Dunstan v Credit Union South
[2021] NZCA 656
•3 December 2021 at 12 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA317/2020 [2021] NZCA 656 |
| BETWEEN | ANTHONY DUNSTAN |
| AND | CREDIT UNION SOUTH |
| Hearing: | 14 June 2021 |
Court: | Clifford, Thomas and Muir JJ |
Counsel: | Appellant in person |
Judgment: | 3 December 2021 at 12 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
B Costs are reserved.
____________________________________________________________________
REASONS OF THE COURT
(Given by Clifford J)
Introduction
In September 2013 the appellant, Anthony Dunstan, became a director of the first respondent, Credit Union South (CU South). In March 2015 he was appointed chair of the Board of CU South. In January 2017, in circumstances to which we return, he resigned from both of those positions.
Later that year Mr Dunstan was nominated for election as a director of CU South in the regular cycle of those elections. The second respondents, the then directors of CU South, determined that Mr Dunstan did not meet CU South’s “Fit and Proper” policy applying to directors. On that basis, Mr Dunstan’s name did not appear on the ballot paper for the 2017 Board election.
Mr Dunstan challenged that decision by way of an application for judicial review to the High Court. That application was dismissed.[1]
[1]Dunstan v Credit Union South [2020] NZHC 1063 [Judgment under appeal].
Mr Dunstan now appeals.
Background
CU South no longer exists. Subsequent to the events at issue here, its operations were merged into a broader grouping of previously independent regional credit unions.
At the time of those events, CU South was, as its name reflects, a credit union. As such, it was registered and operated under pt 3 of the Friendly Societies and Credit Unions Act 1982 (the Credit Unions Act). As then required by that Act, CU South was an unincorporated society.[2] It administered a fund into which its members contributed money and from which its members borrowed money. CU South’s constitution comprised a document called “Rules of Credit Union South” (the Rules).
[2]At [50].
Pursuant to the Rules:
(a)CU South’s objects were to promote thrift and the accumulation of savings by its members and to allow the use of those savings for its members’ mutual benefit by making them loans for provident or productive purposes.
(b)CU South was governed by an annual meeting and, between those meetings, its affairs were conducted by the Board.
(c)The Board, which was also CU South’s “committee of management” as defined in the Credit Unions Act,[3] comprised a minimum of five and a maximum of seven directors. Of those seven directors, a maximum of two could be appointed by the elected members of the Board as independent directors. Independent directors were persons who did not have a significant contractual relationship with CU South.
(d)Directors were elected for a three-year term, and retired in rotation.
(e)Various persons were disqualified from holding office as directors including, as relevant here, persons who did not meet what the Rules termed the “Fit and Proper Assessment of the Credit Union”.
[3]Friendly Societies and Credit Unions Act 1982, s 2.
The Rules of CU South also contained detailed procedures for the nomination and election of directors. As part of those procedures:
(a)Notice to members of the annual meeting was to be given in advance, calling for nominations for appointment of directors, amongst other things.
(b)There were two routes to be nominated to be appointed a director: either by the members in advance of the annual meeting, or by the Nomination Committee.
(c)The Nomination Committee of three members appointed by the Chair of the Board had the duty to nominate at least one member for each vacancy for which director elections were being held. Those nominated had to be, in the Nomination Committee’s opinion, suitably qualified to meet the Fit and Proper policy. The Nomination Committee procedure was designed to address CU South’s historic experience with insufficient suitably qualified candidates standing for election as directors.
(d)Candidates nominated by members were to provide various background material, including a “Fit and Proper declaration”.
The officers of CU South, comprising a Chair, Vice Chair, Treasurer and Secretary, were elected by the directors from their own number. The Rules provided duties for each. As well as appointing directors, the members at each annual meeting appointed a minimum of one and a maximum of three of the directors to act as trustees. The role of the trustees was to act as the Credit Committee for CU South.
Directors and trustees were required to vacate their office immediately if, amongst other things, they failed to meet or maintain the requirements under the Fit and Proper policy.
In addition to being required by the Rules to establish a Nomination Committee, the Board was empowered to appoint additional committees. The Board had established a Governance Committee. The general role of the Governance Committee, which was captured in four-and-a-half pages of closely typed terms of reference, would appear to have been the promotion of good governance by the Board.
Initial responsibility for the process for election of Board members was shared between the Nominations Committee and the Governance Committee. At a high level the role of the Nominations Committee would appear to have been the identification of suitable nominees, to check all the required information had been provided, and to ensure the nominee’s suitability and eligibility. Once those steps had been done, the job of the Governance Committee was to undertake a Fit and Proper assessment. The Nomination Committee was then to notify the Secretary which candidates could appear on the ballot for election.
In July 2017 the Board, in ratifying the decisions of the Nomination and Governance Committees, decided that Mr Dunstan did not satisfy the Fit and Proper policy criteria. Accordingly, Mr Dunstan’s name was not to be included on the ballot in the 2017 Board election.
Mr Dunstan’s judicial review application
Mr Dunstan sought judicial review of the Board’s decision. In doing so he advanced some four grounds of review:
(a)Failure to comply with the rules applying to members’ nominations.
(b)The Nominations and Governance Committees were inquorate.
(c)The Fit and Proper policy was an irrelevant consideration, not having been properly adopted by CU South and, in any event, not applicable to Mr Dunstan’s nomination.
(d)The Board had breached the requirements of natural justice in not giving Mr Dunstan an opportunity to be heard on its decision.
Those grounds include, as indicated, whether the Fit and Proper policy was a policy of CU South at all. Before addressing those grounds, we think it is helpful to summarise what the terms of the documents said to constitute, and to reflect, that policy provide.
The Fit and Proper policy
CU South’s Fit and Proper policy supplemented the requirement of the Non‑bank Deposit Takers Act 2013 for CU South, as part of the process for licensing, to provide a “suitability notice” for each director and senior officer, or proposed director or senior officer.[4] The Fit and Proper policy provided, as the Judge put it in the High Court, a “more comprehensive” Fit and Proper policy than that found in the legislation.[5]
[4]Non-bank Deposit Takers Act 2013, s 13(1)(c).
[5]Judgment under appeal, above n 1, at [84]. See Non-bank Deposit Takers Act, s 15 as to the requirements of suitability, and the Non-bank Deposit Takers (Debt Securities and Suitability Concerns) Regulations 2014.
The Fit and Proper policy has its origins in a similar policy of the credit union industry’s parent body, the New Zealand Credit Union. Mr Dunstan himself referred to that document as “our” policy when communicating with other members of the Board in July 2015 on the question of the application of the policy to another members’ nominee for election as a director. That document,[6] as relevant, explains:
[6]The document also reflects the “suitability” requirement of the Reserve Bank under the Non‑bank Deposit Takers Act.
NZCU Policy on Suitability of Board Member and Senior Officers
Overview: As part of the NZCU Governance Terms of Reference all current and potential directors and senior officers are required to be of a “fit and proper” character to hold their position with NZCU. …
Fit and Proper: The term “fit and proper” relates to the candidates ability and competence to complete their role to a high standard and do so in a manner that brings no disrepute on NZCU or themselves. Character traits are also examined and past actions or inactions are assessed. NZCU employ a robust set of procedures when assessing whether a potential candidate is fit and proper to hold the position they either hold or are aspiring to hold. Potential directors and CEOs are vetted by the NZCU Governance Committee, other senior officers are vetted by the CEO. Methods of vetting include, but are not limited to:
·Candidates filling in and signing the NZCU Fit and Proper declaration (appendix A)
·Verification of academic qualifications and professional memberships
·Checks of employment history
·Checks of directorships and shareholdings
·Checks of bankruptcies and directorship disqualifications
·Seeking probity reports from independent providers
·Character references from reputable sources
·Assessments from the recruitment process including intelligence and personality testing
·Police checks
·Credit check
Board members and senior officers are required to keep the Governance Committee fully informed of anything that may compromise their fit and proper status. The declaration must be completed annually and the Governance Committee monitor status in conjunction with the “suitability’ requirement of the RBNZ.
…
Those requirements are reflected in Terms of Reference for the Nominations and Governance Committees, adopted in July and November 2015 respectively, to which we return later.
This appeal — an overview
In a detailed and carefully reasoned judgment Dunningham J declined Mr Dunstan’s application for judicial review.[7]
[7]Judgment under appeal, above n 1.
Before us on appeal Mr Dunstan, as he had in the High Court, alleged numerous failures by the Board and its two committees to comply with procedural and substantive obligations leading up to the Board’s decision. He advanced no fewer than 28 separate grounds of appeal. Many pointed to procedural irregularities at the committee level.
In that context we think it is important to bear in mind that, at all relevant times, the reality was that of the five Board members (that is the second respondents Ms Fredric, Mr McKnight, Ms Edwards, Mr Booth and Ms Cumming):
(a)Ms Fredric and Ms Cumming did not participate as they were either eligible for, or eligible and standing for, re-election as directors. Therefore it fell to Mr McKnight, Mr Booth and Ms Edwards to discharge the Board’s responsibilities;
(b)the Nominations Committee also comprised Mr McKnight, Mr Booth and Ms Edwards; and
(c)the Governance Committee at the time comprised Ms Fredric, Ms Cumming and Mr Booth. Ms Fredric and Ms Cummings being disqualified, Ms Dickie, the then CEO of CU South, was co-opted to assist Mr Booth.
The discretionary relief available under judicial review responds to material procedural irregularities in the decision-making process which deprives a decision reached of substantive validity. Generally, the merits of a decision — save for irrationality — are not for the courts to pass judgment on. Here the ultimate decision was made by the Board, at a quorate meeting, by the very people who had been involved throughout as Board members, members of the Nominations Committee and members of the Governance Committee. On that basis, a finely grained interrogation of internal processes — as invited by Mr Dunstan’s submissions — would be an exercise of highly questionable utility, and one we do not propose to undertake.
Rather we focus our attention on the following substantive issues as raised by Mr Dunstan’s appeal of the High Court decision:
(a)Is the Board’s decision amenable to judicial review?
(b)If it is, did the Rules provide for the Board to apply the Fit and Proper policy to Mr Dunstan prior to forwarding his nomination for election as a director to the members?
(c)If they did, did the Board apply that assessment to Mr Dunstan and reach its conclusion that he did not meet that assessment, in a procedurally fair and substantively reasonable way?
When considering those matters, and any relief which may be called for, we bear in mind the following matters:
(a)CU South, as an unincorporated society, was effectively a club to facilitate members’ financial self-help. Therefore, the interests of the officers and members of that club are essentially private ones.
(b)It is not the law’s approach, even if judicial review is available, to subject interactions within a club to great scrutiny.[8]
(c)Of particular significance, CU South no longer exists.
[8]Hopper v North Shore Aero Club Inc [2007] NZAR 354 (CA) at [9]–[10]; and Peters v Collinge [1993] 2 NZLR 554 (HC) at 566.
In noting those matters we observe that, as best we can tell, the events in question here occurred in the context of challenging times for CU South. CU South had for some time faced considerable difficulties in maintaining its existence as a viable entity. Inevitably, conflicts arose between those involved in CU South when they responded to those circumstances in different ways. Our overall sense is that it was those conflicts which — to what precise extent we cannot assess — contributed to the events at issue.
That said, we turn to the issues as we see them.
Is judicial review of CU South available to Mr Dunstan?
The Judge’s decision
The Judge concluded Mr Dunstan was unable to judicially review the Board’s decision for two reasons:[9]
(a)As CU South was not a body corporate the decision Mr Dunstan sought to challenge did not involve the exercise of a “statutory power”.[10] Therefore, that decision was not reviewable under the Judicial Review Procedure Act 2016.[11]
(b)Nor was that decision reviewable at common law, in terms of the provisions of pt 30 of the High Court Rules 2016. The operations of a credit union did not have a sufficient public dimension to make it amenable to review.[12] Mr Dunstan had an alternative remedy in contract.[13] That is, he could have sued to require compliance by the Board and CU South with the Rules, as he said they were to be understood.
Mr Dunstan’s arguments
[9]Judgment under appeal, above n 1, at [68].
[10]At [53]–[55]; and Judicial Review Procedure Act 2016, s 5(1)(b).
[11]At [55].
[12]At [65].
[13]At [66]–[67].
Mr Dunstan does not challenge the conclusion the Judge reached based on the fact CU South is not a body corporate. Rather he says that as CU South had denied his request for a review as provided by r 71 of CU South’s Rules, the Judge was wrong to find he had an alternative remedy available to him. Moreover s 118(d) of the Credit Unions Act separately gave a right of judicial review. Concluding judicial review was unavailable to him was, finally, inconsistent with his rights as affirmed by s 27(2) of the New Zealand Bill of Rights Act 1990 (NZBORA).
Analysis
Mr Dunstan did not explicitly challenge the Judge’s conclusion that, as CU South was not a body corporate, judicial review under the Judicial Review Procedure Act was not available to him. If that is accepted, and we see no error in the Judge’s conclusion on that point, it is difficult to see how the arguments he made on appeal on the availability of judicial review can succeed.
There would remain the possibility that his arguments on appeal, if accepted, would establish that the limited common law pathway for judicial review of decisions of unincorporated bodies was engaged. Alternatively those arguments might reflect an argument which was not made: that is, the Board, with responsibility for an entity licenced under the Credit Unions Act and regulated under the Non-bank Deposit Takers Act, was exercising a statutory power or right conferred under one or both of those Acts when making the challenged decision.
As the Judge acknowledged, under the common law pathway for judicial review (reflected in pt 30 of the High Court Rules) a decision of an unincorporated body may be reviewable if it has a sufficiently public dimension. However, as its objects reflect, CU South was essentially a private organisation providing a cooperative framework for its members to save and borrow and, more generally, to adopt prudent financial practices in their private lives. That is not a “public” function. Moreover, the decision Mr Dunstan challenges is very much an internal one, involving CU South’s Rules, the contract between its members. Those considerations suggest common law review is not available.
As for Mr Dunstan’s specific arguments on appeal, noting they had not been raised in the High Court:
(a)The Judge was not wrong in finding Mr Dunstan had an alternative remedy. She was explicitly referring to Mr Dunstan’s right in contract to challenge what he saw as a breach of the Rules.[14] She was not referring to the complaint mechanism found in r 71 at that point, whether or not r 71 was applicable in the circumstances.
(b)Section 118(d) of the Credit Unions Act does not create an alternative statutory pathway for judicial review. Section 118 applies the dispute resolution provisions of ss 78 to 81, available to members of friendly societies and members of credit unions. Those provisions provide first for the dispute to be considered under the rules of the relevant body (here r 71 of the Rules),[15] or by way of reference to the Registrar of Friendly Societies and Credit Unions.[16] Section 81, which is applied by s 118(d), creates a mechanism to take the dispute to court where either the Registrar makes no decision within 40 days on the reference or, as they may do, declines the reference. In those circumstances the court “may hear and determine the matter in dispute”.[17] That is not judicial review. Rather it is a mechanism whereby the court may determine the dispute notwithstanding the procedural rules of the entity involved.
(c)Nor does s 27(2) of NZBORA assist Mr Dunstan. CU South is not a tribunal or public authority within the meaning of s 27. Thus, to the extent Mr Dunstan asserts failures to follow procedures his complaint does not engage his rights to justice as affirmed by that provision.
[14]At [66].
[15]Friendly Societies and Credit Unions Act, s 78(2).
[16]Section 79.
[17]Section 81(1).
In our view, therefore, those arguments do not affect the correctness of the Judge’s decision that common law judicial review was not available to Mr Dunstan.
We have raised the question of whether those arguments reflect a proposition not explicitly put before the Judge or, indeed, us: that is, that the challenged decision was a statutory power of decision[18] conferred by or under either or both of the Credit Unions Act or the Non-bank Deposit Takers Act. That said, the proposition may have some strength. As we have explained, CU South’s Fit and Proper policy supplemented and expanded the procedures its Rules provided to enable it to give suitability notices on registration, and, on an ongoing basis, to satisfy its obligation to notify the Reserve Bank of “suitability concerns”.[19] Given the considerable overlap between the procedures for and substance of the Fit and Proper policy and decisions on suitability, it might be suggested that the statutory power of decision under which suitability notices or notifications are given is also involved in the application of the Fit and Proper policy.
[18]Judicial Review Procedure Act, ss 4 and 5(2)(b).
[19]Non-bank Deposit Takers Act, s 42.
However, as that argument was not raised before the Judge, or indeed on appeal, it is not one which we could consider further without at least seeking submissions. Moreover, we are hesitant, given the considerable time and resources this dispute has now consumed, to further extend the process.
Since we have found the Board’s decision is not amenable to judicial review, the appeal will be dismissed. Nevertheless we will, as the Judge did and for the reasons given by her together with the possible availability of that alternative basis for judicial review, now go on to consider the substance of the arguments on which Mr Dunstan would have based his judicial review challenge.[20]
Did the Rules of CU South provide for the Board to apply the Fit and Proper policy to Mr Dunstan, prior to forwarding his nomination for election as a director to the members?
The Judge’s decision
[20]Judgment under appeal, above n 1, at [69].
Mr Dunstan, by reference to what he said was the proper construction of the Rules, challenged the Board’s decision to apply the Fit and Proper policy to him. More fundamentally, he also said that what the Board asserted was CU’s Fit and Proper policy had not, in fact, been adopted in a procedurally regular manner.
The Judge rejected both of those arguments. She was satisfied that, as the respondents had argued, CU South had a “cohesive set of policy documents” requiring Board members and senior officers to meet both the suitability requirements under the Non-bank Takers Deposit Act and under the Fit and Proper policy.[21] She was also satisfied the Board acted in accordance with the Rules when applying that assessment to Mr Dunstan.[22]
Mr Dunstan’s argument
[21]At [84].
[22]At [79] and [85].
As he had in the High Court, Mr Dunstan submitted the Board’s records were unable to establish the Board had adopted the Fit and Proper policy in a procedurally correct way. Moreover, the Board had been wrong to apply that policy to him. As he had been nominated by the members the Rules required the Board to put that nomination before the members in an annual meeting.
Analysis
We find Mr Dunstan’s assertion that the Fit and Proper policy had not been correctly adopted a little surprising, given Mr Dunstan was a member or Chair of the Board at the relevant times and had been involved in an earlier application of that policy. Putting that consideration aside, however, the Judge described the context for this aspect of Mr Dunstan’s challenge in the following way:
[35] The scope of the fit and proper assessment is a disputed issue in this hearing. However, for the purposes of the narrative, the Board members relied on the following three documents as setting out the criteria for a fit and proper assessment:
(a) the NZCU Policy on Suitability of Board Members and Senior Officers;
(b) the CUS Nominations Committee Terms of Reference adopted by the Board on 16 July 2015 and amended on 27 May 2017; and
(c) the CUS Fit and Proper Assessment for Director and Trustee Nominees Terms of Reference, again adopted by the Board on 16 July 2015 and amended on 27 May 2017. …
(Footnote omitted.)
As we have already mentioned, an email from Mr Dunstan dated 3 July 2015 describes the NZCU policy as “our” policy on Suitability of Board Members and Senior Officers. That email was sent in the context of the Board’s consideration of the suitability a former CU South CEO, Mr Leys, for election. Mr Leys had been nominated by a member. The Board, chaired by Mr Dunstan, did not consider Mr Leys a fit and proper candidate. Legal advice was sought, including from a Mr Harford. Ms Dickie, CU South’s then CEO, explained in her affidavit:
Based on what had been provided to him, Mr Harford proposed that he should prepare further documents to fill in some process gaps around the Fit and Proper policy. Those documents were in turn, subject to minor corrections, approved by CUS’ Board at its meeting on 16 July 2015. … The further documents adopted by the Board are the Nominations Committee Terms of Reference … and the “Credit Union South Fit and Proper Assessment — for Directors and Trustee Nominees — Terms of Reference”. … Both documents, in their terms, are based on the policy on suitability document which Mr Dunstan has annexed. Later, a Governance Committee Terms of Reference document … was adopted.
The effect of those documents and the processes undertaken pursuant to them is that all nominees for election as directors are checked against the various criteria in Rule 25.1, including being required to meet the Fit and Proper policy, just as they are required to meet the suitability requirements of RBNZ.
…
Under Mr Dunstan’s chairmanship, the Fit and Proper policy, as just described, was duly applied to Mr Leys’ nomination. As a result, his nomination was rejected on the basis that he failed to meet CUS’ Fit and Proper policy.
Mr Booth, a previous elected director of CU South and appointed in February 2017 to the Board to fill the vacancy caused by Mr Dunstan’s resignation, confirmed Ms Dickie’s account of matters. In doing so he stated:
I remember the issues concerning the nomination of Mr Andrew Leys, a former CEO, for election at the 2015 elections. Given the circumstances in which Mr Leys had stepped down as CEO, the then directors had major concerns about his suitability to be a member of CUS’ Board. Mr Dunstan, as Chair, drove the process in respect of Mr Leys, which finally culminated in Mr Leys’ nomination being rejected on the basis that he did not meet CUS’ Fit and Proper Policy.
During the course of the process, I am aware that significant work was done to formulate and adopt policies and terms of reference to the Nominations Committee and Governance Committee as to how the Fit and Proper Policy was to be applied. Again, that work was driven by Mr Dunstan with the support of other directors. The policies and procedures then put in place were, in the end, applied to Mr Dunstan in 2017 …
Having reviewed the affidavit evidence, and the exhibits, we are satisfied, as was the Judge, that the Fit and Proper policy was a properly adopted policy of CU South. If nothing else, the application of the policy in the case of Mr Leys’ nomination whilst Mr Dunstan was the chair of the Board establishes, irrespective of Mr Dunstan’s own involvement in that process, that position.
We turn then to Mr Dunstan’s argument that the Rules make it clear that, even if properly adopted, the Fit and Proper policy was not to be applied to members’ nominations (but rather only nominations made by the Nomination Committee).
In arguing this aspect of his appeal Mr Dunstan relied in particular on r 23(d)(ii). Rule 23 sets out CU South’s procedures for the nomination and election of directors. Rule 23(d) provides:
(d)At least 14 days before the Annual Meeting the Secretary shall send to each member the following:
(i)The names of the persons nominated by the Nominating Committee for each vacancy together with a copy of the candidates’ Curriculum Vitae detailing their relevant skills and experience;
(ii)The names of the persons nominated by members under clause 23(a) together with copies of each candidates’ Curriculum Vitae detailing their relevant skills and experience;
(iii)Voting ballot papers for election of candidates.
Hence, Mr Dunstan argued, r 23(d)(ii) required his nomination to be forwarded, and no other provision of the Rules gave the Board or either of its committees the power to require otherwise. In particular, and in the case of members’ nomination and election of directors, the Rules only provided for that policy to apply to a director once elected, rather than as a pre-condition to eligibility to stand for election. He said that conclusion was supported by the approach taken under the Non‑bank Deposit Takers Act as regards suitability notices.
We accept that r 23(d)(ii) does not by itself expressly require a nominee’s compliance with the Fit and Proper policy. But r 23(d)(ii) needs to be read in the context of the Rules as a whole and, more particularly, the significance of the Fit and Proper policy in the process whereby nominations are received and forwarded to members. The starting point is r 25.1(j), which provides:
25.1 The following persons may not hold office as Directors or Trustees:
…
(j)Do not meet the Fit and Proper Assessment of the Credit Union.
The Fit and Proper policy is also referred to in:
(a)Rules 23(a)(iii) and 23(b). The former requires a declaration from a member’s nominee as to their Fit and Proper status; the latter reflects the requirement for the Nomination Committee to be satisfied that their nominees meet the Fit and Proper policy.
(b)Rule 60(g) which requires a director or trustee to vacate his or her office immediately if he or she has failed to meet or maintain the requirements under the Fit and Proper policy.
In our view, r 25.1(j) makes it clear that the Fit and Proper policy, and the requirement to meet that assessment, applies to members’ nominees equally as it does to nominees of the Nomination Committee. It would make little sense to interpret the Rules so that requirement only applied to directors nominated by members once they had been appointed.
That conclusion is reinforced by the terms of reference of the Nominations Committee, which provide:
PURPOSE
Prior to each election of Directors and Trustees, the Secretary gives notice to all members calling for nominations for filling vacancies and setting out the preferred skills required by the Board.
Pursuant to the Rules, a Nomination Committee … is appointed. The role of the Nomination Committee is to nominate at least one member for each vacancy for which elections are being held and provide those nominations to the Secretary.
In addition to nominating members, the Committee has been delegated the responsibility of reviewing nominations received to ensure that such nominees comply with all requirements.
(Emphasis added.)
We consider that conclusion is also supported by the relationship between the Fit and Proper policy and the suitability notices and assessments. The Non-bank Deposit Takers Act requires the Board to consider questions of fit and proper status and suitability of candidates for election, be they member nominations or nominations of the Nominations Committee, before elections.[23] If that were not the case, as regards issues of suitability, and the Board was of the view a candidate was unsuitable, all that would happen would be that candidate might be elected, but the Board would have to immediately give a suitability concern notice to the Reserve Bank.[24] That makes little sense. The same applies in our view as regards the fit and proper assessment.
Did the Board apply that assessment to Mr Dunstan, and reach its conclusion that he did not meet the requirements of that assessment, in a procedurally fair and substantively reasonable way?
[23]Non-bank Deposit Takers Act, s 15.
[24]Section 42.
The circumstances in which Mr Dunstan had resigned from the Board in January 2017 were central both to the Board’s application of the policy to him and the decision it reached. Those circumstances can be summarised as follows:
(a)Whilst a member of the Board, and as Chair, Mr Dunstan had been closely involved in the establishment of what was termed an Associate Director programme. The purpose of the programme was to identify persons who might be suitable for election as a director; to appoint a member of the Board as a mentor for that person; and to introduce that person to the Board’s procedures and substantive decision making over time.
(b)At the January 2017 Board meeting Mr Dunstan disagreed with the approach the majority proposed to take to persons who might be approached as possible associate directors. At issue was whether, as Mr Dunstan maintained, the requirement was for such persons to have been bona fide members of CU South for a minimum two-year period or whether that was a mere expectation, the fulfilment of which would not be necessary in every case.
(c)Mr Dunstan was adamant that in supporting the establishment of the Associate Director programme he had assured members that a minimum of two years of bona fide membership was a requirement. Later documents detailing the programme suggested that the position had been relaxed over time, so that the “requirement” had become an “expectation”. In any event the point for Mr Dunstan was one of such principle that it occasioned his resignation.
That resignation caused the Board some inconvenience and, in the eyes of other Board members, confirmed the concern they had had for some time that Mr Dunstan was rather inflexible in the way he approached his duties to an extent which was not conducive to the smooth functioning of the Board.
Those concerns resurfaced in August 2017, on the receipt of Mr Dunstan’s nomination.
The Nominations Committee approached an independent party, Personal Verification Ltd (PVL) to make contact with senior officers of two organisations where Mr Dunstan had served as a director, to ask a series of agreed questions. The following passage from the Judge’s decision in the High Court summarised what then happened:[25]
[25]Judgment under appeal, above n 1.
[31] … Those questions were:
(a) Did Tony fulfil his full term obligations to your Board? If no; what were his reasons for leaving early?
(b) Do you feel he fulfilled his obligations as a Director professionally?
(c) Would you reappoint Tony to your Board if the opportunity arose?
[32] PVL then interviewed four individuals, two of whom were Board members of the Forbury Trotting Club and two of whom were Board members of the Clutha Community Health Company Ltd.
[33] The four individuals interviewed were able to identify Mr Dunstan’s strengths, for example the interviewees variously stated that; “he had good qualifications”, “he did make some good decisions”, “he did fulfil his obligations as a Director professionally”, “he was a very committed and diligent Director” and he was “always well prepared for meetings”. However, they also identified weaknesses and three were of the view that they would not reappoint Mr Dunstan to their Board if the opportunity arose, while the fourth interviewee was not unequivocally positive, saying Mr Dunstan “quite often had a different view” and “didn’t have the ability to take the Board with him in terms of articulating a case as to why his views ought to be accepted.”
[34] After discussing the information obtained, it was agreed that the PVL enquiries supported the concerns already identified by the Nominations Committee. That Committee, at its meeting of 10 July 2017 determined that his nomination should be referred to the Governance Committee “for assessment against the Fit and Proper Assessment”.
…
[37] When the Nominations Committee referred the matter to the Governance Committee, that committee immediately convened by telephone. At its meeting on 10 July 2017, the Governance Committee made a finding that Mr Dunstan had not met CUS’s fit and proper requirements and recommended to the Nominations Committee and the Board, that Mr Dunstan’s name should not appear on the CUS ballot papers for the 2017 election.
[38] Mr Booth, who was a member of the Governance Committee, explains that:
What really tipped the decision were the references received from PVL and the commentary from the existing Board. The existing Board had clearly lost its tolerance for Mr Dunstan’s emotional outbursts and resignation. It plainly had no confidence in Mr Dunstan.
He added the external references revealed that these other bodies had experienced much the same sort of behaviour as CUS had experienced and, all bar one, expressed a clear view that they did not want him back.
[39] Mr Dunstan was advised of this by letter dated 13 July 2017 from Mr McKnight, the chairperson of the Nominations Committee. …
Notwithstanding any procedural irregularity, particularly as regards the constitution of the Nominations and Governance Committee at this time, the Judge was satisfied, as we are, that the decision Mr Dunstan had not satisfied the Fit and Proper policy was made by the Board after considering:[26]
(a)the steps taken and conclusions reached by both committees;
(b)material provided by Mr Dunstan; and
(c)the communications of the Board with Mr Dunstan following the initial notification to him of the decision of the Nominations Committee.
[26]At [107]–[108].
She also rejected Mr Dunstan’s two particular challenges to the Board’s actions: namely, that it was not entitled to approach third party referees for views on Mr Dunstan,[27] and that it had breached natural justice by not giving him a proper opportunity to be heard before making its decision.[28] In reaching her conclusions, the Judge was satisfied the further inquiry called for by the Fit and Proper policy made it appropriate for third party information to be obtained.[29] The Board had met any natural justice requirement that might apply in giving Mr Dunstan notice of, and an opportunity to comment on, the decision of the Nominations Committee.[30]
[27]At [117].
[28]At [131].
[29]At [115]–[117].
[30]At [131]–[132].
At the heart of Mr Dunstan’s substantive issues was his rejection of the assessment made of him by those involved. In particular, he did not agree that his time on the Board had shown he was single minded on issues, or that he was convinced he was right, or that he was not a collegial Board member. Nor did the circumstances of his resignation add strength to those conclusions. Moreover, he considered the Board had acted unfairly and without authorisation by approaching third parties for their views. In so doing the Board had breached his privacy. Finally, he had not been given the opportunity to be heard by the Board before it had made its decision, or adequately after that had happened.
As we have said, the merits of the Board’s decision are not for us and, we acknowledge that Mr Dunstan in arguing his appeal focused on the legal issues he had identified rather than the content of his dispute with the Board. That said, the Fit and Proper policy authorised the making of third party inquiries. The Board gave Mr Dunstan the opportunity to comment on its decision. A candidate for election as a director of an unincorporated society has, if any, limited natural justice expectations and entitlements. Certainly, we do not think the procedures the Board adopted were unfair or lacking in a natural justice sense. We are therefore not persuaded the Judge erred in any way in reaching her conclusions.
Result
The appeal is dismissed.
In the normal course, CU South would be entitled to costs for a standard appeal on a band A basis with usual disbursements. However, as CU South no longer exists following the transfer of its engagements, we understand the entitlement to costs would be that of its successor entity, Credit Union Baywide. The parties are invited to file further memoranda on who the appropriate party to award costs to is within 10 working days of this judgment. Costs are reserved in the meantime.
Solicitors:
Gilbert Walker, Auckland for Respondents
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