Wun v CellOS Software Ltd

Case [2018] FCA 1947

FEDERAL COURT OF AUSTRALIA

Wun v CellOS Software Ltd [2018] FCA 1947

File number: VID 409 of 2018
Judge: MIDDLETON J
Date of judgment: 10 May 2018
Catchwords: CORPORATIONS – calling of general meetings by members – whether company board cancelled or postponed meeting of members – interaction between terms of company constitution and s 249F of Corporations Act 2001 (Cth) – whether Board had power to postpone Shareholders’ meeting called under s 249F of the Corporations Act 2001 (Cth) – power of company board to postpone Shareholders’ meeting called under s 249F of Corporations Act 2001 (Cth) validly exercised.
Legislation: Corporations Act 2001 (Cth)
Cases cited:

Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2017] FCAFC 159

Australian Competition and Consumer Commission v Yazaki Corporation (2018) 357 ALR 55; [2018] FCAFC 73

Carpathian Resources Ltd v Highmoor Business Corporation [2010] FCA 1294

CellOS Software Ltd v Wong (2017) 118 ACSR 501; [2017] FCA 95

Central Exchange Ltd v Rivkin Financial Services Ltd (2004) 213 ALR 771; [2004] FCA 1546

Colbern Nominees Pty Ltd v Prime Minerals Ltd (2009) 74 ACSR 236; [2009] WASC 289

Howard v Mechtler (1999) 30 ACSR 434; [1999] NSWSC 232

Mishme Enterprises Pty Ltd v Nticed Pty Ltd [2013] VSC 187

Pinnacle VRB Ltd v Ronay Investments Pty Ltd (2000) 35 ACSR 240; [2000] VSC 330

Smith v Paringa Mines Ltd [1906] 2 Ch 193

Smith v Sadler (1997) 25 ACSR 672

Date of hearing: 18 April 2018 and 10 May 2018
Registry: Victoria
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 79
Counsel for the Applicants: Mr P G Liondas with Ms F L Shand
Solicitor for the Applicants: Clarendon Lawyers
Counsel for the Respondent: Dr C O Parkinson
Solicitor for the Respondent: Corrs Chambers Westgarth

ORDERS

VID 409 of 2018
BETWEEN:

LIM CHEAN WUN

First Applicant

LIM GEOK BOON

Second Applicant

JEFFREY SNG

Third Applicant
AND:

CELLOS SOFTWARE LTD

Respondent

JUDGE:

MIDDLETON J

DATE OF ORDER:

18 APRIL 2018

THE COURT ORDERS THAT:

1.The Application filed on 13 April 2018 is dismissed.

2.The applicants jointly and severally pay to the respondent the costs of and incidental to the Application and the Notice of Cross-claim.

THE COURT DECLARES THAT:

3.The decision of the Board of Directors of the respondent to postpone the Extraordinary General Meeting called by the applicants for 26 April 2018 was valid and effective.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


ORDERS

VID 409 of 2018
BETWEEN:

LIM CHEAN WUN

First Applicant

LIM GEOK BOON

Second Applicant

JEFFREY SNG

Third Applicant
AND:

CELLOS SOFTWARE LTD

Respondent

JUDGE:

MIDDLETON J

DATE OF ORDER:

10 MAY 2018

THE COURT ORDERS THAT:

1.Compliance with rule 2.2(2) of the Federal Court (Corporations) Rules 2000 to the extent requiring the filing of an interlocutory process be dispensed with.

THE COURT DECLARES THAT:

2.The Notice of Meeting dated…

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AGLC
Wun v CellOS Software Ltd [2018] FCA 1947
Case
[2018] FCA 1947
Decision Date

CaseChat Overview and Summary

Wun v CellOS Software Ltd involves a dispute between the shareholders of CellOS Software Ltd, an unlisted public company, and the company's Board of Directors. The shareholders, who collectively hold around 7% of the company's shares, sought to convene an Extraordinary General Meeting (EGM) to address concerns about the company's financial position and the composition of the Board. The Board, however, decided to postpone the EGM, leading to this litigation where the shareholders sought declarations about the validity of the Board's decision and the timing of the EGM.

The central legal issues in this case revolve around the interpretation and application of the Corporations Act 2001 (Cth) and the company's constitution. Specifically, the court had to determine whether the Board had the authority to postpone the EGM, and if so, whether the decision was valid and reasonable under the Act. The shareholders argued that the Board's decision to postpone the meeting was invalid, while the Board contended that the postponement was both legally permissible and in the best interests of the company.

The court examined the provisions of the Corporations Act, particularly sections 249F and 249R, which deal with the calling of general meetings and the requirement for meetings to be held at reasonable times and places. The court also considered the terms of the company's constitution, which grant the Board the power to postpone a meeting. After reviewing the evidence and arguments, the court found that the Board's decision to postpone the EGM was validly exercised under the company's constitution and was in accordance with the requirements of the Corporations Act. The court further held that the timing of the postponed meeting was reasonable.

In its decision, the court declared that the Notice of Meeting dated 20 March 2018 was invalid, thereby supporting the Board's decision to postpone the EGM. The court also found that the Board had the authority to postpone the meeting under the company's constitution and that the decision to postpone was valid and reasonable under the Corporations Act. The shareholders' application for further declaratory relief was dismissed.

Orders

Orders of the court

1. Compliance with rule 2.2(2) of the Federal Court (Corporations) Rules 2000 to the extent requiring the filing of an interlocutory process be dispensed with.

THE COURT DECLARES THAT:

2. The Notice of Meeting dated 20 March 2018 is invalid.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

These are the reasons for those orders.BACKGROUND Some context for this application can be found in a former related disputation: see CellOS Software Ltd v Wong (2017) 118 ACSR 501; [2017] FCA 95 (‘CellOS Software v Wong’). The current shareholder activism and intervention has been the product of ongoing concerns regarding the financial viability of CellOS. Within such a climate, the Applicants contended that the Proposed EGM was necessary in order to consider the composition of the Board and its financial position. The following facts were not contentious between the parties. CellOS is an unlisted public company that develops software and conducts much of its business in Singapore. It has 2,072 shareholders, of which around 1,600 reside in Singapore. By notice of meeting dated 20 March 2018 (the ‘Notice of Meeting’), which was signed by 10 shareholders holding almost 7% of the issued shares (the ‘Convening Shareholders’), the Convening Shareholders sought to convene the Proposed EGM of CellOS to be held on 26 April 2018, pursuant to s 249F of the Act. The fact these Convening Shareholders had a right to call for a general meeting – effectively putting before that meeting their concerns regarding the financial position of CellOS and the composition of the Board – was not in dispute. On 6 April 2018, the Board determined to postpone the Proposed EGM (the ‘Postponement Decision’) so that it could be held on the 29 June 2018, which was the same day as the annual general meeting (the ‘Proposed AGM’). In determining this, the Board took seven matters into consideration and concluded that it was in the best interests of the company as a whole to postpone the Proposed EGM so as to coincide with the Proposed AGM. Those seven matters, which are contained within the minutes of the board meeting on 6 April 2018, were as follows:(1)The apparent procedural irregularities in the Notice of Meeting and proxy form. In particular:(a)the risk that the Notice of Meeting and proxy form did not comply with the requirements of the Act; and(b)the failure of the Convening Shareholders to respond to inquiries about those proxy forms; and(c)the risk that the Cellos would incur unrecoverable costs even if it made a successful challenge to the Notice of Meeting and form.(2)The rights of shareholders to hold and conduct a general meeting, including its rights under the Act.(3)The Board’s right to postpone a general meeting pursuant to the terms of the company constitution (the ‘Constitution’).(4)Any prejudice to the shareholders of CellOS and, in particular, the Convening Shareholders, in the postponement of the Proposed EGM.(5)The status of previous litigation brought by the CellOS against Mr Jason Huber and others, which was to return to the Federal Court of Australia in May 2018 – with an estimated cost of completion of around AUD$150,000.(6)The evidence of relationships and links between the prospective future directors and parties to that litigation (including, in one case, a proposed director who was a witness in the proceeding).(7)The status of CellOS’s audited financial accounts and timing of its next annual general meeting.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

On 6 April 2018, the Board determined to postpone the Proposed EGM (the ‘Postponement Decision’) so that it could be held on the 29 June 2018, which was the same day as the annual general meeting (the ‘Proposed AGM’). In determining this, the Board took seven matters into consideration and concluded that it was in the best interests of the company as a whole to postpone the Proposed EGM so as to coincide with the Proposed AGM. Those seven matters, which are contained within the minutes of the board meeting on 6 April 2018, were as follows:(1)The apparent procedural irregularities in the Notice of Meeting and proxy form. In particular:(a)the risk that the Notice of Meeting and proxy form did not comply with the requirements of the Act; and(b)the failure of the Convening Shareholders to respond to inquiries about those proxy forms; and(c)the risk that the Cellos would incur unrecoverable costs even if it made a successful challenge to the Notice of Meeting and form.(2)The rights of shareholders to hold and conduct a general meeting, including its rights under the Act.(3)The Board’s right to postpone a general meeting pursuant to the terms of the company constitution (the ‘Constitution’).(4)Any prejudice to the shareholders of CellOS and, in particular, the Convening Shareholders, in the postponement of the Proposed EGM.(5)The status of previous litigation brought by the CellOS against Mr Jason Huber and others, which was to return to the Federal Court of Australia in May 2018 – with an estimated cost of completion of around AUD$150,000.(6)The evidence of relationships and links between the prospective future directors and parties to that litigation (including, in one case, a proposed director who was a witness in the proceeding).(7)The status of CellOS’s audited financial accounts and timing of its next annual general meeting. The stated background to this last consideration, as recorded in those minutes, was as follows:The Company has instructed its auditors, Deloitte Touche Tohmatsu (Deloitte), to prepare the Company’s audited accounts for the 2016/17 financial year by no later than mid-June 2018. Deloitte has advised that i[t] expects to be able to comply with this timeframe. This would allow the company to circulate completed accounts before the end of the 2017/18 financial year. It was the Company’s desire for the outcome of the litigation to be known prior to the audited accounts being completed (having regard to the pervasive nature of the litigation and the qualifications applied to recent audited accounts), but it is acknowledged that this is not achievable given the adjournment of the trial. Between 11 and 12 April 2018, written notice of the postponement was communicated to shareholders, including by post for those shareholders for whom CellOS did not hold an email address. In addition to seeking declaratory relief that the Postponement Decision was invalid, the Applicants sought declaratory relief that 29 June 2018 was not a reasonable time to hold the Proposed EGM by reason of s 249R of the Act, and that the Notice of Meeting was not invalid by operation of s 1322(4) of the Act.

Ratio Decidendi

Legal Principle Established

CellOS disputed each of these contentions.THE CORPORATIONS ACT AND COMPANY CONSTITUTION Section 249F of the Act states with respect to the calling of general meetings by members:Calling of general meetings by members(1)Members with at least 5% of the votes that may be cast at a general meeting of the company may call, and arrange to hold, a general meeting. The members calling the meeting must pay the expenses of calling and holding the meeting. (2)The meeting must be called in the same way—so far as is possible—in which general meetings of the company may be called. (3)The percentage of votes that members have is to be worked out as at the midnight before the meeting is called. Section 249R of the Act requires that:A meeting of a company’s members must be held at a reasonable time and place. Under cl 14.1(d) of the Constitution, the Board is granted the power to postpone a general meeting or change the place at which it is to be held:by giving appropriate notice to all persons to whom the notice of the original meeting was given, not later than 72 hours prior to the time of the meeting. The notice must specify the new place, date and time of the meeting. Section 250B of the Act relevantly states:Proxy documentsDocuments to be received by company before meeting(1) For an appointment of a proxy for a meeting of a company’s members to be effective, the following documents must be received by the company at least 48 hours before the meeting:(a) the proxy’s appointment;(b) if the appointment is signed, or otherwise authenticated in a manner prescribed by regulations made for the purposes of subsection 250A(1), by the appointor’s attorney—the authority under which the appointment was signed or authenticated or a certified copy of the authority.…Receipt of documents(3) A company receives a document referred to in subsection (1):(a) when the document is received at any of the following:(i) the company’s registered office;(ii) a fax number at the company’s registered office;(iii) a place, fax number or electronic address specified for the purpose in the notice of meeting; and(b) if the notice of meeting specifies other electronic means by which a member may give the document—when the document given by those means is received by the company as prescribed by the regulations.Constitution or notice of meeting may provide for different notification period(5) The company’s constitution (if any) or the notice of meeting may reduce the period of 48 hours referred to in subsection (1) or (2). Clause 14.18 of the Constitution relevantly provides:Lodgement of proxies(a) An instrument appointing a proxy is not treated as valid unless:(i) the instrument; and(ii)the power of attorney or other authority (if any) under which the instrument is signed; or(iii)a copy of that power or authority certified in a manner acceptable to the Directors, are lodged not less than 48 hours (or any shorter period as the Directors may permit) before the time for holding the meeting at the place specified for that purpose in the notice of the meeting or, if none, at the registered office of the Company.…(c) For the purposes of this clause 14:…(ii)Members can appoint a proxy and attorney or a corporate representative using electronic means to deliver the document (or a copy of the document) effecting the appointment and, in the absence of any manifest irregularity, the Company may act on that appointment.