Spagnolo v Parramatta Leagues Club Ltd

[2023] NSWSC 112

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Spagnolo v Parramatta Leagues Club Ltd [2023] NSWSC 112

Hearing dates:

3 & 9 February 2023

Date of orders:

22 February 2023

Decision date:

22 February 2023

Jurisdiction:

Equity

Before:

Slattery J

Decision:

Interlocutory relief refused. Costs reserved. Proceedings referred into the expedition list for management by the expedition judge

Catchwords:

EQUITY - Equitable remedies – Injunctions – interlocutory injunctions – plaintiff is a member of a public company, the defendant, that owns and operates a rugby league team competing in the national rugby league competition – the defendant did not permit the plaintiff to stand for election to the board of the defendant at the 2022 AGM of the defendant held in February 2022 – the plaintiff brings proceedings in August 2022, contesting the defendant’s decision that he was ineligible under the defendant’s Constitution from standing for election to the defendant’s board at the 2022 AGM – defendant files defence – the plaintiff seeks interlocutory injunction before the 2023 AGM restraining the defendant from treating him as ineligible for election to the board and seeking an urgent final hearing – whether there is a serious question to be tried – discretionary considerations of the balance of convenience – consideration of the plaintiff’s delay in commencing proceedings and bringing them on for hearing is a discretionary factor in the grant or withholding of interlocutory relief.

Legislation Cited:

Corporations Act 2001 (Cth), ss 9, 201M

Gaming and Liquor Administration Act2007

Registered Clubs Act 1976, Part 6A, s 57H, s 57H(2)(g)

Supreme Court Act 1970, s 66(4)

Cases Cited:

Andrews v Queensland Racing Limited (2009) 74 ACSR 538

Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199

Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57

Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618

Beese(Managers of Kimpton Church of England Primary School) v Woodhouse [1970] 1 All ER 769

Francome v Mirror Group Newspapers Ltd [1984] 1 WLR 892

Harding v University of NSW [2002] NSWCA 325

Line Nathan Pty Ltd v Coopers Brewery (2006) 156 FCR 1

McCarty v Council of the Municipality of North Sydney (1918) 18 SR (NSW) 210

NSW Rugby League Ltd v Australian Rugby League Commission Ltd [2022] NSWSC 570

Rivers v Bondi Junction Waverly RSL Sub Branch Ltd (1986) 5 NSWLR 362

Texts Cited:

JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed 2014, LexisNexis Butterworths) at [21–350]

Category:

Consequential orders

Parties:

Plaintiff: Roy Spagnolo
Defendant: Parramatta Leagues Club Ltd ACN 000
218 655

Representation:

Counsel:
Plaintiff: D. McLure SC; Q.M. Noakhtar
Defendant: J. Entwisle; L. Moussa

Solicitors:
Plaintiff: Bryan Belling, Belling Legal
Defendant: John de Mestre, John de Mestre & Co Pty Ltd

File Number(s):

2022/251414

Publication restriction:

No

Judgment

1. The plaintiff, Mr Roy Spagnolo commenced these proceedings against the Parramatta Leagues Club Ltd (“the Club”) by a statement of claim filed on 24 August 2022. Mr Spagnolo is a full member of the Club. Mr Spagnolo’s pleading sought a declaration that he was not ineligible to stand for election or be appointed to or to hold office as a member of the governing body of a registered club.

2. The declaration was sought because on 15 February 2022 the Club had communicated to Mr Spagnolo that he was ineligible to stand for election to the board, because of an August 2015 determination made by the Independent Liquor and Gaming Authority (ILGA), a corporate body constituted under the Gaming and Liquor Administration Act2007. ILGA exercises supervisory, investigative, disciplinary jurisdiction over complaints made under the Registered Clubs Act 1976, Part 6A, the nature of the complaint made against Mr Spagnolo. By the end of 2022 these proceedings remained undetermined.

3. With the Club’s 2023 AGM approaching on 28 February 2023, the Court granted leave to Mr Spagnolo on 3 February 2023 to file a motion in the duty list of the Equity Division, seeking relief to (1) amend his pleading to raise issues about his exclusion as a candidate for election to the board at the 2023 AGM, (2) for an injunction restraining the Club from asserting to its members that Mr Spagnolo was ineligible to be appointed as a director of the Club, and (3) for an urgent final hearing be held prior to the 2023 AGM on 28 February.

4. In these reasons the Court finds there is a serious question to be tried in Mr Spagnolo’s challenge to the Club’s determination that he is ineligible to stand for election as a member of the board of the Club. But the Court declines to grant the interlocutory relief sought on discretionary grounds, because of Mr Spagnolo’s delay in filing and in bringing these proceedings on for hearing, despite the Club’s earlier delay in responding to Mr Spagnolo’s request for reasons for contending he was ineligible to stand for election.

5. Mr D. McLure SC leading Mr Q.M. Noakhtar of counsel instructed by Belling legal appeared for the plaintiff, Mr Spagnolo. Mr J. Entwistle leading Ms L. Moussa of counsel instructed by John David de Mestre appeared for the defendant Club.

6. Before considering the issues for judgment, the legal principles that apply to interlocutory hearings such as this are set out below.

Applicable Legal Principles – Interlocutory Judgments

7. The Court has power to grant interlocutory injunctions under Supreme Court Act 1970, s 66(4), on terms, if necessary, in any case where “it appears to the Court to be just or convenient”. The applicable principles in relation to the grant of interlocutory relief are discussed in more detail later in these reasons.

8. This is an interlocutory hearing, not a final hearing. The Court’s task is not to undertake a preliminary trial and to give or withhold interlocutory relief upon some forecast as to the ultimate result of the factual dispute between the parties, although the relative strengths of the parties’ cases are not irrelevant to the exercise of the Court’s discretion.

9. The Court’s task on an interlocutory hearing such as this one was well expressed by the English Court of Appeal in Francome v Mirror Group Newspapers Ltd [1984] 1 WLR 892; [1984] 2 All ER 408; (1984) 81 LSG 2225; (1984) 128 SJ 484 when Sir John Donaldson MR said (at 894H – 895A):

“The defendants now appeal. It is of paramount importance that everyone should understand the exercise upon which the judge was, and we are, engaged. There is to be a speedy trial at which the rights of the parties will be determined. That has not yet happened. We are concerned, so far as we can, to preserve the rights of the parties meanwhile. It is not our function to decide questions of fact or law which will be in issue at the trial. If they are arguable, that is the time and the place when they should be argued.”

10. Later in the same judgment his Lordship further explained the Court’s duty in following terms (at 898E-898G):

“What then should we do? I stress, once again, that we are not at this stage concerned to determine the final rights of the parties. Our duty is to make such orders, if any, as are appropriate pending the trial of the action. It is sometimes said that this involves a weighing of the balance of convenience. This is an unfortunate expression. Our business is justice, not convenience. We can and must disregard fanciful claims by either party. Subject to that, we must contemplate the possibility that either party may succeed and must do our best to ensure that nothing occurs pending the trial which will prejudice his rights. Since the parties are usually asserting wholly inconsistent claims, this is difficult, but we have to do our best. In so doing, we are seeking a balance of justice, not of convenience.”

11. In deciding whether to grant an interlocutory injunction the Court must consider whether there is a serious question to be tried and then whether the balance of convenience and questions of hardship and related factors warrant the grant of an interlocutory injunction. First, the plaintiff must prove a serious, not a speculative, case which has a real possibility of ultimate success and that property or other interests might be jeopardised if no interlocutory relief is granted: JD Heydon, MJ Leeming and PG Turner, Meagher, Gummow & Lehane’s Equity: Doctrines & Remedies (5th ed 2014, LexisNexis Butterworths) at [21–350] (“Equity Doctrines and Remedies”), discussing the requirements of Beecham Group Limited v Bristol Laboratories Pty Limited (1968) 118 CLR 618; [1968] ALR 469; (1968) 42 ALJR 80; [1968] RPC 301, the prima facie case test. Put another way, the plaintiff must show a sufficient likelihood of success to justify the preservation of the status quo pending the trial: Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; (2006) 229 ALR 457; (2006) 80 ALJR 1672; [2006] HCA 46 at [70] – [71].

12. Then, it becomes a matter of analysing if in all the circumstances of the case, considering the balance of convenience and issues of hardship, the Court should nonetheless exercise its discretion by declining to issue an interlocutory injunction: Equity Doctrines and Remedies at [21–350]; and see also Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199; (2001) 185 ALR 1; (2001) 76 ALJR 1; [2001] HCA 63 and Beese (Managers of Kimpton Church of England Primary School) v Woodhouse [1970] 1 All ER 769; [1970] 1 WLR 586. Other factors to which the Court will have regard include the adequacy of damages, the possibilities of alternative remedies, whether there has been any laches or delay, the strength of the grounds of defence suggested by the defendant, what, if any, undertakings the defendant is prepared to give, but hardship and the balance of convenience are very important: Equity Doctrines and Remedies at [21 – 375]. If any infringement of a plaintiff’s right between writ and hearing would be properly compensated in damages, that fact alone can, but not must, be a ground for declining an injunction: McCarty v Council of the Municipality of North Sydney (1918) 18 SR (NSW) 210; (1918) 35 WN (NSW) 85.

13. These reasons now set out a narrative of some limited facts relevant to the interlocutory issues. In such a hearing, the Court’s reasons cannot encompass all the relevant facts. Except where the facts are uncontentious, the Court’s narrative below should only be understood, and is mostly expressed, as a forecast of the kind of evidence that each party proposes to adduce at a final hearing.

Mr Spagnolo, the Club, and the 2023 AGM

14. Mr Spagnolo’s 3 February 2023 affidavit in support of his application details the history of his involvement in the Club prior to 2022. Much of that history is not relevant for present purposes.

15. Mr Spagnolo practised as a public accountant between 1985 and 2010. Since 2010 he has substantially ceased practising as a public accountant and has been engaged in property development.

16. Since his childhood Mr Spagnolo has been a passionate supporter of the Parramatta Eels rugby league team, which the Club owns. Between May 2009 and May 2013, he was a director of the Club and for much of that period Chairman of the Club. He has not been a director since then.

17. In 2014 a disciplinary complaint was made against the Club and several of its former officers including Mr Spagnolo, by the Office of Liquor Gaming and Racing in this State. An administrator was appointed to manage the affairs of the Club. ILGA determined the complaint in August 2015 in exercise of its jurisdiction under the Registered Clubs Act 1976.

18. This Court need not detail the particulars of the complaint or ILGA’s findings for the purposes of these reasons, other than to say that the particulars of complaint related to allegations of financial and procedural deficiencies in Mr Spagnolo’s administration of the Club’s affairs up to 2013. ILGA found that several of the particulars of complaint were not made out and characterised some of them as “technical”.

19. But ILGA found in its 2015 report (at [601]) that ground 12 was established against Mr Spagnolo and that he was,

“not a fit and proper person to be the member of the governing body of a registered club by reason that he has not demonstrated the degree of knowledge and skill that the authority would expect from a reasonably competent director of a club of this scale”.

20. This finding was especially based upon the Club’s failure in relation to Particular 12.3(c) about the requirement for prior board approval of the contracts of senior executives of the Club and also the failure in relation to the prior approval of certain commercial arrangements with the Club. ILGA noted (at [601]) and found that Mr Spagnolo,

“had the added responsibility of ensuring that regulated contracts came before the board for approval in accordance with the act. There is no basis for imputing Mr Spagnolo’s honesty.”

21. ILGA ultimately decided (at [725]) not to take further enforcement action against Mr Spagnolo, as he was was no longer a director of the Club. ILGA noted (at [714]) that Mr Spagnolo and none of the other ex-officers of the Club currently occupied “a regulated role at this club or any other club and has not done so for some period of time”. ILGA explained (at [714]) that were he serving on the board of the club that it would have taken action under s 75H of the Registered Clubs Act to remove him.

22. ILGA rejected (at [708] and [709]) the contention that this was an ineffective outcome. It reasoned that even a finding that an ex-director, such as Mr Spagnolo, was not fit and proper even for technical failings, would have consequences for that director’s reputation and would be considered by future electors to the governing body of any registered club. This ILGA finding appears at least to contemplate the possibility that Mr Spagnolo and other ex-directors affected by the August 2015 ILGA findings might perhaps one day stand for election to a registered club.

23. In January 2022 Mr Spagnolo was notified of the forthcoming 2022 AGM to be held on 27 March 2022. He nominated for election. On 15 February 2022 the Chief Executive Officer (CEO) of the Club, Mr Chris Dimou, wrote to him, informing him that he was not eligible to hold office because in August 2015 ILGA determined that he was “not a fit and proper person to be a member of the governing body of a registered club”. The Club invited him to withdraw his nomination by 18 February 2022.

24. The following day Mr Spagnolo’s solicitor, Belling Legal, wrote a detailed letter to the Club contesting the Club’s decision. Belling Legal referred to the findings of the ILGA about Mr Spagnolo in its 2015 report and concluded:

“It is not open to the present Club Administration to prevent Mr Spagnolo from standing in the upcoming election. To do so would be contrary to the express determination of the supervising authority ILGA, in the proceedings to which you refer.”

25. No response was received. Belling Legal wrote again on 18 February 2022 “in the interests of de-escalating any issues”. Referring to ILGA’s 2015 report (at [725]) Belling Legal argued that notwithstanding an ILGA finding that Mr Spagnolo and various other persons were “not fit and proper persons to be members of the governing body of a registered club” ILGA had decided to “take no further action with regard to them”. The letter concluded:

“These are matters Mr Spagnolo is entitled to escalate to the Returning Office for the upcoming election and indeed to ILGA. To that end can you please advise me by return, the identity of, and contact details for, the Returning Officer.”

26. No response was received. In the absence of a reply from the Club, Belling Legal sought in a follow-up letter on 28 February to have clarification of which part of clause 9.3 of the Club’s Constitution (a provision which provides for eligibility for election as a director) was the basis for the refusal to accept Mr Spagnolo’s nomination is a candidate for election.

27. All the letters written to the club at this point were addressed to its CEO, Mr Chris Dimou. It is regrettable that the CEO of the Club did not reply to these letters. Had he or another Club official done so, Mr Spagnolo would have been far better equipped to understand exactly why the Club took the view that he was not eligible for election to the board and to take every action to contest the Club’s position. But Mr Spagnolo’s 16 and 18 February 2022 letters show that he had inferred for himself, with the assistance of his lawyers, that the ILGA’s findings at [725] of the 2015 report were probably the basis of the Club’s decision that he was ineligible to stand as a director, although the precise reasoning to that conclusion was not clearly articulated to Mr Spagnolo.

28. In the result Mr Spagnolo did not stand for election at the 2022 AGM. The Club proceeded on the basis that he was ineligible to stand.

29. Belling Legal had still not received a reply from the Club by mid-May 2022, so Belling Legal wrote what it described as “an open letter” on behalf of Mr Spagnolo to the Chairman of the Club, Mr Greg Monaghan on 13 May 2022. This letter referred to the previous unanswered correspondence and complained that they had not had “the courtesy of a reply” to any of the letters. The letter then proceeded as follows:

“Whilst Mr Spagnolo was entitled to move the Supreme Court of New South Wales for a declaration and consequential relief which in its effect may have disrupted the March 20 222 election I was instructed not to take that step because of the costs and inconvenience to the club. My instructions were to allow the election to run its course and in due course, and if the matter was not remedied to seek a declaration to the intent that Mr Spagnolo was entitled to stand and run and absent proper reasons consistent with the Club’s constitution and due process he remained so entitled.

The purpose of this open letter is to afford the Club an opportunity to justify its reasons for disentitling Mr Spagnolo, absent proper and acceptable reasons, or an accommodation into the future ensuring Mr Spagnolo’s rights, proceedings will be issued.

In the event I do not receive a response satisfactory to Mr Spagnolo by 27 May 2022 I have Mr Spagnolo’s peremptory instructions to prepare and issue proceedings, including without further notice.”

30. Given the lack of reply to any of the prior correspondence this letter was appropriately calibrated to the circumstances. The declaration made by Belling Legal that the firm had instructions to commence proceedings can be accepted. But once the self-imposed deadline of 27 May passed Mr Spagnolo did not commence proceedings for another three months. And when he did commence proceedings he did not immediately seek expedition, a facility provided by the Court to fast-track cases such as this.

31. The deadline that Belling Legal imposed was a sensible one. It represented a practical endpoint by which Belling legal predicted it would need to commence proceedings if it realistically wanted to secure an expedited hearing in time before another AGM of the Club held in February – March 2023.

32. Belling Legal’s letter of 13 May prompted the following email reply from Mr Monaghan on 20 May, in which Mr Monaghan played a very straight bat to all Belling Legal’s correspondence:

“Dear Mr Belling,

Thank you for your letter.

No discourtesy was intended by my not replying to earlier correspondence. We did receive separate correspondence both from yourself and Mr Spagnolo, to which I was copied.

Chief Executive Chris Demo responded as appropriate on behalf of the club.

On the issue you raise, the board made its decision based on the facts of the situation and in the best interest of members, as it always does.

Nothing has arisen to change the board’s position.”

33. Any discourtesy arising from the Club issuing such a blandly uninformative letter in response to a challenge to the Club’s governance was unlikely to be mitigated by declaring that “no discourtesy was intended”. Nevertheless, Belling Legal must have known by 20 May that a contest was probable, even though the Club’s reasons for its position were inscrutable.

33. Belling Legal and Mr Spagnolo did not receive any further correspondence from or on behalf of the Club before commencing proceedings on 24 August 2022. Mr Monaghan’s 20 May email obliquely refers to other correspondence with Mr Spagnolo. If that correspondence took place the Club did not seek to put it into evidence on this application or to contest Mr Spagnolo’s contention that his correspondence had gone unanswered for 3 months.

34. Mr McLure SC argued that Mr Spagnolo’s delay in commencing proceedings between February and August 2022 is to be explained because it was prudent not to take on the risk of proceedings in the Supreme Court without exhausting inquiries about the Club’s reasons for its position.

35. This argument is sound as far as it goes. But at best it only accounts for delay up to the end of May 2022. Belling Legal chose to set the deadline of 27 May for a reply. The deadline set was objectively reasonable to conclude proceedings in time for the next AGM in 2023. The passing of this deadline should have been treated as a trigger for action to launch these proceedings.

36. Moreover, without the benefit of any further correspondence from the Club, Belling Legal were able to craft the well-pleaded statement of claim that was filed on 24 August 2022 to raise the issues for trial.

37. Eventually the Club’s defence filed in these proceedings in November 2022 revealed more about why it said Mr Spagnolo was ineligible to stand as a director. The issues raised by it are discussed below.

38. The Club gave preliminary notice of the 28 February AGM on 27 December 2022. This is followed up by our formal notice of AGM dated 2 February 2023 which was ready to be mailed out to members of the Club at the time the present motion was filed. That notice provided (in agenda item 8) for a declaration of the election to the Board of Directors in accordance with the Constitution. The club set out a timetable of the steps needed to be taken to prepare for the AGM. Voting online is to occur between 6 and 23 February 2023 so they can be tallied before the declaration of the ballot at the AGM. The Club has spent approximately $228,000 in preparation for the AGM, although some of that sum would no doubt be saved if the meeting or part of the meeting were deferred.

39. Mr Entwistle described Mr Spagnolo’s failure to commence proceedings as a “self-inflicted” disadvantage. This is too harsh, given the Club’s early adoption of a sphinxlike posture in response to correspondence addressed to it. But it is valid to some extent: proceedings should have been commenced at the latest by the first half of June 2022 accompanied by a motion to make use of this Court’s expedition list to ensure that the matter was determined by year’s end.

40. Mr Spagnolo’s case is prepared, and his evidence is ready for an urgent final hearing. If that cannot be granted he seeks an interim injunction restraining the Club from asserting to members that he is ineligible for election as a director. The present hearing concerned whether an urgent final hearing should be granted and alternatively whether the injunction sought should be granted.

41. The parties were at odds about the scope of the final hearing. Mr Spagnolo’s legal representative said the only affidavit to be read on a final hearing was his affidavit of 3 February 2023. Mr Spagnolo contends the issues in dispute are narrow and uncomplicated questions of the construction of the Club’s Constitution, leading to a final hearing of no more than half a day. Mr Spagnolo submits that this should be able to be accommodated before the proposed AGM on 28 February.

42. The Club has a broader view of the forthcoming hearing. It submits it requires a proper opportunity to respond to that evidence and file affidavit evidence in support of its Defence. The affidavit of Mary-Ann de Mestre dated 7 February 2023 outlines that defence evidence. The Club wishes to adduce evidence as to the background and purpose of the amendments made to the Constitution in 2019, including from the former administrator of the Club appointed by the IGLA and upon the governance issues that led to the insertion of clause 9.3 into the Club’s Constitution. The Club submits that such evidence is admissible as evidence of the surrounding circumstances against which the Constitution should be construed: Line Nathan Pty Ltd v Coopers Brewery (2006) 156 FCR 1; 236 ALR 1436; [2006] FCAFC 144 at [55], [124] and [240].

43. The Club also proposes to adduce evidence of the steps it is taking to strengthen its governance following Mr Spagnolo’s attempt at nomination, including the introduction of by-laws and further amendments to its Constitution to clarify the eligibility criteria for election to the board. The Club submits this is relevant evidence because the remedies Mr Spagnolo seeks at a final hearing are discretionary and the utility of the orders sought are a relevant factor: Harding v University of NSW [2002] NSWCA 325 at [94].

44. The Club provided an outline of evidence of the Chairman of the Club, Mr Greg Monaghan, and of Mr Max Donnelly, the former Administrator of the Club appointed by ILGA, in support of its contentions to explain the nature of this evidence in more detail.

45. The Club submits that it will require three weeks to prepare that evidence. There can be argument about the extent to which such evidence can be considered by a Court at final hearing. But it is difficult to contest that such evidence is arguably relevant and that it may take up to three weeks to prepare.

46. The Court accepts the Club’s submission that issues of the construction of the Constitution and the discretionary factors for and the utility of granting final relief may take some considerable time at a final hearing. Added to those two issues will be the need to construe the Constitution and examine the findings of the ILGA.

47. It can be objectively anticipated that, as presented by the Club, those issues are likely to be controversial and may take up to one day. The outline of anticipated evidence that might be given by the Club’s Chairman, Mr Monaghan discloses the following on these two subjects.

1. As to construction of the Constitution, Mr Monaghan says that the introduction of the director eligibility criteria “was intended to prevent directors like the plaintiff from assuming the role of director in the future”, apparently providing for a ban of indefinite duration.

2. As to the discretionary factors for and the utility of granting final relief, Mr Monaghan says that initiatives of the Club’s Corporate Governance Committee are to introduce by-laws, which if passed will have the effect of preventing nominations by or on behalf of directors who held that role with the defendant club prior to the ILGA appointing the administrator, also apparently providing for a ban of indefinite duration.

49. Robust opposition to arguments construing the present Constitution this way and questioning the fairness and utility of such proposed amendments can be anticipated. Counter arguments are likely that the underlying theme of the Club’s various arguments is to provide an effective lifetime ban on Mr Spagnolo for events in which he was involved as a director prior to 2013, some 10 years ago. Mr Spagnolo may for example argue that if he had remained a director of the Club when ILGA’s report came down in August 2015 and if ILGA had then decided to make a declaration of his ineligibility to stand for election or appointment under Registered Clubs Act1976, s 57H(2)(g) he would have faced a maximum ban by ILGA of only 3 years.

Consideration:

50. Serious Question to be Tried. There is undoubtedly a serious question to be tried at a final hearing of these proceedings. Mr Entwistle advanced the contentions that he would put to final hearing. But he was not able to demonstrate that Mr Spagnolo’s case was not reasonably arguable.

51. It is sufficient for present purposes to briefly summarise the main point Mr McLure SC foreshadowed would be advanced at a final hearing and the Club’s response to it.

52. Mr Spagnolo argues that the Club’s grounds for determining that he is ineligible to be a director of the Club are not available grounds upon the proper construction of the Club’s Constitution. The Club contends in its defence that ILGA’s August 2015 decision renders Mr Spagnolo ineligible for election to the board of the Club by reason of the operation of the Club’s Constitution, clause 9.3, a provision which provides for eligibility for election as a director. The Club points to three provisions of clause 9.3 in support of this argument, clause 9.3 (c), (f) and (l).

53. In paraphrase clause 9.3 states that to be appointed as a director a person must fulfil 12 qualities, some of which are positive and some negative. The first of the relevant qualities relied upon here as being absent in Mr Spagnolo’s case is 9.3(c) that the person must not “at any time have been disqualified from managing a Corporation or been found liable for or admitted to an offence involving corporate or financial misconduct”. The next is clause 9.3(f) which relevantly provides that the person must have the following quality:

“(f) have not had a declaration made against them by ILGA, OLG or a court under the registered clubs act that they are ineligible to stand for election or to be appointed or to hold office in the position of secretary or member of the governing body of a registered club or been convicted by a court of an offence under the Registered Clubs Act (and in each case which has not been the subject of a successful appeal)

54. And the last is clause 9.3(l) is that the person must “not be a former employee of the company or PNRL where a court or other administered body has determined that the employee engaged in misconduct”.

55. In the preliminary argument that took place Mr Spagnolo appears to have a strong argument that clause 9.3(c) and (l) are inapplicable to him. Notwithstanding the contentions in the defence, the Court did not see any evidence on this hearing that either of them did apply.

56. The core argument was about the application of clause 9.3(f). To better understand that argument it is useful to have regard to the provisions of Registered Clubs Act, s 57H which provides further disciplinary powers of ILGA in relation to dealing with a complaint. It provides as follows:

“57H   Disciplinary powers of Authority

(1)   The Authority may deal with and determine a complaint that is made to it under this Part.

(2)   If the Authority is satisfied that any of the grounds on which the complaint was made apply in relation to the registered club or the person who is the secretary or member of the governing body of a registered  club, the Authority may decide not to take any action or may decide to do any one or more of the following--

(a)   order the club to pay a monetary penalty not exceeding 2,500 penalty units within such time as is specified in the order,

(a1)   order the person to pay a monetary penalty not exceeding 100 penalty units within such time as is specified in the order,

(b)   suspend the club's licence for such period as the Authority thinks fit,

(c)   cancel the club's licence,

(d)   suspend or cancel any authorisation held by the registered  club under this Act,

(e)   impose a condition on the club's licence or on any authorisation held by the club under this Act,

(f)   remove the person from office as the secretary of the club or as a m ember of the governing body of the club,

(g)   declare that the person or any other specified person is, for such period as is specified by the Authority, ineligible to stand for election or to be appointed to, or to hold office in, the position of secretary or member of the governing body (or both of those positions) of--

(i)   the club, and

(ii)   if the Authority so determines--all other registered clubs or such other registered clubs as are specified (or as are of a class specified) by the Authority,

(h)   appoint a person to administer the affairs of the club who, on appointment and until the Authority orders otherwise, has, to the exclusion of any other person or body of persons, the functions of the governing body of the club,

(i)   order the registered club or person to pay the amount of any costs incurred by--

(i)   the Secretary in carrying out any investigation or inquiry under section 35A in relation to the club or person, or

(ii)   by the Authority in connection with the taking of disciplinary action against the club or person under this section.

(3)   Any monetary penalty or costs ordered to be paid under subsection (2) are payable to the Secretary.”

57. Mr Spagnolo contends that ILGA expressly refrained in paragraph [725] of its report from making a “declaration” under s 57(2)(g). Instead of making such a declaration, Mr McLure SC submits on his behalf that ILGA decided “not to take any action” in the introductory words to s 57K(2), a submission which is consistent with the words used in paragraph [725] of ILGA’s report.

58. In the Court’s view this is a readily maintainable argument. Mr Entwistle put a contrary construction, namely that the word “declaration” in clause 9.3(f) can embrace a finding that a person is not fit and proper, such as the made in paragraph [725] of ILGA’s report without having to proceed to any other formality. Which of these arguments is successful will be the principal contest at a final hearing.

59. Mr Entwistle also argued on behalf the Club, based on its defence, that the Constitution is in its by-law making power in clause 20 given a charter for clarifying the eligibility for election of members who or former directors of the Club who have been found not to be fit and proper persons or who have engaged in misconduct. But Mr McLure SC on behalf Mr Spagnolo somewhat neutralised this argument by pointing out with some force that clause 20 must operate subject to clause 9.3 and that an amendment to the Constitution would be required to change the fundamental argument between Mr Spagnolo and the Club about clause 9.3(f).

60. In summary the plaintiff, Mr Spagnolo, has demonstrated a serious question to be tried.

61. The Balance of Convenience. Mr Spagnolo’s primary contention of ordering an early final hearing before 28 February 2023 is neither a fair nor a realistic option here. Mr Spagnolo’s delay in commencing proceedings is weighty when considering whether the Court should attempt to give an early final hearing. The Court has a degree of scepticism about the relevance and admissibility in the range of evidence which the Club says it wishes to adduce at a final hearing, but the Court accepts that if that evidence is to be adduced it will probably take about as long to prepare and present as the Club says that it will.

62. The Court is reluctant to compress this timetable for the Club to prepare and present its evidence for a final hearing when the need for that compression has been largely occasioned by Mr Spagnolo’s delay in filing his statement of claim and in seeking expedition for these proceedings. If the statement of claim had been filed three months earlier in May or early June 2022 and one of the parties had filed a motion for the matter to be placed in the expedition list, it would have been heard and decided before the end of 2022. As it was, it proceeded at a more leisurely pace creating the current problem.

63. It was quite foreseeable at the conclusion of the 2022 AGM that the Club would probably take the same position about Mr Spagnolo’s eligibility at the 2023 AGM unless proceedings were commenced. So, the need for an urgent final hearing well before the 2023 AGM had been obvious for a long time.

64. The Court is not prepared to disadvantage the Club’s preparation for a final hearing by accelerating it now, when Mr Spagnolo has been tardy in seeking to vindicate his own rights, despite the Club’s own earlier delays. Moreover, even if an early final hearing and determination were possible the Club’s AGM may be disrupted because of a Court decision so close to the AGM date.

65. Mr Spagnolo puts several alternative contentions if an early final hearing is not possible. These contentions are to the effect that the balance of convenience favours the grant of interlocutory injunctive relief that the Club should not represent that he is ineligible for election until a final hearing takes place. The grant of such interlocutory relief would on effect require the AGM to be postponed until after the Court determine Mr Spagnolo’s eligibility for election as a director or would at least require postponing the election of the board. The balance of convenience does not favour taking either of these courses, which seem to be the only alternatives to holding an early final hearing which would declare in advance of the AGM whether Mr Spagnolo was eligible for election to the board. But the outcome for which Mr Spagnolo contends does not reflect the balance of convenience.

66. This is so for several reasons which flow from consideration of Mr Spagnolo’s submissions. First, Mr Spagnolo submits that should the meeting proceed, from standing from election, there is at least a substantial risk that the election would be held to have been invalid: Andrews v Queensland Racing Limited (2009) 74 ACSR 538; QSC 338 (“Andrews”) ([84] – [86]). Mr Spagnolo submits that a minimum a new election would need to be held.

67. This contention is not persuasive. If a Court hearing takes place after the 2023 AGM and Mr Spagnolo is subsequently found to have been eligible for election that does not mean the Club would be found not to have had a functioning board in the meantime. Failure to comply with an election process does not automatically lead to invalidity of the election results. Rather, the election is treated as valid unless the Court determines otherwise in proceedings brought by a person with standing to contest the outcome of the election: NSW Rugby League Ltd v Australian Rugby League Commission Ltd [2022] NSWSC 570 (“NSWRL”) at [46]. And whether the election is declared invalid would depend upon whether the contravened provision of the Constitution is construed to have such an effect: see Rivers v Bondi Junction Waverly RSL Sub Branch Ltd (1986) 5 NSWLR 362; 10 ACLR 482 at 369 pre Kirby P.

68. But even if a future court were to decide that the election of directors at the 2023 AGM were invalid and the other directors were not validly elected to the positions they assumed following the AGM because of Mr Spagnolo’s exclusion, it still does not follow that the Club would not have a currently functioning board after the 2023 AGM, able to form a quorum and otherwise fulfil the duties of a board of directors. This follows from Corporations Act 2001 (Cth), s 9, definition of a “director”, paragraph (b)(i), which states that unless a contrary intention appears a “director” includes “a person who is not validly appointed as a director if…they act in the position of a director”. As Ball J explained in the NSWRL at [47] one consequence of the application of this definition is that a person who acts as a director of a company owes the duties imposed by the Corporations Act and the act of such a person are, in the role of a director, effective despite the invalidity of their appointment: Corporations Act, s 201M.

69. Thus, determining whether Mr Spagnolo was validly excluded from standing for election to the board of the Club after the 2023 AGM will not lead to any disruption of the conduct of the affairs of the Club other than the possible need to hold a fresh election. But as an early final hearing cannot be given before 28 February, the risk of the wasted costs of holding a re-run of the election of the board at the 2023 AGM must be faced. But the risk of incurring those costs is largely unchanged from the time that these proceedings were first commenced. Had the proceedings been heard earlier and the 2022 AGM declared invalid, a fresh election may have had to be held. That remains the case for the 2023 AGM.

57. Argument was put on behalf of Mr Spagnolo that it would be unjust that he has not been able to stand for election if he were eligible to do so. But that factor is somewhat balanced by the Club’s argument that it would cause injustice to the eligible candidates who are standing to delay the AGM. This seems to be a neutral factor in the Court’s consideration.

Conclusion and Orders

71. For these reasons Mr Spagnolo’s motion will be dismissed. This is the outcome notwithstanding that Mr McLure SC and Ms Noakhtar and those that instruct them have argued Mr Spagnolo’s interlocutory application to its best advantage.

72. The arguments put on both sides indicate that this matter should now be given priority in the Equity Division’s lists so that the issue of Mr Spagnolo’s eligibility for election to the board of the Club is determined well before the Club’s 2024 AGM early next year. For that reason, the Court will refer it into the expedition list for management by the expedition judge. The degree of expedition it may be afforded is a matter for the discretion of the expedition judge considering other matters competing for expedition.

73. The 2023 AGM may need to be told about the outcome of these interlocutory proceedings. The following statement of their effect should be sufficient. The Club contends that Mr Spagnolo is ineligible to be appointed as a director of the Club. But the Supreme Court has decided that there is a serious question to be tried about his eligibility for election to the board, a question which is yet to be finally determined by this Court.

74. It is not usual for the Court to make costs orders upon the grant or refusal of relief in interlocutory proceedings such as these. Accordingly, the Court will reserve the costs of this application. Those costs may in the end be awarded to the successful party in the proceedings. If any party contends for different cost order application can be made to my chambers within seven days. But such an application will be at that party’s risk as to costs.

75. For these reasons the Court makes the following orders and directions:

1. These proceedings are listed in the expedition list on Friday, 24 February 2023 or on such other date as the expedition judge may direct;

2. Costs are reserved; and

3. The plaintiff’s motion dated 3 February 2023 is otherwise dismissed.

**********

Amendments

22 February 2023 - [35], [57], [59], [71] - correction of senior counsel's name.

22 February 2023 - [5], [51] correction of senior counsel's name

Decision last updated: 22 February 2023