Milnes v Harness Racing SA Ltd - [2005] SASC 67

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
MILNES v HARNESS RACING SA LTD & ANOR
Judgment of The Honourable Justice Anderson
28 February 2005
ASSOCIATIONS AND CLUBS - RACING CLUBS AND ASSOCIATIONS - CONSTITUTION, RULES AND BY-LAWS - INTERPRETATION, EFFECT AND VALIDITY
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - CONSIDERATIONS UPON WHICH COURT EXERCISES DISCRETION
Plaintiff seeks an injunction restraining the board of the first defendant from accepting the nomination of the second defendant Tapp for the position of finance director - the plaintiff had previously held the position of finance director for the first defendant, but was unsuccessful in gaining re-nomination - the plaintiff alleges that the nomination of Tapp is invalid because one person voting for the nomination of Tapp, a Mr Steel, was not entitled to vote - plaintiff also argues that under the constitution of the first defendant the position is only available to someone who is both qualified and experienced in financial management, and that Tapp lacks any relevant qualifications - meaning of 'qualifications' - held: Mr Steel entitled to vote as properly appointed to the Special Industry Committee - second defendant eligible for nomination as 'qualified and experienced' - 'qualified' not requiring formal qualifications - claim for injunction refused.
South Australian Harness Racing Club Inc v Harness Racing SA Ltd (unreported, 18 October 2002, Bleby J); Cameron v Hogan (1934) 51 CLR 358, discussed.

MILNES v HARNESS RACING SA LTD & ANOR
[2005] SASC 67
Civil

Anderson J The plaintiff in this matter (“Milnes”) seeks an injunction restraining the board of the first defendant (“HRSA Ltd”) from accepting the nomination of the second defendant (“Tapp”) for the position of finance director of HRSA Ltd. Milnes had previously held that position but his term as director expired on 30 September 2004. Tapp was appointed even though Milnes stood again for the position. They were both interviewed by the Special Industry Committee (“SIC”) on 11 August 2004.
Milnes alleges that the nomination by the SIC of Tapp to the board was invalid because one person, a Mr Steel, voting for his nomination had no entitlement to vote. Moreover it is argued that the position was only available to someone with qualifications and experience in financial management, and Milnes alleges Tapp does not have any relevant qualifications.
HRSA Ltd is a corporate body limited by guarantee which controls harness racing in South Australia. The SIC is set up under the constitution of HRSA Ltd. It is that committee which nominates to the board the director who must have qualifications and experience in financial management.
The members of the SIC comprise two members appointed by the South Australian Harness Racing Club Incorporated, two members appointed by the South Australian Country Harness Racing Clubs Association Incorporated (“the Country Association”), and one member appointed by the board.
Mr Steel had been appointed as a delegate to the SIC by the vote of the annual general meeting of the Country Association, on 8 August 2004, which also appointed him as Chairman of the Country Association. The practice of the Country Association was to appoint the Chairman and Vice-Chairman as delegates to the SIC. At the annual general meeting it was also decided, for convenience, to allow Barrington and Linke, who were the continuing Vice- Chairman and outgoing Chairman, respectively, to attend the meeting of the SIC on 11 August 2004. They were, according to the minutes, authorised “to continue as delegates for the ongoing election of the Financial Director to the Board”.
The SIC was responsible for interviewing the applicants for the finance director position and met for that purpose on 11 August 2004. Linke could not attend the meeting, and spoke to Steel and asked Steel to attend in his place. He in fact indicated to Steel that he thought that Milnes would be the preferred candidate. As it turned out at the meeting, Steel attended and voted for Tapp, which vote was decisive. There were five members present including the Chairman, Mr Conley, who did not vote. There were three votes for Tapp including that of Steel, and one vote for Milnes. Others present and voting were Messrs Giorgio, Stanbury and Barrington.
There are really two questions to be decided, and that is first, whether Steel was entitled to vote, and if he was, was the SIC entitled to put Tapp forward on the basis of his qualifications for the position of finance director?
As indicated, Steel had been previously appointed as a delegate to the SIC at the annual general meeting of the Country Association held on 8 August 2004. His appointment to that body is not under challenge. As such Steel was entitled to be present at SIC meetings and to vote. It seems to me that it is not to the point that Linke had discussed with Steel the way in which he had intended voting. The vote clearly was intended to be a conscience vote in the interests of harness racing following the interviews of the candidates by the members of the SIC. Steel was not a proxy, there being no such provision in the constitution, and he was merely a replacement for Linke who could not attend.
Tapp’s counsel, Mr Riggall, conceded that Steel was not at the meeting of the SIC as proxy for Linke as the original minutes indicated. When corrected, the minutes described Steel as “representing Ross Linke”. In my view, that again is an incorrect description. In my view, he was legitimately present in lieu of or as a replacement for Linke.
The fact is that, because Linke could not attend the meeting, he asked Steel to go in his place. This decision was made by Linke, Steel and Barrington as committee members of the Country Association. Steel, as I have said, was entitled to attend and vote at SIC meetings because he was the Chairman of the Country Association and as Chairman had been appointed as a delegate to the SIC. The original idea behind the motion authorising Linke to attend had changed, and there was no challenge to Steel attending and voting until after the meeting.
The whole objective of the parent association, the Country Association, and the SIC, is to act in the public interest in promoting and organising harness racing in South Australia. Steel was present during the interviews and clearly voted for whom he believed was the best candidate. Members voting had an obligation to vote for the best candidate in their assessment.
On 18 October 2002 Bleby J had to decide various matters in a dispute between the South Australian Harness Racing Club Incorporated and HRSA Ltd. In the course of considering that matter, his Honour was also considering a meeting of the SIC. Discussing the matter generally, his Honour said:
“… Secondly, members of the Special Industry Committee are nominated by the respective organisations to act in the best interest of the company. They are not delegates of the nominating club to act on the will or instructions of that club. They are representatives only, and cannot be bound by directions of that club. They must exercise their very responsible powers under cl 17 solely in the interests of the company and in the promotion of its objects. That includes a duty to nominate Board members most suitably qualified, regardless of the interests of their nominating organisation or whether the candidate be sympathetic to those interests or not.”
I adopt, with respect, the comments of his Honour in relation to the role of the members of the SIC.
In hearing an application for an injunction, and in the course of discussing where the balance of convenience lay, his Honour said, in considering the nature of the vote of the SIC:
“I am not attracted by the plaintiff’s argument that the plaintiff will not have any representation on the Board. This is not a company limited by shares where the operations of the company are directed to the ultimate benefit of shareholders. This company has a wider objective. It is the custodian of the public interest, insofar as that interest is in harness racing. None of the provisions of the Constitution recognise a Board member as representing a particular interest or harness racing club or group of harness racing clubs in the company.”
Again, with respect, I adopt the words of Bleby J as set out above.
It is my view that the duty of those voting was to select the candidate whom they believed would best suit the objects and aims of harness racing generally. It is inconsistent with that objective to suggest that Steel should not have voted with his conscience but should blindly follow the suggestion of Linke to vote for Milnes.
In summary, therefore, I find that Steel was entitled to attend and vote at the SIC meeting, that there was a majority vote at the meeting, that Steel’s presence was acquiesced in by the others present at the meeting, and that a conscience vote by all present resulted in Tapp being the preferred candidate.
A considerable amount of argument was addressed to the fact that Tapp had no formal qualifications. Milnes on the other hand was a member of the National Institute of Accounting. It was argued that the use of the words ‘qualification and experience’ in clause 17.5.1 of the HRSA Ltd constitution in contrast to the words ‘qualifications and/or experience’ in relation to the marketing director under clause 17.5.2 of the constitution was indicative of the fact that experience alone did not qualify a candidate for the position of finance director.
In the constitution there is no indication as to what is meant by qualifications and experience in financial management, and therefore it should be given its natural and ordinary meaning.
Tapp has been a very successful businessman running the finances of his own business which turns over in excess of $60 million per annum. I would have thought that there is not much difficulty in saying that he has experience in financial management. The question is, is it necessary to have qualifications in financial management by way of a piece of paper following some form of study at some tertiary institution? I do not believe that in the circumstances in which this constitution was drafted that that would have been intended. The wording of the constitution is left quite open on this matter, deliberately in my view, so that anyone such as Mr Tapp who can illustrate their overall experience and knowledge of financial management could be regarded as being appropriately qualified.
In any event Mr Tapp has some qualifications by way of an accountancy certificate. This appears from the affidavit which he has filed. Apart from being the managing director of his own successful company, he has been a consultant to the Federal Group of Companies, which run hotels, motels and casinos, for twenty-five years. He has also studied accounting at the Institute of Technology and has passed nine of the thirteen units required for a degree. He has sufficient units to obtain an accounting certificate.
It is my view that someone need not be formally qualified to have qualifications in a particular area. Someone can be qualified, as expert witnesses sometimes are, simply by virtue of their experience in the field and knowledge gained in the course of day-to-day working in an industry. In any event it is my view that Tapp had sufficient qualifications and experience to enable him to be nominated.
Milnes, as a director, argues that he was in a contractual relationship with the Board, and that there has been a breach of that contract. His standing to bring the action against the company is not contested. The characterisation of the contractual relationship is to avoid the rule in Cameron v Hogan (1934) 51 CLR 358 at 370-371. There the rationale for the rule, that the court will only interfere where the court can characterise the arrangement as a contract intended to confer legal rights and impose legal liabilities on the parties, is described as follows:
“There are, … reasons which justify the statement that, at common law as well as in equity, no actionable breach of contract was committed by an unauthorized resolution expelling a member of a voluntary association, or by the failure on the part of its officers to observe the rules regulating its affairs, unless the members enjoyed under them some civil right of a proprietary nature. As a generalization it expresses the result produced by the application of a number of independent legal principles: it is not in itself the enunciation or explanation of a rule or rules of the common law. One reason which must contribute in a great degree to produce the result is the general character of the voluntary associations which are likely to be formed without property and without giving to their members any civil right of a proprietary nature. They are for the most part bodies of persons who have combined to further some common end or interest, which is social, sporting, political, scientific, religious, artistic or humanitarian in character, or otherwise stands apart from private gain and material advantage. Such associations are established upon a consensual basis, but, unless there were some clear positive indication that the members contemplated the creation of legal relations inter se, the rules adopted for their governance would not be treated as amounting to an enforceable contract.”
As indicated, Milnes brings his action on the basis of a breach of contract in respect of his directorship. HRSA Ltd has taken no active role in these proceedings, and the Country Association likewise. Milnes has no standing against the Country Association which nominated and elected Steel as Chairman. The Country Association is not a party to these proceedings.
Milnes’ action is to enforce his contractual rights against HRSA Ltd for accepting the nomination of Tapp from the SIC. For the reasons which I have set out, it is my opinion that HRSA Ltd acted appropriately in accepting Tapp’s nomination as Finance Director.
There is nothing to indicate that the vote of Steel was made other than in good faith in the capacity in which he was present and entitled to vote. He believed that Tapp was the best candidate, as did the others who voted in Tapp’s favour. Tapp had qualifications and experience in financial management for the reasons which I have set out.
I therefore refuse the claim for an injunction. I will hear the parties as to costs. HRSA Ltd has earlier indicated that it would not seek costs in the role which it took in these proceedings.