McPherson v Mansell
[1994] FCA 1080
•25 FEBRUARY 1994
DUNCAN JAMES McPHERSON, MICHAEL JOHN JAMES AND BERNARD GLENNON v. FRANK ERNEST
MANSELL, KENNETH JOHNSTONE, EDWARD STEELE, GEOFFREY KING NEWMA, JOHN ATKINSON
McAUSLAND AND BRYAN JONES
No. NG 3049 of 1994
FED No. 1080/94
Number of pages - 5
Corporations Law
(1994) 16 ACSR 261
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
BEAZLEY J
CATCHWORDS
Corporations Law - whether board of directors properly constituted - whether calling of extraordinary general meeting invalid - whether board of directors competent to postpone meeting where no provision of the regulations of the company confer such a power on the directors.
Corporations Law: ss 225(1); 251; 1322(4).
Smith v Paringahal Mines Limited (1906) 2 Ch 193
Bell Resources v Turnbridge Pty Ltd (1988) 13 ACLR 429
HEARING
SYDNEY
#DATE 25:2:1994
#ADD 10:5:1995
Counsel for the Applicant: Mr Stomo
Solicitors for the Applicant: Mr Stuart Coppock
Counsel for the Respondent: Mr Taylor
Solicitors for the Respondent: Messrs Walsh James
ORDER
the Big Brother Movement be joined as a respondent.
2. the amended notice of motion be otherwise dismissed.
3. the amended application be dismissed.
4. the applicants pay the respondents' costs including the costs of
the notice of motion.
Note: Settlement and entry of orders is dealt with in Order 36 of the
Federal Court Rules.
JUDGE1
BEAZLEY J The applicants are the directors of a company called the Big Brother Movement Limited. That company has a history, both here and in the United Kingdom, of at least 50 years in Australia and a little longer in the United Kingdom. Its objects have changed in the last 10 years. It was set up to effectively do good or charitable works in the wide sense of the term, by sponsoring young immigrants from the United Kingdom to Australia and has changed focus in recent years as a result of changes in the immigration scheme, to make awards for educational purposes.
A dispute has arisen in the company in recent times. The genesis of that dispute is not relevant to the present application but its manifestation is. That manifestation is that there are competing claims between persons who were in fact appointed as directors or who purported to be directors to actually sit upon the board. It was because of that dispute on 6 February 1994 that the applicants commenced the proceedings in this Court seeking a declaration that they are the properly constituted board of the Big Brother Movement Limited and an order restraining the first to fifth respondents from exercising any power, right or duty as a director of the board - the applicants disputing the valid appointment of the first to fifth respondents as directors.
The matter came before the Court urgently because extraordinary general meetings were scheduled to be held, on 28 February 1994 and on 1 March 1994. The validity of the calling of each of those meetings is in dispute in a way to which I will refer in a moment.
The applicants filed in Court today an amended application. That maintained the relief which it sought in the application to which I have referred, and sought other consequential relief. The respondents filed in Court today an amended notice of motion in which they seek an order that the company, Big Brother Movement Limited, be joined as a respondent, that I make an order pursuant to the provisions of s 251 of the Corporations Law and any necessary directions which might be required for that purpose, an order pursuant to the provisions of s 1322(4) that the first to fifth respondents are not invalid by reason of non-compliance with the provisions of s 225(1) notwithstanding apparent irregularities in the appointment of those persons at annual general meetings held on 15 October 1991 and 20 October 1992.
The central issue around which the matter focused was the validity of the holding of an extraordinary general meeting on 21 February 1994 and the further question of the ratification of certain actions of the Secretary in the calling of a meeting for 1 March 1994 by directors who were purportedly elected at the extraordinary general meeting held on 21 February 1994. Those matters require a little clarification.
The respondents do not dispute that there was an irregularity in the appointment of Messrs Atkinson, McAusland and Steel at the meeting on 14 October 1991 and of Messrs Johnston, McAusland and Newman at the annual general meeting on 20 October 1992. There was therefore no dispute that as at 16 February 1994, at the time of the filing of the application, that the applicants were the properly constituted board of Big Brother Movement Limited, subject to any relief which may have been given by the Court under the provisions of s 1322(4) in respect of the election of the directors to whom I have referred on 15 October 1991 and 20 October 1992.
The question of the irregularity of the appointments at those two annual general meetings did not surface until a directors meeting of 14 December 1993. On 17 January 1994 the third respondent requisitioned a general meeting of the company. On 18 January 1994 a member of the company, Mr Turner, also requisitioned a general meeting of the company.
To put the matter in colloquial terms, Mr Steel's requisition sought a spill of the board and a new election. Mr Turner's requisition sought the election of Messrs Johnston, Steel, Newman and McAusland as directors.
On 25 January 1994 the first applicant, an undisputed director of the company, forwarded a notice to members convening an extraordinary general meeting for 21 February 1994. That notice of meeting included all matters subject of both requisitions. On the same day, that is 25 January 1994, the Secretary of the company, Mr Mausell issued a notice to members in response to both requisitions calling a meeting for 1 March 1994. There is no dispute between the parties that Mr Mausell was not directed by the board to forward the notice which he sent calling the meeting for 1 March 1994.
On 19 February 1994 the first applicant purporting to act on behalf of the board, sent a letter to members advising that the meeting called for 21 February 1994 was postponed to 28 February 1994. Notwithstanding that advice as to the purported postponement of the meeting, the meeting in fact was held and a resolution passed that Messrs Johnston, Steel, Newman and McAusland be appointed to the board as directors. It did not deal with that part of the agenda for that meeting to which I have referred colloquially as the spill motion.
Counsel for the applicants contended before me today that the holding of the meeting on 21 February 1994 was invalid. Counsel for the respondents has referred me to two decisions which support the proposition that in the absence of a power in the regulations of the company giving the directors a power to postpone the meeting, there is no such power in the directors. He referred first to Smith v Paringahal Mines Limited (1906) 2 Ch 193. In that case Kekewich J held at 197 that it was not competent for the board to postpone the meeting. His Honour said:
"The articles provide for the adjournment of a general
meeting in certain events, but they contain no provision for postponement. It is said that the directors must be able to postpone the meeting because they may fix the time and place at which the meeting is to be held; but in my opinion that is not so..."
His Honour further said at page 198 that he could not see that there was any doubt upon the point. That decision has been applied in Australia in Bell Resources v Turnbridge Pty Ltd in (1988) 13 ACLR 429. In that case Nicholson J said at page 437:
"(t)here appears no reasons why Smith's case..."
to which I have just referred:
"...should not govern the position."
His Honour, at page 436 had earlier noted that Smith's case had not been overruled and had been universally and is universally cited in law texts as authority for the proposition stated in its head note, the effect of which I have just stated.
I should add that it seems to me to be correct that the principle in Smith's case also seems to be correct in principle and I propose to apply it. The Articles of Association of this company do not empower the directors to postpone a meeting. In those circumstances I am of the opinion that notwithstanding the purported postponement of the meeting by the directors, that is the meeting of 21 February 1994 of the directors, that meeting was validly held by the members on that day.
No other challenge to the validity of that meeting is raised, nor is any challenge raised to the validity of resolutions passed at that meeting. The effect, therefore, is that as from the passing of the resolution on 21 February 1994, Messrs Johnston, Steel, Newman and McAusland are also directors of the company. The meeting of directors was held on 24 February 1994. At that meeting a resolution was passed unanimously that the notice of extraordinary general meeting dated 25 January 1994 calling the meeting for 1 March 1994 be ratified.
The effect of the ratification of the Secretary's action in calling the meeting for 1 March 1994 is that any irregularity or invalidity which otherwise might have attached to the giving of the notice for that meeting has thereby been removed.
Having regard to my findings in respect of those issues, that is, the right of the directors to postpone the meeting called for 21 March 1994 and of the ratification of the giving of the notice for the meeting on 1 March 1994, it becomes unnecessary to provide to the respondents the relief which they seek in their amended notice of motion and I accordingly dismiss the amended notice of motion.
My determination in respect of the matters to which I have referred also has the effect of determining the matters raised in the amended application. The consequence of my determination is that I would refuse the declaration which is sought in paragraph 1 of the amended application as I have determined that there was a valid meeting held on 21 February 1994 and that there is no challenge to the resolution passed at that meeting.
It follows that if I refuse to make the declaration in paragraph 1, there is no basis for making any of the other orders sought in the amended application and I accordingly dismiss it.
An application is made by the respondents for costs. I should state at the outset that I have dismissed the respondents notice of motion. However, I have dismissed it on grounds which are caught up with the substantive application, such that it becomes unnecessary in effect, to make any orders in respect of it and I should also add that I make no separate order for costs in respect of the amended notice of motion and that any order for costs which I do make will be dealt with within the main application.
I had said earlier that I had proposed to dismiss the amended notice of motion. I propose to do that save for the making of order 1 in the amended notice of motion. The applicants oppose any order for costs against them and their counsel has submitted that the appropriate order be that the company pay the costs of both parties. The difficulty that I have with that proposition is that an order for costs would thus fall upon the company as a whole and not only upon those persons who have seen fit to agitate the dispute.
I should add that from such material as is before me that both sides have proceeded on the basis of what they consider to be in the best interests of the company but it does appear that there is some underlying philosophical dispute between them which is unfortunate, given the objectives of the parties in relation to their membership and association with the company.
Notwithstanding that, the fact of the matter is that the company is not effectively represented here. The parties who are effectively here and who are represented here are the opposing parties in that philosophical dispute and that is a philosophical dispute which has emerged in the technicalities surrounding the conduct of a company. Notwithstanding that, it seems to me that none of the persons involved in this company are illiterate persons or persons who would not have available to them necessary advice and have acted on it. They must therefore take the consequences of their action.
There is no doubt that at the time that the application was filed, the applicants, subject to any order which the court may have made under s 1322(4) of the Corporations Law, would have been entitled to the declaration which they sought in paragraph 1 of both their application and their amended application. That position changed after 21 February 1994. The applicants, notwithstanding that change, still sought to contend for the invalidity of the meeting which had the effect of changing that circumstance.
For that reason it seems to me that they ought to bear the costs of the amended application, including the costs of the notice of motion. Notwithstanding that I propose to make an order to that effect, I will record in these reasons the sentiment which I have already expressed, that this is a company which is conducted for honourable purposes and the persons who are before the court today seem undoubtedly involved in it for those honourable purposes. It is unfortunate therefore that the matter has had to be adjudicated by the court with the consequence that legal costs of the entire proceedings will have to be borne by one side only.
This is a matter which the parties can take away with them and hopefully, if they consider it appropriate, resolve in a different way between themselves. However, my function is to determine the matter in accordance with law.
1
0