NRMA v Bradley

[2002] NSWSC 788

Reported Decision: 42 ACSR 616

New South Wales

Supreme Court

CITATION:	NRMA v Bradley [2002] NSWSC 788
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 4253 of 2002
HEARING DATE(S):	28 and 29 August 2002
JUDGMENT DATE:	29 August 2002
PARTIES :	National Roads & Motorists' Association Limited (Plaintiff) David Bradley (Defendant)
JUDGMENT OF:	Windeyer J at 1

COUNSEL :	Mr R C McDougall QC with him Mr R G McHugh (Plaintiff) In person (Defendant)
SOLICITORS:	Corrs Chambers Westgarth (Plaintiff) In person (Defendant)
CATCHWORDS:	CORPORATIONS - meetings - whether certain resolutions proposed to be moved by members be declared to be invalid - Corporations Act 2001 s249N
LEGISLATION CITED:	Corporations Act 2001, s203D, s249, s1322
CASES CITED:	National Roads and Motorists Association v Parker (1986) 6 NSWLR 517
DECISION:	See paragraphs 18 and 30

- 6 -

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

WINDEYER J

WEDNESDAY 28 AUGUST 2002

4253/02 NATIONAL ROADS AND MOTORISTS ASSOCIATION LIMITED v DAVID BRADLEY

JUDGMENT – 28 August 2002

1 HIS HONOUR: In this matter the plaintiff, the National Roads and Motorists Association Limited (NRMA), seeks declarations that certain resolutions proposed to be moved by members pursuant to s249 of the Corporations Act 2001 at a general meeting of NRMA on 17 October 2002 be declared to be invalid, so that the plaintiff ought not be required to submit those resolutions to the general meeting of members.

2 If the Court does not make the declarations sought, then the plaintiff seeks an order under s1322(4)(d) of the Corporations Act so that the time for consideration of the resolutions be extended up to and including the date fixed for the annual general meeting of members, namely 27 November 2002. In other words, if the proposed resolutions are held to be valid in that the business required to be put to members was held to be proper business to be considered by the members in a general meeting, then that general meeting should be held, or that business should be conducted at the annual general meeting, or perhaps on the same date as the annual general meeting.

3 The defendant has been appointed to represent those persons who have signed the notices of resolution pursuant to s249N of the Corporations Act. Those persons seek that the resolutions put forward should be considered at a general meeting of the members which either has been or will be called for 17 October 2002, to consider the business put forward by two groups of requisitionists which business relates to the removal of directors from office.

4 The first resolution which the persons represented by Mr Bradley now seek to have put forward at that meeting as an ordinary resolution is the following:-

That the National Roads and Motorists’ Association Limited do all such things as may be necessary in respect of proceedings 4454/01 commenced by the association in the Equity Division of the Supreme Court of New South Wales against John Fairfax Publications Pty Ltd and others:
(a) To release and discharge the following from all undertakings to, and orders (including costs orders) of the Court: -

(i) John Fairfax Publications Pty Ltd.
(ii) Anne Lampe.
(iii) Kate Askew.
(iv) AAP Information Services Pty Ltd.
(v) Belinda Tasker.

(b) To cause the proceedings to be discontinued or dismissed.

5 Rule 52 of the constitution of NRMA provides that:-

52. Subject to the Law and to any other provisions of the Constitution, the management and control of the Associate and of the business and affairs of the Association shall be vested in the Directors who may exercise all such powers of the Association and do all such acts or things as are not by the Constitution or by the Law expressly required to be exercised or done by the Association in a meeting of members. No rule made or resolution passed by a meeting of members shall invalidate any prior act of the Directors which would have been valid if that rule-or resolution had not been made or passed.

6 The argument of the plaintiff company is that what is sought to be done by the resolution proposed is to act contrary to Rule 52, in that it seeks to take to the members a power which by the constitution is vested in the directors. In my view that argument is clearly correct. The decision in National Roads and Motorists Association v Parker (1986) 6 NSWLR at page 517 makes this clear.

7 I do not intend to recite the passage which determines this, but it can be found at page 521 in that judgment.

8 It follows from this that as the proposed resolution would be outside the powers of the members in general meeting, the company is not obliged to put that resolution to the members.

9 The next resolution which it is sought to have considered by the company as an ordinary resolution is the following:-

That National Roads and Motorists Association Limited decline to pay, or assist by way of any payment for the legal costs incurred by the Association's former president, Mr N Whitlam, in proceedings 4421/01 commenced by the Australian Securities and Investments Commission against Mr N Whitlam in the Equity Division of the Supreme Court of New South Wales, and any appeal therefrom.

10 As is known, proceedings have been brought against Mr Whitlam and determined in this court. An appeal against that decision either has been lodged, or is expected to be lodged, because the orders which were made by the trial judge have been stayed. The orders made by the trial judge included an order that there be no order as to costs of those proceedings.

11 Section 199A(3)(c) of the Corporations Act provides that a company must not indemnify a person against legal costs - in defending an action for liability incurred as an officer of the company - if the costs are incurred in defending or resisting proceedings brought by ASIC for an order if the grounds for making the order are found by the Court to have been established.

12 It would seem to me that in those circumstances if the position remains as it is after all appeal avenues have been exhausted, the company will not be able to pay the costs of Mr Whitlam in those proceedings.

13 Under the constitution Rule 159 provides as follows:

Except as by the law precluded every officer, auditor or agent of the association shall be indemnified by the association against any liability incurred by that person in that capacity.

14 Mr Bradley now accepts that Rule 159 does not in terms in any way operate so as to bear upon or override the provisions of the Corporations Act. As I understood his argument, it was that if Mr Whitlam failed in the appeal process, then his costs should not be paid by the company. The Corporations Act appears to prohibit those costs being paid by the company in any event, and if that is what is sought by the proposed resolution, then that is the end of the matter.

15 Leaving that aside however, Rule 159 of the constitution is a provision which while it exists, would prevent the resolution which it is sought to put forward from being a valid resolution. The rule is one by which all members are bound. While that rule exists, a resolution passed by the company contrary to it would not be a valid resolution. In those circumstances the company cannot be required to put it forward.

16 I should add that in any event the question of the indemnity will be a matter to be considered by the directors in exercise of their responsibilities under Rule 52, but that is really a separate matter, and does not bear upon the decision which I have just announced.

17 It follows from all of this that if the two proposed resolutions which I have set out, were put to a meeting and passed, the members would have passed resolutions which the company in general meeting is not authorised to pass.

18 In those circumstances the declarations sought in respect of those proposed resolutions namely that in paragraph 2(a) and 2(b) of the summons should be made. I will continue this judgment tomorrow and deal with the second notice.

JUDGEMENT CONTINUED – 29 August 2002

19 HIS HONOUR: The third resolution proposed to be moved as a special resolution at the meeting of members to be held on 17 October 2002 is as follows:

To consider, and if thought fit, pass the following resolution as a special resolution:-
1. That the Constitution of National Roads and Motorists' Association Limited is modified:-

(a) by deleting Rule 54 and by substituting in its place the following new Rule:-
54. With effect from the conclusion of the General meeting held on October 2002 the number of Directors shall be reduced to seven:-
(b) by deleting from Rule 56 the words and symbols "in 2001 and in 2003, 8" and by substituting instead the word and symbols "in 2003, 3";
(c) by deleting from Rule 56 the symbol "6" and by substituting the symbol "3";
(d) by deleting from Rule 57 the words "who are to retire from office", and by substituting instead the words "who by count are to cease to hold office";
(e) by deleting from Rule 78 the symbol "6" and by substituting in its place the symbol "3";
(f) by adding to Rule 89 next after the word "services" the words "and special services in Rule 93";
(g) by deleting from Rule 93 the words "as the Board of Directors may determine" and by substituting instead the words "as the members at a meeting of members may approve.”
2. That the modifications made in Resolution 1 shall take effect forthwith at the conclusion of the General meeting held in October 2002.

20 The plaintiff says the resolution would be invalid because; (a) it would be contrary to the provisions of section 203D of the Corporations Act; (b) the provisions of the Constitution as changed, if the resolution were passed, would conflict with the provisions which would remain.

21 As to the first argument, section 203D sets out the procedure for removal of directors by resolution of members. If the resolution would have the effect of removing directors, then the requirements of section 203D must be met. Clearly in this case they have not been met and could not be met under the proposed procedure.

22 The point is that if the number of directors were reduced to seven on 17 October 2002, there would be no way of determining which of the fourteen directors remained as directors, and which of the fourteen were removed. While the resolution as framed does not in terms relate to the removal of particular directors, nevertheless if it does not have that effect, it has no effect at all. On that basis it is not a resolution which the directors are required to put to a meeting.

23 As to the second argument, rule 54 as proposed would have the effect, as I have said, of reducing the number of directors from fourteen to seven on 17 October 2002, but there is no procedure to determine those remaining in office, and under the Constitution the next election of directors is to take place at the annual general meeting in 2003.

24 The provisions of rule 56A which the defendants appear to rely upon have been spent. Certainty it is essential in the management and control of public companies and if the amendment were passed, then there would be no certainty, and more likely chaos. The directors ought not be required to put the proposed resolution in those circumstances. That is not to say it would not be possible to work out some procedure under which the number of directors was reduced, but the proposed resolution does not do so.

25 The proposed amendments to Rules 56, 57 and 78 depend upon the amendments to Rule 54. They are part of the package, and fall accordingly.

26 The proposed amendments to Rule 89 and 93 are in a different category, and relate to payments to directors. Those resolutions, if passed, would be proper resolutions for members to pass.

27 It has been put that those resolutions are part of a package, and that it should not be thought that those persons seeking that the resolution be put, regard them as other than part of a package. I do not think that argument is correct, because the amendments proposed to Rule 89 and Rule 93 deal with an entirely different subject from a reduction in the number of directors. On that basis it seems to me that the plaintiff company would be required to put those amendments to a general meeting. It therefore falls to determine whether or not the relief which the plaintiff company seeks so that those resolutions are put to the annual general meeting, rather than the special meeting called for 17 October 2002, should be given.

28 That is a matter which was to be determined after my decision as to the validity of the resolutions. It follows that I will declare insofar as the notice relating to a special resolution is concerned, that subparagraphs (a), (b), (c) (d) and (e) of paragraph 1 of the second notice do not constitute a valid and effective notice of resolution, and the plaintiff is not required to submit a resolution encompassing those subparagraphs to a general meeting.

29 The plaintiff seeks in simple terms that consideration of the resolution in sub-paragraphs (e) (f) and (g) be postponed until the annual general meeting, rather than the meeting on 17 October 2002.

30 So far as the application for an extension of time to put the remainder of the proposed resolution is concerned, Mr Bradley accepts - I think quite rightly - that it is appropriate that the time be extended so that this resolution can be considered at the annual general meeting, which is apparently proposed to be held on 27 November 2002, and I will therefore make that order.

31 It is accepted that paragraph 2 of the resolution should not be put, following from my decision on paragraph 1.

32 I direct the plaintiff to bring in short minutes of order to give effect to these reasons. That order should provide that there be no order as to costs, that having been agreed by the plaintiff. While that has been agreed this time, the plaintiff has made it clear that agreement on that aspect is made for these proceedings alone. That seems to me to be a proper statement to be made, because it should not be thought that the members who do not seek to put these resolutions before meetings, should necessarily have to bear indirectly the costs of the company which are incurred in obtaining declarations that the resolutions need not be put.

33 Once again I state that in my view there is an urgent need for legislative attention to be given to excluding this company from the operation of that part of the law which enables meetings to be called on a notice signed by one hundred members out of a total of approximately two million members.

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Last Modified: 09/03/2002