Paint Horse Association of Australia Ltd v Holobradek
[2003] VSC 411
•2 October 2003
v
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
PRACTICE COURT
No. 8155 of 2003
| THE PAINT HORSE ASSOCIATION OF AUSTRALIA LTD | Plaintiff |
| v | |
| BRONWYN HOLOBRADEK | Defendant |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 2 OCTOBER 2003 | |
DATE OF JUDGMENT: | 2 OCTOBER 2003 | |
CASE MAY BE CITED AS: | THE PAINT HORSE ASSOCIATION OF VICTORIA v HOLOBRADEK | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 411 | |
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Companies – Directors – Application for interlocutory injunction to restrain defendant from representing herself as being director of plaintiff – Alleged irregularities in calling of meeting at which existing directors were voted out of office and replaced by other directors including defendant – Serious issue to be tried – Balance of convenience – Sections 249F, 249H(1) and 1322(2) and (3) of the Corporations Act 2001.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M. Mackinnon | Michael Mackinnon |
| For the Defendant | Mr P. Willis | Hunt & Hunt |
HIS HONOUR:
This is an application concerning the affairs of a company called the Paint Horse Association of Australia Ltd. A paint horse is apparently a type of horse, and this company is, I would assume, a non-profit organisation to promote the interests of the breed and the owners of such horses. Regrettably, and I echo here the words of Austin, J. in Howard v. Mechtler[1], the affairs of this company are in a sorry state.
[1]30 ACSR 434 at 435.
The defendant was a director of the plaintiff company. She resigned in about April of this year, together with some other directors, presumably because they were dissatisfied with the way in which the affairs of the company were being conducted. By a letter dated 23 May 2003, the defendant wrote to the members, in so far as she was able to ascertain who they were, advising of the resignation of six of the eleven directors and enclosing a request that the board call a general meeting. That request set out the special resolutions that were sought to be before that general meeting. One concerned a change to the articles to deal with transparency of the board of directors and the remainder was to do with removal of the current directors and an election of a replacement director from the district which the removed director represented. Also enclosed was a proxy form and a two-page explanatory memorandum.
The defendant apparently received a number of responses to that letter. Fifty-one responses were just the first page of the three-page notice of general meeting enclosed with her letter of 23 May. These 51 forms had the name, to all intents and purposes, of a member filled in, in handwriting, but they were not returned with the full notice of general meeting. Twenty-nine persons sent back the full form. Thus, there were 80 responses, but it would appear that at least seven of those members were unfinancial at the relevant time, which I will come to in a moment. Nevertheless, the requirement for five per cent of the members entitled to vote at the general meeting would seem to have been satisfied. In the affidavit in support of the application by the plaintiff company sworn by Marilyn Shelton on 30 September, she deposes to the fact that as at 17 September there were a total of 948 votes that could be cast at a general meeting, so that five per cent of that number is 47.4, rounded up to 48 members.
After referring to the request that the board call a general meeting, the defendant’s letter dated 23 May 2003 continued:
"It is very similar to the notice of general meeting that will be used by the Board to actually call the general meeting. If the Board fails to call the general meeting, I will send the request on your behalf to all the members of the PHAA as the basis of a valid notice of general meeting."
By a letter dated 5 September 2003, the defendant again wrote to the members. Her letter commenced:
"Dear PHAA Member,
Please find enclosed a valid notice of general meeting to be held at 10 a.m. on Sunday 28 September 2003 at Dubbo RSL, Dubbo, New South Wales. In accordance with section 249F of the Corporations Act 2001, more than five per cent of the voting members of the Association have called this general meeting so that all the members of the PHAA can have their say by voting on the resolutions contained in this notice. You may know that over the past few months there have been three similar requests made to the current Board of Directors to hold a general meeting, all trying to comply with the legal technicalities of our own articles or the Corporations Act. Rather than permitting all the members to have their say, the Board of Directors has chosen to use legal reasons not to actually hold a general meeting."
The meeting was held on 28 September and all of the existing directors were voted out of office and replaced by new directors. On 1 October this proceeding was issued, with the company as the plaintiff, and the summons was made returnable today seeking an interlocutory injunction that the defendant be restrained from holding herself out as a director, and other interlocutory relief.
Mr Willis of counsel, who appeared for the defendant, first submitted that the action was not properly brought because the company had not consented to it being commenced in its name. On the date that the originating process was filed, absent any court order invalidating the meeting or any order restraining the defendant or any of the other new directors from acting as directors, there had been no resolution by the directors elected on 28 September instructing the company’s solicitor – or perhaps I should say former solicitor – to bring this proceeding. Mr Willis referred me to a statement by Tadgell, J.A. in Victoria Teachers Credit Union Ltd v. KPMG[2], where his Honour described the commencement of proceedings without the authority of (in that case) the credit union, as improper.
[2][2000] 1 V.R. 654 at 662.
I consider that there is substance in this point, but, if I am otherwise in favour of granting an injunction, I will make appropriate orders to allow for one or more of the former directors, who it seems to me have a cause of action, to be substituted as plaintiffs if they are prepared to replace the company. Mr Mackinnon, who appeared for the plaintiff, had already informed me that he had obtained instructions from some of the former directors to give the undertaking as to damages on their behalf rather than the company’s.
Mr Mackinnon made a number of submissions criticising the compliance with the Corporations Act 2001 in respect of the manner in which this meeting had been called. His first submission was that it had not been established that members with at least five per cent of the votes that could be cast at a general meeting had intended to hold a general meeting. He submitted that the procedure adopted by the defendant cast doubt on whether the persons who returned all or part of the three-page notice of meeting really understood what they were doing.
I think in the circumstances, given the hour and that this is only an interlocutory injunction, it is not appropriate that I express my views on these criticisms, other than to say that this point, together with three other points, which I will explain in a little more detail, all constitute, in my view, an arguable case.
The notice point was that, even on the defendant’s own material, not all of the letters of 5 September 2003 enclosing the notice of the general meeting were posted by the defendant so as to give each member 21 days’ notice of the general meeting as required by s. 249H(1) of the Corporations Act. Two-hundred and sixty-five notices were posted by her on 5 September, which was a Friday. Section 249J(4) says that notice of meeting sent by post is taken to be given three days after it is posted. It seems to me that this takes it through to the 8th, which is only 20 days’ notice, not 21. Another 730 notices were posted at the Hobart Mail Centre on 7 September; 105 were posted on 8 September, including all overseas members, so that the statutory three days may not be applicable there. Then, as the defendant deposes, after receiving the partial updated membership list, she checked and found that she had missed some members and mailed a further 175 notices on 12 September. Mr Willis argued that the defendant’s problems in this regard were largely brought about by the plaintiff’s refusal to provide her in a timely manner with a complete and up to date list of members.
Thus, it seems to me that there are serious issues raised as to the giving of the notice. Mr Willis relied on s.1322(2) and (3) of the Corporations Act. Section 1322(3), he pointed out, deals specifically with the question of the giving of notice. Mr Willis made the point that a meeting held for the purposes of this Act is not invalidated unless the court declares the proceedings at the meeting to be void, so that, he submitted, the onus was on the plaintiff to persuade the court that the meeting should be declared void. Whether or not a court, after due and proper consideration, would declare the meeting to be void is not for me at this stage to comment on. As I have already indicated, it seems to me that the issues raised by the plaintiff do show that there is an arguable case.
The other two issues I will very briefly mention were, first, in relation to the notice of 5 September and, secondly, the form of proxy sent out with it. The first issue was that the notice drawing attention to the proxy and the member’s entitlement to appoint a proxy to attend and vote in his or her stead stated that the proxy forms must be lodged at the registered office of the Paint Horse Association of Australia Ltd by 11 a.m. not less than three working days before the time for holding the meeting or adjourned meeting. Mr Mackinnon submitted that that notice was incorrect because s.250B only required at least 48 hours’ notice for the lodging of proxies. In argument I observed that the articles of constitution of the plaintiff company referred to lodging of proxies three business days prior to the meeting (article 42(i)), so that in one sense the defendant could hardly be criticised for following the articles of the company and it lay ill in the mouth of the company to then complain about a non-compliance with the Act when its own articles, on Mr Mackinnon's submission, did not comply with the Act. Again, that is an issue for another day.
The other criticism was of the form of the proxy, which h read as follows:- "I", and then the member had to fill in his or her name, "of" {the address}, "being a member of the abovementioned association, hereby appoint [blank] of [blank] or failing him [blank] of [blank] as my proxy to vote on my behalf", etc. "at the meeting to be held on 28 September 2003. Signed", etc., and then the following appeared: "This form to be used in favour of the resolutions numbered" and then in brackets "(1 and 2A through to 8B)" and then a line underneath that for insertion of numbers if so desired, and then the printed form continued: "This form to be used against the resolutions numbered (1 and 2A through to 8B)" and again a dotted line for use if required to indicate what resolutions were to be voted against. Mr Willis submitted that this followed the form in the company’s articles, although he conceded that the reference to the numbers of the resolutions in both resolutions, the parts in brackets that I have quoted, was not in the form of the proxy. The argument here is, and there was some evidence to suggest, that at least one member was confused by the manner in which this had been presented, as indicating to him that he had to either vote for all of the resolutions or against all of the resolutions, whereas, as Mr Willis pointed out to me, what was being said there was, because it appears both in favour and against, "These are the resolutions that you have to deal with by numbering them if you want to vote in favour of some and against some or in favour of all or against all".
Those are the main issues that were raised by the plaintiff in its attack on the regularity of the holding of the meeting, and, as I have said, it seems to me that there is an arguable case.
The matter that has exercised my mind is where the balance of convenience lies. I have been told that the annual general meeting of this body is to be held on 23 November this year. Mr Mackinnon made the point, and no doubt with some validity, that there may be some potential advantage for one or other of the competing boards to go to that annual general meeting with whatever kudos existence in office might bring. On the other hand, Mr Willis submitted that, whatever the criticisms that might be made about the regularity of the meeting, all of which, as I understood him, he submitted the court could cure, there was an overwhelming vote in favour of the new board and that the court should be loath to interfere with the governance and operation of this private body in the circumstances where clearly there were competing factions.
True it is, as Austin, J. said in the Howard v. Mechtler Case, removal of directors is a serious step, but it does seem to me that the balance of convenience does lie with allowing the result of the meeting held on 28 September to stand. If that meeting was a valid reflection of the feeling of the majority of members who wished to participate in the governing of its affairs, then the new directors, who have all indicated that they will retire and stand for re-election at the annual general meeting, will either be vindicated or unceremoniously dumped from office. I consider that the criticisms are not sufficient for the court to interfere at this stage in the result of that meeting and to reinstate the previous board.
Mr Mackinnon made the point that, whilst the vote at the meeting may well have been overwhelming – it was 127 to 18 on just about every resolution, so that some 145 votes were counted - that was a very small minority of the 950 or thereabouts financial members of this organisation, but I am not satisfied that there was any substantial number of members who, desiring to express a view on these motions, was not able to, despite the alleged irregularities. In any event, this can all be cured at the annual general meeting.
I therefore dismiss the application.
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