Weinstock v Beck

Case [2013] HCA 14

HIGH COURT OF AUSTRALIA

FRENCH CJ,
HAYNE, CRENNAN, KIEFEL AND GAGELER JJ

AMIRAM DAVID WEINSTOCK & ANOR  APPELLANTS

AND

TAMAR RIVQA BECK & ANOR  RESPONDENTS

Weinstock v Beck

[2013] HCA 14

1 May 2013

S266/2012

ORDER

1.Appeal allowed with costs.

2.Set aside orders 3 and 5 of the Court of Appeal of the Supreme Court of New South Wales made on 5 April 2012 and, in their place, order that:

(a)the matter be remitted to the primary judge, or such other judge as the Chief Judge in Equity might decide, to determine:

(i)whether an order should be made under s 1322(4)(a) of the Corporations Act 2001 (Cth) validating the purported appointment of Helen Weinstock as a director of LW Furniture Consolidated (Aust) Pty Ltd ("the Company") by Amiram Weinstock on 30 July 2003; and

(ii)whether the Company should be wound up; and

(b)the appellants pay 80 per cent of the costs of the appeal and cross-appeal to the Court of Appeal.

On appeal from the Supreme Court of New South Wales

Representation

D F Jackson QC with J O Hmelnitsky for the appellants (instructed by Baker & McKenzie Solicitors)

R G McHugh SC with D J Barnett for the first respondent (instructed by McCabes Lawyers Pty Limited)

No appearance for the second respondent

Notice:  This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.

CATCHWORDS

Weinstock v Beck

Corporations law – Management and administration – Directors and other officers – Appointment, removal and retirement of directors – Whether director validly appointed – Whether invalid appointment was "contravention" of company's constitution under s 1322(4) of the Corporations Act 2001 (Cth).

Words and phrases – "appointment of director", "contravention of the constitution", "invalid appointment".

Corporations Act 2001 (Cth), ss 1322(4), 1322(6).

FRENCH CJ.

Introduction

  1. There are decisions made and actions taken by directors, officers and members of corporations that depend for their legal effect upon powers conferred by the Corporations Act 2001 (Cth) ("the Corporations Act") or by the constitutions of the corporations or both. Sometimes, by reason of error or circumstance, a condition for the validity of such a decision or action is not met. Australian courts have long been empowered by companies legislation to make orders to overcome some of the inconvenient invalidities which can arise in such cases.

  2. The present appeal concerns the appointment, on 30 July 2003, of Mrs Helen Weinstock ("Helen") as an additional director of LW Furniture Consolidated (Aust) Pty Ltd ("LWC").  The appointment was made pursuant to Art 87 of the articles of the company.  It was made by Helen's husband, Amiram Weinstock ("Amiram"), acting as the sole director of the company.  As it turned out, although he had acted as a director for some thirty years, his appointment as a director had lapsed by operation of the articles at the annual general meeting on 31 December 1973.

  3. In proceedings in the Supreme Court of New South…

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AGLC
Weinstock v Beck [2013] HCA 14
Case
[2013] HCA 14
Decision Date

CaseChat Overview and Summary

The High Court of Australia heard an appeal concerning the validity of a director's appointment to LW Furniture Consolidated (Aust) Pty Ltd. The dispute arose from Amiram Weinstock's purported appointment of Helen Weinstock as a director on 30 July 2003. The core of the disagreement centred on whether this appointment was valid, particularly in light of the company's constitution and the provisions of the *Corporations Act 2001* (Cth).

The legal issues before the High Court included whether the purported appointment of Helen Weinstock as a director was invalid, and if so, whether such invalidity constituted a "contravention" of the company's constitution for the purposes of section 1322(4)(a) of the *Corporations Act 2001* (Cth). This section allows courts to validate certain procedural irregularities or contraventions of a company's constitution. The Court was required to interpret the meaning of "contravention" in this context and consider whether it extended to acts performed by a person who may not have been validly appointed as a director themselves.

The High Court allowed the appeal, holding that section 1322(4)(a) should be construed broadly and applied pragmatically, focusing on substance over form. The Court reasoned that the purpose of section 1322(4)(a) is to prevent innocent errors in corporate governance from unduly jeopardising the validity of decisions. It found that the term "contravention" should be interpreted widely to encompass actions that are "counter to" or in "conflict with" a company's constitution, not merely a strict infringement of a prohibition or non-compliance with an obligation. The Court determined that the Court of Appeal had erred in its narrower interpretation of section 1322(4)(a).

Consequently, the High Court set aside the orders of the Court of Appeal and remitted the matter to the primary judge. The primary judge was directed to determine whether an order should be made under section 1322(4)(a) to validate Helen Weinstock's purported appointment and also to consider whether the company should be wound up. The appellants were ordered to pay 80 per cent of the costs of the appeal and cross-appeal to the Court of Appeal.

Orders

Orders of the court

1. Appeal allowed with costs.

2. Set aside orders 3 and 5 of the Court of Appeal of the Supreme Court of New South Wales made on 5 April 2012 and, in their place, order that:

(a) the matter be remitted to the primary judge, or such other judge as the Chief Judge in Equity might decide, to determine:

(i) whether an order should be made under s 1322(4)(a) of the Corporations Act 2001 (Cth) validating the purported appointment of Helen Weinstock as a director of LW Furniture Consolidated (Aust) Pty Ltd ("the Company") by Amiram Weinstock on 30 July 2003; and

(ii) whether the Company should be wound up; and

(b) the appellants pay 80 per cent of the costs of the appeal and cross-appeal to the Court of Appeal.

Background

Background to the litigation

Article 86 provides that the quorum necessary for the transaction of the business of the directors may be fixed by the directors and unless so fixed shall be two. No quorum was ever fixed by the directors for LWC directors' meetings, so the default quorum was two. In appointing Helen, however, Amiram purported to act under Art 87, which provides:"The continuing directors may act notwithstanding any vacancy in their body, but if and so long as their number is reduced below the number fixed by or pursuant to the Articles of the Company as the necessary quorum of directors, the continuing directors or director may act for the purpose of increasing the number of directors to that number or of summoning a general meeting of the Company, but for no other purpose."The factual background It was common ground that upon LWC's incorporation on 30 April 1971, its issued share capital consisted of five "A" class shares, four of which were held by Leo and one by Mr Nagel, a solicitor who held it in trust for Leo. It was also common ground that on or about 1 April 1972 three "C" class shares were issued, one of them to Hedy, one to Tamar and one to Amiram[44]. [44]The share register showed eight "C" class shares allotted to Hedy in 1992. There was no minuted record of an allotment resolution. The precise number of "C" class shares allotted to Hedy was not in issue in this appeal. The cognate appeal in Beck v Weinstock [2013] HCA 15 proceeded on the basis that eight "C" class shares were held by Hedy at the time of her death. Leo and Hedy continued in office beyond the first annual general meeting, which was held on 30 October 1972, and were in office as directors on 29 June 1973. The minutes of LWC record a meeting, held on that date, designated as an "extraordinary general meeting of shareholders", at which Leo and Hedy were present. The minutes record the passing of a special resolution:"That Tamar Beck and Amiram David Weinstock be appointed Directors and they shall hold office until the holding of the next Annual General Meeting of the Company." In the winding-up application Tamar challenged the competency of the meeting of 29 June 1973 on the basis that the only relevant power of appointment rested with the directors under Art 69. Barrett J held, and it is not now in dispute, that although Leo and Hedy chose, perhaps on the basis of wrong advice, to depict their decision as effected by a special resolution at an extraordinary general meeting, it was effective under Art 69 as a decision made by them as directors[45]. Tamar and Amiram thereby became directors on the basis stated in that Article—that is to say that they were to hold office "only until the next following annual general meeting". The next annual general meeting was on 31 December 1973. As Barrett J found, Art 69 had the effect that neither Tamar nor Amiram continued as a director beyond the time at which that annual general meeting commenced[46]. [45][2011] NSWSC 235 at [51]–[54].[46][2011] NSWSC 235 at [103].

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

FRENCH CJ (dissent) HAYNE, CRENNAN AND KIEFEL JJ (dissent) GAGELER J (dissent)
His Honour made a declaration that:"the proceeding purporting to have been taken on 30 July 2003 by which Amiram David Weinstock purported to act as a director of LW Furniture Consolidated (Aust) Pty Ltd and in that capacity to appoint Helen Weinstock to be a director of that company is not invalid by reason of the contravention of the provision of the constitution of that company consisting of non-observance of the requirement that such proceeding be taken only by a person in office as a director by virtue of valid appointment or election as such."The decision of the Court of Appeal The majority judgments in the Court of Appeal concerning the application of s 1322(4)(a) were delivered by Young JA and Sackville AJA. Young JA held that in order for s 1322(4)(a) to apply there must be a contravention of the constitution of the company done either by infringing or failing to take advantage of one of its provisions[59]. Section 1322(4)(a) could only apply to validate an impugned action which could be done validly under the Corporations Act or under the constitution of the company[60].[59](2012) 265 FLR 60 at 110 [222].[60](2012) 265 FLR 60 at 110 [223]. Sackville AJA accepted that the term "contravention" was not limited to its orthodox meaning of "infringement"[61]. A failure to comply with the articles in taking steps that the company was not obliged to take could constitute a contravention[62]. However, Amiram's appointment of Helen as a director was not such a contravention[63]. There was no provision in the articles of LWC of which Amiram could have taken advantage in order to appoint Helen as a director[64]. Section 1322(4)(a) could not be applied to the purported act of someone who had never been validly appointed as a director and could not be so appointed[65]. His Honour said that none of the reported cases to which reference had been made involved an act by a person who, although a de facto director, could not be appointed as a director because there was no mechanism available to the company to achieve that result[66].[61](2012) 265 FLR 60 at 111–112 [232].[62](2012) 265 FLR 60 at 112 [232].[63](2012) 265 FLR 60 at 112 [233].[64](2012) 265 FLR 60 at 112 [236].[65](2012) 265 FLR 60 at 113 [239].[66](2012) 265 FLR 60 at 115 [249]. Campbell JA in dissent observed that s 1322(4)(a) was wider than the preceding sub-sections of s 1322[67]. All that was required for there to be a contravention of the constitution was "that something ha[d] happened that is different to what the constitution of the corporation requires."[68] His Honour held that the appointment of Helen was an act purported to have been done in relation to the company[69]. That characterisation was supported by the fact that Amiram had been a de facto director of the company within the meaning of s 9 of the Corporations Act[70]. As explained below, his Honour's approach was correct.[67](2012) 265 FLR 60 at 92 [139].[68](2012) 265 FLR 60 at 92 [139].[69](2012) 265 FLR 60 at 93–94 [147]–[148].[70](2012) 265 FLR 60 at 94 [150].

Ratio Decidendi

Legal Principle Established

Established by:

The single ground of appeal was:"The Court below erred in holding that the power under section 1322(4) of the Corporations Act2001 (Cth) was not exercisable in relation to the purported appointment of the second appellant as a director of LW Furniture Consolidated (Aust) Pty Limited … on 30 July 2003 by the first appellant".Consideration The outcome of this appeal is dictated by the construction of s 1322(4)(a), discussed earlier in these reasons, the constitution of LWC including its articles of association, also discussed earlier, and the basis of the invalidity attaching to Amiram's appointment of Helen as a director of LWC. Corporations, in contemporary Australian society, serve the purposes of enterprises, large and small, owned and operated by men and women, some of whom are sophisticated, knowledgeable and well-advised on matters of corporate governance and some, perhaps many, of whom are not. Section 1322(4) and related provisions reflect a long-standing legislative recognition that mistakes will happen in corporate governance and that it is not in the public interest that the validity of decisions made in relation to corporations be unduly vulnerable to innocent errors which may be corrected without substantial injustice to third parties. In accordance with its evident purpose, s 1322(4)(a) is to be construed broadly and applied pragmatically, principally by reference to considerations of substance rather than those of form. The dispensing power conferred on the Court by s 1322(4)(a) is not in the nature of a general absolution for all past errors. It does not authorise the making of an order declaring that an impugned act, matter or thing is valid. It allows a determination by the Court that the act, matter or thing done "is not invalid" by reason of a provision of the Corporations Act or a provision of the constitution of a corporation. The remedy may be sought by a party fearing or suspecting invalidity on such a ground or, as in the present case, to meet a contention of invalidity advanced by another party in adversarial proceedings. The effect of a declaration under the provision is limited to overcoming invalidity flowing from a particular contravention or contraventions. It could not be otherwise. It is only with respect to particular contraventions that the Court can reach the state of satisfaction required by s 1322(6). The term "contravention" is defined in the Macquarie Dictionary as[74]:"the act of contravening; action counter to something".It defines "contravene" as[75]:"1. to come or be in conflict with; go or act counter to; oppose. 2. to violate, infringe, or transgress".The notions of "conflict", "counter to" and "oppose" are broad. It is not only the evident purpose of s 1322(4)(a) but its field of operation which requires the broadest available construction of "contravention". It applies not only to contraventions of the Corporations Act but also to contraventions of company constitutions. Constitutions—including the "replaceable rules"[76] in the Corporations Act, which may be or form part of a company constitution—are typically concerned with membership rights, the establishment, operation, powers and procedures of governance structures, particularly general meetings and board of directors, and the qualifications, appointment, retirement and removal of directors. These are not generally provisions expressed in terms of obligation or prohibition. That is not to say that a company constitution may not impose obligations upon company officers to do certain things or require that they do not do other things. But the requirement that a contravention of a company constitution involve disobedience of a prohibition or non-compliance with an obligation would amount to an inexplicable limitation of the evident purpose of s 1322(4)(a).[74]Federation ed (2001), vol 1 at 421.[75]Federation ed (2001), vol 1 at 421.[76]Contained in a number of provisions of the Corporations Act set out in s 141 of that Act.