Whitehouse v Capital Radio Network Pty Ltd
[2004] TASSC 12
•4 March 2004
[2004] TASSC 12
CITATION: Whitehouse v Capital Radio Network Pty Ltd [2004] TASSC 12
PARTIES: WHITEHOUSE, Robert Paul
v
CAPITAL RADIO NETWORK PTY LTD
LEITCH, David Thomas
BLYTON, Kevin James
TITLE OF COURT: SUPREME COURT OF TASMANIA (FULL COURT)
JURISDICTION: APPELLATE
FILE NO/S: FCA 93/2002
DELIVERED ON: 4 March 2004
DELIVERED AT: Hobart
HEARING DATE: 7 November 2003
JUDGMENT OF: Cox CJ and Slicer J
CATCHWORDS:
Corporations – Management and administration – Directors and other officers – Meetings of directors – Validity of proceedings – Absence of quorum – Procedural irregularity – Whether valid by virtue of the Corporations Act 2001, s1322 – Whether substantial injustice.
Re Pembury Pty Ltd [1993] 1 Qd R 125, followed.
McGellin v Mount King Mining NL (1998) 144 FLR 288, distinguished.
Re P W Saddington & Sons Pty Ltd (1990) 19 NSWLR 674, not followed.
Corporations Act 2001 (Cth), s1322.
Aust Dig Corporations [103]
REPRESENTATION:
Counsel:
Appellant: S P Estcourt QC and K R Somann-Crawford
Respondents: P Brereton SC and D Ash
Solicitors:
Appellant: Piggott Wood & Baker
Respondent: Clerk Walker & Stops
Judgment Number: [2003] TASSC 12
Number of paragraphs: 31
Serial No 12/2004
File No FCA 93/2002
ROBERT PAUL WHITEHOUSE v CAPITAL RADIO NETWORK PTY LTD,
DAVID THOMAS LEITCH and KEVIN JAMES BLYTON
REASONS FOR JUDGMENT FULL COURT
COX CJ
SLICER J
4 March 2004
Order of the Court
Appeal dismissed.
Serial No 12/2004
File No FCA 93/2002
ROBERT PAUL WHITEHOUSE v CAPITAL RADIO NETWORK PTY LTD,
DAVID THOMAS LEITCH and KEVIN JAMES BLYTON
REASONS FOR JUDGMENT FULL COURT
COX CJ
4 March 2004
The appellant sought an order under the Corporations Act 2001 (Cth) ("the Act"), s1322(4), that a meeting of the directors of Capital Radio Network Pty Ltd ("CRN") held on 11 April 2002 was not an invalid meeting by reason of there being no sufficient quorum. The first named respondent did not enter an appearance to the application, but the second named and third named respondents each did, and they sought an order pursuant to the Act, s1322(2), that the Court declare that the resolutions "purportedly adopted at the meeting on 11 April 2002" are invalid by reason of the absence of a quorum. The learned primary judge dismissed the application and made the declaration sought by the respondents. The appellant, who was appointed a representative of CRN at that meeting pursuant to the Act, s250D, now appeals these orders.
The Act, s1322, relevantly provides:
"(1) In this section, unless the contrary intention appears:
(a) a reference to a proceeding under this Act is a reference to any proceeding whether a legal proceeding or not; and
(b) a reference to a procedural irregularity includes a reference to:
(i)the absence of a quorum at a meeting of a corporation, at a meeting of directors or creditors of a corporation, at a joint meeting of creditors and members of a corporation or at a meeting of members of a registered scheme; and
(ii)a defect, irregularity or deficiency of notice or time.
(2) 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 proceeding to be invalid.
(3)A meeting held for the purposes of this Act, or a meeting notice of which is required to be given in accordance with the provisions of this Act, or any proceeding at such a meeting, is not invalidated only because of the accidental omission to give notice of the meeting or the non-receipt by any person of notice of the meeting, unless the Court, on the application of the person concerned, a person entitled to attend the meeting or ASIC, declares proceedings at the meeting to be void.
(4) 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:
(a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation.
(b) …
(c) …
(d) …
and may make such consequential or ancillary orders as the Court thinks fit.
(5) …
(6) The Court must not make an order under this section unless it is satisfied:
(a) in the case of an order referred to in paragraph (4)(a):
(i)that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;
(ii)that the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii)that it is just and equitable that the order be made; and
(b) in the case of an order referred to in paragraph (4)(c) ¾ that the person subject to the civil liability concerned acted honestly; and
(c) in every case ¾ that no substantial injustice has been or is likely to be caused to any person."
At the time of the meeting, the directors of CRN were Geoffrey Garrott and the second named defendant, Mr Leitch. Mr Garrott was the chairman of directors of the company and by virtue of Article 88(g) of the Memorandum and Articles of Association held not only a deliberative vote, but also a casting vote. Prior to 1997, Kevin James Blyton and entities under his control held 60 per cent of the shares of CRN, while Mr Garrott controlled entities which held the remaining 40 per cent. Mr Blyton was then the sole director of the company. In 1997, Mr Blyton and his wife separated and he, together with Mr Garrott, set about rearranging the share holding in CRN with the object of minimising the size of any property settlement which the Family Court, which was then seized of the matter, might order in favour of Mr Blyton's wife. In consequence, Mr Garrott came to control 51 per cent of the shares in CRN, while Mr Blyton retained control of only 49 per cent. About eight months later, with the same object in mind, Mr Blyton resigned as a director of CRN and was replaced by Mr Garrott as chairman of directors, while Mr Leitch was appointed as a second director at the same time. The Articles of Association provided that:
"85At a meeting of directors, the number of directors whose presence is necessary to constitute a quorum is such number as is determined by the directors and, unless so determined, is 2, and where the company has a single director the number of directors whose presence is necessary to constitute a quorum is one."
In early 1999, a settlement was reached in respect of the property dispute in the Family Court between Mr and Mrs Blyton. It required the execution of certain documents to become effective. Mr Blyton approached Mr Garrott and asked him to restore his equitable interest in CRN and another related company. Mr Garrott refused to even discuss the matter until the settlement documents were signed. Thereupon Mr Garrott and Mr Blyton fell out and Mr Leitch took the latter's side in the dispute.
In June 1999, Mr Leitch advised Mr Garrott that Mr Blyton was not going to execute the documents, whereupon Mr Garrott gave his co-director notice of a meeting of directors of CRN to be held on 15 June 1999 to consider and pass resolutions to appoint Michael Raymond Ferrall, who is a trustee of one of the Garrott family trusts which held shares in CRN, a director and managing director of that company. Mr Leitch was unable to attend that meeting because he was hospitalised, but when a further notice to like effect of a meeting for 22 June 1999 was given him by Mr Garrott, he deliberately absented himself from the meeting in order to ensure that the relevant motions would not pass for want of a quorum.
In consequence of these notices, Mr Blyton sought and obtained from the Family Court on 25 June 1999 an injunction restraining Mr Garrott from carrying out his intentions. The precise terms of the injunction are not before this Court, but it was continued or renewed on several occasions and on 20 October 1999 an order was made:
"2 That pursuant to S114(3), Geoffrey Garrott be restrained until the hearing or earlier further order from, by himself, his servants or agents, convening, attending or voting at the meeting of Capital Radio Network Pty Limited, Radio Canberra Pty Limited, Radio Goulburn Pty Limited, Broadcasting Facilities (ACT) Pty Limited, Radio Hobart Pty Limited, DPIS Pty Limited and Radio Shop Pty Limited proposed to be held on 20 October 1999, or any other meeting to consider the resolutions referred to in the Notices of the said meeting or resolutions to substantially the same effect, provided that this order does not prohibit the said Geoffrey Robert Garrott from convening, attending or voting at a meeting of the said companies for the purpose of adopting the Directors Report and Financial Statements of the said companies for the year ended 30 June 1999 a reasonable time after full information permitting any other director to satisfy himself as to the adequacy and propriety of those accounts has been provided to such director."
The companies other than CRN listed in the order were subsidiaries or related companies of CRN. The resolutions referred to in the above notices were to the following effect:
"1 Validation of decisions at previous meeting.
2Appoint of G R Garrott as Managing Director with full delegated powers from the Board (Article 91a). Remuneration $10,000 p a.
3Appoint of M R Ferrall under Power of Attorney with managing director's powers (Article 79a).
4Approval of 1999 financial account, recommendations as to dividend, and signing Directors Statement and Directors Declaration.
5Authorisation for G R Garrott or M R Ferrall to represent the company at all subsidiary meetings of shareholders.
6Other Business."
Applications to the Family Court by Mr Garrott to discharge this injunction were unsuccessful and it or one to like effect was still in force when the matter came on for hearing before the learned primary judge. Notwithstanding the existence of the injunction, Mr Garrott on several occasions gave notice of meetings at which it was intended to pass resolutions which would have the effect of changing the existing arrangements with respect to the control of CRN and its subsidiaries.
The proceedings in the Family Court were exceedingly complex and involved a number of disputed transactions which one party sought to have set aside, while the extent of certain debts and the valuation of certain assets were in issue. After extensive mediation, a settlement was reached on 11 February 2002 and, as a result, consent orders were made in that court. In broad terms, the settlement provided, so far as the present protagonists are concerned, that Mr Blyton might purchase Mr Garrott's interest in CRN and its subsidiaries within a certain time frame and if that option were not exercised, Mr Garrott might purchase Mr Blyton's interest within an extended term. Should neither party exercise the option of purchase, the assets of the companies would be sold. Some of the disputed transactions were to be set aside and a mechanism was agreed for ascertaining the fair market value of the assets of the companies as going concerns as at 30 June 2001. Mr Blyton was to have interim management of CRN and its subsidiaries "provided always that he does so acting with due diligence in the interests of CRN and its subsidiaries and in the ordinary course of business". By order 13 of the consent orders, provision was made for the continuation of certain interlocutory injunctions and undertakings, including the order initially made on 19 October 1999 which was to be discharged on the effective exercise of either option, or in default, upon the completion of the sale of CRN's assets.
In March 2002, Mr Garrott, without reference to either Mr Blyton or Mr Leitch, approached the appellant, a chartered accountant, to obtain his consent to being appointed to represent the shareholders of CRN pursuant to the Act, s250D. The appellant agreed to do so. On 2 April 2002, Mr Garrott gave notice to Mr Leitch of a meeting of the directors of CRN to be held on 11 April 2002 to consider the following agenda:
"1 To appoint an auditor for the company and for the company's operating subsidiaries. Radio Canberra Pty Ltd, Radio Goulburn Pty Ltd and Broadcasting Facilities (ACT) Pty Ltd (Horwaths Tasmania have consented to the position).
2 To appoint a secretary of the company (M Ball, Chartered Accountant has consented to the position.)
3 To appoint a public officer of the company (M Ball, Chartered Accountant has consented to the position).
4 To appoint a representative under Section 250D of the Corporations Law, to each subsidiary (R Whitehouse of Wise Lord & Ferguson, Chartered Accountants, has consented to the position). The appointments are not to affect the current management arrangements provided the manager undertakes his duties with due diligence.
5 To appoint R Whitehouse on behalf of shareholders to implement directors' responsibilities, subject to the current manager conducting management duties with due diligence."
On 4 April 2002, Mr Leitch sent the following letter to Mr Garrott (formal parts omitted):
"I have for reply your letter dated 2 April 2002 and what purports to be a Notice of calling a meeting of Directors of the Company for Thursday 11 April 2002.
It is my view that your action in calling the aforementioned meeting is a direct contravention of part 7 of the Agreement and Consent Orders made between the parties on 11 February 2002 and an interference with Mr Blyton's authority pursuant to that agreement to manage the Company.
Accordingly, I do not recognise your purported authority to call such meeting and put you on notice that I will not be attending the meeting on 11 April 2002.
You should further note that in the circumstances you will not have a quorum to conduct such meeting and any resolutions which you purport to pass at that meeting will be invalid."
The meeting was held on 11 April 2002 in the presence of Mr Garrott, the appellant and Mr Garrott's partner in his accountancy practice, Ms Ball. Mr Leitch did not attend and accordingly the meeting lacked a quorum. The appointments set out in the notice of meeting were purportedly made and it was resolved to make an application pursuant to the Act, s1322. The following day such an application was filed by Mr Whitehouse (though subsequently slightly amended). The learned primary judge found that the meeting was called for the purpose of attempting to gain control of CRN and its subsidiaries, presumably to obtain some leverage with respect to the settlement to which Mr Garrott was a party. Such a finding was clearly open and is not challenged on the appeal.
The first issue on this appeal is whether or not the absence of a quorum at the meeting on 11 April 2002 was a "procedural irregularity" for the purposes of s1322. Prima facie it is, for subs(1) specifically includes a reference to the absence of a quorum at a meeting of directors of a corporation as a reference to a procedural irregularity. However, the view has been expressed that the deliberate choice to convene a meeting invalid for want of a quorum is not a procedural irregularity. In Re P W Saddington & Sons Pty Ltd (1990) 19 NSWLR 674, Young J, dealing with the Companies Code (NSW), s539, a precursor to s1322, said (at 675):
"Although the court's power under s 539 is, as has been held over a large number of years, an extremely wide one, there are limitations to it. Section 539 indicates in its text that it is to deal with procedural irregularities. Section 539(1)(b) includes the absence of a quorum within the term 'procedural irregularity' I am quite sure that if a meeting proceeds and then afterwards it is realised that there was no quorum, the court could make an order under s 539. One can well see that happening without fault on any party, where, for instance, one of the members of the quorum has to be a person who holds a particular class of share. There would be an interesting situation if a meeting was held where members had come very long distances and it was realised at the commencement of the meeting that there was no quorum, but the people present decided to hold a meeting with a view either to it being ratified later by valid meeting or by the court. Perhaps s 539 would cover that situation. However, I am quite sure that s 539 does not cover the situation where parties actually know that the meeting that they are convening is invalid and attend to purport to pass resolutions which they know can only have any validity at all if the court acts under s 539. A deliberate choice to convene an invalid meeting is not a procedural irregularity within s 539. I do not think that anything that Powell J said in Broadway Motors Holdings Pty Ltd (in liq) and the Companies (New South Wales) Code (1986) 6 NSWLR 45 or that I said in Sydney Aussie Rules Social Club Ltd v Superintendent of Licences (1989) 15 ACLR 662; 7 ACLC 991, cuts across anything I have just said."
That was a case where the shareholding of the company had been reduced in number to such an extent that it was impossible to procure the quorum required by the Articles of Association. Young J used another section of the Code to validate the relevant inquorate resolutions as all the corporators had attended the meeting and were in agreement with the resolutions. Re Broadway Motors Holdings Pty Ltd (in liq) (supra) was, however, a case where a conscious decision had been made not to send a notice of meeting to a shareholder and the meeting had proceeded in his absence. Powell J held that:
"… if, in order that the proceedings at a meeting otherwise be held valid, it is necessary (inter alia) that a particular procedure for summoning that meeting be followed, any failure ¾ as, for example, to give any notice at all, or to give a particular period of notice ¾ to follow that procedure is a defect, or irregularity, in procedure … ." at 56 – 57.
Re Saddington (supra) differs from the present case in that there was here no deliberate choice to convene an invalid meeting. Notice was given to Mr Leitch and although Mr Garrott had every reason to anticipate that he would not attend, it was not Mr Garrott's intention that Mr Leitch not attend. What was deliberate was the transaction of business at the meeting when the lack of a quorum was obvious.
In McGellin v Mount King Mining NL (1998) 144 FLR 288, a meeting of directors was held to be inquorate because the directors had a financial interest in the resolutions to be passed (Corporations Law, s232A) and were in breach of their fiduciary duties. At 307, Murray J referred to Sipad Holdings ddpo v Popovic (1995) 61 FCR 205 and the observation of Lehane J (at 219) that:
"… the problem is not that parties have attempted to do something which the Law permits but failed to do it effectively because of a procedural failure or omission; it is that they have tried to do something which the Law does not authorise."
Murray J held that upon that basis, what the directors of Mount King Mining had done would not qualify as a procedural irregularity. He said he found confirmation for that view in Young J's remarks in Saddington that to deliberately convene a meeting without a quorum, knowing that to be the case, could not constitute a procedural irregularity, but his own holding went nowhere as far. Applying the dictum of Lehane J in Sipad (supra) to the facts of this case, I think it can be said that (subject to the respondent's submission by way of contention that Mr Garrott had a financial interest in the appointment of his partner, Ms Ball, as the company secretary) what the meeting of 11 April 2002 sought to achieve was something authorised by the Corporations Act but that it failed to do it effectively because of the procedural failure to have a quorum present.
A liberal approach to s1322 and as to what constitutes a procedural irregularity has been taken in a number of cases: Re Clearwater Pty Ltd (1981) 6 ACLR 201; Re Broadway Motors Holdings Pty Ltd (in liq) (supra); Sydar Pty Ltd v K Simmonds Finance Pty Ltd (1995) 16 ACSR 384; Mamouney v Soliman (1992) 9 ACSR 63. In Re Pembury Pty Ltd [1993] 1 Qd R 125, Byrne J disagreed with Young J's remarks in Re Saddington and held that the section was not restricted to instances of inadvertence or accidental non-compliance and could include instances of deliberate choice. That was a case where short notice was given of a meeting of the company to a member, East, whose presence was necessary to constitute a quorum. He chose not to attend. Byrne J remarked that:
"… both these irregularities resulted from decisions deliberately made with an informed appreciation of the deficiency of notice and that East would probably stay away. … So also, the absence of a quorum resulted from a choice by East made with the benefit of legal advice." (at 126)
Byrne J placed particular reliance upon the absence of any qualification of the words "absence of quorum" with words such as "inadvertent" or "accidental" when the legislators had inserted such a qualification in subs(3) which refers to "the accidental omission to give notice" of a meeting.
I agree with the learned primary judge's view that there is no warrant for writing words into s1322(1) and (2) that are not there and with his conclusion that the absence of a quorum at the meeting of directors of 11 April 2002 was a procedural irregularity within the meaning of s1322(2) even if:
· the meeting was called in the knowledge that it was extremely unlikely that there would be a quorum;
· the purpose of calling the meeting was to attempt to circumvent the effect of the orders made in the Family Court; and
· the meeting proceeded in the full knowledge of those present that there was no quorum ([2002] TASSC 78, par34).
The essential issue in this appeal is whether the learned primary judge was in error in finding that it would, or might, occasion substantial injustice if the meeting were not invalidated on account of the absence of a quorum. For the appellant to succeed in his application under s1322(4)(a), he had to satisfy the Court, pursuant to subs(6), that the proceeding was essentially of a procedural nature and that no substantial injustice had been or was likely to be caused to any person. For the reasons stated above, he had succeeded in establishing that the proceeding sought to be validated was essentially of a procedural nature. He bore the onus of proving that no substantial injustice had been or was likely to be caused to any person, and that there was a nexus between the procedural irregularity which occurred and the matters of prejudice relied upon as constituting injustice rather than between the resolutions passed at the meeting and such prejudice (Re Broadway Motors Holdings Pty Ltd (in liq) (supra) at 58; Re Pembury Pty Ltd (supra) at 127; Poliwka v Heven Holdings Pty Ltd (1992) 7 ACSR 85 at 97 – 98; Mamouney v Soliman (supra) at 71; Sutherland v Robert Bosch (Australia) Pty Ltd (2000) 33 ACSR 680 at 689).
For the appellant, Mr Estcourt QC argues that there can be no substantial injustice occasioned by the procedural irregularity of a lack of quorum where, as in this case, had the quorum of two been present, the result of the meeting would have been the same by reason of the chairman who called it having a casting vote. The learned primary judge found that:
"Leaving to one side a submission concerning Mr Garrott having a financial interest in the resolution to appoint his partner, Ms Ball, as secretary of CRN, and was thereby disqualified from forming part of the quorum, there is no doubt that had Mr Leitch attended the meeting, the result would have been the same."
In Poliwka v Heven Holdings Pty Ltd (supra), notice of a meeting had not been given to a member entitled to it and whose consequent absence resulted in the meeting being inquorate. Anderson J found that the absent member would not have attended the meeting in any event, as she desired to become disassociated with the company, and that no injustice could have flowed from the irregularities. So, too, in Sutherland v Robert Bosch (Australia) Pty Ltd (supra), Santow J found no injustice from the absence of a quorum at a meeting which appointed an administrator of the company because the sole director would have, and could have, appointed another director and the appointment would have been made at a quorate meeting. In the present case, however, Mr Garrott, without a quorate meeting, could not have remedied Mr Leitch's unwillingness to constitute the requisite quorum by appointing another director and unlike Poliwka v Heven Holdings Pty Ltd (supra), the absent director did not absent himself through lack of interest in the agenda of the meeting, but did so in order to ensure that business could not be conducted legitimately for lack of a quorum.
Mr Estcourt QC submitted that such conduct is a dereliction of the core duties placed upon a director of a company and that the learned primary judge was in error in holding that the convening and conducting of an inquorate meeting by Mr Garrott infringed Mr Leitch's right under the Articles of Association to absent himself from a meeting and thereby render it inquorate. He relies upon Deputy Commissioner of Taxation v Clark [2003] NSWCA 91 wherein appear numerous statements of principle regarding the obligations of a director to participate in the management of a company. Those statements, however, were made in the context of the failure of "sleeping directors" to involve themselves in the affairs of their spouses' companies and who seek to establish the importunity of their spouses as a good reason for their failure to do so by way of defence to actions claiming indemnity for insolvent trading. I think they have little relevance in the circumstances of this case.
I would not base a finding of injustice or the possibility of injustice on the supposed infringement of Mr Leitch's "right" to prevent the holding of a meeting conferred upon him by the Articles of Association. However, I am in no doubt that in the circumstances of this case the holding of the inquorate meeting did cause injustice to Mr Leitch and the interests of Mr Blyton which he represented. It may well be that in some situations the holding of such a meeting and the passing of resolutions which would in any event have been passed notwithstanding the presence of those necessary to constitute a quorum may work no injustice. But in the circumstances of this case, the parties had reached an agreement in February 2002 to so order the conduct of the affairs of the company that the status quo should be preserved pending the ultimate resolution of the various matters in issue between the Garrott interests and those of Mr Blyton. That agreement included the preservation of an injunction against Mr Garrott restraining him from effecting the very changes in the governance of the company or the possibility of them which were facilitated by the resolutions purportedly passed. It also passed management of the day-to-day affairs of the company to Mr Blyton and was made in the context of the latter preserving the protection which Mr Leitch's position as a director afforded to his interests. Mr Leitch's position as a director was one which afforded him the power to restrain Mr Garrott's dominant position in the company as its chairman of directors with a casting vote by the simple expedient of not attending the meetings where the business included resolutions which could be harmful to Mr Blyton's interests. It was, in fact, a relatively complex control mechanism to ensure that the status quo should be preserved. Mr Garrott's action in convening the meeting, whether or not he desired or anticipated the attendance or absence of Mr Leitch and persisting with it in the absence of a quorum, was an infringement not only of the orders of the Family Court (as indeed that Court subsequently found, for it rejected the contention that because neither Mr Garrott nor Mr Ferrall had been appointed the company's representative, the resolution to appoint the appellant was not one to substantially the same effect as those the subject of the injunction), but an infringement of the status quo which Mr Blyton had sought to preserve by this mechanism. In my view, the necessary nexus between the irregularity as opposed to the resolutions themselves and the prejudice to Mr Blyton's interests have clearly been established and the learned primary judge was entirely correct in refusing the relief sought by the appellant and in declaring the inquorate meeting invalid.
In the circumstances, I find it unnecessary to address the other matters in respect of which notice of contention was given, including the standing of the appellant as an interested party, the issue of Mr Garrott's financial interest in the appointment of Ms Ball and the question of the proper use of the discretion to grant the relief sought by the appellant in the circumstances I have outlined. I would dismiss the appeal.
File No FCA 93/2002
ROBERT PAUL WHITEHOUSE v CAPITAL RADIO NETWORK PTY LTD,
DAVID THOMAS LEITCH and KEVIN JAMES BLYTON
REASONS FOR JUDGMENT FULL COURT
SLICER J
4 March 2004
This appeal concerns the interpretation of the Corporations Act 2001 (Cth) ("the Act"), s1322. The facts giving rise to the determination challenged (Whitehouse v Capital Radio Network Pty Ltd & Ors [2002] TASSC 78) are comprehensively stated and the issues analysed by the learned Chief Justice and require no repetition.
The central propositions advanced by the appellant were:
(1)Neither the Act, nor corporate law generally, identify or afford a director the right to prevent the holding of an inchoate meeting by non-attendance. Acceptance of such a right would run counter to the core duties of a director.
(2)Neither can the right be identified by reference to a claim of substantial injustice to the personal or competing interests of another. The statute provides for injustice inherent to the procedural irregularity, not the outcome.
The Act relevantly provides:
"(1) In this section, unless the contrary intention appears:
(a) a reference to a proceeding under this Act is a reference to any proceeding whether a legal proceeding or not; and
(b) a reference to a procedural irregularity includes a reference to:
(i)the absence of a quorum at a meeting of a corporation, at a meeting of directors or creditors of a corporation, at a joint meeting of creditors and members of a corporation or at a meeting of members of a registered scheme; and
(ii)a defect, irregularity or deficiency of notice or time.
(2) 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 proceeding to be invalid.
(3)A meeting held for the purposes of this Act, or a meeting notice of which is required to be given in accordance with the provisions of this Act, or any proceeding at such a meeting, is not invalidated only because of the accidental omission to give notice of the meeting or the non-receipt by any person of notice of the meeting, unless the Court, on the application of the person concerned, a person entitled to attend the meeting or ASIC, declares proceedings at the meeting to be void.
(4) 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:
(a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation.
(b) …
(c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);
(d) …
and may make such consequential or ancillary orders as the Court thinks fit.
(5) An order may be made under paragraph (4)(a) or (c) notwithstanding that the contravention or failure referred to in the paragraph concerned resulted in the commission of an offence.
(6) The Court must not make an order under this section unless it is satisfied:
(a) in the case of an order referred to in paragraph (4)(a):
(i)that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;
(ii)that the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii)that it is just and equitable that the order be made; and
(b) in the case of an order referred to in paragraph (4)(c) ¾ that the person subject to the civil liability concerned acted honestly; and
(c) in every case ¾ that no substantial injustice has been or is likely to be caused to any person."
The absence of the second respondent from the meeting resulted in an inquorate meeting. The real issue was whether the decisions made at the meeting were valid if the irregularity was validated by the operation of the Act, s1322. Thus, a court is constrained by the terms of subs(6) that it:
"… must not … unless it is satisfied … in the case of an order … 4(a) … that it is just and equitable … and … in every case ¾ that no substantial injustice has been or is likely to be caused to any person."
The legislative scheme applies different criteria to the nature of the irregularity, the status of the person who might obtain remedy, and the preconditions which must be satisfied before validation. It also provides for differing forms of remedy.
The form of a procedural irregularity has been interpreted both in a confined manner to exclude one consciously achieved (Re P W Saddington & Sons Pty Ltd (1990) 19 NSWLR 674; McGellin v Mount King Mining NL (1998) 144 FLR 788; Sipad Holding ddpo v Popovic (1995) 61 FCR 205) and one not subject to such a limitation (Re Clearwater Pty Ltd (1981) 6 ACLR 201; Re Broadway Motors Holdings Pty Ltd (in liq) and the Companies (New South Wales) Code (1986) 6 NSWLR 45; Re Pembury Pty Ltd [1993] 1 Qd R 125). The differing approaches are the subject of contention by the respondents and although, given my conclusion, it is not necessary to determine the issue, I would prefer the more liberal approach. I would agree with the finding of the learned primary judge that the holding of the inquorate meeting was a procedural irregularity capable of validation.
Once the precondition of procedural irregularity has been met, a court is afforded wide discretionary powers. The proceeding or substantive outcome subsequent to the irregularity is not invalidated unless there has been substantial injustice (subs(2)). There is duality in the legislative scheme. The power afforded a court by subs(4)(c) is not limited to rectification of a procedural irregularity, but to the consequence (David Grant & Co Pty Ltd v WestpacBanking Corporation (1995) 184 CLR 265 and differing tests are required by subss(2) and (4). Subsection (5) relates specifically to events governed by the operation of subs(4)(a) and (c) only. Subsection (6) makes a further distinction between the tests referable to matters arising within the ambit of subs(4)(a) and (c) while requiring consideration of the issue of "substantial injustice" in every case (subs(6)(c)).
In the circumstances of this case, the learned primary judge was entitled to find "substantial injustice" to the respondents. The parties had agreed to the structure of the company and were not naïve in so doing. The agreement, sanctioned by the Family Court, was to preserve the status quo, departure from which would cause injustice.
I agree with the learned Chief Justice that for the purpose of determining this appeal, it is not necessary to consider the remaining matters raised by the respondents in their notice of contention.
I would dismiss the appeal.
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