Solicitors:
D Leamey Solicitor and Barrister (Plaintiff)
File Number(s): 2017/110130
[2]
Judgment - (oral - revised 4 september 2017)
By Originating Process filed on 11 April 2017, the Plaintiff, Mr George Challoner, seeks declarations that a consent to act as a director of Whitsunday Clean Sands Pty Limited ("Company") dated 24 January 2008 was not signed by him and was forged by an unknown person and that he did not consent to act as a director of the Company and is not a director or secretary of the Company and declarations that, in effect, a resolution purportedly appointing him as director of the Company on 24 January 2008 and his later purported appointment as company secretary of the Company are void. He also seeks consequential orders directed to steps to be taken by the liquidator appointed to the Company in respect of notification of these matters to the Australian Securities and Investments Commission ("ASIC") and correction of the Company's records.
By way of background, Mr Challoner is a retired dentist, now 66 years old, who has, through a company with which he is associated, a shareholding interest in the Company and has made a loan to it which is now unrecoverable. The application proceeded ex parte. The First Defendant, the Company, has been served but has not appeared, although correspondence indicates that its liquidator is aware of the application. The Second Defendant, Mr Wardroper, has been served and also does not appear. It appears that he was made bankrupt from 20 June 2016 and the proceedings against him may, therefore, be stayed by the Bankruptcy Act 1966 (Cth), unless leave is obtained from a Court with bankruptcy jurisdiction to continue them. Nothing ultimately turns on that matter for present purposes. The Third Defendant, Mr McLiesh, was also served with the proceedings, and at one point filed, but did not proceed with, a motion seeking to have them struck out. Mr Challoner subsequently discontinued proceedings against Mr McLiesh and accepts that the result of the proceedings will not bind Mr McLeish. ASIC has also been advised of the matters in dispute in this application, although possibly not of the application itself. It has, in any event, indicated that it would not become involved in a dispute as to who is the director of the Company which it perceives as being a matter between its shareholders.
The Deputy Commissioner of Taxation has an interest in the application, although it is not joined as party to it, since it has brought proceedings in the District Court of New South Wales against Mr Challoner on the basis that he is a director of the Company. The Deputy Commissioner of Taxation is on notice of the application and, by letter dated 1 September 2017, indicated that it did not wish to appear in the application. However, I have been informed by Mr Leamey, solicitor, who appears for Mr Challoner, that the Deputy Commissioner of Taxation has indicated that it will discontinue the proceedings in the District Court if Mr Challoner obtains all the relief he seeks, which is, in substance, the result that I will reach below. In these circumstances, I do not consider it necessary for the Deputy Commissioner of Taxation to be joined as a party where it has not sought to be joined. I will stand the matter over for a period after delivery of judgment today, to allow any further application in respect of remaining issues as to rectification of the Company's register of directors and as to ASIC's records and in case it ultimately becomes necessary to join the Deputy Commissioner of Taxation in the proceedings and allow it a further opportunity to be heard in them, to avoid the need for relitigation of these matters in the District Court.
The dispute as to the status of Mr Challoner's appointment arises from his challenge to the notification of his appointment as director, dated 24 January 2008, given to ASIC and a consent to act as a director and resolutions purportedly appointing him as director. Mr Challoner denies that the consent to act as director bears his signature. The notification to ASIC of that date was signed by Mr McLeish, who was a director of the Company, and lodged by its accountants. It records Mr Challoner's address as an address in Jubilee Pocket in Queensland. I will refer below to convincing evidence that Mr Challoner is not resident at that address and does not direct correspondence there. The minutes of that meeting purportedly held at the accountant's premises in Queensland, on 24 January 2008, record Mr Challoner as present and that he consented to the appointment as director and he was then appointed as director. As I will note below, there is also convincing evidence that Mr Challoner was not in Queensland on that day.
Mr Challoner relies on his affidavit dated 23 December 2016 in respect of his purported appointment as a director of the Company. His evidence is that he did not consent to act as a director of the Company and had never been present at a directors' meeting where he was appointed as director or secretary of the Company and had never undertaken that role or been remunerated for that role. As I noted above, he accepts that a company with which he is associated is a shareholder in the Company and he or it has made a loan to the Company which has now been lost. He also refers to an issue as to the extent of his recorded shareholding in the Company that it is not necessary to determine for the purposes of this application. His evidence is that he travelled to the sand quarry operated by the Company about five or six times between 2008 and 2016 when he was otherwise in Queensland and had no substantive role within the Company. Mr Challoner denied that he had been appointed as a director of the Company in correspondence to ASIC in April 2016 when he became aware of the record of that appointment and he resigned by correspondence to the liquidator of the Company in December 2016, whilst specifically maintaining the position that he had not signed a consent to appointment as director and had not been appointed as director.
By a further affidavit dated 30 July 2017, Mr Challoner acknowledges the existence of a charge purportedly signed by him and given by the Company in favour of Westpac Banking Corporation but also denies the authenticity of his signature to that charge. That is a matter which was properly drawn to the Court's attention in the application but it is not necessary to determine that matter in this application.
By an affidavit dated 31 August 2017, Mr Challoner addressed several other matters that had been raised in discussions with the Deputy Commissioner of Taxation and confirmed that he did not have any conversation or correspondence with the Company's accountant or anybody else about a proposal for him to be appointed as company secretary of the Company. His evidence is also that he did not tell the Company's directors what to do, rebutting any suggestion that he was, for example, a shadow director of the Company. There is no other evidence to suggest that he occupied such a role.
Mr Challoner's evidence is corroborated by a substantial amount of other evidence. Mr Challoner relies on his wife's affidavit which supports his evidence that she and Mr Challoner were driving to Victoria on 24 January 2008. By an affidavit dated 10 July 2017, Mr Matcham, a friend of Mr Challoner who occupies and has occupied senior positions in the insurance industry, leads evidence that he and Mr Challoner were in Victoria on the day after Mr Challoner is said to have attended the meeting in Queensland which appointed him as a director and that Mr Challoner had his car in Victoria, consistent with Mr Challoner's and his wife's evidence that they had driven down from Sydney the day before and inconsistent with any suggestion that Mr Challoner had flown down from Queensland after a directors' meeting on 24 January 2008, still less that he had driven from Queensland after attending a meeting at which he was appointed director on 24 January 2008 and reached Victoria by 25 January 2008.
By affidavit dated 15 July 2017, a former employee of the Company's bank, who was subsequently employed by the Company, leads evidence that he never dealt with Mr Challoner as a director of the Company and was not introduced to him as a director of the Company and that Mr Challoner did not, to that employee's knowledge, have any opportunity to operate the Company's bank account. That employee also leads evidence that his, the employee's, name and signature had also been applied without his authority to company documents, a matter relied upon as a form of similar fact evidence in respect of Mr Challoner's application, and that Mr Challoner had little involvement in the management or operation of the Company's business from 2008 to 2016 and no involvement in its day-to-day activities. That employee also indicates that Mr Challoner did not deal, for example, with employees nor clients in a way that might be consistent with a director's role.
Mr Challoner's evidence that the Queensland address recorded on his purported consent to appointment as a director was that of a Queensland rental property which had been rented throughout the relevant period was corroborated by evidence of a Queensland real estate agent who is responsible for managing the property. Mr Challoner also relies on an expert report, dated 28 June 2017, by which a forensic document examiner, Mr Dubedat, leads evidence that the signature purporting to be that of Mr Challoner on the consent to act as director is very probably not genuine for several reasons, although I recognise that Mr Dubedat's evidence is properly qualified by reference to issues as to the quality of the challenged and specimen signatures.
So far as Mr Challoner's suggested appointment as company secretary is concerned, that was notified to ASIC on 22 April 2016 and the only consent to that appointment which is in evidence, which was produced by the Company's accountant on subpoena, is unsigned. Mr Challoner's evidence, by his affidavit dated 7 August 2017, is that he was in Sydney on 22 April 2016. Mr Challoner's wife's evidence is also that Mr Challoner and she were in Sydney on that day. I recognise that that evidence could not exclude the possibility of Mr Challoner's consent to that appointment where such consent could potentially have taken place without his physical presence in Queensland. In any event, Mr Challoner denies signing any consent to act as secretary and, as I have noted above, the only copy of the consent that has been produced is not signed by him. He also denies authorising the notification of his appointment as company secretary to ASIC. By a further affidavit, dated 14 August 2017, Mr Challoner indicates that he has been made aware of documents produced by the Company's accountants and reiterates his denial of meeting or being contacted in respect of his appointment as secretary in April 2016.
A letter from the Company's accountants to the Court dated 3 July 2017, in respect of subpoenaed documents, which may not be admissible as evidence and was not tendered, is not inconsistent with Mr Challoner's position so far as it suggests that Mr Challoner was appointed as company secretary when the Company's two other directors, one of which was a company secretary, were made bankrupt and is notably silent as to the mechanism by which that is said to have occurred.
Mr Leamey refers in detailed written submissions to the chronology and evidence to which I have referred above and refers to s 201D of the Corporations Act 2001 (Cth) which provides that a company contravenes the section if a person does not give the company a signed consent to act as director before being appointed and to s 204C of the Corporations Act, which is in similar terms in respect of the appointment of a company secretary. Each of these sections imposes an obligation on the Company to gain the consent of a person to act as director or secretary before he or she is appointed to that position. It has never been suggested, and it could not be suggested, that they can properly operate as requiring a person to give such consent if he or she were first purportedly appointed as director or secretary without such consent having been given. Mr Leamey primarily relies on Mr Challoner's lack of consent to appointment as director or secretary to invalidate that appointment, as well as on the deficiencies in the minutes regarding Mr Challoner's appointment as director to which I have referred above. In further submissions, Mr Leamey refers to documents produced on subpoena and also develops an argument based on the lack of a subsequent general meeting to reappoint Mr Challoner if he was initially appointed as a director. Given the findings that I reach below, it is not necessary to address that alternative argument.
It seems to me that the narrow questions in this matter can be decided on straightforward factual and legal grounds. I am satisfied that the minutes of the directors' meeting on 24 January 2008 regarding Mr Challoner's consent to and appointment as director are false, given his denial of the consent to appointment and the evidence that he could not have been present in Queensland at the time that meeting occurred. I am satisfied that the consent to his appointment was not signed by him, given the expert evidence that the handwriting on that document is likely not his signature and the use of an address which he would not likely have used for such a consent. As far as Mr Challoner's appointment as secretary is concerned, there is no evidence of a signed consent for him to act as company secretary or of a directors' meeting appointing him as company secretary and it seems to me that Mr Challoner's consent to that appointment would be inconsistent with the objective probabilities, particularly once it has been accepted that he had not previously consented to having been appointed as a director of the Company. There is no evidence that Mr Challoner acted as director or company secretary of the Company at any time.
The case law establishes that, where a person has not consented to appointment as director or secretary, either by a written consent or by consent in fact, then his or her appointment will be invalid, not only by reason of s 201D and s 204C of the Corporations Act, but also at general law. In Hedges v NSW Harness Racing Club Ltd (1991) 5 ACSR 291 at 293, McLelland J held, simply enough, that:
"The status of director of a company, which involves significant statutory and fiduciary obligations, cannot be imposed on any person without his consent".
The same view has also been taken by two other judges with particular expertise in corporations matters, by Hayne J in Knight v Bulic (1994) 13 ACSR 553 at 560 and by Santow J in Forkserve Pty Ltd v Jack [2000] NSWSC 1064; (2001) 19 ACLC 299. The subsequent decisions in Xie v Crisp [2011] VSC 154 and Kocic v Deputy Commissioner of Taxation [2011] NSWCA 322 are not to the contrary, since the former involved a person who had informally consented to act as a director, and that amounted to consent in fact, and the latter amounted to the position where a person had acted as a director as a matter of fact. No such informal consent or conduct as a director is established in this case.
There is no room, in my view, for the application of s 201M of the Corporations Act, which validates the acts of a director where there is a defect in his or her appointment. There is no evidence that Mr Challoner acted as a director in any substantive respect, and no act of his in that capacity calls for validation. That section also does not, on the authorities, validate the appointment of the director, as distinct from his or her acts as between the company and its members, when he or she was not properly appointed: see the authorities referred to in Australian Corporations Law: Principles and Practice [3.2.0185] and Ashrafinia v Ashrafinia [2012] NSWSC 500 at [46]. There is also no room for the application of s 1322(2) of the Corporations Act to provide for automatic validation of a procedural irregularity in respect of Mr Challoner's appointment because the defects to which I have referred are not procedural irregularities. In any event, I am of the opinion that the irregularities would cause substantial injustice that could not be remedied by any order of the Court and that the Court should declare the appointments invalid in the relevant circumstances, so as to exclude the application of that section.
I am satisfied that Mr Challoner was not validly appointed as a director of the Company for these reasons. I am also satisfied that Mr Challoner did not consent to appointment as, and was not validly appointed as, company secretary of the Company for the same reasons.
Mr Challoner has, in substance, succeeded in this application. It is, however, not necessary to make all of the orders he has sought, or to make them in precisely the form sought. In particular, it is not necessary or appropriate to make declarations that find that the consent to act as a director was forged by an unknown person, notwithstanding that that may be the implication of the findings that I have reached above. It seems to me sufficient, for present purposes, that I make the following orders at this point, and I so order:
Declare that George Francis Challoner did not consent to act as, and was not appointed as, director of Whitsunday Clean Sands Pty Ltd ("Company") on 24 June 2008 or otherwise.
Declare that George Francis Challoner did not consent to act as, and was not appointed as, company secretary of the Company on or about 22 April 2016 or otherwise.
Declare that the purported appointment of George Francis Challoner as director and company secretary of the Company on 24 January 2008 and 22 April 2016 respectively is void and of no effect.
It does not seem to me to be necessary to make orders directing the liquidator to notify ASIC of these matters since Mr Challoner may provide ASIC with a copy of this judgment and it is not necessary or appropriate to direct the liquidator to rectify any register of directors, where he may do so voluntarily when provided with this judgment, or it may be the case that no such register has come into his possession. To the extent that any issue remains, after the period for which I will adjourn the matter, as to the Company's register of directors or ASIC's records, then it is likely to be preferable for Mr Challoner to adopt the approach which I noted in Re Centura Global Holdings Pty Ltd [2016] NSW SC 62; (2016) 111 ACSR 185, in respect of incorrect information provided to ASIC as to a company's shareholding, namely, to join ASIC as a party to the proceedings and seek an order for the rectification of its records. As I there noted (at [57]), the balance of the case law supports the proposition that an order for rectification of the register under s 1322(4)(b) of the Corporations Act can be made to require correction of incorrect information included in a notification required to be given to ASIC. Such an order will not require ASIC to remove the forms that were previously filed with it from its records, which remain accessible as a matter of record, as distinct from recording the true position in ASIC's register. So far as the rectification of the Company's registers is concerned, Mr Challoner may arguably seek an order that the Company's register of directors be rectified at general law, at least if such a register exists: see the discussion of that issue, in the context of a register of members, at Re Centura Global Holdings Pty Ltd above at [53].
I otherwise propose, subject to hearing from Mr Leamey, to adjourn the matter for 28 days in case any difficulties emerge in respect of the position of the Deputy Commissioner of Taxation, such that it ought to be joined in the proceedings and given leave to reopen or be heard in respect of this judgment, or issues then remain to be addressed as to rectification of any register of directors maintained by the Company and ASIC's records concerning the Company under s 1322 of the Corporations Act. If those matters can be resolved without further orders of the Court, for example because the Deputy Commissioner of Taxation accepts the position found in this judgment, although it is not bound by it, or because ASIC considers that it may correct its records without an order of the Court, then it will be open to Mr Challoner to advise my Associate that no further listing is required and for that listing then to be vacated.
[3]
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Decision last updated: 08 September 2017