American Tobacco Company v Guest

REASONS FOR JUDGMENT 1 This action is not being pursued. The parties, however, cannot agree on costs. They have requested that I decide this issue without dealing with the merits of the dispute. There are many cases where this has occurred: see by way of example J. T. Stratford & Sons Ltd. v Lindley (No.2) [1969] 1 WLR 1547; Australian Securities Commission v Aust-Home Investments Limited (1993) 44 FCR 194; Re The Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex Parte Lai Qin (1997) 186 CLR 622. See also my own judgment in Gribbles Pathology Pty Ltd v Health Insurance Commission (1997) 80 FCR 283, although the strictness of my approach, has I think, appropriately been questioned: Rizal v Minister for Immigration & Multicultural Affairs [1999] FCA 334 at [16]; One. Tel Ltd v Commissioner of Taxation (2000) 101 FCR 548, 552-553. This case however, is a little different. In resolving the costs dispute, I will tentatively mention the merits, because there has been a trial. 2 Traditionally articles of association of both public and private companies vest in a board of directors (sometimes known by other names) the control and management of a company's affairs. Perhaps mindful of their heritage, the corporators of the company known as the Greek Orthodox Community of Melbourne and Victoria ("the Community") adopted a different approach. Article 11 of the Community's articles of association provides that the management of the Community's affairs shall vest in a general committee and that this committee "shall at all times be subject to the control and directions of the Community in General Meeting and shall comply with all such resolutions as may be adopted from time to time by the Community in (sic) general meeting." Therefore, the question whether, in exceptional circumstances, reserve or default power resides in the general meeting as discussed in Winthrop Investments Ltd. v Winns Ltd [1975] 2 NSWLR 666, 674, 682 and 683 can never arise; the Community's approach is to assume that ultimate power resides with members. As Aristotle wrote as long ago as 350 BC in his Politics: "In a democracy, the people (demos) have authority." 3 The Committee did not accept the constitutionally entrenched position that power resides with members. This is highlighted by the facts. A group of members requisitioned for the calling of a general meeting of the Community for the purpose of considering three resolutions. The first resolution required the committee to make available to members all relevant correspondence and documents in relation to a 2002 loan from the Greek government. The second resolution concerned a prior loan from the Greek government which was advanced in 1994. The purpose of this resolution was to require the committee to make available all documents in relation to the loan as well as the provision of information in relation to this loan's "current status". The third resolution concerned the appointment of a two-member independent panel to (1) investigate the accuracy of the register of members; (2) rectify any irregularities that might appear in the register; and (3) report the outcome of the investigation to members at the Community's next Annual General Meeting. 4 The committee refused to act on the requisition. The committee formed the view that it was justified in refusing to call the meeting because the members could not lawfully require it to act in accordance with the resolutions. As Fry LJ said in Isle of Wight Railway Company v Tahourdin (1883) 25 Ch D 320, 334: "If the object of a requisition to call a meeting were such, that in no manner and by no machinery could it be legally carried into effect, the directors would be justified in refusing to act upon it. But if the object stated in the requisition be such that by any form of resolution or by any machinery sanctioned by the Act, it can be carried into effect, then it is the bounden duty of the directors to call the meeting." 5 The committee's refusal to act on the requisition was only partly justified. The members in this case have the power to require the committee to provide them with documents relating to the Community's affairs. This power derives from both the Articles of Association and s 247D of the Corporations Act 2001 (Cth). The members probably also have the power to require the committee to explain its conduct. The members do not have the power to appoint an independent panel and delegate to that panel the ability to rectify the register of members without at least being subject to the overriding control of either the committee or the members. It consequently follows that the committee was required to convene a meeting to deal with the business that was within its members' powers. The committee breached both its statutory and constitutional obligations by not convening such a meeting. 6 When the committee refused to convene a meeting, the requisitionists convened their own. This is when things began to go wrong. The requisitionists failed to give adequate notice of the meeting. For reasons that will be explained shortly, they only informed one quarter of the membership. In ignorance of this deficiency the members at the meeting, which was held on 20 July 2003, passed the resolutions put forward by the requisitionists. These resolutions are obviously not effective. The plaintiff, one of the requisitionists, nonetheless instituted the present application. He sought orders under s 1324 of the Corporations Actrequiring the management committee to comply with the resolutions. During the trial, the defendants noted that the requisitionists had failed to give proper notice of the meeting; it was then obvious that the application would fail. Not surprisingly, the plaintiff indicated that he did not wish to proceed with the application. 7 However, the costs dispute still remains. The plaintiff contends that he should not be liable for costs. He asserts that he failed to give proper notice because of representations made by the Community's secretary. In particular the plaintiff stated that when he was given the Community's register of members for the purpose of identifying the persons to whom notice of the meeting had to be given, the secretary told him that there were only 400 or so members and pointed to a column in the register which identified them. 8 The plaintiff's allegation that he was misled is disputed. In any event it is an allegation that can be put to one side. First, the evidence to support the allegation is scant. Secondly, the position has been overtaken by events. On 30 June 2003 the secretary sent to the plaintiff's solicitor, under cover of letter, an up to date register of members. The letter stated that: "In respect [of a request for an up to date register of members] … please find enclosed a copy of the register of current financial members as at 30 June 2003, as requested by your clients." The letter was received before the requisitionists despatched the notice of meeting. It is unclear why the requisitionists ignored the secretary's letter. However it is a factor that I must consider in determining who bears the costs in this case. 9 I accept that there are occasions where a costs order may go against the successful party: American Tobacco Company v Guest [1892] 1 Ch 630; Lever Brothers Limited v Masbro' Equitable Pioneers Society Limited (1911) 105 LT 948. See also Verna Trading Pty. Ltd. v New India Assurance Co. Ltd [1991] 1 VR 129, 155 per Kaye J: ("[A]s a general principle costs follow the event, and the successful party is entitled to be paid his costs, unless there are special grounds to order otherwise; and those grounds, it is well settled, must be grounds connected with the cause of action"). The plaintiff says that this is one of those occasions. Specifically, the plaintiff asserts that but for the wrongful refusal by the management committee to convene the meeting of members required by the requisitionists, the present action would not have been commenced. I have sympathy for the plaintiff's position. What he says is true. Had the management committee acted in accordance with its legal obligations the present action would not have been necessary. However, I intend to apply the costs principle enunciated by Atkin LJ in Ritter v Godfrey [1920] 2 KB 47, 60. There the judge said that unless a successful defendant so conducted himself as to lead the plaintiff to reasonably believe that he had a good cause of action, there should be no departure from the usual rule that costs should follow the event. The committee's wrongful conduct did not bring about this suit. Nor is its wrongful conduct the reason why the plaintiff was forced to withdraw his claim. It necessarily follows that the defendants should have their costs. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.