth plaintiff)
Peter Corcoran OAM (nineteenth plaintiff)
John Raper MBE (twentieth plaintiff)
Keith Aggett (twenty-first plaintiff)
Fred Thompson (twenty-second plaintiff)
Ronald Joseph Coote AM (twenty-third plaintiff)
Barry Clyde Nelson OAM (twenty-fourth plaintiff)
Ron Massey (twenty-fifth plaintiff)
Bob Fulton AM (twenty-sixth plaintiff)
Mick Falla (twenty-seventh plaintiff)
Phil Moss (twenty-eighth plaintiff)
Paul Broughton (twenty-ninth plaintiff)
Greg Florimo (thirtieth plaintiff)
Ken Arthurson AM (thirty-first plaintiff)
Michael Arthur Cleary AO (thirty-second plaintiff)
George Leslie Piggins (thirty-third plaintiff)
Damian Keogh (thirty-fourth plaintiff)
Scott Penn (thirty-fifth plaintiff)
John Quayle (thirty-sixth plaintiff)
Peter Mulholland (thirty-seventh plaintiff)
Barry Vining (thirty-eighth plaintiff)
Ron Bottle (thirty-ninth plaintiff)
Don Feltis OAM (fortieth plaintiff)
Darrel M Bampton OAM (forty-first plaintiff)
Robert Abbott AM (forty-second plaintiff)
Stephen Anthony Reeves (forty-third plaintiff)
Nicholas Pappas (forty-fourth plaintiff)
Tom Ebsworth (forty-fifth plaintiff)
John Hayes (forty-sixth plaintiff)
Bruce Wallace (forty-seventh plaintiff)
Steve Sharp (forty-eighth plaintiff)
Dick Prior (forty-ninth plaintiff)
Terry Quinn (fiftieth plaintiff)
Frank Leonard (fifty-first plaintiff)
New South Wales Leagues' Club Limited (defendants)Representation: Counsel:
C R C Newlinds SC w J Hutton (plaintiffs)
I M Jackman SC w D Klineberg and J Willis (defendants)
Solicitors:
Ashurst (plaintiffs)
W.G. McNally Jones Staff (defendants)
File Number(s): 2014/224168
Judgment
HIS HONOUR: For many years the defendant company New South Wales Leagues' Club Limited ("the Club") has operated a club at 165-167 Phillip Street, opposite Selborne Chambers. In 1915, the New South Wales Rugby Football League (then an unincorporated association, which in its incorporated form is now the first plaintiff New South Wales Rugby League Limited) ("the League"), acquired the assets and undertaking of the United Services Club (as the Club was then known), with the intention of establishing a club for the members of the League. The Club thereupon changed its name to the New South Wales Leagues' Club, and amended its articles (article 7) to provide for three classes of ordinary members: "A" members (being persons who were members of the Club prior to 3 February 1915 and pay a subscription of 3 guineas - of whom none remain); "B" members (being members who are also members of the Committee of the League and pay a subscription of 3 guineas); and "C" members (who pay a subscription of 1 guinea); and to provide that only "B" Members have the right to vote at any meeting, except at meetings for the election of Directors at which, for the purpose of such election only, "A", "B", and "C" Members are entitled to one vote each. Minor amendments to article 7 since 1915 do not relevantly affect its substance.
In 2013, the directors of the Club resolved to dispose of the Club's major asset, being its Phillip St property. As a result of the sale, it has net surplus assets of in excess of $9,000,000 in cash. The Club continues to occupy premises in the Phillip Street property, under a lease which expires in June 2015. It continues to trade from those premises, at a loss.
Clause 8 of the Club's Memorandum relevantly provides that if on the winding up or dissolution of the Club there remains, after the satisfaction of all debts and liabilities, any property whatsoever, such property shall not be paid to or distributed among the members, but shall be given or transferred to some other institution or institutions to be determined by the members at or before the time of the dissolution and in default of such a determination by a judge of the Supreme Court.
The Club now has approximately 3,000 members, of whom 64 are also members of the League and, arguably, B class members. On 16 April 2014, a requisition was lodged with the Club, purportedly invoking (CTH) Corporations Act 2001, s 249D(1), signed by ten members who are also members of the League (and thus claimed to constitute 5% of the persons entitled to vote at a general meeting of the Club, being the B members), for a special resolution to be put to the Annual General Meeting, to be held on 6 May 2014, that the Club be wound up voluntarily, and an ordinary resolution that any surplus be given or transferred to the League. However, s 249D was inapt (as the requisition was not one to call a meeting, but to put resolutions to the 2014 Annual General Meeting, which had already been called by notice sent on 2 April 2014); if s 249N were to be relied upon, then pursuant to s 249O the resolutions could not be considered until "the next general meeting that occurs more than 2 months after the notice is given", which would have been after 16 June 2014 at the earliest; and in any event the requisite 21 days' notice of the proposed special resolution (as required by the combined effect of the definition of "special resolution" in s 9, and ss 249H and 249L(1)(c)), could not have been given for 6 May. In those circumstances, as the plaintiffs now accept, the Club was not obliged to submit the proposed resolutions to the Annual General Meeting on 6 May.
On 29 April 2014, the Chief Executive Officer of the Club, Mr Bowden, informed the requisitioning members that the Club would meet with them and, if the matter could not be resolved, convene an Extraordinary General Meeting to consider the proposed resolutions. However, without convening any such meeting, the Club instead proceeded to conduct a "referendum" of all members - not limited to B members - on a proposal that, upon winding up or dissolution of the Club, any surplus property be given or transferred to Club Distributions Limited (a company limited by guarantee formed by the Club for the purpose of taking over any excess assets). Explicitly, the purpose of this course was to prevent any further attempt by the League to wind up the Club and have its assets transferred to the League or any other institution not approved by all classes of members (as distinct from just the B members). The Club disputed that B members alone were entitled to make a determination under clause 8 of the Memorandum as to the transferee of any surplus assets, and subsequently also disputed that there were any B members.
By Originating Process filed on 30 July 2014, the plaintiffs (the League, and fifty natural persons who are, on any view, members of both the League and of the Club, though whether they are "B" class members of the Club is in dispute) seek declaratory relief to resolve disputes as the qualifications for "B" class membership of the Club and the status of the "referendum", and an order winding up the Club on the just and equitable ground. The main issues are:
(1) Whether the individual plaintiffs (or some of them) are "B" class members of the Club, being the class of members who under the Club's constitution are alone entitled to vote on all matters other than the appointment of directors. This turns on the construction of the Club's constitution, and in particular clause 7(2) of the Articles, which sets out the qualifications of "B" members.
(2) Whether B class members in general meeting alone are entitled to make the "determination" referred to in clause 8 of the Memorandum of Association in respect of the destination of surplus assets on a winding up. This also depends on the construction of the Club's constitution, in particular clause 8 of the Memorandum and clause 7(5) of the Articles; and
(3) Whether the Club should be wound up on the just and equitable ground, essentially by reason of disregard by management of the Club's constitution, and failure of the purposes of the Club.
The B class members
The qualifications and rights of the membership of the Club are defined by Article 7, which in its current form relevantly provides:
7. Members shall be over the age of eighteen (18). There shall be three classes of ordinary members, who shall be registered separately as "A" members, "B" members and "C" members.
(1) The qualification of "A" Members shall be membership of the Club prior to the Third day of February, 1915.
(2) The qualification of "B" Members shall be membership of the Club and membership of the Committee of the New South Wales Rugby League Ltd payment of an annual subscription of not less than six dollars fifty cents ($6.50).
(3) The qualification of "C" Members shall be that of ordinary members and payment of an annual subscription of not less than two dollars ($2.00).
(4) Any "B" member losing his qualification of membership of the Committee of the New South Wales Rugby League Ltd shall cease to be a "B" member, but shall be entitled to be registered as a "C" member subject to continuing to pay the annual subscription then applicable to "C" members. ...
The Articles contain no definition of the "Committee of the New South Wales Rugby League Ltd", referred to in article 7(2) and (4). The Club submits that, since the adoption of the current constitution of the League in April 2013, there is no body in existence to which the description "Committee of the New South Wales Rugby League Ltd" applies, and thus that there are no B class members.
It is correct, and the League accepts, that since April 2013 there has been no extant body bearing the denomination "Committee of the New South Wales Rugby League Ltd". However, that is not the end of the matter. Corporate constitutions must be afforded a measure of flexibility, as they are enduring documents which may have to apply in circumstances rather different from those that obtained when they were first adopted. In Re Giga Investments Pty Ltd (in admin) (1995) 58 FCR 106; 17 ACSR 472, Branson J said (at 476-477):
... Orthodox rules of construction would require that the words of the articles of association be given the meaning which they had as at the date of their adoption. If this is a recent date no difference between that meaning and the current meaning of such words is likely. If the articles of association were adopted many years ago the position might be different.
However, without departing from the orthodox rules of construction, courts are, in my view, entitled to recognise that articles of association are instruments of company governance intended to endure and to be capable of operating with flexibility in changing circumstance (cf the approach of the High Court to the interpretation of the Constitution as reflected in eg Australian National Airways Pty Ltd v Commonwealth (1945) 71 CLR 29 at 81; Lansell v Lansell (1964) 110 CLR 353; R v Judges of the Federal Court of Australia;Ex parte Western Australian National Football League (Inc) (1979) 143 CLR 190 ; 23 ALR 439).
Likewise, in Lion Nathan Australia Pty Ltd v Coopers Brewery (2006) 156 FCR 1; 236 ALR 561; 59 ACSR 444, Lander J said, of a corporate constitution (at [244]):
The constitution should be considered as an enduring and flexible document: Re Giga Investments Pty Ltd (in admin) (1995) 58 FCR 106; 17 ACSR 472.
The question is whether there is in existence a body that, for the purpose of the Club's article 7(2), can be sufficiently recognised as the "Committee of the New South Wales Rugby League Ltd". Both the functions and membership of such a body are relevant to the question whether it can, for this purpose, be so identified. To answer this requires an historical review of the evolution of the governance structures of the League, from the time of the 1915 amendments to the Club's articles, when the League was the unincorporated association called the "New South Wales Rugby Football League", which had been founded in 1907.
When the League acquired the assets and undertaking of the United Services Club in 1915, article 7 was substituted by a special resolution passed at an Extraordinary General Meeting held on 21 January 1915 and confirmed on 4 February 1915, relevantly in the following form [PX02]:
7. That the qualification shall be that they are male members over the age of 21 and resident in N.S.W. There shall be three classes of ordinary members who shall be registered separately as "A" Members, "B" Members, and "C" Members.
(1) That the qualification of "A" Members shall be membership of the Company prior to the Third day of February, 1915, and the payment of an annual subscription of 3 guineas.
(2) That the qualification of "B" Members shall be membership of the Company and membership of the Committee of the N.S.W. Rugby Football League and the payment of an annual subscription of 3 guineas;
(3) That the qualification of "C" Members shall be that of ordinary members and payment of an annual subscription of 1 guinea.
...
(5) Any "B" member losing his qualification of membership of the Committee of the N.S.W. Rugby Football League shall cease to be a "B" Member, but shall be entitled to be registered as a "C" Member subject to continuing to pay the annual subscription of 1 guinea. ...
...
Subsequent amendments have modified those provisions by removing the qualification that members must be male, reducing the age qualification to 18, substituting decimal currency, and (following the incorporation of the league) substituting reference to "the Committee of the New South Wales Rugby League Ltd".
While the articles are to be construed as an enduring and flexible document, nonetheless in ascertaining the intent of article 7(2), the constitution of the League in 1915, when article 7 was inserted in the Club's articles in that form, is an important starting point. So far as the evidence goes, the constitution of the League in 1915 was probably in the same form, at least in relevant respects, as the earliest version in evidence, which was the 1979 reprint [DX04]. That constitution provided that the members of the League were (a) the extant Sydney Metropolitan District Rugby League Football Clubs, (b) such other District Clubs as the League shall thereafter decide to admit, (c) the Country Rugby Football League of N.S.W., (d) the NSW Rugby Football League Referees' Association, and (e) Life Members [clause 5(1)]. The affairs of the League were under the control of the General Committee of the League [clause 7(1)], membership of which comprised the office bearers elected annually (being the Patron, the President, a Deputy-President, ten Vice-Presidents, and a Deputy Vice-president), two delegates from each District Club, two delegates from the Referees Association, four delegates from the Country League, and a Director of Refereeing. The delegates were appointed annually by each member body.
Accordingly, the members of the League (other than Life Members) were the football clubs (and the Country League and Referees' Association), not individuals; the only governing body and decision-making organ was the General Committee (although it had powers of delegation); and the members of the General Committee were the individuals who were office-bearers of the League or delegates of the clubs. In the context of what was essentially a federation of Clubs, the General Committee was the organ of individuals that represented the membership, comprising the office bearers and the individuals who represented the clubs etc as their delegates. It was those individuals - the office-bearers and delegates who comprised the General Committee - who were, under those arrangements, qualified to be "B" members of the Club; so much is not disputed.
In 1983 the League was incorporated, and assumed the functions of the predecessor association. Under the 1983 constitution [clause 2]:
2. Subject to complying with Article II, the following persons shall be Members of the League and shall constitute the General Committee of the League ... :-
(1)The following Office Bearers:-
a) The President of the League
b) The ten Vice-Presidents of the League and
(2)a) The executive Chairman of the Australian Rugby League, provided he is a resident of the State of New South Wales.
b) The General Manager of the League.
c) Two representatives from each club.
d) Four representative of the Country League.
e) Two representatives of the Referees' Association who are non-active Referees.
f) Two representatives of the Players' Association who are non-active players or coaches.
g) Life Members.
h) Such other persons as the Directors shall admit to membership.
Casual vacancies in the offices of President or Vice-President were to be filled by the General Committee [clause 18]. Provision was made for nine Directors, including the President, the Executive Chairman of the Australian Rugby League, three elected from the members of the General Committee [clause 23] at the Annual General Meeting of the League [clause 25], one nominated by the Country League from its representatives on the General Committee, the General Manager, and two elected by the other Directors who are not members of the League (and thus not members of the General Committee). Directors could be removed by "the League" [clause 28]. The business of the League was to be managed by the Directors [clause 32]. Provision was made for an Annual General Meeting of the League [clause 51]. In a section entitled "Proceedings at General Meetings", the following appeared:
56. No business shall be transacted at any general meeting including any meeting of the General Committee ...
58. The President of the League shall be the Chairman of every general meeting of the League and every meeting of the General Committee ...
The prescribed form of proxy authorised the proxy to vote "at the meeting of the League or General Committee to be held on ...". Under Articles 88 and 89, the General Committee was empowered to elect Life Members. Other than filling casual vacancies and electing life members, the Articles gave no function to the General Committee.
Accordingly, under the 1983 structure (1) the membership of the League became comprised of the office bearers and individual representatives of the football clubs etc, rather than the clubs themselves; (2) the membership of the General Committee was aligned with that of the League; and (3) the General Committee was no longer responsible for managing the affairs of the League, which was now the responsibility of the Directors - not all of whom were members of the General Committee - but certain rights of ultimate control, including election and removal, more or less similar to those reserved to members (as distinct from directors) in companies, were reserved to the members and/or the General Committee. Under these arrangements, the General Committee was a "committee of the whole", comprising the office bearers and the individuals who were, in substance, the representatives of the affiliated clubs.
Consequent upon the incorporation of the League, the Club amended article 7 of its articles by substituting, for the references to the "Committee of the N.S.W. Rugby Football League", references to the "Committee of the New South Wales Rugby League Ltd". This amounted to an acceptance that despite the changes in form and structure of the League wrought by incorporation, article 7(2) was of ongoing application. Both historically (in terms of its membership) and nominally, the body which then best satisfied the description of the "Committee of the New South Wales Rugby League Ltd" was the General Committee, and it was the members of the General Committee, comprising the office bearers and the individual representatives of the affiliated clubs, who were qualified to be "B" class members of the Club. Again, this was not in dispute.
A new Constitution was adopted by the League in 2008. Under clause 4 of the 2008 Constitution, "General Committee" meant "the General Committee of the League". By clause 12:
12. Subject to compliance with clause 19 below, the following persons shall be Members of the League and shall constitute the General Committee of the League ... :-
12.1 The Chairman of the League.
12.2 The ten (10) Vice-Presidents of the League.
12.3 The General Manager of the League.
Two (2) representatives from each club.
12.5 Four (4) representatives from the CRL.
12.6 Two (2) representatives from the Referees' Association who are non-active Referees.
Life Members of the League (who, for the avoidance of any doubt, shall not be entitled to vote in General Committee ballots).
12.8 Such other persons as the Board of Directors shall admit to membership of the League provided that any such other persons admitted to membership of the League pursuant to this clause 12.8 shall be admitted to membership without any right to vote at meetings of the General Committee.
Under clause 21, there were to be nine directors, as follows:
21.1 The Chairman of the General Committee shall also be the Chairman of Directors of the Board of Directors.
21.2 Four (4) Directors shall be nominated by Clubs.
21.3 The General Manager.
21.4 One (1) representative nominated by the CRL.
21.5 Two (2) representatives who shall not hold office in any Club, the CRL or the Referees Association.
The directors referred to in clause 21.5 did not have to be members of the League [clause 35.1]. The General Committee was to fill any casual vacancy in the position of Chairman [clause 27].
Under the heading "Meetings of the General Committee", provision was made for an Annual General Meeting and Extraordinary General Meetings [clause 61]. This referred to the Annual General Meeting and Extraordinary General Meetings of the League, and does not appear to draw any distinction between the League and the General Committee, although a distinction is apparently recognised in clause 72, but doubtfully in clause 73. Under the heading "Voting at meetings of the General Committee", provision is made, apparently without distinction, in respect of meetings of the General Committee and of the League. Power to elect life members remained with the General Committee [clauses 111 and 112].
Thus by 2008, the distinction between the League in general meeting and the General Committee had become increasingly blurred. While at some points the constitution seemed to recognise a distinction, in others it appeared to treat them as interchangeable. But for present purposes, what is significant is that the membership of the General Committee continued to coincide with the membership of the League, and to comprise the office-bearers and the individual representatives of the affiliated clubs. It was not in dispute that it was they who were, under those arrangements, qualified to be B members of the Club.
The current form of the constitution of the League was adopted on 24 April 2013, as a result of a review which considered, inter alia, the "Sports Governance Principles" published by the Australian Sports Commission in March 2012, which included statements to the effect that the Commission did not endorse a governance structure which featured a board of directors and another body, in which the other body performed some of the functions that would normally be performed by a board of directors; and that committees should exist for specific purposes and not continue merely because they had always existed. The review recommended the adoption of a new constitution. The 2013 constitution provides for a membership divided into classes comprising club members (being, in essence, the affiliated clubs), the recognised representative body of the District Junior Rugby Leagues, the recognised representative body of referees, the recognised governing body of rugby league in rural NSW, and life members [clause 10]. The President and Vice President are appointed by the Board, but do not vote at board meetings [clause 12]; their functions appear to be representational rather than executive. Life members are elected by the Annual General Meeting on the recommendation of the Board [clause 13]. At general meetings, members other than life members are represented by a "Member's representative" [clause 25]. The Board comprises seven Directors, including four appointed directors (elected by members), two expert directors (appointed by the appointed directors) and an independent Chairman (appointed by the appointed directors and the expert directors [clause 30]. There is no reference to the General Committee, or the "Committee of the League".
The 2013 constitution conceptually reverts to the original federation structure of the pre-incorporation association, with the membership comprised of the affiliated clubs, now represented at the general meeting by "Members' representatives". Broadly speaking, the functions that had formerly been retained by the General Committee after incorporation (election of life members, and removal of directors) are now given to the general meeting [clauses 13(l), (m), 31(m)], in which - through the power of election and removal - ultimate control of the League resides.
Thus, under the constitution of the League in 1915, when article 7 was inserted in the Club's articles, the Committee to which it referred comprised the office-bearers and delegates of affiliated clubs. Life members became members of the General Committee under the 1983 constitution, but otherwise the General Committee continued to comprise the office-bearers and individuals who represented the affiliated clubs. Under the 2008 constitution, the General Committee continued to comprise the office-bearers and the individuals who represented the affiliated clubs, plus non-voting life members. Under the 2013 constitution, there is no General Committee by that name. But, generally speaking, the functions formerly performed by the General Committee are performed by the members in general meeting, which comprises the members' representatives, plus non-voting life members, though not the office-bearers. In this way, the general meeting is recognisable as the successor of the General Committee, both in terms of its functions and its membership. While the correspondence is not perfect, article 7, in prescribing membership of the Committee of the League as the criteria, did not mean that the form or functions of the Committee were frozen in time: it left to the League the composition and functions of that Committee, which has evolved over the last century.
Under the constitution of the pre-incorporation Association, life members were elected by the General Committee and were entitled to receive a life membership medallion and to enjoy such other privileges as the general Committee may from time to time determine [clauses 53, 54, 55], but they were not members of the General Committee. Under the 1983 constitution, life members were made members of the General Committee [clause 2(2)(g)] and, as such, qualified for "B" membership of the Club. Under the 2008 constitution, life members were members of the League and of the General Committee, though "for the avoidance of any doubt" they were not entitled to vote in General Committee ballots [clause 12.7]. As they were members of the General Committee, though not voting members, they qualified for "B" membership of the Club. Under the 2013 Constitution, life members have the right to attend, though not to vote, at general meetings [clause 25(a)(ii)]. This is consistent with the position under the 2008 constitution - and, probably, with practice before then (given the reference to "for the avoidance of any doubt" in the 2008 constitution). In my view, as members of the general meeting, albeit non-voting members, they remain qualified for "B" membership of the Club.
It follows that the persons who are now qualified to be "B" members of the Club are the individuals who are entitled to participate in the general meeting, comprising the members' representatives, and the life members.
It might be added that if - contrary to the conclusion I have reached - there were no B members, then there would be a void in the governance of the affairs of the Club, as there would be no members entitled to vote at general meetings, other than on the election of directors. Such a state of affairs might well contribute to a conclusion that it would be just and equitable that the Club be wound up.
The Referendum
By notice to members of the Club dated 28 July 2014, the directors purported to submit to a referendum of members the question:
That upon the winding up or dissolution of the Club any property of the Club remaining after the satisfaction of all debts and liabilities shall be given or transferred to Club Distribution Limited.
The Notice of Referendum explained that the referendum would be held over the period 28 July to 5 September 2014, was open to "all club members" and "will be conducted in the Club premises at 165 Phillip Street", that a ballot paper will be available from the Chief Executive Officer during normal office hours between 9am and 5pm Monday to Friday, and that for the recommendations to pass, a vote of 50% plus one must be received of eligible members who cast a valid vote in person.
Clause 8 of the Club's memorandum is in the following terms:
If on the winding up or dissolution of the Company there remains, after the satisfaction of all its debts and liabilities, any property whatsoever the same shall not be paid to or distributed among the members of the Company, but shall be given or transferred to some other institution or institutions to be determined by the members of the Company at or before the time of the dissolution and in default thereof by such judge of the Supreme Court of New South Wales as may have or acquire jurisdiction in the matter.
The memorandum is silent as to how a determination under clause 8 is to be made. However, the articles prescribe how members make decisions, including for the conduct of general meetings of members. Article 7(5) provides that only "B" members shall have the right to vote at any meeting, ordinary or extraordinary (except on the election of directors, for the sole purpose of which "A", "B", and "C" members are each entitled to one vote):
(5) "B" Members only shall have the right to vote at any meeting, ordinary or extraordinary, excepting at meetings for the election of Directors at which meetings for the purpose of such election only "A", "B", and "C" Members shall be entitled to one vote each. "B" members shall have one vote each, but in the case of any equality of votes the Chairman at any meeting shall have a casting vote. At any meeting at which "B" members alone have the right to vote all other members may by resolution of the "B" members be excluded.
The Club submits that in clause 8 "members" means all the members of whatsoever category, and the "determination" can be made by, inter alia, referendum of those members, not limited to B members. The League submits that "determined by the members" means determined by the members in general meeting in accordance with the articles, at which only B members are entitled to vote.
The method provided by company law for decision-making by the members of a company is the company in general meeting (although, in the case of a proprietary company, provision is also made "circulating resolutions" to have the same effect without a formal meeting, where there is unanimity [Corporations Act, s 249A]). Nothing in the Corporations Act, or in the memorandum or articles of the Club, or in the common law of companies, recognises a referendum of members as a means of corporate decision-making. In a corporate constitution, a reference to a decision of the members means a decision of the members in general meeting, or by such other means (such as circulating resolution) as is given equivalent effect.
It is well-established that while in case of inconsistency the memorandum of association prevails, the memorandum and articles of a company should be read together, and as a whole, and if possible given a congruent operation [Re Wedgwood Coal and Iron Co (1877) 7 Ch D 75, 99-100 (Jessel MR); London Financial Assn v Kelk (1884) 26 Ch D 107, 135 (Bacon VC); Lion Nathan v Coopers Brewery, [28] (Weinberg J)]. In particular, the Articles may explain ambiguities that appear in the memorandum, and supplement the memorandum in respect of matters as to which it is silent [Angostura Bitters Ltd v Kerr [1933] AC 550, 554; Re Buck [1964] VR 284, 289 (Hudson J)].
The articles (with the Act) provide in detail for the convening and conduct of meetings and who can vote on what types of matter. It would be extraordinary if all this could be circumvented by the concept of a "referendum" unknown to the Corporations Act, the corporate constitution, or the common law of companies. Clause 8 of the memorandum assumes that the machinery for the making of a determination under it will be that provided by the Articles and the general law, and that the determination will thus be one made by the members eligible to vote assembled in general meeting.
The Club draws attention to the use of the word "members" twice in clause 8, where the first reference - the prohibition on distribution - is self-evidently to all members of whatever category, arguing that there is nothing to suggest that the second reference - the determination - should be construed differently. However, this is not a strong indication. The purpose of the first reference is simply to provide, as is usual in a non-profit organisation, that surplus on winding up is not distributable among members. The purpose of the second reference is to identify the organ which is to decide the destination of any surplus, also in a conventional way - namely, the members. In the context that the voting rights of members and the procedures for decision-making at meetings were invariably included in articles rather than in memoranda, the second reference to "members" should not be taken as intended to override whatever the articles may provide in those respects, but rather to assume the processes for decision-making by members provided by the Act and the articles.
Next, the Club argues that the plain and ordinary meaning of "members" is all the members. However, that overlooks that, reading the memorandum and the articles together, the articles provide the machinery for how members make decisions.
Thirdly, the Club submits that to construe "members" in clause 8 as meaning all of the Club's members is consistent with the description of the membership in article 7 as comprising three classes. However, this again overlooks that article 7, by defining the rights of the various classes of member, provides how "the members" make decisions.
Fourthly, the Club submits that article 7(5) pertains only to voting at meetings, while memorandum clause 8 provides only for the institution to which surplus is to be transferred on winding up to be "determined" by the members, and does not require that any such determination be made at a general meeting, but permits a determination be made by referendum or postal ballot. Again, this overlooks that the general meeting is the only way recognised by the Act and the articles in which members can make decisions.
Fifthly, the Club submits that it makes sense that, winding up and its consequences being serious matters, all of the Club's members should have the right to participate in the determination of the destination of any surplus, and that all the members may wish to have a vote or role in that determination. But it would equally makes sense that they all - not just the small class of B members - should have the right, or wish, to participate in other important decisions. Yet, under the articles, they do not. Essentially, the corporate constitution is one under which the right to make decisions about the affairs of the Club (other than the election of directors) was deliberately given to the B members only. This conclusion is fortified by the power of the B members to exclude all other members from a meeting, and the higher subscription payable under the articles by a B member (when compared to a C member). This reflected an intention that ultimate control of the affairs of the Club would be vested in the same body of people who, as the Committee of the League, controlled the League.
These conclusions are consistent with and supported by the judgment of Austin J in In the matter of Austinmer Bowling Club Ltd (in liq); Russell v Rodden [2008] NSWSC 730, which concerned a club, the memorandum of association of which contained the following provision about surplus, which is relevantly indistinguishable from clause 8:
6. If upon the winding up or dissolution of the Club there remains after satisfaction of all its debts and liabilities any property whatsoever the same shall not be paid to or distributed amongst members of the Club but shall be given or transferred to some institution or institutions having objects similar or in part similar to the objects of the Club and which shall prohibit the distribution of its or their income and property among its or their members to an extent at least as great as is imposed on the Club under or by virtue of the third paragraph hereof. Such institution or institutions shall be determined by the members of the Club at or before the time of dissolution and in default thereof by a Judge of the Supreme Court of New South Wales.
His Honour accepted (at [9]) that the word "members" in the last sentence of clause 8 meant all the members of the club, but (at [10]) rejected the submission that that meant that every member was entitled to participate in any determination by members about the distribution of surplus. His Honour said:
10 Counsel for Mr Rodden submitted that the last sentence of clause 6 confers a right on every member of the Club to participate in any determination by members about the distribution of surplus. In my opinion that submission misconstrues the sentence. The sentence addresses the question, who decides the destination of the surplus? The answer given by the sentence is that the decision is for the members and, in default, the Court. The sentence does not deal with the question how the members are to make their decision, or (consequently) with the question whether every member is entitled to participate in the decision. Rather, the sentence says that it is for the members, as a class, to make the decision - by implication, in whatever way members make decisions.
11 Neither clause 6 nor any other part of the memorandum of association deals with the way in which members are to make a decision such as the decision about surplus. That subject is left to the articles of association. The articles of association do not say that the only method of decision-making by members is by voting at a meeting, but they deal in detail with members' meetings and do not deal with any other mode of member decision-making.
12 Counsel for Mr Rodden referred to article 20(b), which says that every member when eligible to vote shall be entitled to vote both on a show of hands and on the taking of a poll and shall have one vote. He made the courageous submission that this article contemplates a process of taking a poll as an alternative to voting at a meeting. But a provision allowing members at a meeting to vote on a show of hands and on the taking of a poll is a standard provision in the constitutions of companies, and envisages that the poll be taken, if validly demanded, for the purpose of voting at the meeting (or upon adjournment). In such a provision, the taking of a poll is not a separate form of decision-making available to be used as an alternative to decision-making at a meeting; it is part of the process of decision-making for the purposes of the meeting. That the standard usage is intended in article 20(b) is plain from the context, for both articles 20(a) and 20(c) are about members voting at meetings, as is article 21.
His Honour concluded that the determination by members envisaged by the last sentence of clause 6 of the memorandum was a determination to be made by following the procedure for member decisions set out in the articles of association, which was for decisions to be made by voting at a meeting of members:
17 Therefore, in my view, the determination by members envisaged by the last sentence of clause 6 of the memorandum is a determination to be made by following the procedure for member decisions set out in the articles of association, and that procedure is for decisions to be made by voting at a meeting of members. I reached substantially the same conclusion, on a very similarly worded clause in the memorandum of association of a club, in Application of Gregory Jay Parker (liquidator of Shellharbour Golf Club Ltd (in liq)) [2006] NSWSC 219, when I said:
"17. Clause 6 does not explain how that determination is to be made. As one would expect, the procedural rules for members to make decisions are found in the Club's articles of association. The articles make provision for only one kind of decision-making by the members, that is decision-making at a general meeting of members. There is no provision for decision by postal ballot or for decision by signing a petition ...".
18 Counsel for both parties referred me to Re Buck, deceased [1964] VR 284, at 289, where Hudson J considered the extent to which recourse may be had to the articles of association when construing the memorandum. His Honour observed that, while the memorandum is the dominant instrument and where there is any conflict it must prevail, "reference may be made to the articles to explain that which is ambiguous in the memorandum, or to supplement it as to that upon which it is silent". That principle is applicable here, for the memorandum is silent as to the way in which the members as a whole make their decision about the surplus, and so the memorandum is supplemented by the provisions about member decision-making in the articles.
His Honour added:
21 Counsel for Mr Rodden contended that as clause 6 gives all the members a right to make a determination and there is nothing in the articles to make provision for a determination by all the members (as the articles only deal with meetings, from which Social Members are excluded), I should either:
· construe clause 6 so as to imply a procedure for determination otherwise than at a meeting (for example, by postal ballot), or
· hold that there is no impediment to Mr Russell giving effect to the members' entitlement to participate in the decision-making by some means other than a meeting.
He said that to exclude Social Members from participating in the decision as to surplus would be an unreasonable and unworkable result, in that the Social Members would be liable for any deficit upon winding up (under clause 5 of the memorandum) but would have no right to influence the distribution of any surplus.
22 I have several difficulties with that submission. First, for the reasons I have given, my view is that on its proper construction, clause 6 does not give each member a right to participate in a determination about the surplus. Secondly, in my view it would not be permissible for the Court, purporting to adopt a construction of clause 6 that would give it reasonable business efficacy, to imply into that clause an entire procedure for decision-making, such as by postal ballot, not otherwise mentioned in the memorandum or articles, or to leave it to Mr Russell to create a new procedure for determination by members outside a meeting. Thirdly, I see nothing unreasonable or unworkable in finding that Social Members are excluded by the corporate constitution from participating in a decision as to surplus even though they are liable to contribute to a deficiency. These are different matters. Moreover, it is not unreasonable to confine decision-making as to surplus to those members who are involved in the sporting activities (which are at the heart of the objects of the Club) as well as its social activities, and who pay membership fees reflecting that level of participation (in the present case, the annual fee for Bowling Members is 10 times the annual fee for Social Members). A fortiori, where the contribution of members to a deficit on winding up is limited to $2 per member.
Mr Jackman SC valiantly endeavoured to distinguish Austin's J reasoning, and alternatively to argue that it was incorrect. The supposed distinction was that Austin J was able to apply a test of "reasonable business efficacy" in circumstances in which the articles prescribed that the voting entitlement in general meeting was given by the articles to a certain class of members ("bowling members", to the exclusion of "social members"), who were identifiable, whereas if there were no B members, clause 8 of the Club's memorandum could not be filled out by reference to what the articles say about general meetings. In my view this is no distinction at all: first, it assumes that there are no B members, but as explained above, there are. Once that is accepted, the case is in this respect analogous to, rather than distinguishable from, the present. Secondly, even if there were no B members, the articles still "fill out" what is not addressed by clause 8, by stipulating the voting rights of members and the procedures for making decisions.
The supposed error was that, in applying the principle in Re Buck (at [18]), his Honour implicitly proceeded on the basis that there was no conflict between the memorandum and the articles, and explicitly on the basis that the memorandum was silent as to how members make their decision, whereas in truth the memorandum was not silent but referred to all the members, which conflicted with the articles which limited voting to bowling members. But I do not accept that by referring to a determination of the members, the memorandum was intended - in that case or in the present case - to exclude or override the provisions of the articles in respect of how members make determinations and, in particular, which members were entitled to vote. As I have said, in the era where corporate constitutions were divided into memoranda and articles, it was invariably the practice that the rights (including voting rights) of different classes of members, and the procedures at meetings, were contained in the articles, and the memorandum assumed that position.
In my respectful view, Austin J's reasoning and conclusions are correct, and are directly applicable to the present circumstances.
Accordingly, I conclude that the determination referred to in clause 8 of the memorandum as to the transferee of any surplus assets is one to be made by the members assembled in general meeting, in accordance with the articles. In conformity with article 7(5), only the B members are entitled to vote at such a meeting on such a resolution. The referendum is, as the League submits, an "extra-legal irrelevancy", and its outcome is not a determination for the purposes of clause 8.
Winding up
The plaintiffs seek an order that the Club be wound up on the just and equitable ground pursuant to Corporations Act, s 461(1)(k). They relied upon the accumulation of the following grounds:
(1) Failing to comply with the Club Constitution and applicable legislation by reason of:
(a) wrongful refusal to convene an Extraordinary General Meeting to allow B members to vote on proposed resolutions for winding up and transfer of surplus assets,
(b) wrongful attempt to obtain a surplus assets determination, other than by resolution of the B members, through the referendum, and
(c) sale of the Phillip Street property beyond power and in breach of the Club's constitution and the Registered Clubs Act; and
(2) Failure of the purposes of the Club, by reason of:
(a) the Club no longer serving the purposes or interests of the League,
(b) the Club trading at substantial losses;
(c) the Club having no sensible plan for the future; and
(d) the existence of a genuine dispute between the Club and the League in relation to a debenture.
A failure by those in control of a company to comply with their constitutional and statutory obligations can, in some circumstances, provide grounds for winding up the company [Loch v John Blackwood Ltd [1924] AC 783; Kurilpa Protestant Hall Pty Ltd [1946] St R Qd 170; Gregor v British-Israel-World Federation (2002) 41 ACSR 641]. Instances of this include where a failure by those in control to comply with their obligations makes it impossible for complainants to exercise rights at a general meeting [McMillan v Toledo Enterprises International Pty Ltd (1995) 18 ACSR 603; Thomas v Mackay Investments Pty Ltd (1996) 22 ACSR 294; Khano v XL Cleaning Services Pty Ltd (2004) 51 ACSR 397]; where the factions are so embedded that any further steps taken by either side are likely to be contested and result in litigation [Gregor v British-Israel-World Federation]; and when those in control have engaged in a sustained pattern of misconduct such that those complaining have a justifiable lack of confidence in their willingness to perform their obligations in the future [Loch v Blackwood]. But more than an isolated breach is required; the cases referred to are characterised by a persistent or sustained disregard of constitutional or statutory obligations, which renders it impossible for the complainants to exercise their rights under the corporate constitution.
As explained above, the requisition for winding up and surplus resolutions to be put to the Annual General Meeting to be held on 6 May 2014, though signed by the requisite number of B members, was not timely or effective to require those resolutions to be put to that meeting, and the plaintiffs accept that in those circumstances the Club was not obliged to submit the proposed resolutions to the Annual General Meeting. However, they complain that despite Mr Bowden's representations, on 29 April 2014, that the Club would meet with the requisitioning members and, if the matter could not be resolved, convene an Extraordinary General Meeting to consider the proposed resolutions, the Club instead, without convening any such meeting, proceeded with the "referendum" - including members other than B members - to determine a transferee of surplus assets, with the intention of preventing the League from determining the destination of any surplus in the event of a winding up, and thus removing the incentive for the League to pursue a winding up. In addition, the Club disputed that it had any B members, and that they alone were entitled to make a surplus assets determination.
The Club was entitled not to put the resolutions to the Annual General Meeting, and its refusal to do so cannot found any complaint. Nor can failing to adhere to the stated intention of meeting with B members and convening an Extraordinary General Meeting, in the absence of any legal obligation to do so. While the plaintiffs further complained that the Club has published on its website the constitution of "Club Distributions Limited" as if it were its own, this was plainly an innocent mistake of no significance.
The plaintiffs originally complained that the decision to sell the Phillip Street property in June 2013 was in contravention of Article 7(5) - in that members in addition to B members voted on the resolution. However, in his oral submissions in reply, Mr Newlinds SC accepted that what occurred appeared to accord with the requirements of (NSW) Registered Clubs Act 1976, s 41J, which requires a decision of all ordinary members and, in that respect, overrides the articles. Accordingly, this does not provide a legitimate ground of complaint.
While the recent conduct of the Club, in disputing the status and the rights of the B members, and resorting to the "referendum" in an attempt to circumvent them, was - for the reasons I have given - misconceived, there has been no actual violation of the rights of the B members: they have not been denied a meeting to which they were legally entitled, nor exclusive voting rights at it; and the referendum is legally irrelevant. In those circumstances, there has been no sufficiently sustained or persistent failure to comply with constitutional or statutory obligations as to render it just and equitable that the Club be wound up.
It is well-established that a company may be wound up where it is no longer possible for it to achieve its main purpose and the real business for which it was formed or, as is often said, its substratum has failed [Re Tivoli Freeholds Ltd [1972] VR 445]. The plaintiffs submit that the purpose of the Club was to provide the amenities of a club for the League, and that its raison d'etre has come to an end, as the League no longer occupies the premises and no longer has any use for the Club. They submit that the Club has ceased to serve the purpose of a club for the League. Moreover, the Club is incurring substantial trading losses which are eroding its reserves of $9 million at the rate of $800,000 per year; it is not economically viable for the Club to continue to trade from its current premises beyond the expiry of its lease in June 2015; yet it has no clear or viable plans for the future, beyond continuing to trade at a loss until the lease expires or its funds are exhausted.
I accept that the original intent of the corporators of the Club in 1915 was that the Club provide the facilities and amenities of a club for the League. That does not mean that the League must have its offices in premises owned by the Club; nor does it mean that the substratum can be said to have failed a century later when the League maintains its offices elsewhere. Nor does the sale of the premises mean that the substratum has failed: the Club continues to function as a club, providing the amenities of a club for its membership, which is not (and never has been) limited to members of the League, though it continues to include such members. That it does so from leased premises, and at a loss, does not mean that its substratum has failed. While the Club has not yet developed a firm plan for the future, it has substantial assets, with which it is conceivable that it could relocate and re-establish. In my view there is no substance in the contention that the substratum of the Club has failed.
The plaintiffs raised a number of additional matters in support of the proposition that it is just and equitable that the Club be wound up. It was submitted that the Club proposes to seek to gain a higher return from its investment, and thus threatens to expose it to risk. However, there is no reason to suppose that the directors will act imprudently in the investment of the Club's funds. It was also submitted that there is a genuine dispute as to the existence of a debt said to be owed by the Club to the League in the amount of $12 million, and that there will be no need to resolve this dispute if the Club were wound up and the surplus paid to the League. While that may be so, the admitted existence of such a debt would not be a ground for winding up in the absence of insolvency (of which there is no suggestion), and the existence of a genuine dispute as to whether there is such a debt is even less so.
The most compelling argument in favour of a winding up, however, was that more than 75% of the B members, who alone are entitled to vote on a resolution that the Club be wound up and could therefore carry a special resolution that the Club be wound up by the Court (under Corporations Act, s 461(1)(a)) or voluntarily (under Corporations Act, s 491)), are before the Court as plaintiffs and seek the winding up the Club. The real issue is whether the requirements of the just and equitable ground are satisfied where a special majority, that is entitled by special resolution to procure a voluntary or compulsory winding up, applies to the Court for the company to be wound up without having invoked the internal corporate decision-making process to carry a special resolution to that effect.
In In re Langham Skating Rink Company (1877) 5 Ch D 669, it was held (on appeal) that the petition of a number of shareholders should have been dismissed as demurrable, because it did not allege any of the specific grounds mentioned in the first four sub-sections of (UK) Companies Act 1862, s 79, and the allegations were insufficient to bring it within the fifth, being the just and equitable ground. Jessel MR said (at 683-4):
The 79th section of the Companies Act, 1862, states five cases, being the only cases in which the Court is empowered to make a compulsory winding-up order. The first four of them are very distinct. The first is, "whenever the company has passed a special resolution requiring the company to be wound up by the Court;" the second is, "whenever the company does not commence its business within a year from its incorporation, or suspends its business for the space of a whole year;" the third is, "whenever the members are reduced in number to less than seven;" the fourth is, "whenever the company is unable to pay its debts." No one of these four things is alleged to have happened. The ground upon which the Court is, therefore, asked to act is the fifth, namely, "whenever the Court is of opinion that it is just and equitable that the company should be wound up."
Now there is no doubt that this last clause gives the power to the Court to wind up a company in cases not coming within any of the first four heads, but, as was laid down in the case of In re Suburban Hotel Company (1), it is a power which must not be acted upon unless there is very strong ground for acting upon it, and for this reason, that these companies are governed by a majority of their own members, and where there is a domestic tribunal which has power to decide upon a question, it should, if possible, be left to that domestic tribunal.
Now a majority of three-fourths at one meeting, confirmed by an absolute majority at a second meeting, can wind up the company voluntarily under sect. 129, sub-sect. 2, or require the company to be wound up compulsorily under the 1st sub-section of the 79th section. Therefore the shareholders have an absolute power of saying by a majority of three-fourths whether the company shall go on or not, and a majority, without being a majority of three-fourths, can elect directors, or direct the presentation of a petition, which would, no doubt, receive every attention from the Court.
James LJ said (at 685-6):
I am entirely of the same opinion. It really is very important to these companies that the Court should not, unless a very strong case is made, take upon itself to interfere with the domestic forum which has been established for the management of the affairs of a company. Inderwick v. Snell [2 Mac. & G. 216] is a striking instance of the reluctance of the Court to interfere with the right of shareholders in companies to manage their own affairs. The Legislature has not authorized a mere majority to say that they will capriciously discontinue the undertaking which has been begun, it was not thought right that people when advancing money in undertakings of this kind should be left at the mercy of a mere majority of their brother shareholders, and those who wish to wind up must get a majority of three-fourths. The Petitioners might have called a meeting of shareholders, who might have considered the case, and said, "It is for the interest of the shareholders generally that the company shall be forthwith wound up." That has not been done; and the substance of this petition is, that the Court is asked to say that it is for the interest of the shareholders generally that the company shall be wound up when the statutory majority of three-fourths has not been obtained.
In Re Anglo-Continental Produce Co [1939] 1 All ER 99, Bennett J said (at 102-3):
When one gets down to the real facts of the case, the reason for which it is said that it has now become "just and equitable" to wind up this company is that the majority of the shareholders desire to have repaid to them the money which they have got tied up in it. Their money is not at the moment earning for them any interest or any dividend, and it is said that their reason for wanting it back is not capricious. That is the first ground. The second ground is that there is a state of deadlock and friction which makes it impossible for the business of the company to be carried on.
I think that it is clear from what was said by James LJ, in Re Langham Skating Rink Co that the mere wish of the majority of the shareholders, not being a three-fourths majority, to be repaid the money which has been advanced by them to the company is no ground whatever for making a winding-up order on the footing that it is just and equitable so to do. ...
It is clear, therefore, to my mind, that the mere fact that a majority want to get their money back does not make it just and equitable that the company should be wound up in order that they may get it back. There must be something more than that. I think that one gets an indication of what is required from what was said by Lord Clyde, Lord President, in Baird v Lees, a case which was cited in Loch v John Blackwood Ltd. In the judgment of the Privy Council, delivered by Lord Shaw of Dunfermline in the latter case, this is the passage which, at pp 793, 794, is cited from the judgment of Lord Clyde, Lord President, in Baird v Lees at p 92:
'I have no intention of attempting a definition of the circumstances which amount to a "just and equitable" cause. But I think I may say this. A shareholder puts his money into a company on certain conditions. The first of them is that the business in which he invests shall be limited to certain definite objects. The second is that it shall be carried on by certain persons elected in a specified way. And the third is that the business shall be conducted in accordance with certain principles of commercial administration defined in the statute, which provide some guarantee of commercial probity and efficiency. If shareholders find that these conditions or some of them are deliberately and consistently violated and set aside by the action of a member and official of the company who wields an overwhelming voting power, and if the result of that is that, for the extrication of their rights as shareholders, they are deprived of the ordinary facilities which compliance with the Companies Acts would provide them with, then there does arise, in my opinion, a situation in which it may be just and equitable for the court to wind up the company.'
I do not think there is any case, or at least none has been cited to me, in which a court has made a winding-up order on the ground that it is just and equitable to make it unless it has been proved, either that some wrong has been done to the company and the company is deprived of its remedies in respect of it because the voting power has been so used as to prevent the company from having its remedy in respect of it, or that it is a case in which the sub-stratum of the company has gone, or that the case has been one in which it has been impossible, owing to the way in which the voting power is held and to the feelings of the directors towards one another, for the business of the company to be carried on.
In Re Surrey Garden Village Trust Ltd; Re Addington Smallholders Ltd [1964] 3 All ER 962, Plowman J said (at 969):
I approach the matter bearing in mind the following well-settled principles: (i) That prima facie it is for the society itself to decide within the ambit of its own rules whether it shall be wound up, and a very strong case must be made out before the court will bypass the domestic forum and make a winding-up order on the "just and equitable" ground: see, for example, Re Langham Skating Rink Co; Re Gold Co. (ii) That misconduct or mismanagement by the management committee, if misconduct or mismanagement there be, is not of itself a ground for making an order on the petition of a member: see, for example, Re Anglo-Greek Steam Co; Re Diamond Fuel Co. (iii) That where other remedies are available, such as calling a general meeting, arbitration under the rules, an action for a declaration or an injunction, or an application to rectify the register, a winding-up petition is misconceived: see, for example, the two cases last cited and Charles Forte Investments, Ltd v Amanda.
Those cases illustrate a number of relevant principles which, for present purposes, may be summarised as follows.
First, a special majority (75%) of shareholders is entitled by special resolution to cause a company to be wound up voluntarily or compulsorily. While it is open to a simple majority to direct presentation of a petition for winding up, as the legislature has stipulated for a special resolution, the mere wish of a simple majority to withdraw their capital is insufficient to render it just and equitable that the company be wound up.
Secondly, except in a very strong case, the Court should not interfere with or bypass the domestic forum - the general meeting - which has been established for the management of the affairs of a company and to which decisions by the membership as to its continuance or winding up are primarily entrusted. The grounds in s 461(1)(a) and s 491 require not merely the support of 75% of members, but a special resolution. The requirement for a special resolution bespeaks not only the support of 75%, but also the engagement of the corporate democratic decision-making process, with the requisite notice of the resolution and a duly convened meeting, at which there will be an opportunity for discussion and debate.
Thirdly, there may be a case for acting on the wishes of a simple majority (or less), and/or bypassing the domestic forum, where the members are being prevented from exercising their rights under the corporate constitution.
Thus if no more appears than that a special majority of 75% favours winding up, that would be insufficient warrant to resort to the just and equitable ground and bypass the requirement for a special resolution. But it may well be otherwise if the members are being prevented or hindered in the exercise of their internal rights and remedies.
In the present case, it appears that the requisite special majority seeks the winding up of the Club. However, is there any reason to justify bypassing the "domestic forum" by, in effect, dispensing with the requirement for a special resolution, and the internal deliberative process that that involves? Had there been a refusal of a valid requisition to convene a meeting to consider the proposed resolutions, that may well have afforded sufficient reason, because there would be a combination of a special majority of voting members with a refusal to permit them to exercise their rights. But as has been explained, there has been no valid requisition. That leaves the attempt to pre-empt the rights of the B members by the "referendum", coupled with the position adopted in these proceedings of disputing the status and rights of the B members. In these respects, the Club's position was apparently adopted upon legal advice, and there is no reason to suppose that the Club, once informed of the correct legal position by this judgment, will persist in it any longer. Despite the misconceived position adopted by the Club, the rights of the B members have not in fact been violated.
In my view, therefore, the B members have not been "deprived of the ordinary facilities which compliance with the Companies Acts ... would provide them with for the extrication of their rights". Nothing has precluded them, or now precludes them, from validly requisitioning a meeting to consider the proposed resolutions. In those circumstances, a sufficiently strong case for bypassing the internal corporate processes to which a decision by members that the company be wound up is primarily entrusted has not been established.
Conclusion
My conclusions may be summarised as follows.
While, under the 2013 constitution of the League, there is no Committee or General Committee by that name, the functions formerly performed by the General Committee are now performed by the members in general meeting, and the membership of the general meeting broadly corresponds with that of the former General Committee. The general meeting is recognisable as the successor of the General Committee. The persons who are qualified to be "B" class members of the Club are the individuals who are entitled to participate in the general meeting, being the Members' representatives and the Life Members.
The determination referred to in clause 8 of the Club's Memorandum as to the transferee of surplus assets on winding up or dissolution is one to be made by the members eligible to vote, assembled in general meeting. In conformity with Article 7(5), only the B members are entitled to vote on such a resolution. The outcome of the referendum is not a determination for the purposes of clause 8.
There has been no sufficiently sustained or persistent failure to comply with constitutional or statutory obligations as to render it just and equitable that the Club be wound up. The substratum of the Club has not failed. Although more than 75% of the B members, who alone are entitled to vote on a resolution that the Club be wound up, and could therefore carry a special resolution that the Club be wound up by the Court or voluntarily, are before the Court as plaintiffs and seek the winding up the Club, there is insufficient reason to justify bypassing the internal corporate processes to which a decision by members that a company be wound up is primarily entrusted, which require a special resolution of the general meeting. In particular, there is and has been no obstacle to the B members exercising their rights under the corporate constitution by validly requisitioning a general meeting to consider their proposed resolutions, and - despite the misconceived position adopted by the Club in respect of the status and rights of B members - no actual violation of their rights.
As it seems to me, there should be declarations to the effect that:
(1) The persons qualified to be "B" class members of the Club are the individuals who are entitled to participate in the general meeting of the League, being the Members' Representatives and the Life Members referred to in the 2013 constitution of the League.
(2) The determination (referred to in clause 8 of the Club's Memorandum of Association) by the members of the Club as to the transferee of surplus property of the Club on winding up or dissolution is one to be made by resolution of the members eligible to vote, assembled in general meeting.
(3) Only the B members of the Club are entitled to vote on such a resolution.
(4) The referendum conducted by the Club pursuant to Notice dated 23 July 2014 is not a determination for the purposes of clause 8 of the Club's Memorandum of Association.
There should be an order that the proceedings be otherwise dismissed.
It may be that additional declarations and orders are desirable to quell the dispute, and I will therefore, rather than immediately making orders, direct that the plaintiffs bring in short minutes to give effect to this judgment, at which time I shall also hear the parties as to costs.
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Decision last updated: 17 November 2014
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