Moloney v Glenelg Community Hospital Inc - [2019] SASC 101

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
MOLONEY v GLENELG COMMUNITY HOSPITAL INC
[2019] SASC 101
Judgment of The Honourable Chief Justice Kourakis
21 June 2019
ASSOCIATIONS AND CLUBS - INCORPORATED ASSOCIATIONS - MEMBERS
ASSOCIATIONS AND CLUBS - RIGHTS, LIABILITIES AND DUTIES OF MEMBERS - RIGHTS AND DUTIES - RIGHTS OF MEMBERS
ASSOCIATIONS AND CLUBS - EXPULSION, SUSPENSION AND DISQUALIFICATION - EXERCISE OF POWERS OF EXPULSION - RIGHT OF PARTY AFFECTED TO BE HEARD
ASSOCIATIONS AND CLUBS - EXPULSION, SUSPENSION AND DISQUALIFICATION - EXERCISE OF POWERS OF EXPULSION - NECESSITY FOR NOTICE OF PROCEEDINGS
ASSOCIATIONS AND CLUBS - PROCEDURE IN ACTIONS BY AND AGAINST - GENERALLY
The plaintiff, Peter Nicholas Moloney, was a member of the Board of the defendant, Glenelg Community Hospital Inc (GCH Inc). At a meeting of the Board on 21 November 2018, the defendant declined to consider 127 applications for membership, which had been delivered by the plaintiff. On 13 December 2018, the plaintiff lodged proceedings against the defendant in relation to the Board’s refusal to consider those applications. At a second Board meeting, on 19 December 2018, the plaintiff was informed that under an agenda item entitled ‘any other business’, the plaintiff’s action against the defendant would be discussed. The plaintiff excused himself, and while he was out of the room, the Board passed a resolution that the plaintiff be declared unfit to sit on the Board. The plaintiff had not been told that that resolution would be put.
The plaintiff seeks a declaration that the defendant acted oppressively by reason of:
•       the failure of the Board on 21 November 2018 to accept as members 127 persons whose applications for membership were delivered by the plaintiff to the defendant between 24 October 2018 and 21 November 2018; and
•       the resolution of the Board made on 19 December 2018 that the plaintiff was unfit and incapable of performing his duties as a member of the Board.
Held:
1.       The Board only declined to consider the membership applications; it did not refuse them.
2.       The Board was bound to proceed carefully, as a suddenly increased membership could make internal management of the affairs of the Association, which was relatively small and professionally qualified and interested, difficult.
3.       The deferral of consideration of the membership applications was not unreasonable or oppressive.
4.       Although the object of GCH Inc is to provide a community hospital for the benefit of the Glenelg district and other places, it does not follow that it is necessary to always promote, facilitate or expand the community membership of the Association.
5.       There was no reason why the motion that the plaintiff was unfit to be a member of the Board could not have been debated and resolved either before or after the discussion as to how the Board would respond to the action brought against GCH Inc by the plaintiff.
6.       The plaintiff was denied procedural fairness. The right to be heard is equally applicable on a motion to vacate an office on the grounds of unfitness to hold it.
7.       The plaintiff had a valid argument as to his fitness to serve on the board. This is not a case in which it can be said that failure to accord procedural fairness could have made no difference.
8.       The institution of a single, reasonably arguable action in this Court concerning the affairs of the defendant did not make the plaintiff unfit to hold office.
9.       The resolution declaring the plaintiff unfit and incapable of performing his duties as a member of the Board was ultra vires and is to be quashed.
Associations Incorporation Act 1985 (SA) s 61, referred to.

WORDS AND PHRASES CONSIDERED/DEFINED
"Acting oppressively and unreasonably", "unfit or incapable of holding office"

MOLONEY v GLENELG COMMUNITY HOSPITAL INC
[2019] SASC 101
Civil

KOURAKIS CJ: The plaintiff, Peter Nicholas Moloney (Mr Moloney) brings this action against the defendant, Glenelg Community Hospital Inc (GCH Inc), pursuant to s 61 of the Associations Incorporation Act 1985 (SA) (the Act) for a declaration that GCH Inc has acted oppressively by reason of:
·the failure of its Board (the Board) on 21 November 2018 to accept as members 127 persons whose applications for membership Mr Moloney delivered to GCH Inc between 24 October 2018 and 21 November 2018; and
·the resolution of the Board made on 19 December 2018 that Mr Moloney was unfit and incapable of performing his duties as a member of the Board.
GCH Inc operates a community hospital (the Hospital) at 5 Farrell Street, Glenelg South, SA 5045.
GCH Inc does not contend that the applications provided by Mr Moloney in October and November (the membership applications) were defective in form or that the applicants were not fit and proper persons. GCH Inc contends that the Board deferred its consideration of the applications for valid reasons.
After the Board meeting of 21 November 2018 Mr Moloney brought proceedings in this Court on 13 December 2018 seeking a declaration that GCH Inc had acted oppressively and unreasonably in ‘declining’ to consider the membership applications (the action). On 19 December 2018, the Board met again. The last item of business was ‘Any Other Business’. Mr Moloney was told that the action he had instituted against GCH Inc would be discussed. Mr Moloney quite properly excused himself from the meeting because of the obvious conflict between his interest as the plaintiff in the action and the interest of GCH Inc as the defendant. Mr Moloney was not told that the Board’s consideration of the action would include a resolution that he be declared unfit to sit on the Board. In his absence that resolution was put and passed. GCH Inc accepts that the only ground on which the resolution was made was that Mr Moloney had brought the action.
For the reasons which follow, I find that the Board acted reasonably in deferring its consideration of the membership applications but oppressively in declaring Mr Moloney unfit.
The Constitution of GCH Inc
The objects of GCH Inc are:
a)to establish and conduct at such places as the Board may decide a community hospital for the benefit of the public of the Glenelg district and elsewhere.
b)to equip the Hospital and thereafter to do such things for such purposes for the benefit of the public in the promotion or encouragement of charitable and benevolent purposes or otherwise as the Board shall decide.
c)to initiate, facilitate and promote the maintenance of high quality services and patient care within the Hospital.
d)to provide facilities for the treatment of medical and surgical patients.
e)to provide services for the care of patients and the promotion of health.
f)to admit patients and assist medical practitioners in the treatment of patients.
g)to provide facilities and services for total health care including the preventive and rehabilitative of health care as well as a therapeutic one including the looking after or assisting in looking after the health needs of the Public.
h)to provide a comprehensive medical centre for visiting medical, dental and paramedical practitioners.
i)to provide adequate outpatient services.
Clause 5 of GCH Inc’s Constitution provides:
5.1The ordinary members shall be those persons or corporations who or which shall pay to the Association a subscription of such amount as may be determined by the Board from time to time, the payment of which shall constitute application for membership and such persons or corporations shall be ordinary members from the time when such subscription is paid and accepted by the Board until the end of the financial year of the association in which it is paid.
Both parties accept, and I hold, that the Board is not required to accept the tender, by an applicant for membership, of a subscription fee if the Board is not satisfied that the applicant is a fit and proper person to be a member. Acceptance of a subscription fee by the Board implies that the Board has accepted that the applicant is a fit and proper person to be a member.
The present position, and, for all material purposes, the historical position has been that the only members of GCH Inc have been those persons who have also served on its Board.
Clause 6 of the Constitution provides that the office holders are the Chairperson, Deputy Chairperson, Treasurer, and the Chief Executive Officer who shall not be a member of the Board. It is common ground that the Treasurer was at all material times a member of the Board.
Clause 7.2 of the Constitution provides that:
7.2The Board of Management shall consist of not more than twelve (12) members of whom at least two (2) but no more than four (4) shall be legally qualified medical practitioners engaged in active practice in the area.
Clause 8 provides for the election and appointment of officers and members of the Board of Management as follows:
8.2The members of the Board shall be elected fora [sic] two (2) year term at the Annual General Meeting of the Association.
8.3Members of the Board shall retire at the Annual General Meeting of each year but shall be eligible for re-election and the members to retire in each year shall be those who have been longest in office since the last election.
8.4The Chairperson, Deputy Chairperson and Treasurer shall be elected at the first meeting of the Board following the Annual General Meeting in each year and shall hold their respective offices during the ensuing year.
Clause 9 provides for the vacation of office by officers of GCH Inc or members of the Board as follows:
9.1The office of Chairperson, Deputy Chairperson and Treasurer or the position of a member of the Board shall be vacated by the holder thereof:
a) if in the opinion of the Board expressed by resolution he becomes unfit to perform or is incapable of performing the duties of his office or position or
b) if by notice in writing to the Chief Executive Officer of the Association resigns from his office or position and his resignation is accepted by the Board.
Pursuant to clause 13.1 of the Constitution, an Annual General Meeting of the Board must be held annually no later than 31 October of each year. Under clause 13.2, a Special General Meeting of the members may be convened by the Board at any time. By clause13.4, the business of the Annual General Meeting includes any resolution for amendment of, or addition to, the Constitution. Clause 15.1 provides that the financial year of the Association shall end on the 30^th day of June in each year and that all annual membership fees shall be paid by the 31^st day of August each year immediately following the end of the preceding financial year. That provision stipulates only when membership fees become due and payable, and it does not prohibit a person joining the Association at a later time, and paying the membership fee at that time.
By clause 16, the Board may from time to time frame and make rules, by-laws and regulations (not being inconsistent with the objects of the Association) for the management and conduct of the affairs and property of the Association. Clause 16.2 provides that the Constitution may be added to or altered or amended at any Annual General Meeting or at any Special General Meeting called for that purpose.
The Board has made by-laws pursuant to the Constitution. The by‑laws confer responsibility on the Chief Executive Officer to conduct elections for the chairperson of the Board. The Chief Executive Officer is the administrator of GCH Inc. The by-laws impose duties on Board members to act honestly, with reasonable diligence, and not to make improper use of any information received in the course of their service on the Board. Board members must also declare any interest in the contractual arrangements of GCH Inc, and must not take any fee from any person in connection with their use of, or admission to, the Hospital. By-law 3.6 provides that any Board member who fails to discharge those duties ‘shall vacate his office or position on the Board in accordance with Clause 9 of the Constitution’. The relationship between that by-law and clause 9 is far from clear. Insofar as the by-law purports to provide that a breach of the relevant by-laws is, of itself, conclusive evidence, or results in a conclusive presumption that, the Board member is unfit to hold office, there is a real question as to its validity. However, the by-law does reinforce what in any event falls within the connotation of unfitness to hold office, that serious breaches of propriety, or the by-laws, may support a conclusion that a person is unfit to hold office.
At a meeting on 18 July 2018 the Board resolved to set an annual membership fee of $2. In September 2018, GCH Inc received 19 applications for membership. Mr Moloney, in his capacity as the then Chairperson of the Board, refused to allow a motion to be put that the applications be accepted because, contrary to clause 15, they had been received after 31 August of that year. That construction of clause 15 is wrong. As I earlier observed, clause 15 concerns only when membership fees are due and payable, not when a person may join the Association. Mr Moloney acknowledged as much in a later Board meeting.
On 24 October 2018, the Board approved a membership application form (the membership application form) and resolved that the 19 applicants be invited to complete an application for membership in the approved form. They did not take up that opportunity.
On 25 October 2018, the Board members were advised by their incoming Chairperson, Ms Susan Lonie, that the Board Executive would prepare a covering letter to accompany the Membership Form. However, on 29 October 2018, the Board Executive deferred the drafting of the letter whilst a review of the Constitution was undertaken.
Between 24 October 2018 and 21 November 2018, Mr Moloney delivered the 127 membership applications to GCH Inc on forms which were identical to, or substantially the same as, the approved membership application form. A payment of $2 was made with respect to each application and a receipt issued by GCH Inc.
At the meeting of the Board held on 21 November 2018, Mr Moloney put a motion that the Board proceed to consider the applications. That motion was defeated. The Board did resolve that the Constitution be reviewed and updated. The Board also resolved that no further members be solicited until the current Constitution had been reviewed, updated and approved by the Board.
On 13 December 2018, Mr Moloney commenced his action challenging the Board’s deferral of its consideration of the applications. Mr Moloney sought a declaration that the resolution of the Board ‘to decline to consider the 127 Applications for Membership’ is oppressive and/or unreasonable and an order that the defendant proceed to consider the applications. The decision of the Board on the membership applications was described in the same way in Points of Claim filed on 4 February 2019.
The Board met on 19 December 2018. In that meeting, the Board considered the review of GCH Inc’s Constitution under Agenda Item 4.2.
Attachment 6 to the Agenda was provided to the Board for its discussion of item 4.2, being the review of the Constitution, and included a range of possible amendments to the Constitution, including a rule which would limit ordinary members to an adult person residing in the council area of Holdfast Bay, or an adult person residing outside of Holdfast Bay Council area who desires to be a member and who, in the opinion of the Board, is a person who is likely to assist the Association to meet its purpose.
In the course of the discussion of that item of business, the Chairperson, Ms Lonie, informed Mr Moloney that the proceedings he had issued would be discussed under the last agenda item ‘Any Other Business’. Mr Moloney excused himself from discussion for that agenda item because of his obvious conflict of interest. As he left the room, Ms Lonie stated that the fitness of Mr Moloney to remain on the Board would be discussed. Mr Moloney replied ‘rubbish’. Importantly, the parties agree that Mr Moloney was not told that a motion would be put that he was unfit or incapable of performing his duties. However, whilst he was absent that motion was put and carried. The meeting was then closed.
Section 61 of the Act
Section 61 of the Act relevantly provides:
61—Oppressive or unreasonable acts
(1)A member or former member of an incorporated association may apply to the Supreme Court or the Magistrates Court for an order under this section on the ground that the association has engaged, or proposes to engage, in conduct that is oppressive or unreasonable.
…
(4)The Court hearing a proceeding under this section may, if satisfied that the association has engaged, or proposes to engage, in conduct that is oppressive or unreasonable, make one or more of the following orders:
(a)     an order for regulating the conduct of the association's affairs in the future;
(b)     an order directing the association to institute, prosecute, defend or discontinue specified proceedings, or authorising a member of the association to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the association;
(c)     an order restraining a person from engaging in specified conduct or from doing a specified act or thing;
(d)     an order requiring a person to do a specified act or thing;
(e)     an order for the alteration of the rules of the association;
(f)    an order that a former member be reinstated as a member of the association;
(g)     any other order that is, in the opinion of the Court, necessary to remedy any default, or to resolve any dispute.
(5)The Supreme Court may, in a proceeding under this section, if it considers it appropriate to do so, make an order that the association be wound up or an order appointing a receiver or a receiver and manager of the property of the association.
…
(9)The Supreme Court may not make an order under this section that an association be wound up if it is of the opinion that the winding up of the association would unfairly prejudice members affected by conduct of the association that is oppressive or unreasonable.
…
(13)If an order under this section makes any alteration to the rules of an association, then, despite anything in any other provision of this Act but subject to the provisions of the order, the association does not have power, without the permission of the Court that made the order, to make any further alteration to the rules inconsistent with the provisions of the order but, subject to this section, the alteration has effect as if it had been duly made by resolution of the association.
…
(15)For the purposes of this section—
(a)     an association has engaged, or proposes to engage, in conduct that is oppressive or unreasonable if—
(i)it has taken action, or proposes to take action, to expel a member from the association in circumstances in which the action was, or would be, oppressive or unreasonable; or
(ii)it has engaged, or proposes to engage, in conduct that was, or would be, oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or was, or would be, contrary to the interests of the members as a whole; or
(iii)the rules of the association contain, or are proposed to be altered so that they will contain, provisions that are oppressive or unreasonable;
(b)     a reference to engaging in conduct includes a reference to refusing or failing to take action.
Discussion

I deal first with the way in which the Board dealt with the membership applications.
At the outset, I emphasise that no question of oppression of the applicants for membership themselves arises in this action because they are not members. Nonetheless, the way in which an association deals with applications for membership may be characterised as unreasonable or oppressive in its operation on an existing member or members, particularly those who seek to expand the membership of the association. It is notorious that differences may arise between members of an association as to its policies and/or operations, and that groupings of members with opposing ideas, even factions, may form. It is not unknown for those groupings to seek to increase the membership of the association with persons who are likely to support their position. Increasing the membership of a community organisation is generally in the public interest. However, there are limits. The internal strife, and oppression of a minority by majority rule which may well follow the ‘stacking’ of an organisation, is also notorious. Provisions such as clause 5 of GCH Inc’s Constitution, which provide that an applicant does not become a member until the application is ‘accepted by the Board’ are apt to guard against that mischief. Of course, that power too can be abused if the Board were to discriminate against applications by persons whom it fears may not be supportive. A discriminatory policy by the Board of approving some applications but not others, even though the applicants refused are fit and proper persons for membership of the organisation, may result in oppression of a minority or even a majority of existing members of the association. There is no clear bright line. These are matters which require balance, good will and common sense on the part of the Board. If asked to interfere, the Court must evaluate what is in the ‘interests of the members as a whole’.[1]
[1] Associations Incorporation Act1985 (SA) s 61(15)(a)(ii).
Be that as it may, Mr Moloney does not rely on any suggestion that the failure to approve the applicants was so motivated. Mr Moloney’s contentions are more limited. First, he contends that the Board rejected the applications for membership without good reason. That contention can be summarily dismissed. Mr Moloney’s motion was only that the Board proceed to consider the applications. That motion was lost. The effect of that was to leave open the question of when and how the Board might proceed to consider the applications.
As I have observed, the summons and Points of Claim filed on behalf of Mr Moloney recognise that the Board had only ‘declined to consider the 127 applications for membership’, not that it had refused them.
At the meeting held on 21 November 2018, another Board member, Dr Porter, put a motion that the Board not proceed to consider the membership until after the Constitution had been reviewed and, if necessary, amended. That motion too failed. Had it passed it might well have been characterised as unreasonable and, depending on the surrounding circumstances, oppressive. Accordingly, at the end of the meeting of 21 November 2018, the membership applications were still before the Board to be dealt with at a subsequent meeting.
Mr Moloney’s second contention is that in itself it was unreasonable or oppressive in the circumstances of this case not to immediately consider the applications. To consider that contention it is necessary to first identify the reason for the Board’s deferring of its consideration. I find that the reason that the Board did not deal with the membership applications was that it wished to consider the implications for GCH Inc of the possibility of a radically increased membership, and whether its Constitution was adapted to such an increase. I draw that inference from the following circumstances:
·the motions which were put, and either lost or passed, at the 21 November meeting, and in particular the motion that no further members be actively solicited by Board members until after the review of the Constitution; and
·between the November and December meetings, the Chief Executive Officer proceeded to prepare a paper discussing possible amendments to the Constitution.
I draw that inference from the objective record of how the motions before the Board were dealt with. It is not necessary to decide in this action whether or not the evidence of the subjective motivation of individual Board members would be admissible and, if so, how those motivations affected the characterisation of the Board’s conduct.
The question to be determined is whether the Board’s reason, objectively ascertained, was a valid one, and if it was not, whether the conduct of the Board in declining to consider the applications was oppressive or unreasonable.
Mr Moloney’s submission is that it was unreasonable not to proceed to consider the applications against the Constitution as it then stood. His contention is that each application should have been decided on its merits at the first Board meeting after it was received, and that if the applicant was fit to be a member, then his or her application should immediately have been accepted. Mr Moloney contends that it was wrong to contemplate changes to the Constitution which might then affect whether or not membership applications were accepted.
There is much force in the submission that once a Constitution is adopted, the internal management of an association should proceed in accordance with its terms and that membership should be decided on its current terms. I accept that contention as a general proposition. However, a management board must consider the best interests of the association. In the circumstances of this case, GCH Inc had a relatively small, but professionally qualified and interested, membership, all of whom were Board members. The Board operated an important community hospital in the Glenelg area. Plainly it may be a valid reason to defer an application for membership in order to make further enquiries about the fitness of a particular applicant to be a member. Equally, there is no reason why a decision on whether to accept a historically unusually high number of applications should not be deferred to allow a consideration of the implications of a large increase in membership.
I accept that the Board was bound to proceed carefully lest the suddenly increased membership made the internal management of the affairs of the Association difficult. The deferral of the consideration of those matters was not unreasonable or oppressive. However, that may not always be the case. A protracted delay or a delay deliberately adopted in order to amend the Constitution so that membership rules could be made which would operate in a discriminatory manner may require a different conclusion. However, that point has not yet been reached in this matter.
Mr Moloney relied on the objects of GCH Inc’s Constitution in support of a submission that the hospital was a community association and that it was unreasonable to conduct its affairs in a way which restricted, delayed or deferred the members of the community becoming members of the Association. That submission confuses the Constitutional objective of providing a community hospital, with the nature of GCH Inc as an association and its internal structure. It confuses the external objects and operations of GCH Inc with its internal corporate structure. Plainly, it is the object of GCH Inc to provide a community hospital for the benefit of the public of the Glenelg district, and of other places. However, it does not follow that it is necessary to always promote, facilitate or expand the community membership of the Association. Clause 5 does not favour residents of Glenelg, or any other place. Nor does it encourage members with a particular interest, medical or otherwise, in the operations of the hospital. The only control over membership for which clause 5 provides is the acceptance of the application by the Board. It is for that reason that it is reasonable for the Board to consider the broader implications of accepting new members beyond the fitness of the particular applicant, provided that it acts in the best interests of the members as a whole.
I would dismiss the ground which relies on the Board’s failure to accept the membership applications on 21 November 2018.
Procedural fairness
Mr Moloney left the meeting of 19 December 2018 when the final item, any other business, came to be discussed. He acted properly in so doing as he was plainly in a position of conflict.
Mr Moloney was not given any notice of the motion that he be declared unfit. On the statement of agreed facts, and on Mr Moloney’s affidavit, he understood that there would be some discussion about whether or not he was fit to hold office, but he had no notice that a motion would be put to that effect.
The question which arose on the putting of that motion was whether the bare fact that he had brought legal proceedings against GCH Inc, in itself, rendered him unfit to hold office in that Association. Mr Moloney’s interest in retaining his office could not preclude him from debating that motion. The right to procedural fairness demands both that a person affected by a decision be given an opportunity to be heard, and that the decision maker be, and be perceived to be, independent. Any conflict in the application of those rules must be resolved in favour of the former in circumstances of this kind. The doctrine of necessity too allowed both Mr Moloney, and those members of the Board who proposed the motion, to debate and vote on it despite their respective competing interests in its outcome. There was no reason why the motion that Mr Moloney was unfit could not be debated and resolved either before or after the discussion as to how the Board would respond to the action brought against GCH Inc by Mr Moloney.
I find that Mr Moloney was denied procedural fairness. It is not material that the motion did not dismiss him for disciplinary reasons. The right to be heard is equally applicable on a motion to vacate an office on the grounds of unfitness to hold it.
This is not a case in which it can be said that the failure to accord procedural fairness could have made no difference. Mr Moloney had a valid argument to make: that the conflict arising out of the bringing of the action did not make him unfit to be a member of the Board merely because he was precluded from taking part in discussions of the Board’s response to the action he had brought.
At this very meeting Mr Moloney was present for all of the discussions save for the very last item without any suggestion that he was conflicted. Other Board members may have found an argument that, despite bringing the action, he remained fit to hold his office as a Board member persuasive.
Mr Moloney also contends that the motion was ultra vires. There is much force in that submission. Members of a board, or an organisation, may find themselves in conflict with others. That conflict will often be over the constitution and rules of the association. It is generally desirable that such differences are resolved internally, and by mediation if necessary. On occasion, however, resolution of the controversy by a court will be necessary. Members of an association have a right to submit the controversy for judicial determination. The bringing of an application to a court for an adjudication which is reasonably based will seldom render the applicant unfit for office or membership. There are strong public interest reasons for not deterring a member from seeking a judicial resolution by threat of expulsion or loss of office.
The phrase ‘unfit or incapable of holding office’ has a technical meaning, even though its content may vary depending on the office. In the circumstances of this case, the institution of a single, reasonably arguable action in this Court concerning the affairs of GCH Inc did not make Mr Moloney unfit to hold office. Different considerations would apply if a member or office holder entangled an association in a multiplicity of vexatious, or barely arguable, claims.
I therefore find the resolution declaring Mr Moloney unfit and incapable of performing his duties as a member of the Board to be ultra vires.
Orders
I would quash the resolution declaring Mr Moloney unfit to hold office as a member of the Board.