Kahler v Castle Hill Country Club Ltd

[2017] NSWSC 851

Supreme Court

New South Wales

Medium Neutral Citation:	Kahler v Castle Hill Country Club Ltd [2017] NSWSC 851
Hearing dates:	16 June 2017
Date of orders:	16 June 2017
Decision date:	26 June 2017
Jurisdiction:	Common Law
Before:	Kunc J
Decision:	Interlocutory injunction granted to restrain meeting
Catchwords:	VOLUNTARY ASSOCIATIONS — Meetings — Adequacy of information provided — Restraining meetings
Legislation Cited:	Registered Clubs Act 1976 (NSW)
Cases Cited:	Buttonwood Nominees Pty Ltd v Sundowner Minerals NL (1986) 10 ACLR 360 Countouris v Kallos (2008) 67 ACSR 543; [2008] NSWSC 840 Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2) (1985) 9 ACLR 956 ENT Pty Ltd v Sunraysia Television Ltd (2007) 61 ACSR 626; [2007] NSWSC 270 McLaughlin v Dungowan Manly Pty Ltd (2006) 59 ACSR 686; [2006] NSWSC 1001 Chequepoint Securities Ltd v Claremont Petroleum NL (1986) 11 ACLR 94
Texts Cited:	Arthur Delbridge et al (eds), Macquarie Dictionary (3rd ed 1997, The Macquarie Library)
Category:	Principal judgment
Parties:	Kevin William Kahler (Plaintiff) Castle Hill Country Club Ltd ACN 000 085 423 (Defendant)
Representation:	Counsel: M. Condon SC; N. Kabilafkas (Plaintiff) L. Gor (Defendant)   Solicitors: Banki Haddock Fiora (Plaintiff) Colin Biggers & Paisley (Defendant)
File Number(s):	2017/172391
Publication restriction:	No

Judgment

Summary

1. According to its website Castle Hill Country Club (the “Club”) is “one of Sydney’s leading private golf clubs and for many years has been recognised among the top 100 golf courses in Australia”. It is a company limited by guarantee and is subject to the Registered Clubs Act 1976 (NSW) (the “Clubs Act”). Like many such clubs, it has been exploring renovating its members’ facilities by entering into an agreement with a commercial third party, including dealing with some of the Club’s land.

2. By notice dated 23 May 2017 (the “Notice”), members of the Club were notified of a general meeting proposed to be held on Monday, 19 June 2017 (the “Meeting”) to consider this resolution (the “Resolution”):

“Ordinary Resolution: Dealings with real estate and approvals for Board action. To consider and if thought fit, pass with or without modification, the following resolution:

The members:

•   declare that none of the possible redevelopment area (PRA) identified by this meeting notice is core property of the Club except for the Club’s licensed premises as approved for the purposes of the Club’s club liquor licence for those premises from time to time; and

•   for the purposes of Rules 43 and 44 give approval for any sales, the entering into liabilities, any spending or commitment of a corpus amount, and any borrowings, approved by the Board in connection with any redevelopment within the PRA.”

3. The covering letter (reproduced as Schedule A to these reasons) stated that the directors unanimously urged members to pass the Resolution. The Notice, including the accompanying Explanatory Note (the “Explanation”), is reproduced as Schedule B to these reasons.

4. Mr L Gor of Counsel, who appeared for the Club, candidly accepted that the intent and effect of the Resolution was to give the Board of the Club “carte blanche” to negotiate and enter into an agreement for the redevelopment of what the Resolution referred to as the PRA. That area excluded the golf course, but included the clubhouse (excluding the licensed premises) and land around the clubhouse, including the car park.

5. The plaintiff, Mr Kahler, is a member of the Club. He was represented by Mr M Condon of Senior Counsel and Mr N Kabilafkas of Counsel. While not opposed in principle to the redevelopment of the Club, Mr Kahler raised a number of concerns about the Meeting, including that the information provided to members by the Explanation was inadequate.

6. After an urgent interlocutory hearing conducted in the Duty List, I was satisfied that there were serious questions to be tried with a strong likelihood of success for Mr Kahler that:

1. the Resolution would be ineffective for the purposes of the Clubs Act and the Club’s Constitution as an approval to enter into sale and other commitments in connection with any proposed redevelopment; and

2. the Explanation was inadequate, in breach of the directors’ fiduciary obligation of full and proper disclosure,

such that the Notice was invalid or ineffective to convene a lawful general meeting of the Club.

7. I was also satisfied that the balance of convenience favoured the Meeting being restrained and that this was not a case where judicial reticence about restraining meetings should be applied.

8. At the conclusion of the hearing (being late on the Friday afternoon before the Monday on which the Meeting was to be held), the Court made this order:

“1.   Upon the plaintiff by his counsel giving to the Court the usual undertaking as to damages, the Court orders that the defendant, by itself, its servants and agents be retrained from holding the meeting on 19 June 2017 or causing the resolution referred to in the defendant’s Notice of General Meeting dated 23 May 2017 being put to a vote at the said meeting.”

9. These are the reasons for that order being made.

Procedural history

10. The proceedings were commenced and determined on an interlocutory basis during the two week period that I was Duty Judge.

11. Mr Kahler’s legal representatives came before the Court on Thursday, 8 June 2017. Orders were made abridging the time for service of the summons and supporting affidavit, with the matter being returnable before me on 9 June 2017 at 2.00pm.

12. On 9 June 2017 at 2.00pm the parties appeared and orders were made for Mr Kahler’s application for interlocutory relief to be heard at 2.00pm on Thursday, 15 June 2017. At the time those orders were made, Mr Gor foreshadowed the possibility that the Club may have some difficulty complying with the orders, not least because the intervening weekend was a long weekend and access to its proposed witnesses may be delayed because of that.

13. At the Club’s request, the proceedings were relisted on Wednesday, 14 June 2017. The Court accepted Mr Gor’s submission that his client could not be ready by the proposed hearing date, being the next day. The Court made orders amending the timetable with the result that the hearing of prayer 6 of Mr Kahler’s summons was fixed for 12 noon on Friday, 16 June 2017 — being the last working day before the date of the Meeting.

14. Prayer 6 of the summons sought “Interim orders in terms of paragraphs 3, 4 and/or 5 hereof”. Those paragraphs were:

“3.   An order that the defendant by itself, its servants and agents, be restrained from holding the meeting on 19 June 2017 or causing the resolution referred to in the Notice to be put to a vote at the said meeting.

4.   An order that the defendant, by itself, its servants and agents, be restrained from holding any meeting of its members to consider or vote upon:

a.   any resolution declaring any or all of the property of the defendant to be “non core” property; and

b.   any resolution authorising the Board of the Club to:

i.   alienate, sell, lease, charge, encumber or otherwise deal with any of the real property of the defendant,

ii.   enter into any contract with a third party to alienate, sell, lease, charge, encumber or otherwise deal with any of the real property of the defendant,

iii.   cause the defendant to assume liabilities in connection with any proposal to alienate, sell, lease, charge, encumber or otherwise deal with any of the real property of the defendant, and/or

iv.   cause the defendant to diminish its corpus in connection with any proposal to alienate, sell, lease, charge, encumber or otherwise deal with any of the real property of the defendant.

5.   In the alternative, an order that the defendant, by itself, its servants and agents, be restrained from entering into any contract, memorandum of understanding or heads of agreement (Agreement), which Agreement is entered into by the defendant in whole or in part pursuant to, or by the authority of:

a.   any resolution purportedly passed at a meeting of members of the defendant of the kind specified in paragraph 4(b) hereof; or

b.   in the alternative, any resolution purportedly passed pursuant to the Notice.”

15. The hearing commenced at noon on 16 June 2017 and concluded shortly after 4.00pm. At the conclusion of the hearing I had come to a clear view about what should happen and decided that orders should be made immediately so that members of the Club would have notice over the weekend of the Meeting being restrained. Owing to another matter requiring urgent attention in the Duty List that afternoon, I was unable to deliver ex tempore reasons.

16. I gratefully acknowledge the assistance I derived from substantial written submissions provided by each party, as well as oral argument which was no less effective for the economy with which it had to be presented. I do not propose in these reasons to deal with every argument raised by the parties in their written submissions. These reasons are confined to the matters which I found persuasive for the purposes of resolving the interlocutory argument.

17. Two other aspects of how the proceedings were conducted should be recorded. First, the Club did not suggest that, if Mr Kahler was otherwise entitled to interlocutory relief, it should be denied on the ground of laches. Second, both parties accepted that, given the timing, because the grant of an interlocutory injunction would be tantamount to final relief, the Court had to be satisfied to a high degree both as to the strength of Mr Kahler’s case and as to where the balance of convenience lay between the parties.

The facts

18. The facts may be briefly stated.

19. On 14 December 2015, the Club held an extraordinary general meeting to consider, in broad terms, how the redevelopment of the Club was to be achieved. The meeting had the benefit of an extensive slide show presentation in which the various options were presented. The ultimate recommendation was to pursue a joint venture partner. One of the slides asked the question “When do members get consulted on the designs?”. The stated answer included “Member consultation is paramount” and “Submitted to members for comment and approval PRIOR to any submission to council and department of planning”.

20. The December 2015 extraordinary general meeting passed the following resolution:

“That pursuant to Rule 43(e) of the Club’s Constitution and Clause 41(j) of the Registered Clubs Act (1976), members’ consent is given for the Board to proceed and incur appropriate costs to seek expressions of interest and enter into a joint venture partnership in order to produce a planning proposal for the re-development of the land currently occupied by the existing club house, greenkeepers sheds, cart sheds, carpark and immediate surrounds.”

21. During 2016 the Board received “best and final offers” from applicant joint venture partners. One of the applicants was Sekisui House Australia Holdings Pty Ltd (“Sekisui House”).

22. The best and final offers were evaluated by the Club’s independent consultant, CBRE Pty Ltd, in a detailed document entitled “Shortlisted Proponent Best and Final Offer Evaluation” dated 29 November 2016. That document was before the Court as part of a confidential exhibit.

23. On 19 December 2016, the Board of the Club sent an email to members which included:

“Further to our December 2015 EGM regarding the proposed redevelopment of the CHCC clubhouse and car park precinct, where approval from the members, to proceed to seek expressions of interest to find a suitable partner for a possible re-development opportunity, was granted.

The Board is delighted to advise it has appointed Sekisui House … as the preferred development partner for the clubhouse and car park precinct. The Board proposes to call an Extraordinary General Meeting in late February or March. At that time, the members will have an opportunity to vote on whether the Club should proceed with the proposed development.”

24. Between February and May 2017 either the Board of the Club or a group known as the “Executive Advisory Panel” hosted several information nights for members. The PowerPoint slides that were used in those presentations were in evidence. It is clear from an examination of those slides that explanation and consideration of Sekisui House’s proposal formed a significant part of the discussion. A “Frequently Asked Questions” document dated 3 May 2017 and sent to members refers to the fact that “the Board is well down the path of finalising what a proposed redevelopment of the Club’s real estate assets could look like”, it also refers to “the proposal as it currently stands” and includes questions such as “Why did you choose this developer as our preferred developer over other developers?”. A reasonable reader of that document would be left in no doubt that the Sekisui House proposal was the proposal under consideration by the Board.

25. On or about 23 May 2017 the Notice was despatched to members, giving notice of the Meeting to be held on 19 June 2017.

Ineffective for the purposes of Rules 43 and 44

26. Mr Kahler’s first submission was that the Notice was invalid and the Meeting should be restrained because, insofar as the second part of the Resolution (see paragraph 2 above) purported to give approval for the purposes of Rules 43 and 44 of the Club’s Constitution, the Resolution was ineffective to do so.

27. The following provisions of the Constitution were relevant:

“Powers of the Board

42.   The Board shall be responsible for the management of the business and affairs of the Club.

43. The Board may exercise its powers and do all such acts and things as the Club is by its Constitution or otherwise authorised to exercise and do and which are not hereby or by Statute directed or required to be exercised or done by the Club in General Meeting but subject nevertheless to the provisions of the Act and the Registered Clubs Act and of this Constitution and to any regulations not being inconsistent with this Constitution from time to time made by the Club in General Meeting provided that no such regulation shall invalidate any prior act of the Board which would have been valid if such regulation had not been made.

In particular, but without derogating from the general powers hereinbefore conferred, the Board shall have power from time to time:

…

(e) To sell, exchange or otherwise dispose of any furniture, fittings, equipment, plant or other goods or chattels but not including land or buildings belonging to the Club and to lease any property of the Club and with the sanction of a General Meeting of the Club to exchange or sell all or any of the lands and buildings or other property or rights to which the Club may be entitled from time to time PROVIDED that the power to lease shall not be exercised with the provisions of the Registered Clubs Act without the consent of the Licensing Court being obtained.

(f)   To enter into liabilities on behalf of the Club:

…

Before any purchase of land, buildings, machinery, plant or other property or assets or the incurring of other liabilities in excess of $400,000 x the CPI Factor can be entered into, the consent of the Members in General Meeting shall be obtained.

…

(k)   The Club is the owner of a corpus amount (“Corpus”) which comprises all funds received from the sale of or lease over (including granting of an option or licence on) club land, together with any indexation of the original funds. The following rules will apply to the Corpus:

…

(iv)   The Board must not commit, spend, dispose of, mortgage or charge any of the Corpus if the value of such expenditure will reduce the value of the Corpus that must be maintained:

a.   unless for an approved capital works project; and

b.   approval is first obtained by the consent of at least a majority (i.e. 50% + 1) of votes cast by members present and entitled to vote to a resolution in a general meeting.

The value of any such approved expenditure, or actual expenditure for an approved resolution if less than the approved expenditure, will reduce the value of the Corpus that must be maintained.

…

Borrowing Powers

44.   Any proposal by the Board that funds be raised either from Members or from third parties whether by loan, debenture or otherwise must first be approved by the Members in General Meeting provided that the Board may without obtaining the approval of Members borrow moneys which may be required in the ordinary course of carrying out the management of the Club by way of a bank overdraft or pursuant to a similar credit facility.”

28. Shortly put, Mr Kahler’s argument was based on the fact that, as was conceded by Mr Gor, the Resolution did not identify any specific proposal or any specific amount in respect of a liability to be incurred. Such matters, it was submitted, had to be specified in a resolution for the purposes of Rules 43 and 44.

29. It was contended that the need for such specificity was demonstrated by the following:

1. Rule 43(e) made it clear that the Board could not “exchange or sell all or any of the lands and buildings or either property or rights to which the Club may be entitled” without the sanction of a general meeting. In other words, the responsibility for making such major decisions was vested in the members in general meeting.

2. More specifically in relation to the entry into liabilities, Rule 43(f) required the consent of the members in general meeting to be obtained “before any purchase of land, buildings, machinery, plant or other property or assets or the incurring of other liabilities in excess of” a specified sum. The context in which it appeared, the use of the word “any” and specification of a value for “other liabilities” in excess of a nominated sum all pointed to the need, for example, for the particular purchase or the quantum of the particular liability, to be identified precisely. How, it might be asked rhetorically, could the members give a consent (let alone informed consent) to the incurring of a liability in excess of a specified sum when they did not know its quantum? The answer could be different depending upon the amount of the proposed liability. In the present case, it was submitted, the degree of precision with which the amount had to be identified did not have to be determined because, in the present case, there was simply no precision at all.

3. Next, attention was drawn to Rule 43(k)(iv) in relation to the Club’s corpus, in particular (emphases added):

“(iv)   The Board must not commit, spend, dispose of, mortgage or charge any of the Corpus if the value of such expenditure will reduce the value of the Corpus that must be maintained:

a.   unless for an approved capital works project; and

b.   approval is first obtained by the consent of at least a majority (i.e. 50% + 1) of votes cast by members present and entitled to vote to a resolution in a general meeting.

The value of any such approved expenditure, or actual expenditure for an approved resolution if less than the approved expenditure, will reduce the value of the Corpus that must be maintained.”

By reference to the italicised words, in particular “an approved capital works project”, “value” and “approved expenditure” or “actual expenditure”, it was submitted that all this again required specific proposals and specific expenditures to be the subject of the resolution. Put simply, one would never know whether sub-paragraph (iv) was being complied with or not unless the approval specified actual values.

4. In relation to Rule 44, “any proposal”, again, had to be a specific proposal. That construction was supported by at least two matters. First, the ordinary meaning of “proposal” in this context was, for example, as set out in the Macquarie Dictionary: “a plan or scheme proposed”. Second, the proviso in Clause 44 permitting borrowings “in the ordinary course of carrying out the management of the Club” made it clear that Rule 44 was directed to matters outside the ordinary course of business of the Club. Such extraordinary business had to be clearly identified.

4. All of the provisions to which specific reference had been made were protective provisions for the benefit of the members. They vested decision making in relation to extraordinary decisions concerning the fate of the Club and its property in the members in general meeting. The protective purpose of those provisions could only be met if they were interpreted so as to require specificity as to the proposal or amount for which a consent was sought for the purposes of Rules 43 and 44.

30. Stripped to its essentials, the Club’s response to these arguments was an appeal to strict literalism. The words “sales”, the “entering into liabilities”, “any spending or commitment of the corpus amount”, and “any borrowings” or their cognate grammatical expressions all appeared in Rules 43 and 44. Approval for such things was being sought provided that they were “approved by the Board in connection with any redevelopment within the PRA”. The Club submitted that approval by the Board (necessarily after the fact of the non-specific approval by the members) was sufficient to identify the activity for which authority would be given by the passage of the Resolution.

31. For the reasons advanced by Mr Kahler, I was well satisfied that not only was there a serious question to be tried as to whether the second part of the Resolution would be effective to give approval for the purposes of Rules 43 and 44, but that there was a very strong case that his submissions were correct. Without expressing a final view, it seems to me that to adopt the construction contended for by the Club would be to undermine completely the evident protective purpose of Rules 43 and 44, which repose significant financial and property related decisions in the members in general meeting. Putting it another way, if the various consent provisions set out in Rules 43 and 44 permit the conferral of authority on the Board in the almost limitless terms proposed by the Resolution — being qualified only by having to be “in connection with any redevelopment within the PRA” — then it is difficult to see what purpose the consent provisions serve.

The Explanation is inadequate

32. At least insofar as the Resolution relates to Rules 43 and 44, the conclusion which I have expressed in the preceding section of these reasons necessarily means that the Explanation is inadequate for want of identifying specific amounts of expenditure or specific proposals. However, that does not deal with the entirety of the Resolution and, theoretically, it would have been possible for that part of the Resolution to have been withdrawn. It was therefore necessary to consider Mr Kahler’s argument in relation to the entirety of the Resolution to the effect that the Explanation was not sufficiently detailed to discharge the Board’s duty to the members to provide them with sufficient information to make a properly informed judgment on the matters in question.

33. There was no dispute between the parties as to the applicable legal principles, including where, as in this case, the directors were positively recommending a particular course to the members. There are numerous statements of principle by the most experienced commercial judges of this Division.

34. A convenient starting point is this dictum of McLelland J (as his Honour then was) in Chequepoint Securities Limited v Claremont Petroleum NL (1986) 11 ACLR 94 at 96–97:

“This, however, does not preclude a challenge to the validity of the meeting on equitable grounds based on the breach of the fiduciary obligation of the directors to the company in connection with the consideration by the company in general meeting of business proposed by the directors. … Where directors take it upon themselves to urge or recommend or advise members to exercise their powers in general meeting in a particular way, they are in general required to make a full and fair disclosure of all matters within their knowledge which would enable the members to make a properly informed judgment on the matters in question: see generally Bulfin v Bebarfalds Ltd (1938) 38 SR (NSW) 423, the cases therein cited, and the other cases cited by Young J in Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2) (1985) 9 ACLR 956; (1986) 4 ACLC 12.”

35. The pertinent passage in the judgment of Young J (as his Honour then was) in Devereaux Holdings Pty Ltd v Pelsart Resources NL (No 2) (1985) 9 ACLR 956 (“Devereaux”) at 958 is:

“Secondly, there is an equitable principle that it is the fiduciary duty of directors not to mislead the corporators who are to consider whether to pass a resolution by providing them with material that is other than substantially full and true and this is especially so where the directors themselves may benefit from the passing of a resolution.

In considering this equitable rule one does not adopt the legalistic approach of a 19th century examiner of titles searching for a base fee nor does one approach the question in what counsel aptly described as a nitpicking way, but one asks what effect will the information provided have on the ordinary shareholder who scans or reads the document quickly, not as a lawyer, but as an ordinary man or woman in commerce or as an ordinary investor. One asks, viewed in such a way, will the information fully and fairly inform and instruct the shareholder about the matter upon which he or she will have to vote?

There is no conflict in the case law on this point though some cases enlighten the point from different aspects.

In Bulfin v Bebarfalds Ltd & Ors (1938) 38 SR (NSW) 423 Long-Innes J at 432–8 reviewed the cases and held that directors are under a duty to make full disclosure of all facts within their knowledge which are material to enable the members to determine upon their action. As was pointed out in one of the cases referred to by his Honour, namely Tiessen v Henderson [1899] 1 Ch 861 at 870 the person to be protected by the rules is “not the dissentient, but the absent shareholder — the man who is absent because, having received and with more or less care looked at the circular” considers that he can leave the matter to the majority.”

36. In Buttonwood Nominees Pty Ltd v Sundowner Minerals NL (1986) 10 ACLR 360 at 382, Young J (as his Honour then was) expressed the relevant test similarly (emphasis added):

"Accordingly, although there is the obligation to give full information, it is quite clear that this does not require the directors of a company to give to the shareholders every piece of information which might conceivably affect their voting. The obligation is to indicate the information which they consider the shareholders should have, plus that information which it would be obvious to the average commercial man in the street that they should have ..."

37. Two more recent judicial observations are also apposite.

38. In many cases, mere assertions by the directors in a form which does not give the members an opportunity to review or critique the information will not satisfy the fiduciary obligation of disclosure. So, for example, in McLaughlin v Dungowan Manly Pty Ltd (2006) 59 ACSR 686; [2006] NSWSC 1001 (“McLaughlin”), Barrett J (as his Honour then was) said at [22]:

“… It is also complained that the information given about calculations of the $950,000 is not such as to enable a shareholder to have his or her own expert make a check or critique. There is some substance in this. The same criticism is made in relation to what may be unexplained or unsupported value judgments in Mr Bartrop’s letter. It is said, for example, that a financing package offered by St George Bank is the most attractive, when there is no information about alternatives. The same point might be made about the section on Mr Garrett’s “allowance” where the brief discussion is qualitative rather than quantitative. There is, I accept, a serious question to be tried about the adequacy of disclosure to shareholders.”

39. Finally, in ENT Pty Ltd v Sunraysia Television Ltd (2007) 61 ACSR 626; [2007] NSWSC 270, Austin J said at [25] (emphasis added):

“The shareholders do not need to have all of the information required by the primary decision-makers, the directors. For example, they do not need to be presented with information about the range of alternative proposals that would need to be considered before a particular transaction is chosen. Reviewing all the alternatives is a task for the primary decision-makers. The shareholders’ task is limited to approving or rejecting the particular proposal that the directors present to the meeting, and it is not their role to choose or advocate a transaction of some other kind. The question for the shareholders is not whether the directors have selected the best possible transaction, but whether the transaction they have selected should be approved. However, the shareholders are entitled to receive all of the information that is material to the question whether the transaction proposed by the directors should be approved, including all the commercial information that is material to that question. That includes the material commercial information known to the directors, and also other commercial information that is material and accessible to the directors even if they are not aware of it.”

40. Before turning to the parties’ submissions, one piece of statutory context needs to be supplied. The first part of the Resolution, which purported to be a declaration of certain property of the Club as not being “core property”, invokes s 41J of the Clubs Act (emphasis added):

“41J Disposal by club of real property

(1) In this section:

"core property" of a registered club means any real property owned or occupied by the club that comprises:

(a) the premises of the club, or

(b) any facility provided by the club for the use of its members and their guests, or

(c) any other property declared, by a resolution passed by a majority of the members present at a general meeting of the ordinary members of the club, to be core property of the club,

but does not include any property referred to in paragraphs (a)–(c) that is declared, by a resolution passed by a majority of the members present at a general meeting of the ordinary members of the club, not to be core property of the club.

"dispose" of property means to sell, lease or licence the property or to otherwise deal with the property in such manner as may be prescribed by the regulations.

"non-core property" of a registered club means any real property owned or occupied by the club that is not core property.

(2) The annual report of a registered club must specify the core property and non-core property of the club as at the end of the financial year to which the report relates.

(3) A registered club must not dispose of any core property of the club unless:

(a) the property has been valued by a qualified valuer, and

(b) the disposal has been approved at a general meeting of the ordinary members of the club at which a majority of the votes cast supported the approval, and

(c) any sale is by way of public auction or open tender conducted by an independent real estate agent or auctioneer.

(4) The regulations may create exceptions to this section.

(5) Subject to the regulations, a reference in this section to a

"qualified valuer" is a reference to a person who:

(a) has membership of the Australian Valuers Institute (other than associate or student membership), or

(b) has membership of the Australian Property Institute (other than student or provisional membership), acquired in connection with his or her occupation as a valuer, or

(c) has membership of the Royal Institution of Chartered Surveyors as a chartered valuer, or

(d) is of a class prescribed by the regulations.”

41. It must be acknowledged that the significance of the Resolution insofar as it concerned core property was fairly set out in the Explanation. By declaring the PRA not to be core property, the protections constituted by the need for valuation by a registered valuer, the approval of the disposal at a general meeting and sale by way of public auction or open tender no longer applied.

42. Numerous alleged deficiencies in the Explanation were identified on behalf of Mr Kahler. These included that the Explanation did not identify:

1. the redevelopment proposal which the Board in fact wished to pursue;

2. the proposed transactions — including their possible terms, what might be sold, and at what price;

3. the financial returns that the Club might earn — including the amount thereof;

4. the proposed liabilities — including the quantum of such liabilities, the terms upon which they might be entered into and how they might be repaid;

5. the proposed spending or commitment of any corpus amount — including the terms on which this might occur and how much might be spent;

6. the terms of the advice (or a summary thereof) which the Club had received to date concerning the proposal for the development;

7. in circumstances where it was obvious that Sekisui House was the preferred joint venture developer, no information was provided about Sekisui House’s offer;

8. other information which should have been obtained and provided to enable the members to come to a decision, such as an independent quantity survey of the proposed redevelopment.

43. The Club’s answer to Mr Kahler’s complaint was that the level of disclosure was governed by the nature of the proposal. So much can be accepted. However, in the circumstances of this case, the Club submitted that because the Board was seeking a general mandate unconfined by any specific agreement or plan of redevelopment, the level of disclosure was adequate. While it was true that the Board had selected Sekisui House’s best and final offer as the starting point, there was no certainty that any agreement would be reached with Sekisui House, or whether if one was reached that it would reflect the current best and final offer, or what a redevelopment of the PRA would comprise if the redevelopment proceeded at all.

44. In the course of making his submissions on behalf of the Club, Mr Gor candidly and properly accepted that, to the extent the Court took the view that any disclosure in relation to the Sekisui House proposal was required, the Explanation was clearly inadequate.

45. In my opinion, the matters raised on behalf of Mr Kahler demonstrated a very strongly arguable case for the correctness of Mr Kahler’s position. On the other hand, and with no disrespect intended, to summarise the Club’s argument as I have done in paragraph [43] above is to demonstrate clearly, and certainly for interlocutory purposes, the real difficulty which attends it. The argument is that because a broad and unrestrained mandate is being sought by the Board, the explanation proffered in support of it will be sufficient if it is similarly general and high level. On the contrary, and as I shall develop below, it seems to me that the broader the mandate that is requested, the fuller the reasons need to be to justify both the breadth of the mandate and to give an indication, to the best of the knowledge of the Board, of how that mandate is likely to be exercised and the reasons in support of it.

46. I was persuaded of the strength of Mr Kahler’s arguments as to inadequate disclosure by looking at the matter in two, alternative ways.

47. First, given the entirely laudable attempts by the Board through newsletters and information nights to give members information about the possibilities for the proposed redevelopment, it would have been obvious to the members (or the hypothetical “average commercial [person] in the street”) that there was a very high likelihood that the general mandate sought by the Board would be exercised by pursuing Sekisui House’s proposal. In my respectful opinion, to the extent that a mandate of the generality sought by the Board could in fact be conferred by the members (a very real question), where there was any realistic prospect that the mandate would be used to pursue a relationship with an identified developer who had made an offer, then proper disclosure could only be given if appropriate details about that developer’s offer were given to the members.

48. In the present case, that gives considerable force to Mr Kahler’s submission that details of Sekisui House’s offer and its consideration by the Board should have been disclosed to members. Having accepted that proposition, then (as Mr Gor conceded) the absence of any reference to Sekisui House’s offer and its consideration by the Board in the Explanation meant that, even at the interlocutory stage, the Explanation was manifestly inadequate.

49. The second way in which I consider that it is strongly arguable that the Explanation is inadequate puts the Sekisui House proposal to one side and takes the Resolution at face value as a request for “carte blanche” authority. Assuming, for the sake of the argument, that as a matter of corporate law generally and in the circumstances of the Club in particular, such a wide mandate could properly be conferred on the Board, it is strongly arguable that the obligation to give proper disclosure to members includes the fullest possible explanation as to why such an extraordinary discretion had to be conferred on the Board.

50. The Explanation contains statements such as “The likely redevelopment is commercially complex. It is not practicable to finalise the details and the negotiations and to make final feasibility, financial, strategic and operational assessments, except through final decisions by the Board. … The Board needs to be free to make the final decisions without having to go through further processes.” In my opinion, the average commercial person in the street would find such statements highly unusual. Even an average commercial person would be aware that very complex and valuable transactions (for example, schemes of arrangement, and major corporate acquisitions and sales) are regularly negotiated to the point of exchange of final, detailed contracts subject only to court or shareholder approval. When I put this to Mr Gor in argument, he was unable to offer any reason peculiar to the legal or other circumstances of the Club as to why that approach could not be followed in relation to the proposed redevelopment.

51. More pertinently, the Explanation, while making assertions of the kind which I have recorded in the preceding paragraph, offers very little by way of explanation in support of them. The closest it comes is:

“If there is to be any redevelopment at all, then it is vital that the Board and the other party to the arrangements should have contractual certainty. Based on the legal advice that the Board has received, the proposed resolution is the best (and only practicable) way for the Club to be in a position to address these various issues and offer that contractual certainty.”

52. In my view, in circumstances where the legal advice appears to be the only basis proffered for powers of such width to be conferred on the Board in relation to the proposed redevelopment, it is strongly arguable that details of that advice, or the advice itself, would need to be provided to members so that they could have their own lawyer make a check or critique (to paraphrase Barrett J in McLaughlin — see paragraph [38] above).

53. The strongly arguable importance of disclosure of the advice is also supported by two other matters.

54. First, there was no suggestion in the Explanation that either Sekisui House or any other potential counterparty had indicated that it would be unable to treat with the Club in the absence of the Board having such a wide mandate.

55. Second, there is real ambiguity in the statement that “based on the legal advice that the Board has received, the proposed resolution is the best (and only practicable) way for the Club to be in a position to address these various issues and offer that contractual certainty”. The ambiguity is whether the advice is to the effect of the conclusion contained in that statement or whether the advice is in relation to other matters, on the basis of which the Board has reached the conclusion set out in that statement. That ambiguity itself points to the arguable inadequacy of the disclosure. Furthermore, as to the first possibility, I have already concluded that the legal advice (at least as to its effect or, better, in its terms) arguably should be disclosed. If the second hypothesis is correct, then both the advice and the subsequent reasoning of the Board, it is strongly arguable, would need to be given to members to satisfy the directors’ fiduciary duty of disclosure.

The balance of convenience

56. Where, as here, the Court comes to the conclusion that the plaintiff’s case is very strongly arguable, the balance of convenience can assume less significance in the interlocutory calculus. However, in this case, whether it is important or less important, the balance of convenience was all one way. On proper analysis, the Club was unable to prove any real prejudice that it would suffer if the Meeting was restrained.

57. Mr Gor submitted that there was some evidence of the possibility that Sekisui House could withdraw from the proposed transaction. Two observations need to be made about that submission.

58. First, Mr Gor fairly accepted that the only evidence in support of that proposition was evidence from a property development consultant retained by the Club expressing the concern that Sekisui House could withdraw from the transaction if there was a delay in entering into a project development agreement with Sekisui House or refusing to enter into a heads of agreement with Sekisui House.

59. However, as Mr Gor accepted, the consultant’s evidence does not give any reasons for that concern. There was, for example, no evidence from Sekisui House that it might withdraw if the negotiations were delayed by the meeting being restrained. On the contrary, the evidence disclosed that Sekisui House have a significant development site which adjoins the Club. In those circumstances the Court would, if necessary, infer that there was a real commercial attraction for Sekisui House in treating with the Club which would make the prospect of withdrawal unlikely. That prospect is further diminished in circumstances where there was no dispute that, after assessment, Sekisui House knew that it was now in the position of preferred development partner.

60. Second, reliance on the possibility of Sekisui House withdrawing discloses a telling inconsistency in the Club’s case. On the one hand, one of the reasons for the “carte blanche” sought by the Board advanced in the Explanation was that no agreements had yet been entered into, and the fundamental question of whether or not any redevelopment would proceed at all remained live for the Board’s consideration. The tenor of that explanation was to minimise the importance of the position which had been reached with Sekisui House. If that be so, it is inconsistent for the Club to raise the possibility of Sekisui House withdrawing its interest as a balance of convenience factor weighing against the Meeting being restrained.

61. Putting it another way, if the potential role of Sekisui House was important enough to go to the balance of convenience, then that supports the Court’s conclusion that the Board’s current intentions and state of knowledge in relation to Sekisui House’s proposal was of sufficient importance to have been the subject of full and frank disclosure to the members in the Explanation. In any event, the evidence does not permit the Court to conclude that there was any risk of Sekisui House withdrawing if the meeting was restrained.

The Court’s reluctance to restrain meetings

62. The Club relied on this dictum of Young CJ in Equity (as his Honour then was) in Countouris v Kallos (2008) 67 ACSR 543; [2008] NSWSC 840 at [14]:

“Generally speaking, courts are very loathe to prevent meetings of members or people casting votes at meetings of members. Experience shows especially with public companies, that members get tremendously upset if they go to a function all prepared to discuss matters and to vote to find that there is some court order preventing them from exercising their democratic rights. As a general rule, the court will not prevent meetings and discussions and voting, and a fortiori that is the situation where if subsequently it is shown that there was equitable fraud or breach of duty or operative maliciousness that the election would be set aside. In the present case not only would that be a possibility if the matter was proved in due course but the company being a public company if ever the plaintiffs’ faction did get the majority there could be removal of the directors under s 203D of the Corporations Act by the proper procedure.”

63. There is, with respect, a great deal of common sense in his Honour’s observation. In the present case I did give serious consideration to whether the Meeting should be permitted to go ahead, but on the basis that if the Resolution was passed then the Club should be restrained from acting upon the Resolution pending final determination of its validity. That course of action was also attractive because of the possibility that the present dispute could resolve itself by the Resolution being rejected. However, there was no evidence upon which the Court could come to a view as to the likelihood of the Resolution being passed or rejected.

64. There were three reasons why I decided in this case that the Court should not give effect to what might be described as its customary reticence to restrain corporate meetings in preference to dealing with the consequences of those meetings.

65. First, Mr Kahler had demonstrated a very strongly arguable case. That consideration urged relief being granted, particularly where the Club had been unable to point to any real prejudice that it might suffer by the Meeting being restrained.

66. Second, the passage of the first part of the Resolution in relation to core property would, if the Resolution was valid, work an immediate change in the legal status of that property as set out in s 41J of the Clubs Act (see paragraph [40] above). That change of status would have occurred irrespective of any further injunction against the Club. In the exercise of the Court’s discretion, I considered it to be highly undesirable for there to be a doubt as to the status of the PRA which would have been the result of the passage of the Resolution in circumstances where there was a real issue about the validity of the Resolution. That doubt, for example, may have made it difficult to prepare accurate accounts of the Club as at 30 June 2017 (see s 41J(2) of the Clubs Act).

67. Third, I was mindful of Young J’s observation in Devereaux set out in paragraph [35] above that the jurisdiction in relation to enforcing the fiduciary duty of directors to make proper disclosure to members was directed to the protection of those members who had decided, in effect, that it was not worth attending the meeting because they were content to leave the matter to the majority of the meeting. That purpose would have been undermined by allowing the Meeting to proceed. Furthermore, although not decisive, I was fortified in this conclusion by there being evidence that some members were under the impression that the subject matter of the Meeting was to adopt or approve the Sekisui House proposal rather than to give the Board a more general authority.

Conclusion

68. It is appropriate that I conclude these reasons by repeating an observation which I made to the parties at the conclusion of the hearing.

69. Cases such as this inevitably generate tension between the protagonists, all of whom are members of the Club. Some of the material which I saw in the evidence demonstrates that this case is no different in that regard.

70. The Court has not been invited to consider, and has not considered, the merits of any proposed or actual decisions by the Club’s Board in relation to any redevelopment.

71. Furthermore, the Court was not invited to make, and has not made, any finding as to the good faith of the various protagonists. While there was some material in the evidence to which brief reference was made that might have been said to reflect upon the conduct of both parties, it was irrelevant to the decision which the Court was required to make.

72. Looking at the course of events in their totality as it appeared in the evidence, I have no doubt that all of those involved in this litigation have acted in what they considered to be the best interests of the Club and its membership. The Court’s decision was reached by the application of specific legal principles concerning corporate decision making in the statutory context of the Club’s Constitution and the Clubs Act to the limited and uncontroversial facts that were relevant to the determination of Mr Kahler’s interlocutory application. Nothing in these reasons should be construed as being intended to say anything, and certainly not anything adverse, about the conduct of the protagonists.
    Kahler v Castle Hill CC - Letter to members (64.5 KB, pdf)
    Kahler v Castle Hill Country Club Notice of general meeting (245 KB, pdf)

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Decision last updated: 17 April 2018