Alexander v Burne

Court of Appeal (NSW)|2015-11-04|Before: Ward JA, Gleeson JA

Solicitors: Somerset Ryckmans (Appellants) Moray & Agnew Lawyers (First to Ninth Respondents) Maddocks (Tenth Respondent) File Number(s): 2015/129969 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2015] NSWSC 345 Date of Decision: 1 April 2015 Before: Young AJA File Number(s): 2013/171685

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] On 27 April 2012 a meeting was held to consider a resolution for the merger between Grant Thornton Australia Ltd and the Melbourne and Sydney offices of BDO. The resolution was passed after two-thirds of those present at the meeting voted in its favour. The business of BDO operated under a unitised trust structure and the relevant Unitholders Deed (Deed) was entered into on 20 December 2007. Clause 6.1(b) of the Deed required that Unitholder Matters (defined in cl 6.2(a) to include the merger of the business with another firm of practitioners) must be passed by a "Special Majority vote of the Unitholders". "Special Majority" was defined in cl 1.1 as a vote of two-thirds of "persons eligible to vote in respect of a resolution". The appellants commenced proceedings claiming that the resolution was invalid as the number of votes in its favour was less than two-thirds of the total number of Unitholders as required by the combined operation of cl 6.1(b) of the Deed and the definition of Special Majority in cl 1.1. Young AJA ordered the following question to be determined separately pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW): "Was the resolution to approve a proposed merger between Grant Thornton and Capital BDO identified in paragraph 25 of the further amended statement of claim filed 11 January 2013 (FASC) passed by a special majority vote of the Unitholders within the meaning of clause 6.1(b) of the Unitholders Deed identified in paragraph 16 of the FASC?" (the Separate Question) The primary Judge answered the Separate Question in the affirmative. The appellants now appeal to this Court contending that the primary Judge should have answered the Separate Question in the negative. Held, allowing the appeal (Tobias AJA, Ward and Gleeson JJA agreeing): The primary Judge erred in answering the Separate Question in the affirmative. The combined operation of cl 6.1(b) and the definition of "Special Majority" in cl 1.1 of the Deed required that two-thirds of the total number of Unitholders must vote in favour of the resolution. The resolution passed by only two-thirds of those present at the meeting was therefore invalid. Accordingly, the Separate Question should be answered in the negative.

Judgment

WARD JA: I agree with Tobias AJA.
GLEESON JA: I agree with Tobias AJA.
TOBIAS AJA: Prior to their merger in 2012, BDO and Grant Thornton were separate professional accounting firms. So far as the business of BDO was concerned, it operated under a unitised trust structure pursuant to which members of the BDO partnership were Unitholders (Unitholders) of the BDO Kendalls Holdings Unit Trust (Trust). The relevant Unitholders Deed (Deed) was entered into on 20 December 2007.
On 27 April 2012 a meeting of the Unitholders of the Trust was held at the offices of BDO Sydney and BDO Melbourne. The meeting was called by BDO Group Pty Ltd (BDO Trustee), the trustee of the Trust, for the purpose of considering a resolution that approval be given to a proposed merger between Grant Thornton Australia Limited (the tenth respondent, Grant Thornton) and the Melbourne and Sydney offices of BDO (Resolution).
As disclosed in the minutes, the meeting occurred in circumstances where the BDO business was in significant financial difficulty and was faced, in the view of the Chairman of the meeting, with a choice between merging with Grant Thornton or considering the future viability of the business and the possibility of voluntary administration. Addresses were made to the meeting about the terms of the Grant Thornton merger and the BDO business' solvency.
Fifty-nine Unitholders were present at the meeting, by person or proxy, out of a total of either 69 or 70 Unitholders. A quorum was declared because in accordance with cl 6.3(e) of the Deed, at least 75 per cent of all Unitholders were so present.
Scrutineers were in attendance at the meeting in both Sydney and Melbourne. After the Resolution was put, the Unitholders voted by poll. The scrutineers announced the result of the poll as follows: "Those eligible to vote by proxy or being present: 59 Abstains 12 Total to be considered 47 Yes votes 44 No votes 3 --- 47 Accordingly the motion was declared carried."
There being no further business, the meeting was concluded. The businesses of BDO and Grant Thornton subsequently merged in accordance with the Resolution.
The appellants were Unitholders of the Trust. They instituted proceedings claiming that the Resolution was invalid as the number of votes in its favour was less than two-thirds of the total number of Unitholders as required by the combined operation of cl 6.1(b) of the Deed and the definition of "Special Majority" in cl 1.1.
The proceedings came on for case management before Young AJA who, on 5 March 2015, ordered the following question be determined separately pursuant to r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW): "Was the resolution to approve a proposed merger between Grant Thornton and BDO identified in paragraph 25 of the Further amended Statement of Claim filed 11 January 2013 (FASC) passed by a Special Majority vote of the Unitholders within the meaning of cl 6.1(b) of the Unitholders Deed identified in paragraph 16 of the FASC?" (the Separate Question)
The appellants contended for a negative answer to the Separate Question, whereas the first to ninth respondents, who are also Unitholders, and the tenth respondent (who was separately represented) sought an affirmative answer. The primary judge found in favour of the respondents and answered the Separate Question, "Yes": Alexander v Burne [2015] NSWSC 345. The appellants now appeal to this Court on the sole issue as to whether the answer given by the primary judge was correct.

The primary provisions of the Deed

The Deed made special provision in cl 6.2 with respect to what was referred to as Unitholder Matters. It provided as follows: "(a) Each of the following matters are Unitholder Matters and must be determined by the Unitholders by a Special Majority: (i) any amendment to this Deed; (ii) the removal of the Board as a whole or any director (for any reason); (iii) the removal of the Firm Council as a whole or any Firm Council member (for any reason); (iv) entering into a merger with another firm of practitioners carrying on an accounting or corporate advisory practice, or acquiring all or substantially all of the business of any such firm; (v) selling or otherwise disposing of a material part of the Business or the Group; (vi) an appeal by any Unitholder or Related Principal in relation to a Decision or the Board or Firm Council under clause 15; (vii) the termination of this Deed; and (viii) the ratification of a Decision of the Board to appoint, remove or replace an Independent Director under clause 7.5. (b) The Unitholders are also responsible for: (i) the appointment of Executive Directors in accordance with clause 7.2; and (ii) the appointment of Firm Council members in accordance with clause 9.6."
The Unitholder Matter relevant to the present case was that referred to in cl 6.2(a)(iv). It is apparent that all the matters listed in cl 6.2(a) involve significant and fundamental aspects of the Unitholders' interests under the Deed.
It is in that context that the chapeau of cl 6.2(a) provided that Unitholder Matters must be determined by the Unitholders by a "Special Majority". That term was defined in cl 1.1 of the Deed to mean: "a vote of two-thirds or more (in number and not underlying equity) of the persons eligible to vote in respect of a resolution".
Clause 6.1 of the Deed was in the following terms: "Voting Decisions (a) In respect of a resolution to be considered at a meeting of Unitholders, each Unitholder will be entitled to cast one vote, irrespective of the number of Units held. (b) No Decision regarding a Unitholder Matter may be implemented unless it is passed by a Special Majority vote of the Unitholders. (c) A Decision by the Unitholders may be made by: (i) a resolution voted on by the Unitholders at a meeting of the Unitholders; or (ii) by means of each Unitholder signing a document containing a statement that they are in favour of the resolution set out in the document (without a meeting of Unitholders)."
Clause 6.3 dealt with Unitholder Meetings. It relevantly provided: "(c) A Unitholder Matter may not be considered at a Unitholder meeting unless at least 1 weeks' notice in writing is given to each Unitholder. This requirement may be waived by a Special Majority vote of the Unitholders at the Unitholder meeting at which the Unitholder Matter is considered. … (e) Subject to clause 6.3(f), a quorum for meetings of Unitholders will be at least 75% of Unitholders present in person or by representative. (f) If a quorum in accordance with clause 6.3(3) is not present within one hour from the start of a meeting of Unitholders, the following provisions will apply: (i) the meeting will be reconvened on the day which is the fifth Business Day after the day on which the original meeting was to be held; (ii) the time and place of the reconvened meeting will be the same as for the original meeting; (iii) notice of the date, time and place of the reconvened meeting will be sent to all Unitholders; and (iv) the quorum for the reconvened meeting will be two Unitholders in person or by representative."
In their submissions the first to ninth respondents relied on a number of other provisions of the Deed to which I shall refer when recounting their contentions with respect to them.

The decision of the primary judge

The primary judge relied on a statement of Chancellor Kent of New York in his commentaries on American law and on a decision of his own as well as a decision of the English Court of Appeal. Each of those cases depended upon their own facts although in his own decision (Cullen v Galloway Cattle Society of Australia Inc (1998) 27 ACSR 648), his Honour was concerned with the validity of a resolution of a council of an incorporated association whose constitution provided that a resolution of two-thirds majority of the council was required. The question was whether that meant two-thirds majority of those present and voting or two-thirds of the whole of the council members. His Honour held it meant the latter. In so finding, his Honour said (at 652): "It seems to me that Chancellor Kent's approach gives some indication, and a fairly logical indication to the general approach to these provisions. That is, when one is referring to a board or a council, the ordinary meaning of two-thirds majority is two-thirds majority of the whole council and that unless there is something else in the instrument which shows a contrary indication that is usually the answer the Court will reach. That is the answer I reach in this case because I do not consider that there is sufficient contrary indication."
The approach of Chancellor Kent referred to was in these terms: "There is a distinction taken between a corporate act to be done by a select and definite body, as by a board of directors, and one to be performed by the constituent members. In the latter case a majority of those who appear may act; but in the former a majority of the definite body must be present, and then a majority of the quorum may decide."
In the decision of the English Court of Appeal referred to by his Honour (Knowles v Zoological Society of London [1959] 1 WLR 823), the constitution of the defendant Society provided that new by-laws could be made "if a majority of fellows entitled to vote" should vote in their favour. There were over 7,000 fellows in the Society. A meeting was held at which 3,034 fellows voted in person or by proxy. It was held on the facts that the word "majority" meant the majority of those present and voting. That is perhaps not surprising given the number of fellows of the Society. His Honour (at [27]) applied the result in Knowles to the present case.
At [30] of his reasons, the primary Judge referred to a submission on behalf of the appellants which focussed on the word "eligible" in the definition of Special Majority. It was submitted that a vote (or the capacity to vote) is a right of property and a person who is eligible to vote cannot lose that right merely because he or she does not attend a meeting either in person or by proxy. His Honour's response to that proposition was that: "a person who declines to go to the meeting either voluntarily or involuntarily has submitted to the parts of the constitution which require a quorum and entitle a majority of those who are present and voting to make the decision". He thus answered the Separate Question in the affirmative.

The parties' submissions on the appeal

The appellants' submissions may be summarised thus: 1. In Knowles it was held by the Court of Appeal that the expression "majority of fellows entitled to vote" in the by-laws of the Society referred to the majority of those present at a meeting and entitled [by that fact] to vote and not the majority of the total of fellows whether actually present and voting or not. The case was largely resolved by the application of first principles using general rules of interpretation. 2. If anything, the judgment in Knowles supported the position of the appellants particularly as the interpretation contended for by the plaintiff in that case would have led to such inconvenience, given the number of members of the Society, as to amount to an absurdity since it was impossible to ascertain at any given moment for any practical purpose who the fellows were who were entitled to vote: Knowles at 825; the figure of 7,000 was said to include an unascertained number of fellows who were probably disqualified and some who had not received notice of the meeting. 3. In Peters v Kerle [1997] QSC 68, Fryberg J had to consider the meaning of the expression "two-thirds majority of the voting members". His Honour concluded that that phrase referred to "two-thirds majority of the whole of the members who were entitled to vote". His Honour was referred to the decision in Knowles but did not find it to be of direct assistance in the context with which he was concerned. I would agree with that comment. 4. Applying the conventional principles of interpretation adumbrated by Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Limited [1973] HCA 36; (1973) 129 CLR 99 at 109 and of Macfarlan JA in Jireh International Pty Limited t/as Gloria Jeans Coffee v Western Export Services Inc [2011] NSWCA 137 at [55], it could not be said that the literal meaning of "two-thirds of the persons eligible to vote" in the definition of Special Majority would lead to such inconvenience or inconsistency as to amount to an absurdity or commercial nonsense: see Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 89 ALJR 990 at [51]; BB Retail Capital Pty Ltd v Alexandria Landfill Pty Ltd [2015] NSWCA 319 at [79]. 5. As the words "two-thirds or more" in the definition of Special Majority were qualified by the phrase "of the persons eligible to vote", the latter words did not evince an intention that the "persons eligible to vote" were only those persons entitled to vote by reason of their being in attendance at a meeting. Nor did they show an intention that persons not present, or present but not voting, were not to be counted in ascertaining the requirement for a two‑thirds majority. 6. In its context, the expression "eligible to vote" in the definition of "Special Majority" directed attention to persons who had the legal right or were qualified to vote at a meeting, regardless of whether or not they actually exercised that right by attending a meeting or giving a proxy. As Finkelstein J observed in Inquiry Relating to Elections for Offices in the United Firefighters' Union of Australia, Victorian Branch; Re Churchill [2001] FCA 469; (2001) 109 FCR 104 at [32]: "The term 'eligible' as applied to members in relation to voting, meant competency or capacity to vote. That is to say, a member will not be 'eligible to vote' if he is incapable of, or not legally entitled to, vote. The word does not convey the notion that a member who is entitled to vote, must have every one of his votes counted." 1. Furthermore, there were a number of textual considerations which supported the appellants' construction. The high quorum requirement in cl 6.3(e) of 75 per cent actually made it easier to achieve a Special Majority vote of two-thirds of the total number of Unitholders. A quorum in the present case was 52 Unitholders (being 75 per cent of all Unitholders) and on the appellants' construction, 46 Unitholders was the number necessary to constitute a Special Majority. Thus at a meeting where the quorum was 52, 88 per cent of the Unitholders would have to vote in favour of the resolution for it to be carried by a Special Majority: there was nothing absurd or inconvenient or uncommercial about that. 2. On the other hand if the respondents' contention was to be accepted so that only two-thirds of those Unitholders who were present at the meeting needed to vote in favour of the resolution, then again assuming a quorum of 52 Unitholders, the resolution would be passed by a favourable vote of 35 or only 49.5 per cent of the total number of Unitholders. It could not have been intended that serious Unitholder Matters could be determined on the vote of only 50 per cent or less of their number. 3. It is not clear that a cl 6.2(a) Unitholder Matter could be decided by way of a circular resolution pursuant to cl 6.1(c)(ii) given the terms of cl 6.1(b) which requires a "Special Majority vote" which in turn requires a meeting. Clause 6.1(c) is general in its terms and is not confined to a Decision on a Unitholder Matter. Thus in the case of a non-Unitholder Matter, a Special Majority is not required so that a simple majority (to be distinguished from a Simple Majority, a term that is defined in cl 1.1) of those Unitholders present, in person or by proxy, at the meeting will suffice. In one sense, this supports the construction of cl 6.1(b) as requiring a Special Majority of all Unitholders to vote in favour of a resolution relating to a Unitholder Matter referred to in cl 6.2(a). 4. The text of the waiver provision in cl 6.3(c) is consistent with the appellant's construction. The point is that a Special Majority vote or any vote of Unitholders can only take place at a meeting of Unitholders where there is a 75 per cent quorum as required by cl 6.3(e). The words "at the Unitholders meeting" directs attention to the Unitholders actually present at the meeting; those words are missing from the definition of "Special Majority". There is nothing absurd, inconvenient or inconsistent in requiring the waiver of one week's notice of a Unitholder meeting to be the subject of a vote of two-thirds of all Unitholders which, by definition as it were, will be less than the 75 per cent required to form a quorum. It follows that a Special Majority of Unitholders will always be present at a valid Unitholders meeting.
The submissions of the first to ninth respondents may be summarised as follows: 1. Clause 6.1(b) makes clear that a resolution in respect of a cl 6.2(a) Unitholder Matter (all of which are serious matters affecting the business of BDO) must be passed by a Special Majority vote. Accordingly, the focus is on the conduct of the particular Unitholders' meeting and the nature of the votes passed at that meeting by those persons present in person or by proxy. 2. This focus is reinforced (albeit to a limited extent) by the fact that the "Special Majority vote" must be one of "the Unitholders". This directs attention to the subset of Unitholders that have chosen to attend the meeting in person or by proxy. 3. It is in this context that the definition of "Special Majority" is to be considered. In speaking of eligibility to vote in respect of "a resolution", the definition of "Special Majority" focuses on the particular resolution (or resolutions) being put to the meeting rather than resolutions or meetings generally. At the time a particular resolution is put to a vote, a person's eligibility to vote in respect of it depends upon whether the person is in attendance at the meeting either in person or by proxy. At that moment, a Unitholder who chooses not to attend is not eligible to vote in respect of the resolution put at that meeting. 4. Clause 6.1(c) rounds out cl 6.1 and identities two ways in which a Decision by the Unitholders can be made of which the first is a resolution "voted on by the Unitholders at a meeting of the Unitholders". The use of the definite article repeats the approach adopted in cl 6.1(b) and directs attention to those Unitholders who have chosen to attend, by person or proxy, the meeting. By definition, the only Unitholders able or entitled to vote at a meeting of Unitholders are those who have chosen to be present in person or by proxy; nothing in cl 6.1(c)(ii) impacts on the above analysis particularly as the concept of a Special Majority does not arise under that provision. 5. A number of contextual considerations further support the construction contended for. Thus cl 6.3(e) requires a quorum to be at least 75 per cent of all Unitholders although the word "all" does not appear; clear language ought to be required if, despite the protection conferred by a quorum fixed at that level, the votes of two-thirds of all Unitholders, as opposed to two-thirds of those making up the quorum, were nevertheless required to pass a resolution under cl 6.1(b). 6. The appellants' construction breaks down when one recognises that relevantly identical language is used in the definition of "Simple Majority", namely, the vote of a majority "… of the persons eligible to vote in respect of a resolution". On the appellants' construction, a Simple Majority requires a vote in favour of at least 50 per cent of all Unitholders. Yet, cl 6.3(f)(iv) contemplates a reconvened meeting with a quorum of only two Unitholders. The appellants' construction would require a vote in favour of 35 Unitholders. That consequence defeats the purpose of cl 6.3(f), which is to ensure that the business will not be frustrated by a low attendance. [It should be noted that the requirement for a Single Majority as defined only appears twice in the Deed: in cll 7.6(b) and 8.2(a)]. 7. Chancellor Kent's rule and Cullen are, in effect, neutral as any "rule" could not prevail over the terms of the agreement being construed. Nevertheless, recourse to the rule was one aid to construction in an appropriate case. 8. To the extent Knowles has significance it provides support for the respondents' construction. However, there are several grounds in the reasoning of the Court of Appeal that do not apply to the present case.
The tenth respondent made separate submissions in support of the construction for which the first nine respondents contended. Its submissions may be summarised as follows: 1. If the appellants' construction is correct it would mean that a Unitholder Matter could never be passed at a valid meeting of Unitholders unless 66 per cent of all Unitholders voted in favour of the resolution. This is contrary to the clear commercial purpose and effect in cl 6.3(e) in specifying a quorum as high as 75 per cent. 2. Taken to its logical conclusion, if the appellants are correct, that would mean that a block of Unitholders or even individual Unitholders could deliberately avoid every meeting convened to consider a Unitholder Matter; and even though a quorum might be present to lawfully transact the business of the Unitholders, without two-thirds of the total, they could continually stifle a consideration of the Unitholder Matter; however, cl 6.3(e) by-passes that risk. 3. Clause 6.1(a) concerns the voting rights of the Unitholders when considering a resolution at a meeting. The implication that flows from the express words "will be entitled to cast one vote" in that provision is that a Unitholder has to be present to cast a vote at such a meeting. I interpolate that I do not cavil with this submission: to be entitled to cast a vote at a meeting, the Unitholder must obviously be present at the meeting in person or by proxy. But that does not advance the matter any further. 4. The relevant issue on which the question of construction rests is whether cl 6.1(b) qualifies cl 6.1(c) and, in particular, cl 6.1(c)(i). There are different types of "Decisions" that may be considered, and different ways they can be made. Some require by virtue of the combined operation of cl 6.1(b) and cl 6.2(a), a Special Majority: others do not (such as those referred to in cl 6.2(b)); 5. The appellants' submissions ignore the effect of cl 6.3(e) of the Deed. Irrespective of whether the Decision concerns a Unitholder Matter, cl 6.3(e) mandates a quorum of at least 75 per cent of Unitholders "present in person or by representative" (proxy). Obviously, without a quorum, a meeting is not properly constituted and cannot transact business validly. Specifying the quorum is the customary way in which a minimum number of members is stipulated as being authorised to act for and on behalf of the Unitholders as a whole at a properly convened and constituted meeting. Although Decisions can be made in more than one way (see cl 6.1(c)), if the Decision is to be made at a Unitholders meeting, then cl 6.3 is engaged. Once engaged, it must operate according to its terms and meaning namely, that is that it is only the Unitholders present at that Meeting who can vote. Accordingly, it follows that a Special Majority requires two-thirds of those present at the Meeting to vote in favour of the Decision. 6. If one inserts into cl 6.1(b) the definition of Special Majority, then the sub-clause would read as follows: "No Decision regarding a Unitholder Matter may be implemented unless it is passed by a vote of two-thirds or more (in number and not underlying equity) of the persons eligible to vote in respect of a resolution of the Unitholders." The effect of this exercise is that the words "of the Unitholders" are superfluous. The definition uses the word "persons" distributively, and that is because a Special Majority vote is required not only with respect to a decision on a Unitholder Matter, but also with respect to a Decision of the Firm Council (cl 9.4(b)) and with respect to Decisions of the Board where cl 7.6(b) requires a Special Majority vote of the Board with respect to a Special Board Matter (defined in cl 7.12). However, the concluding words of cl 6.1(b) have work to do if cl 6.1(b) is read in conjunction with cl 6.1(a). The effect of so doing is to give the concluding words of cl 6.1(b) "vote of the Unitholders" work to do by construing cl 6.1(b) as referring to the Unitholders the subject of cl 6.1(a), namely, those present at a Unitholders meeting in person or by proxy. 1. The effect of the foregoing is that, accepting that the definition of Special Majority establishes those Unitholders eligible to vote, when that definition is "plugged in" to cl 6.1(b) and noting that cl 6.1(a) refers to the entitlement of Unitholders to vote at a meeting, it follows that the Unitholders referred to at the end of cl 6.1(b) are a sub-set of all Unitholders, being those who are present in person or by proxy at a meeting of Unitholders and thus entitled to cast one vote. In this way the concluding words of cl 6.1(b) have work to do, namely, by limiting the Unitholders who are eligible to vote to those who are relevantly present at the meeting and thus entitled to vote. 2. Finally, reliance was placed on the second sentence of cl 6.3(c), which provides that the requirement for notice may be waived by a: "… Special Majority vote of the Unitholders at the Unitholder Meeting at which the Unitholder Matter is considered". The point is made that that sentence refers to the vote of Unitholders at a meeting and supports the construction that, to constitute a Special Majority, it is required that two-thirds of those present at the meeting in person or by proxy, must vote in favour of the waiver.

The Separate Question should be answered in the negative

Without traversing all of the respondents' submissions, I would reject them and accept those of the appellants. However, there are a number of points worth recording.
In my opinion it is of significance that cl 6.3(e) provides that a quorum for meetings of Unitholders must be "at least 75 per cent of Unitholders present in person or by representative". It is common ground that that refers to 75 per cent of the total number of Unitholders. It follows that as a Special Majority requires only a minimum of two-thirds of, relevantly, the Unitholders eligible to vote in respect of a resolution relating to a Unitholder Matter, there will always be present at a meeting more Unitholders (either in person or by proxy) than is necessary for a Special Majority vote of all Unitholders to be passed. Had the quorum requirement been less than two-thirds of all Unitholders, then there would be substance in the respondents' submissions. In those circumstances even if all Unitholders present at the meeting voted in favour of a resolution, it could not be passed on the basis of the appellants' construction unless at least two-thirds of all Unitholders attended the relevant meeting.
In my view there is a difference between the requirement in the definition of Special Majority of a vote of two-thirds or more of the persons eligible to vote in respect of a resolution and the requirement of cl 6.1(a) that each Unitholder will be entitled to cast one vote at a meeting of Unitholders. It seems to me that the draftsman has specifically sought to distinguish between a Unitholder who is "eligible" to vote on one hand and a Unitholder who is "entitled" to vote on the other. Eligibility to vote assumes that a Unitholder has the legal right or capacity to vote if he or she attends a meeting either in person or by proxy. It looks to the future. On the other hand, a Unitholder's entitlement to cast a vote requires the Unitholder to be present at the meeting either in person or by proxy. His or her entitlement arises by virtue of that presence. Importantly, cl 6.1(a) is a general provision applicable to any meeting of Unitholders irrespective of whether the subject matter calls for a Special Majority vote.
Thus the first to ninth respondents conflate the requirements of eligibility and entitlement by contending that eligibility requires the Unitholder to be present, in person or by proxy, at the meeting at which the relevant resolution is part. In other words, the only Unitholders eligible to vote in respect of a particular resolution are those Unitholders who claim to be present in person or by proxy at the time the resolution is put to a vote. In effect the respondents were seeking to recast cl 6.1(b) by recasting it impermissibly adding at the end of the sub-clause the words "present at a meeting of Unitholders".
Although this contention was said to be supported by cl 6.1(a), in my opinion it is not. It deals only with entitlement to vote, not eligibility. To be entitled to vote the Unitholders must be present at the meeting in person or by proxy. So much is obvious but does not advance the respondents' construction.
As I have already observed, it is not without significance that there will always be more Unitholders present at a validly convened meeting of Unitholders than is necessary to pass a resolution by a Special Majority notwithstanding that that definition requires a vote of two-thirds or more of the Unitholders eligible to vote at such a meeting. Thus, contrary to the respondents' submission that the appellants' construction ignores cl 6.3(e), the quorum requirement of 75 per cent of all Unitholders supports the construction that for a resolution to be determined by Special Majority, two-thirds or more of all Unitholders eligible to vote have done so. There is no incongruity between the combined operation of cl 6.1(b) and cl 6.3(e) on the one hand, and cl 6.1(a) on the other.
True it is that on the appellants' construction two-thirds of all Unitholders must actually exercise their right to vote and do so in favour of the relevant resolution. But there is nothing untoward about that given that at least 75 per cent of the Unitholders must be present in person or by proxy for there to be a valid meeting at which the resolution is to be passed. It is noteworthy that cl 6.3(e) refers expressly to 75 per cent of Unitholders "present in person or by representative" whereas there is no such qualification in the definition of Special Majority. The respondents' construction would require those words to be impermissibly read into the definition.
As to the submission that the appellants' construction could result in a block of Unitholders or even an individual Unitholder deliberately avoiding every meeting convened to consider a Unitholder Matter and continually stifling the consideration of that matter, that is not so. Only two-thirds of the Unitholders need to vote in favour of the resolution with respect to a Unitholder Matter, and that is less than the 75 per cent of Unitholders who must be present at the meeting to form a quorum. Of course, a meeting may be held with the necessary quorum but less than two-thirds of all Unitholders may vote in favour of the Resolution in which event it will fail.
On the facts of the present case and assuming 69 Unitholders in total, a quorum complying with cl 6.3(e) required the presence, in person or by proxy, of 52 Unitholders. In fact, 59 were present. However, to pass the Resolution, only 46 votes in favour were required being two-thirds of 69. In other words, only 46 of the 59 present needed to have voted in favour for the Resolution for it to have been passed. On the respondents' argument one needed two-thirds of 59, or 40 votes, for the Resolution to be passed, which is only 58 per cent of all Unitholders. In my view it is unlikely that given the nature of the provisions of cl 6.2(a) identifying the Unitholder Matters that must be determined by Special Majority, that it was intended by the draftsman that that requirement could be satisfied by a vote of only 58 per cent of all Unitholders.
As noted at [17] above, the first to ninth respondents relied on a number of provisions of the Deed which, I note, were not specifically relied on by the tenth respondent. The first was cl 7.1 which provides, in effect, that the number of directors of the Board will not exceed eight. Clause 7.9(a) provides that a quorum for a meeting of the Board will be at least half of all the directors. Upon the assumption that there are eight directors, a quorum will be four directors. Clause 7.6 deals with voting of the Board. Clause 7.6(a) provides that each director is entitled to cast one vote in respect of any resolution put at a meeting of the Board. Clause 7.6(b) provides that, except for Special Board Matters (defined in cl 7.12), all Decisions of the Board will be by Simple Majority vote. I have referred to the definition of Simple Majority at [23(f)] above.
It was submitted that if there was a Board meeting at which only four of the directors were present, thus satisfying the quorum requirement, and only two directors voted in favour of the relevant resolution, then it could not be passed as the Chairman of the Board, does not have a casting vote: cl 7.6(a). On the respondents' argument, two votes would not be sufficient to constitute a Simple Majority. At least three members of the Board present in person or by proxy, would need to vote in favour of the resolution. On the appellants' construction, five votes would be required. In my view, there is nothing unusual about either scenario.
Contrary to the submission of the first to ninth respondents in the preceding paragraph, it is neither absurd nor results in the frustration of the Board's business. It simply means that one more than the minimum number for a quorum must be present in person or by proxy for those matters of business that require a Simple Majority or, for that matter, a Special Majority. There is no incongruity in that. Furthermore, the argument breaks down if there are only an odd number of Board members such as seven. A quorum of four would then constitute a Simple Majority.
Where a Special Board Matter is involved, cl 7.6(b) requires a Special Majority vote of the Board. If there are eight directors, on the appellants' construction a resolution of a Special Board Matter could not be passed unless six directors voted in favour so that such a resolution could not be passed if only the minimum quorum of four directors were present at the Board meeting. Again, I see no incongruity in such a result. The quorum provision in cl 7.9(a) requires that "at least" half of all directors be present. If the Board proposes to deal with a Special Board Matter which requires, assuming there are eight directors, six directors vote in favour of the relevant resolution, then at least six directors must attend the meeting in person or by proxy, the latter being permitted by cl 7.7.
The quorum provision applies to all meetings of the Board irrespective of whether or not they are dealing with a Special Board Matter or not. One can reasonably imagine that there are many decisions of the Board that do not require a Special Majority vote. If more than the minimum quorum is necessary to pass a resolution with respect to a Special Board Matter, then so be it. It certainly does not lead to any inconvenience, or inconsistency resulting in absurdity. Nor is there anything uncommercial as to the outcome.
Reference was also made to cl 9 of the Deed relating to the Firm Council. Clause 9.1(a) provides that the Council is to consist of not more than six members. Clause 9.3(b) mandates a quorum for a meeting of the Firm Council of four council members. Clause 9.4(b) provides that all decisions of the Firm Council must be made by Special Majority. Two-thirds of six (assuming there are six council members) requires a vote of four council members to pass a Special Majority resolution. As the quorum for a meeting of the Firm Council is four, then all those present constituting a quorum must vote in favour of the resolution on the appellants' construction. There is no incongruity in such a situation.
Reference was then made to cl 10 of the Deed dealing with the Distribution Committee. Clause 10.1 provides that that Committee is to consist of a maximum of nine persons, being the Board and the Chief Executive Officer. Clause 10.3(b) provides that a quorum for a meeting of the Distribution Committee is three members. Clause 10.4(d) then provides that all Decisions of the Committee must be by unanimous vote. It was therefore submitted that, on the appellants' construction, all nine Members of the Committee must vote in favour of any decision notwithstanding that only three Members of the Committee can form a quorum.
It is noteworthy that cl 10.4(b) is in different terms to cll 6.1(b), 7.6(b) and 9.4(b), each of which requires a decision by Special Majority. Clause 10.4(b) requires decisions of a Distribution Committee to be made by unanimous vote. It is not necessary to apply the appellants' construction of those provisions of the Deed requiring a decision to be made by Special Majority to cl 10.4(b). It is clearly open to construe that provision, as the respondents submit, as requiring a unanimous vote of the members of the Distribution Committee present at a meeting of that committee. Accordingly, if only three members of the Committee are present, and so form a quorum pursuant to cl 10.3(b), then the unanimous vote of all three may be sufficient for the purpose of cl 10.4(b). The provisions are different and, therefore, such a construction of cl 10.4(b) does not require adoption of the respondents' construction in relation to those provisions of the Deed which require a Special Majority vote.
The first to ninth respondents also relied on cl 6.3(d) which provides as follows: "At all meetings of Unitholders, unless a representative of each Unitholder is present and all the representatives of Unitholders present have otherwise agreed, only the items specified in the notice convening the meeting may be considered."
It was submitted that cl 6.3(d) was notable for specifying a situation in which the presence of all Unitholders is required as a consequence of the use of the expression "each Unitholder". It was contended that in neither cl 6.1(b) nor in the definition of Special Majority, was there a reference to "each" person being eligible to vote (in the case of the definition of Special Majority) or of each Unitholder in cl 6.1(b). In my view, this type of parsing of the relevant provisions of the Deed is of no assistance in reaching a conclusion as to the proper construction of the relevant provisions.
It is a matter of common sense that only the items specified in the notice convening a meeting of Unitholders should be considered at that meeting unless all Unitholders are represented at the meeting, and all agree otherwise. If that was not the case, then those Unitholders who did not attend a meeting either in person or by proxy, would be prejudiced as they would only have had notice of the agenda items referred to in the notice convening the meeting and thus would have a legitimate expectation that only those matters would be dealt with at the meeting. Importantly, cl 6.3(d) applies to all meetings of Unitholders irrespective of whether the matter in respect of which a Decision is sought requires a Special Majority vote. In my view, the first to ninth respondents gain no assistance from the wording of cl 6.3(d).
Finally, the first to ninth respondents relied on cl 6.3(f), to which cl 6.3(e) is subject. It was accepted by the first to ninth respondents that the strength of the construction for which they contended and the essence of their case was based on cl 6.3(f) on the ground that one could have a reconvened meeting of Unitholders with a quorum of two as being sufficient to conduct any business that required the vote of a Special Majority.
Under cl 6.3(f) a reconvened meeting of the Unitholders, where a quorum in accordance with cl 6.3(e) fails to eventuate, may be held with a quorum of only two Unitholders present in person or by proxy. It was submitted that if the appellants' construction was correct, a Unitholder Matter could not be dealt with at such a reconvened meeting. This is clearly so. On the other hand, on the respondents' construction, a decision regarding a Unitholder Matter could be implemented on the vote of only two Unitholders. Such a situation would, in my view, be clearly incongruous given the nature of the Unitholder Matters that must be determined by a Special Majority.
Significantly, a reconvened meeting, albeit with only two Unitholders forming a quorum, still has work to do - such as dealing with the Unitholder Matters referred to in cl 6.2(b), neither of which requires a Special Majority vote. There is no limitation on the business that can be conducted at a reconvened meeting of Unitholders as cl 6.3(f), like the other provisions of cl 6.3, does not differentiate between different kinds of matters to be considered at Unitholder meetings. There are, no doubt, many matters that could be considered at a reconvened Unitholder meeting which do not require the vote of a Special Majority or for that matter a Special Majority as defined, but only the vote of a Simple Majority as that expression is ordinarily understood, and the contrary was not suggested. There is no logical reason why the reduced quorum requirement in cl 6.3(f)(iv) should, as a matter of construction, govern the interpretation of a Special Majority vote in cl 6.1(b).
As to the tenth respondent's "plug in" argument, I cannot accept that the words "of the Unitholders" have no work to do. The words in the definition "persons eligible to vote in respect of a resolution", when "plugged in" to cl 6.1(b), do not require any manipulation of the provision. In its context, the "persons" referred to in the extended cl 6.1(b) are clearly the Unitholders, as it is the vote of the Unitholders to which the sub-clause refers. Furthermore, the sub-clause is concerned with a resolution of the Unitholders. The only word which does become surplusage on the "plug in" argument, is the word "vote". But in my view that does not detract from the clear meaning of the sub-clause.
Furthermore, reading cl 6.1(b) in conjunction with cl 6.1(a) takes the matter no further. Given that the Unitholders can only vote at a meeting which complies with the quorum requirement of cl 6.3(e), the effect of cl 6.1(a) is merely to provide that each Unitholder will only be entitled to cast one vote at the meeting irrespective of the number of units held. It seems to me that that fact is neutral in terms of competing constructions given that a vote at a meeting can only be that of a Unitholder who is present in person or by proxy. The tenth respondent's submission that when cll 6.1(a) and (b) are read together, the Unitholders referred to in cl 6.1(b) are those referred to in cl 6.1(a) and are the persons who are entitled to vote at a meeting, states the obvious but, again in my view, takes the matter no further.
I have already referred to the decisions of the English Court of Appeal in Knowles relied upon by the primary judge and by the appellants at [22(a)] and [22(b)] above. The case requires careful consideration. The Society's by-laws provided that the "fellows have the right to be present and to vote at all general meetings". They there provided, in effect, that a resolution will be confirmed "if the majority of fellows entitled to vote" shall vote in its favour.
Lord Evershed MR said this (at 827): "The view of the judge, as I have already stated, was that the words 'the majority of the fellows entitled to vote' meant exactly what they say, namely, the arithmetical majority of all the fellows entitled to vote; that is, not disqualified from voting. If this sentence appeared bereft of its actual context I should agree that that is what, on its fact, it means; … as I have indicated more than once, the formula we have to construe is in this special context which is related to a particular meeting."
His Lordship rejected the trial judge's construction on a number of grounds relating to context, of which one was as follows (at 828): "I will therefore, first say something about the argument as to inconvenience, for the inconvenience is by no means slight; it is grave. … it would really be impossible to ascertain at any given moment, for any practical purpose, who the fellows were who were entitled to vote. …"
His Lordship then proceeded to illustrate the practical difficulties in adopting the trial judge's construction as concluding (at 829) that those difficulties were of so great a magnitude as to justify the use of the word "absurdity" to which he added (at 830) "inconvenience", "repugnance" and "inconsistency".
In my view none of these epithets applies to the present case where one is dealing with a relatively limited number of Unitholders whose eligibility to vote was easily ascertainable.
Accordingly, in my opinion, the Resolution in the present case required that two-thirds of the 69 Unitholders should vote in favour. That required a vote of 46 Unitholders. Some 59 Unitholders were present so that the quorum provisions of cl 6.3(e) were satisfied. But only 44 voted in favour which was two less than what, in my view, was required for the Resolution to be passed.

Conclusion

It follows from the foregoing that the primary judge erred in answering the Separate Question in the affirmative. In my opinion it should have been answered in the negative. I would therefore propose the following orders; 1. Appeal allowed. 2. Set aside the affirmative answer of Young AJA to the Separate Question. 3. Answer the Separate Question, "No". 4. Remit the proceedings to the Equity Division of the Supreme Court of New South Wales for directions consistent with these orders. 5. The respondents to pay the appellants' costs of the Separate Question hearing before Young AJA and of the appeal, but to have with respect to the latter, a certificate under the Suitor's Fund Act 1951 (NSW), if otherwise qualified.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 02 December 2015

Suitor's Fund Act 1951(NSW)

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (9 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (12)

Cited By (1)