Western Ventures Pty Ltd v Resource Equities Ltd - [2004] WASC 222

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: WESTERN VENTURES PTY LTD -v- RESOURCE EQUITIES LTD [2004] WASC 222

CORAM: COMMISSIONER ZILKO SC

HEARD: 14 OCTOBER 2004

DELIVERED : 14 OCTOBER 2004

FILE NO/S: COR 334 of 2004

BETWEEN: WESTERN VENTURES PTY LTD (ACN 079 681 342)
Plaintiff
AND
RESOURCE EQUITIES LTD (ACN 067 748 109)
Defendant

Catchwords:

Corporations - Abridgement of time for notice of members' meeting - Directors' duty to adequately inform members of resolutions involving changes to members' rights in constitution

Legislation:

Corporations Act

Result:

Injunction and declaratory relief refused
Meeting adjourned to enable directors to properly inform shareholders of changes to constitution

Category: B

Representation:

Counsel:

Plaintiff: Mr M L Bennett
Defendant: Mr N W McKerracher QC

Solicitors:

Plaintiff: Bennett & Co
Defendant: Christensen Vaughan

Case(s) referred to in judgment(s):

Bain & Co Nominees Pty Ltd v Grace Bros Holdings Ltd (1983) 7 ACLR 777
Buttonwood Nominees Pty Ltd v Sundowner Minerals NL (1986) 10 ACLR 360
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452
Re Broadway Motors Holdings Pty Ltd (In Liq) (1985) 6 NSWLR 45

Case(s) also cited:

Howard v Mechtler (1999) 17 ACLC 632

COMMISSIONER ZILKO SC: By its application dated 12 October 2004 the plaintiff seeks orders as follows:
1)the time for service of the application be abridged;
2)there be a declaration that the purported notice of meeting issued by the defendant on 24 September 2004 in respect of a meeting of the defendant's shareholders to be held on 15 October 2004 is void and of no effect;
3)a permanent injunction be granted restraining the defendant by its servants, agents or otherwise from purporting to hold a general meeting of the defendant pursuant to the above notice.
The costs of the application are also sought.
Affidavits have been filed in support of and in opposition to the application. It is clear from those affidavits and the parties' submissions that there are four issues on which the plaintiff relies to support its application. The first is that inadequate notice has been given of the meeting, such that the recipients of the notice will have 17 or 18 days' notice rather than 21 days' notice as required under the Corporations Act. Second, there is a dispute as to whether the meeting is being convened in accordance with cls 13.3 and 13.6 of the constitution of the defendant. Third, in convening the meeting, the plaintiff contends that the defendant has failed to comply with its obligation to inform members as to the subject matter of the meeting, in particular resolution 5 which seeks the adoption of a fresh constitution without identifying in the notice of meeting the differences between the existing constitution and the proposed constitution. Finally, it is alleged there has been interference in the electoral process, as it is described, by reason of the defendant's facsimile number, as specified in the notice of meeting for receipt of proxies, not being operative for several hours during the evening of 12 October and the early morning of 13 October.
In order to grant an injunction, I must first decide whether there is a serious question to be tried. If so, I must then determine where the balance of convenience lies. In relation to the first issue, I am mindful of the fact that the court has power to abridge the period for doing any act, matter or thing pursuant to s 1322 of the Corporations Act. I will refer briefly to that if I may. Section 1322(2) provides as follows:
"A proceeding under this Act is not invalidated because of any procedural irregularity, unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceedings to be invalid."
Under s 1322(1)(b)(ii) a procedural irregularity includes a reference to a defect, irregularity or deficiency of notice or time. The other relevant provisions to which I wish to draw attention are s 1322(4)(d) and s 1322(6). Section 1322(4)(d) is in the following terms:
"Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:
...
An order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Act or in relation to a corporation ... or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding."
Section 1322(6) provides, inter alia, that:
"The Court must not make an order under this section unless it is satisfied that no substantial injustice has been or is likely to be caused to any person."
I have not referred to the other provisions of s 1322 because it seems to me that only s 1322(2) and (4)(d) are relevant for present purposes. In effect, I am being asked to abridge the time for giving notice of the meeting on 15 October 2004. Accordingly, the only matters that I need to concern myself with are that the time period in the notice is a procedural irregularity and that no substantial injustice has been or is likely to be caused to any person if the time period is abridged.
In relation to the application of s 1322, I refer to the decision of Re Broadway Motors Holdings Pty Ltd (In Liq) (1985) 6 NSWLR 45. I think it is tolerably clear that the decision therein supports the conclusion that a reference to a defect, irregularity or deficiency of notice or time in s 1322 includes a reference to a defect or irregularity in the issue of a notice of meeting.
I am not satisfied that the irregularity contended for by the plaintiff raises a serious question to be tried. The notice given was either 17 or 18 days rather than 21 days. I am prepared in all the circumstances of this case to abridge the period of time required to be given by the company in respect of the proposed meeting. In reaching that decision I take account of the fact that the evidence before me suggests the substantial majority of shareholders have responded to the notice by sending proxy forms to the defendant and that the percentage of shares reflected by those proxy forms is in the order of 90 per cent. I think that is a factor I must take into account in determining whether a substantial injustice has been or is likely to be caused to any person, as I am required to do under the Act. I am therefore not satisfied that any substantial injustice has been done or will be done if the time is abridged.
The second issue relates to the question of whether Mr Leon Carr should be required to offer himself for re‑election as a director of the company. It seems to be common ground that he need not do so if he has been validly appointed as the managing director of the defendant. In this regard cl 17.4 of the constitution is in the following terms:
"A Managing Director shall not retire by rotation in accordance with Article 13.3 but executive directors shall."
I have before me a copy of the minutes of a meeting of directors held on 25 May 2004. Those minutes relevantly state in par 11 thereof:
"Leon Carr also raised the amount of time he was having to spend on administration and day‑to‑day activities of Resource Equities Ltd. It was resolved that he would be acknowledged as Managing Director and Chairman of the company."
Those minutes have been signed. I also have before me minutes of a meeting held on 20 July 2004 which are said in an affidavit by Mr Purvis, a director of the defendant, to be the next meeting of directors, confirming that the minutes of the previous meeting, that is, the meeting held on 25 May 2004, were tabled and it was resolved to approve them as true and correct. The chairman signed them as a true record. The minutes of the 20 July meeting have also been signed by the chairman. As against this evidence Mr Richard Thomas, another director of the defendant, says in an affidavit that to his knowledge no resolution to appoint Leon Carr as managing director of the defendant was tabled for consideration, discussed or voted on at any of the meetings attended by him.
At first I thought this may have been a conflict on the affidavits which I was unable to resolve, but I have decided that it is not so. I am faced with minutes duly signed by the chairman which show Mr Thomas was present at the meeting on 25 May 2004 when the resolution was put and passed that Mr Carr be the Managing Director. Those minutes are prima facie evidence of the truth of their contents. I must then ask myself whether I have received conflicting evidence which is sufficient to displace the prima evidence before me. In my opinion, the evidence of Mr Thomas does not displace the prima facie evidence afforded by the minutes. Mr Thomas says that to his knowledge no resolution to appoint Mr Carr as managing director has been tabled for consideration or discussed at any of the meetings he has attended. It seems that the minutes of the meeting of 25 May, which Mr Thomas attended, were approved as a true and correct record of that meeting at the next meeting on 20 July which Mr Thomas also attended. This is supported by the evidence of Mr Purvis.
Although Mr Thomas refers to a meeting of directors on 6 July, he has not produced any evidence to support the existence of such a meeting. If the meeting had occurred as he says, it would have been a simple enough matter to produce his copy of the minutes of that meeting. In the absence of such evidence I am satisfied that there was a meeting on 25 May at which Mr Carr was appointed the managing director, despite the term "acknowledged" being used instead of "appointed", and that at the next meeting on 20 July the minutes of the earlier meeting were approved as a true and correct record. Accordingly, I am not satisfied that any serious question arises for consideration from the second issue raised by the plaintiff.
The third issue relates to whether the company has failed to properly inform members of the proposed resolution to adopt a new constitution. This is resolution 5 in the notice of meeting and explanatory memoranda sent to the shareholders. Resolution 5 says:
"To consider and if thought fit, to pass the following resolution as a special resolution: That the Constitution contained in the document submitted to this meeting and signed by the Chairman for identification purposes be approved and adopted as the Constitution of the Company from the close of this meeting in substitution for the existing Constitution of the Company."
The explanatory memorandum accompanying the notice has this to say:
"The Constitution currently used is for a company listed on the Australian Stock Exchange and is not applicable to this Company. Further, there have been many legislative changes to the Corporations Act since the original Constitution and because of these changes the Directors consider it appropriate to substitute the Constitution of the Company a new constitution has been provided that complies in all areas of these changes (sic)."
Whilst the second sentence is lacking grammatical correctness, the above explanation adequately describes what the purpose behind the resolution is. Moreover, these words are underneath the explanation:
"A copy of the new constitution is available upon request from the registered office of the Company and will be supplied at the Annual General Meeting."
There is nothing misleading as such about resolution 5 in the notice of meeting or the explanatory memorandum accompanying the notice. The law in this respect is well‑known. Directors, in stating in a notice of meeting a proposed item of business, must give information in fair detail as to what is actually proposed to be done at the meeting, and must do so in a manner that is not misleading: Bain & Co Nominees Pty Ltd v Grace Bros Holdings Ltd (1983) 7 ACLR 777; Fraser v NRMA Holdings Ltd (1995) 55 FCR 452. However, the authorities also suggest that there should be a statement which is sufficiently clear to enable shareholders to make a reasonably informed judgment whether to attend the meeting and the duty reposed in the directors is to provide not only the information which they think the members should have but also that information "which it would be obvious to the average commercial man in the street that they should have": Buttonwood Nominees Pty Ltd v Sundowner Minerals NL (1986) 10 ACLR 360 at 362.
The information must be information which is capable of being received and understood by an ordinary man or woman rather than somebody versed in share trading and share ownership. Was the explanatory memorandum sufficient to inform shareholders of the constitution? In my view it did not adequately advise them of the proposed changes by inviting them to obtain a copy of the proposed new constitution if they wished to do so.
Moreover, even that invitation falls short of the required duty to inform shareholders. Assuming that shareholders had indeed availed themselves of that opportunity, they may not have been any the wiser on reading it and attempting to compare its contents to those of the existing constitution. That would be a difficult enough task for a lawyer, if it was required of him, let alone a lay person.
In my view the directors of the company were obliged, in the exercise of their duty to inform the shareholders of the new constitution, to forward a statement to the shareholders setting out the material changes to their rights as shareholders which would occur if the resolution was adopted. Failure to do so discloses a defect in the notice of meeting, but does not amount to a serious question to be tried because I think it can be rectified without my having to consider the matter beyond that point. I will deal, however, with the fourth issue before I do so.
With regard to the allegation of what is called interference in the electoral process, the time when the facsimile machine was not operable appears to be about six hours on the evening of 12 October and early in the morning of 13 October. I am not satisfied this six-hour period amounts to a sufficient reason to restrain the holding of the meeting and does not raise a serious question to be tried.
In respect of all of these issues I take account, as I have said, of the fact that the shareholders who have responded represent 90 per cent of the issued shares. I think that signifies that the notice period and the facsimile difficulties are not to be treated as a matter of any great concern. There is certainly no evidence before me that anyone has been prejudiced in either respect.
In summary, therefore, I am not prepared to grant an order restraining the defendant from holding the meeting. However, I consider that the meeting should be adjourned for a fixed period of 28 days to enable shareholders to be informed appropriately as to any changes which will affect their rights as shareholders if the existing constitution is replaced by the proposed new constitution. There are, I am told, only 45 shareholders. They can be informed of these matters relatively easily and, I assume, very shortly. Subject to comments from counsel as to these matters, I propose to make the following orders:
1)the meeting of the defendant convened at 10.30 am on 15 October 2004 in Sydney be adjourned at the meeting until 10.30 am on 12 November 2004 at the same location;

2)on or before 22 October 2004 the defendants send by mail to each shareholder a statement of the material differences to the shareholders' rights if resolution 5 in the defendant's notice of meeting, which deals with the new constitution, is carried;
3)there be liberty to apply;
4)the plaintiff's application otherwise be dismissed.

Insofar as the defendants' application for declaratory relief dated 12 October 2004 is concerned, I propose that that application be adjourned sine die.