Scott v Port Hinchinbrook Services Limited

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SUPREME COURT OF QUEENSLAND

CITATION:

Scott & Ors v Port Hinchinbrook Services Limited & Ors [2017] QSC 92

PARTIES:

JASON JOHN SCOTT

(First Applicant)
and
PENDAR PTY LTD ACN 112 242 930 as trustee for THE BRETT SCOTT FAMILY TRUST
(Second Applicant)
and
ARTHUR BRUCE CHALMERS and JENNIFER DAWN CHALMERS
(Third Applicants)
and
GREGORY GORDON LANGDON and BRENDA JANE LANGDON
(Fourth Applicants)
and
CLARK ESPIE and SUSAN ESPIE
(Fifth Applicants)
and
GEORGE MASEN
(Sixth Applicant)
and
REGINALD ALVIN LAWRENCE and ROBYN DAWN LAWRENCE
(Seventh Applicants)
and
KENNETH THOMAS
(Eighth Applicant)
and
FELICITY HEATHER BENN
(Ninth Applicant)
and
GRAEME LAKE and DESIREE LAKE
(Tenth Applicants)
and
GARY EDWARD SCOTT and MARILYN KAY SCOTT
(Eleventh Applicants)
and
JANETTE ANN EVERITT
(Twelfth Applicant)
and
A & G DI BELLA INVESTMENTS PTY LTD ACN 010 437 895
(Thirteenth Applicant)
and
MARTIN CORPORATION (NQ) PTY LTD ACN 055 457 586
(Fourteenth Applicant)

v
PORT HINCHINBROOK SERVICES LIMITED ACN 081 055 414

(First Respondent)

and
THE PASSAGE HOLDINGS PTY LTD ACN 602 422 891
(Second Respondent)
and
IAN EDWARD STEPHENS
(Third Respondent)
and
LEWIS IRVING COHEN
(Fourth Respondent)
and
STEPHAN PINTO
(Fifth Respondent)

FILE NO/S:

SC Cairns No 78 of 2017

DIVISION:

Trial

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court of Queensland at Cairns

DELIVERED ON:

25 May 2017

DELIVERED AT:

Cairns

HEARING DATE:

7 April 2017

JUDGE:

Henry J

ORDERS:

(1)   It is declared that clause 17.1 of the deed of company arrangement dated 11 March 2016 is void and of no effect.

(2)   I will hear the parties further on 7 June 2017 at 9.15am as to:

(a) the appropriate form of declaration or other order arising from the finding of non-compliance with s 201A(2);

(b) the appropriate form of order in connection with the injunctions granted on 24 February 2017; and

(c) costs.

CATCHWORDS:

CORPORATIONS – VOLUNTARY ADMINISTRATION – DEEDS OF COMPANY ARRANGEMENTS – GENERALLY – POWER TO AMEND THE CONSTITUTION – Whether there is an implied power that a deed of company arrangement may be a mechanism for constitutional amendment – where court held deed of company arrangement could not amend constitution

CORPORATIONS – VOLUNTARY ADMINISTRATION – DEEDS OF COMPANY ARRANGEMENTS – GENERALLY – LIMITS TO POWER – Where applicants contend clauses within deed of company arrangement are void – where court held that powers conferred by the deed of company arrangement take precedence over members’ powers

CORPORATIONS – VOLUNTARY ADMINISTRATION –ADMINISTRATOR’S POWERS – APPOINTMENT OF DIRECTORS – EFFECT OF DEED OF ARRANGEMENT
– Whether an administrator has the power to appoint a director under s 422A of the Corporations Act 2001 (Cth) that would not be eligible for appointment as director under constitution – where held that power of appointment of directors under s 422A is broader than powers under constitution

Corporations Act 2001 (Cth) ss 136(2), 137,
140(1), 201A(2), 232, 233(1)(b), 437A, 437A(1)(c) 437A(1)(d), 437F, 442A, 444G, 606 and 611

Corporations Regulations 2001 (Cth) sch 8A

Andrews v Qld Racing Ltd [2009] QSC 338, distinguished
Kirwan v Cresvale (2002) 44…

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Details
Case
[2017] QSC 92
Decision Date

CaseChat Overview and Summary

The case of Scott v Port Hinchinbrook Services Limited involves the validity of certain provisions of a deed of company arrangement (DOCA) and its impact on the constitution of Port Hinchinbrook Services Limited (PHS). The primary legal issues revolve around whether the DOCA could serve as a mechanism for constitutional amendment, the scope of the powers conferred by the DOCA, and the legitimacy of certain appointments made under the DOCA. The Court had to determine if the DOCA could amend the company's constitution, whether the powers conferred by the DOCA took precedence over members' powers, and if an administrator had the authority to appoint a director who would not otherwise be eligible under the company's constitution.

The Court ruled that the DOCA did not have the power to amend the constitution. It held that the powers conferred by the DOCA took precedence over members' powers. Specifically, the Court found that the DOCA did not confer on the administrator the power to amend clause 3(d) of the constitution or to amend the constitution under clause 17.1. Consequently, clause 17.1 was declared void and of no effect. The Court further found that while clause 17.3 was valid, it no longer conferred any power on Passage because Williams Corporation, the party entitled to exercise a vote under the constitution, was no longer so entitled. Additionally, the Court determined that the administrator did not have the power to appoint a director under s 422A of the Corporations Act 2001 if the appointment would not be eligible under the company's constitution. However, it found that the power of appointment under s 422A was broader than the powers specified in the constitution.

The final orders declared clause 17.1 of the DOCA void and of no effect. The Court scheduled a further hearing to determine the appropriate form of order in connection with the injunctions granted, the consequences of non-compliance with s 201A(2) of the Act, and to address costs. The Court did not consider it appropriate to order the winding up of PHS as presently informed.

Orders

Orders of the court

(1) It is declared that clause 17.1 of the deed of company arrangement dated 11 March 2016 is void and of no effect.

(2) I will hear the parties further on 7 June 2017 at 9.15am as to:

(a) the appropriate form of declaration or other order arising from the finding of non-compliance with s 201A(2);

(b) the appropriate form of order in connection with the injunctions granted on 24 February 2017; and

(c) costs.

Background

Background to the litigation

The legitimacy of the deed’s important provisions is in dispute. Declarations are sought about that and related issues.BackgroundEstate Ownership Port Hinchinbrook Resort (“the estate”) is a residential estate, including a canal and marina, near Cardwell at the northern end of the Hinchinbrook Channel. The estate was owned and developed by Cardwell Properties Pty Ltd which later became named Williams Corporation Pty Ltd (“Williams Corporation”). Williams Corporation sold residential land within the estate to the public, retaining ownership of the balance of the estate including its common areas. Williams Corporation went into provisional liquidation in around June 2013. In 2015 the second respondent, The Passage Holdings Pty Ltd (“Passage”), entered into an acquisition contract with Williams Corporation by its liquidators to acquire those parts of the estate owned by Williams Corporation. That included 25 lots of vacant commercial and park land, roads, a silt pond, the estate’s sewerage treatment plant, a dredge pond, the marina (on 2 lots), the canal (on 2 lots) and land with improvements, namely an administration building, restaurant, bar, offices, shops, swimming pool and tennis court. The acquisition contract completed on or about 26 September 2016.[1][1] Affidavit of Clive Scott filed 6 February 2017 ex p177.PHS and its constitution Responsibility for the maintenance and provision of roads, sewerage services and the like did not pass to the local council after the development stage.[2] Rather, that responsibility was assumed by the first respondent, Port Hinchinbrook Services Ltd (“PHS”), a public company limited by guarantee established on 17 December 1997. Williams Corporation had majority control of PHS under PHS’s constitution.[2] It appears the only services provided by the local council are garbage collection and potable water supply, per affidavit of Moira Carter filed 8 March 2017 ex p58. Clause 4(b) of the constitution requires the Board to approve any application for membership of the company, provided that “a person shall not be entitled to become registered as or remain as a member” without also being a registered proprietor of estate property. The constitution provides for two classes of membership: special member and full members. The sole special member is identified in the constitution as Cardwell Properties Pty Ltd which, it is common ground, is Williams Corporation. Under clause 12.1B of the constitution, the special member has 76 per cent of the votes capable of being cast.[3] [3] Clause 12.1B. As to full members, PHS’s constitution provides that persons who acquire an interest in land in the estate shall be admitted on application to full membership of PHS.[4] It appears to have been a condition of the initial sales of land that purchasers made application for membership. The constitution requires members who sell their property interest to include in the contract for sale a condition that the purchaser apply for full membership. By this requirement it appears to have contemplated that all owners in the estate would be members of PHS and thus be obliged to make financial contributions to it. [4] Clauses 3(e) and 4(b).

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The seeking of this order appears to have been premised on the possibility of the complete invalidation of all of clauses 17.1 to 17.4. However, the applicants only enjoyed mixed success on that front. The course intended by the deed administrator in consequence of the mixed result is not known to the court at this time. It is inappropriate for the court as presently informed to order PHS be wound up. Conclusion In summary my findings are:(1) Ms Carter entered into the DOCA at a time when she still held the power conferred by s 442A to appoint directors.(2) Ms Carter was not confined only to appointing members of PHS as directors.(3) PHS did not have the power to validly appoint Mr Hutchen.(4) The combination of directors appointed by Ms Carter does not comply with s 201A(2) of the Act. The parties should be further heard as to the appropriate form of relevant declaration or order.(5) The power did not exist for the DOCA at clause 5.1(b) to confer a power in the administrator to amend clause 3(d) of the constitution or at clause 17.1 to amend the constitution. Clause 17.1 should be declared void and of no effect.(6) Williams Corporation did not give the consent required by clause 17.2. (7) Clause 17.3 is valid but, because Williams Corporation is no longer entitled to exercise a vote under the constitution, clause 17.3 no longer confers any power on Passage. It not appropriate to make a declaration that at any general meeting of PHS voting by Passage as special member in place of Williams Corporation is void and of no effect because it is conceivable the constitution may in the future be legitimately amended to permit such voting by Passage.(8) Clause 17.4 is valid.(9) Passage is presently a full member of PHS and thereby presently entitled to one vote only at any general meeting of the company. It is not appropriate to make a declaration to that effect because it is conceivable there may yet be legitimate constitutional amendment which has the consequence of conferring Passage with an entitlement to more than one vote.(10) The parties should be further heard as to the appropriate form of order in connection with the injunctions granted on 24 February 2017.(11) It is inappropriate for the court as presently informed to order PHS be wound up.Orders My orders are:(1)It is declared that clause 17.1 of the deed of company arrangement dated 11 March 2016 is void and of no effect.(2)I will hear the parties further on 7 June 2017 at 9.15am as to:(a) the appropriate form of declaration or other order arising from the finding of non-compliance with s 201A(2);(b) the appropriate form of order in connection with the injunctions granted on 24 February 2017; and(c) costs.

Ratio Decidendi

Legal Principle Established

The DOCA made further provision for constitutional change to clause 12.1B, the clause which gave the special member 76 per cent voting control. Clause 17 of the DOCA relevantly provides:“17. WILLIAMS CORPORATION VOTING POWER17.1 AmendmentsThe Constitution is amended such that the Guarantor is a party to the Constitution and Article 12.1B is deleted and replaced with the following:“The Passage Holdings Pty Ltd (ACN 602 422 891) as trustee for The Passage Holdings Unit Trust (“The Passage”) has such number of votes on a poll or on a show of hands as shall provide The Passage with seventy-six percent (76%) of the votes that are capable of being cast at the meeting.”17.2 Condition to be met prior to change in ConstitutionAny changes to the Constitution brought about by this Deed, as noted in clauses 5.1 and 17.1, are subject to and effective upon written consent to such amendment by either Williams Corporation or the registered proprietor of the land known as Lot 99 in SP 190029 being provided to the Company or Deed Administrator. Prior to such consent being obtained, Williams Corporation shall be entitled to the rights in Article 12.1B of the Constitution.17.3 AcknowledgementSubject to 17.2 above, The Guarantor will be entitled to and will have the power to exercise each vote that Williams Corporation is otherwise entitled to exercise pursuant to the Constitution, including without limitation its voting rights contained in Article 12.1B, and any such vote by the Guarantor is made on behalf of Williams Corporation as though Williams Corporation itself had voted in that manner.17.4 Members bound by DeedMembers consent to the Deed and appoint the Deed Administrator as their proxy and / or attorneys to vote and pass resolutions to give effect to the terms of the Deed and to vote for any changes required to the Constitution to ensure that the proposed amendment to Article 12.1B is implemented.” (emphasis added)Events Prompting this Application By 2 February 2017 it must have been thought the DOCA had not had the effect of conferring 76 per cent of voting rights on Passage and that its appointment of new directors required the ratification of members. By an email to its members of 3 February 2017, one of the directors purportedly installed by the DOCA gave notice dated 2 February 2017 of an Annual General Meeting scheduled for 6 March 2017, which included notice of three resolutions to be put to the meeting, namely:“Resolution 1 – Amendment of Existing Constitution …That the existing Constitution of the Company be amended such that Article 12.1B is deleted in its entirety and replaced with “The Passage Holdings Pty Ltd (ACN 602 422 891) as trustee for The Passage Holdings Unit Trust (The Passage) as such number of votes on a poll or on a show of hands as shall provide The Passage with seventy-six percent (76%) of the votes that are capable of being cast at the Meeting”, with the effect immediately from the passing of the resolution.Resolution 2 – Adoption of New Constitution …That the new constitution of the Company in the form annexed to this Notice be adopted as the constitution of the Company in substitution for and to the exclusion of the Company’s existing constitution, with effect from the close of the Meeting.Resolution 3 – Ratification of the Appointment of Directors …That the appointment of Mr Ian Stephens, Mr Lewis Cohen and Mr Stephan Pinto as directors of the Company with effect from 11 March 2016 by the Deed Administrator under the power exercised pursuant to section 442A of the Corporations Act 2001 be ratified.”