John Melick Investments Pty Limited v Harbour View Mansions Pty Limited

[2016] NSWSC 1318

Supreme Court

New South Wales

Medium Neutral Citation:	John Melick Investments Pty Limited v Harbour View Mansions Pty Limited [2016] NSWSC 1318
Hearing dates:	13/09/2016
Date of orders:	13 September 2016
Decision date:	13 September 2016
Jurisdiction:	Equity - Corporations List
Before:	McDougall J
Decision:	Restrain defendant from putting certain resolutions to AGM on 13/09/2016
Catchwords:	CORPORATIONS – interlocutory injunction – injunction to restrain certain items on the agenda being put to members of company at annual general meeting – whether there is sufficient information for members to make a properly informed decision on the resolution – whether there is a serious question to be tried – balance of convenience
Legislation Cited:	Corporations Act 2001 (Cth)
Cases Cited:	McLaughlin v Dungowan Manly Pty Limited (2006) 59 ACSR 686
Category:	Procedural and other rulings
Parties:	John Melick Investments Pty Ltd (Plaintiff) Harbourview Mansions Pty Ltd (Defendant)
Representation:	Counsel: E A J Hyde (Plaintiff) H W M Stitt (Defendant) Solicitors: Addisons Lawyers (Plaintiff) Malouf Solicitors (Defendant)
File Number(s):	2016/273546

Judgment   (ex tempore – revised 13 september 2016)

1. HIS HONOUR: The plaintiff (JMI) owns 20,000 shares in the capital of the defendant (HVM). HVM owns land and improvements at Point Piper. It is what is often referred to as a "company title" home unit company. Some of the shareholders in HVM wish to convert from company title to strata title. JMI, at present, opposes that.

2. There is to be an annual general meeting of HVM this evening JMI seeks an injunction to restrain certain items on the agenda from being put to the meeting. The notice given of that meeting was one or two days less than the contractual requirement under HVM’s constitution. That, however, is not the significant point.

3. One of the peculiarities of the way in which HVM has been set up is that the right to occupy units in the building are not simply those assigned by the company's constitution. Somewhat unusually, the constitution provides for those rights to be granted by a long-term lease. JMI is the lessee under one such lease. That lease, consistently with JMI’s rights under the constitution, entitles it "to use and occupy the penthouse." The lease was originally granted back in 1959, for a term of 99 years. It follows that it will not expire until 13 July 2058, that is more than 40 years in the future. I assume that other occupants of the building use and occupy their apartments under similar arrangements.

4. The material that is in evidence shows, I think it is fair to say, that most if not all of the owners (as for convenience I will call them) are happy to consider the question of conversion to strata title, at least at the level of principle. However, what is proposed to be included in the business of the meeting to be held tonight is a resolution to amend HVM's constitution by inserting a new paragraph (numbered 31) in clause 3 of the memorandum:

To do all such things and acts reasonably necessary and without undue delay to cause the Conversion of the Building from a company title scheme to a strata title scheme within the Building.

5. The clear purport of that proposed amendment is not just to authorise the company to consider conversion: the mechanism, the steps that need to be taken, the likely costs, the timeframe and so on. It is, rather, to require the company to cause that conversion to take place, so far as that can be achieved by steps that are "reasonably necessary".

6. To the extent that the submissions of Mr Stitt of Counsel, for HVM, sought to characterise the motion in the less demanding form, they appear to me, if I may say so with respect, to pay insufficient attention to the text of what is proposed.

7. Mr Stitt put a number of submissions based upon what he said was JMI's participation in and apparent consent to the proposal to convert from company title to strata title. It is I think correct to say that JMI agreed to consider the proposal. To the extent that Mr Stitt's submissions went further, they unfortunately overlooked a substantial body of correspondence between JMI and HVM, or their respective legal representatives, in which HVM made it very clear indeed that whilst it did not oppose implementation in principle, it did oppose immediate implementation.

8. What is sought today is an interlocutory injunction to restrain the relevant resolutions from being put to the meeting tonight. The complaint that is made is that in many ways the information that has been put before members of HVM is inadequate. In proceeding that way, Mr Hyde of Counsel (for JMI) submitted, the directors were acting, at least arguably, in breach of their obligations to ensure that the members of the company had all relevant information to enable them to make a properly informed decision. Whilst it may be accepted that the duty does not require the directors to put before the members every conceivable scrap of information that might have possible relevance to the proposal, I think it is clear on the authorities that what is put must be sufficiently full and accurate so that a decision one way or the other can be said to be a properly informed decision.

9. Mr Hyde's submissions identified, at what he put was at least the level of serious questions to be tried, a number of what he said were significant problems with the proposal as it presently stands. One is based on the fact that his client is the registered lessee of the penthouse. He submitted that it would not be possible to undertake the conversion necessary to achieve a strata title development without his client's consent, because the plan of subdivision could not be registered without his client's consent. Alternatively, as I understand it, he submitted that the requirement to respect his client's registered interest as lessee meant that there were very significant problems facing the proposal as it is presently framed. Mr Hyde submitted, correctly, that none of the information put before the members adverted to this problem.

10. Mr Stitt submitted that what was involved was a balancing of rights. The majority of shareholders, he submitted, wished to change the structure. In those circumstances, it was not open to the plaintiff, as a minority shareholder, to stand in the way of that proposal.

11. If I may say so, that submission failed to grapple in any real way with what I see as presently being potentially a very serious likely impediment to the implementation of the proposal. Certainly, it is at the very least a possible impediment that needs to be investigated. There is no evidence that any such investigation has been carried out.

12. Mr Hyde submitted, as another serious question to be tried, that there was a very real problem under s 140 of the Corporations Act2001 (Cth). Section 140(2)(b) provides in substance that a member of a company is not bound by a modification of the constitution where that modification increases the member's liability to contribute to share capital or to otherwise pay money to the company, unless the member agrees in writing to be bound.

13. Mr Hyde submitted that on the face of things, the amendment necessarily required an increase in JMI's liability to pay money to the company, because it would require JMI to pay levies for amounts that were not authorised by the articles forming part of the company's constitution.

14. Mr Stitt submitted that there was no issue, because JMI paid levies now and would pay them in the future. Further, he submitted, because JMI had paid levies in the past, it was estopped from raising the point. I do not agree.

15. Article 4(e) of the company's constitution provides for HVM to fix from year to year a sum which in its opinion is sufficient to pay for nine specified categories of outgoings, charges and expenses. The articles provide further for those outgoings to be divided up between members in a way that is stipulated. There can be no doubt that JMI is liable to pay HVM its share of the "levies" raised pursuant to cl 4(e).

16. What is important is that cl 4(e) makes no mention whatsoever of the costs - likely to be quite substantial - that will be incurred for converting to strata title. There must be at least a serious question to be tried as to whether HVM is authorised to raise levies for a purpose beyond those specified in cl 4(e). There must equally be a serious question to be tried as to whether, absent written agreement, JMI (or any other member of HVM) can be required to pay its share of such "unauthorized" levies.

17. The explanatory material does not point this out. It does not point out to members that they might have a right not to contribute to any levies beyond those authorised by the statutory contract. It does not point out that if that is correct, the members who do want to proceed and who do agree to be bound will in effect carry those who do not.

18. There is another problem. Although the information pack given to members is less than clear (and that is not to the credit of HVM), there appears to be some inconsistency as to what resolutions are actually proposed to be put in relation to the conversion process. Resolution 8 sets out some five steps in paras (a) to (e). However, it then refers to a "resolution for members" attached, which is in somewhat different terms. It may be that what is proposed to be put is resolution 8 as it appears, and not the alternative formulation. But even assuming that to be so, the alternative formulation indicates another possible problem. It suggests that the land to be the subject of the proposed strata scheme includes a lot that I will call lot B. Other material promulgated by HVM suggests that it owns that lot, but that the lot is the subject of a 999-year lease to an unrelated third party living in what I assume is an adjacent building. Quite how lot B could be incorporated into the strata plan in those circumstances is a matter that is not explained. The members are given no information at all as to that.

19. There are other problems to which Mr Hyde referred, but it is not necessary to set them out.

20. Against the background of those problems or potential problems, Mr Hyde submitted that the information was deficient in two ways. First, he submitted, it did not direct members' attention to those matters. Next, and perhaps more importantly, he submitted that the estimates of costs that were given, which suggested what is in the scheme of things a relevantly inexpensive process, made no reference at all to additional costs that might be incurred in dealing with any of those problems.

21. In all the circumstances, I am satisfied that there is a serious question to be tried as to whether the information given to the members of HVM in connection with the annual general meeting to be held tonight contains sufficient information to enable them to make an informed and rational decision about the motion to be implemented, the process to change to strata title. I should make it perfectly plain that if the resolution proposed were to authorise the board, or for that matter some other committee of the company to investigate the change - to look at what was involved, what difficulties there would be, how much it would cost and the like - then there could be no real objection. As I have said, that is the basis on which Mr Stitt sought to put the matter. But in my view, he was not correct to do so.

22. When one turns to questions of balance of convenience, there is the point that Mr Stitt made, that the majority of members appear to favour the conversion process. The strength of his position was undermined to some extent, because it appears that in the case of one member other than the plaintiff, the consent was given on the basis of the member's understanding that what was being considered was the question of principle - should the company consider conversion - and not the resolution proposed - to commit the company to converting. In those circumstances, it appears, this may be at a 3/2 split, at least on the board.

23. Thus, this is not a case where it can be said that the plaintiff is seeking to hold up forever and a day the implementation of the clear will of the majority. There is of course a further problem with this aspect of Mr Stitt's submissions. The problem is that it assumes that the consents that have been given have been fully informed by reference to all relevant material. For the reasons I have indicated, that may not be the case.

24. The company has not taken any step of a final nature to commit itself to the process. In that respect, the circumstances are very unlike those considered by Barrett J in McLaughlin v Dungowan Manly Pty Limited (2006) 59 ACSR 686. There is no suggestion that HVM will suffer any, let alone irremediable, prejudice, if the orders sought are made on an interlocutory basis and if leave is reserved to discharge or modify them in the event that further and more detailed information is provided to members.

25. However, it seems to me, there is a very real risk that if the matter goes to the meeting tonight and is voted upon, the views that have been formed (to the extent that they are capable of being swayed by way of rational argument) may not be cast on the appropriate fully informed basis.

26. Mr Stitt raised a question as to the form of the order sought. What it sought was to restrain three specific items of business from being put to the meeting tonight “(or any other date, place or time)”. Mr Stitt interpreted the words that I have extracted as extending to any meeting at any time, no matter what information has been provided. I can understand that there may be some confusion arising out of those words. I had understood them to refer to any adjournment of the meeting that is to be held tonight, but to avoid any doubt, the order can be framed so it expressly reflects that understanding.

27. The other matter to bear in mind is that although the order will be made until further order or the final hearing of the proceedings, it should be clearly understood that if further information is put before the members, it may be appropriate to revive the proposal in a way that would not be liable to the same criticisms as have been made of it today.

[Counsel addressed on costs.]

28. The plaintiff seeks its costs of the motion. Mr Stitt submitted that it should in fact pay the defendant's costs, for two reasons. First, he submitted the plaintiff was seeking the exercise of a discretion in its favour, and thus, like (he said) any other discretionary exercise, should pay the cost of having the discretion exercised. Secondly, he submitted, the variation to the orders sought, referable to the words "(or any other date, place or time)" substantially alleviated his client's principal concern.

29. The first submission is misconceived. When a party seeks the indulgence of the Court - for example, where a person against whom default judgment has been signed seeks to have the judgment set aside - the general rule is that the party should pay the costs occasioned by doing so unless the opponent unnecessarily incurred costs. Likewise, when a person seeks relief against forfeiture, the general rule is that he should pay the costs of the opponent reasonably incurred. That is far removed from the current case.

30. The second reason in my view lacks substance. It is abundantly clear, considering the whole of Mr Stitt's submissions, that the objection was far deeper than the form of words used. Further, in my view, it is tolerably clear that the words with which I have replaced them mean nothing more or less than those that were excised. In any event, if that were the only concern, it is a matter that could have been hammered out between reasonable counsel in ten seconds.

31. Thus, in my view, the plaintiff should have its costs. The only question is "By whom should they be paid?" There was a dispute as to whether Mr Stitt was properly authorised to appear, in the sense that the retainer of those instructing him was challenged. Bearing in mind that this is a busy duty list it seemed better to hear from Mr Stitt. However, should it turn out that the retainer was not authorised by the company, there would be an obvious injustice to ordering HVM to pay the costs. For that reason, and for only that reason, I reserve the question of costs.

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Decision last updated: 16 September 2016