Beck v Tuckey Pty Ltd

Supreme Court of NSW|2024-10-18|Before: Nixon J

JUDGMENT

By Amended Originating Process filed 26 September 2024, the Plaintiff, Kentel Pty Ltd, seeks an order under s 249G of the Corporations Act 2001 (Cth) (the Act) that a meeting of members of the First Defendant, Kentel Australasia Pty Ltd (the Company), be called for the purpose of considering and voting on two resolutions to appoint Mr Mel Ashton and Mr Rod Sutton as directors of the Company (the Proposed Directors). Kentel also seeks an order under s 1319 of the Act that a single member is to constitute a quorum of members at that meeting.

Factual background

The Company was incorporated on 22 August 2018.
At the time of its registration, shares in the Company were owned, as to 70%, by JJPK Pacific Pty Limited and, as to 30%, by the Second Defendant, Bronson Management Pty Ltd.
The sole director and shareholder of JJPK was Mr James Kennedy. The sole director and shareholder of Bronson was, and remains, Mr Benjamin Scott.
In 2021, JJPK transferred its shares in the Company to Kentel. Mr Kennedy is the sole director and shareholder of Kentel.
At the time of the Company's registration, each of Mr Kennedy and Mr Scott was appointed as a director. They had been close friends for a period of around thirty years prior to the establishment of the Company, having met at primary school.

Power to make order

Section 249G(1) of the Act provides as follows: The Court may order a meeting of the company's members to be called if it is impracticable to call the meeting in any other way.
An application for such an order may be made by a member of the Company entitled to vote at the proposed meeting: s 249G(2)(b). Kentel meets this description.
Section 1319 of the Act provides as follows: Where, under this Act, the Court orders a meeting to be convened, the Court may, subject to this Act, give such directions with respect to the convening, holding or conduct of the meeting, and such ancillary or consequential directions in relation to the meeting, as it thinks fit.
Section 249G(1) has two components. First, the applicant must establish that it is impracticable to call the meeting in any other way. Secondly, where such impracticality is established, the Court has a discretion to make or refuse the order sought: Beck v Tuckey Pty Ltd [2004] NSWSC 357 at [38] per Austin J.
In Beck v Tuckey at [39], Austin J observed that, in order to understand the meaning of the first component, it is necessary to refer to the legislative history of the relevant provisions: "Provisions similar to ss 249G and 1319 have been part of statutory company law for many years: Companies Act, 1961 (NSW), s 142; Companies (NSW) Code, s 246; Corporations Law, ss 251 and 1319; and see Companies Act 1948 (UK), s 135. The present two provisions, read together, are substantially similar to their predecessors, except in one noticeable respect. The UK Act of 1948 was expressed to apply 'if for any reason it is impracticable to call a meeting of the company in any manner in which meetings of that company may be called, or to conduct the meeting of the company in manner prescribed by the articles or this Act'. The statement of two alternative conditions was adopted in almost identical words in the Uniform Companies Act of 1961. Subsequently, in the Companies Code the word 'call' was replaced by the word 'convene', apparently without changing the meeting of the provision, and the Companies Code wording was preserved in the Corporations Law until the 1998 amendments. Then the provisions of the Corporations Law concerning meetings were overhauled in the 1998 amendments, which removed the second alternative condition and changed 'convene' to 'call'."
Austin J referred (at [40]) to Re El Sombrero Ltd [1958] Ch 900. In that case, the applicant sought an order under s 135(1) of the Companies Act 1948 (UK) that a meeting be called for the purpose of considering resolutions to remove the respondents as directors, and also sought a direction that one member of the company would constitute a quorum. Wynn-Parry J observed as follows (at 904, emphasis added): "it appears to me that the question necessarily raised by the introduction of that word 'impracticable' is merely this: examine the circumstances of the particular case and answer the question whether, as a practical matter, the desired meeting of the company can be conducted, there being no doubt, of course, that it can be convened and held."
As Austin J explained in Beck v Tuckey (at [41]-[43]), Wynn-Parry J's observations in El Sombrero were applied by Needham J in Re Totex-Adon Pty Ltd and the Companies Act [1980] 1 NSWLR 605, in relation to an application under s 142 of the Companies Act, 1961 (NSW); and a similar approach was taken by Young J in two decisions concerning applications under s 251 of the Corporations Law prior to its amendment in 1998: Jenashare Pty Ltd v Lemrib Pty Ltd (1993) 11 ACSR 345; and Favretto v Eagland (1995) 18 ACSR 196.
Austin J observed (at [44]) that, were it not for the change of wording introduced by the 1998 amendments (which removed the reference to "conducting" a meeting), it would be clear that s 249G would be available to be used in circumstances where a member has the ability to call a meeting, but it is likely that the meeting will be rendered inquorate by another member's non-attendance, such that it is impracticable to conduct such a meeting. His Honour concluded that, notwithstanding the 1998 amendments, s 249G should be read as applying in such circumstances (at [45]-[46], emphasis added): "The 1998 amendments, introduced by the Company Law Reform Bill, were part of the process of simplifying statutory company law. The avowed object of the amendments was to 'significantly improve the substance and the drafting of the current rules, eliminating unnecessary or redundant regulation and making the Law more readily understandable': Explanatory Memorandum to Company Law Review Bill, [1.2]. Although important changes were made to the power of members to convene meetings, it appears that there was no intention to change the substance of the court's power to order that a meeting be called, but only to 'simplify' the drafting: see Explanatory Memorandum, [10.22]. It seems to me probable, therefore, that the words of the current provision, 'it is impracticable to call the meeting in any other way', are intended to have the same meaning and effect as the two alternative conditions of the previous law. Of course, it can happen that the drafters of legislative amendments intended only to simplify the law might fail to give effect to that intention. … Here, however, it is possible to read the word 'call', in the new simplified language, as a word of more expansive meaning than the word 'convene' in the immediate predecessor legislation, or even the word 'call' in the older legislation. In its modern plain language usage, 'call' could be taken to cover the whole process of convening the meeting and bringing together the members. While it would not strictly be impracticable, here, to convene a meeting in the sense of giving a valid notice of meeting, it would be impracticable to bring the members together in a meeting because of the likelihood that the second defendant will not attend. If, therefore, it were necessary for me to decide, I would hold that the cases decided on the former provisions continue to be applicable notwithstanding the change of wording, and therefore the impracticability requirement is satisfied in the circumstances of this case. My conclusion is supported by dicta in the Full Court of the Supreme Court of Western Australia in Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198, at [139]."
This approach has subsequently been adopted in a number of decisions regarding applications under s 249G of the Act, including Northwest Capital Management v Westate Capital Ltd [2012] WASC 121 at [169]-[170] (Edelman J); Re Statewide Office Furniture Pty Ltd [2015] NSWSC 142 at [18] (Black J); and Metalicity Ltd v Nex Metals Explorations Ltd [2022] WASC 234 at [60]-[61] (Hill J).
In Laine Commodities Pte Ltd (recs apptd.) v CS Agriculture Pty Ltd [2021] FCA 635 at [31], O'Callaghan J observed, with reference to a number of these authorities, that it is well established that, for the purposes of s 249G, it is "impracticable" to conduct (or call) a meeting of a company in circumstances where it is likely that those in a position to render the meeting inquorate will do so. His Honour rejected a submission to the effect that the interpretation of s 249G in Beck v Tuckey should not be followed, concluding (at [37]) that any other construction "would render the provision unworkable".
The Defendants accepted that, "notwithstanding the words of 249G which talks about calling meetings, the weight of authority, at least at first instance, is [that] call includes conven[e and] conduct". The Defendants also accepted that, in the circumstances of this case (and in particular having regard to the quorum requirement in the constitution and Bronson's opposition to the proposed resolutions), it is "impracticable", within the meaning of s 249G(1), to convene and conduct a meeting of members to consider the particular resolutions regarding the appointment of the Proposed Directors in any way other than by an order under that provision.
The power under s 1319 is enlivened in circumstances where the Court orders a meeting to be convened under a provision of the Act. The Defendants did not dispute that, as a matter of power, s 1319 can be used to make an order to the effect that, at a meeting which the Court has ordered to be convened under s 249G of the Act, a single member of the company will constitute a quorum. Orders to that effect were made, in respect of a meeting ordered to be convened under s 249G, in, for example, Statewide Office Furniture, Laine Commodities, and Sheref v UFC Trading Enterprise Pty Ltd [2024] WASC 344 (each of which is discussed below).

Discretion to make order

Neither s 249G nor s 1319 specifies any matters which the Court must, or must not, take into account in exercising the discretion to make orders pursuant to those provisions. As with any other broad discretion provided by the Act, the discretion under each of those provisions is to be exercised judicially, having regard to the purpose of the provision and in accordance with established principle.

Purpose of the provisions

Section 249G is found within Part 2G.2 of the Act, which deals with meetings of members of companies. In particular, Division 2 deals with the persons who may call meetings of members; Division 3 deals with the manner in which meetings of members may be called; Division 4 deals with members' rights to put resolutions at general meetings; Division 5 deals with the manner in which meetings of members may be held; Division 6 deals with proxies; and Division 7 deals with voting at meetings of members. These provisions are, in general terms, concerned with the processes of convening and conducting meetings of members and of putting resolutions to those meetings, rather than the outcomes of any such processes. For example, s 249F (upon which Kentel relied in calling a meeting of the Company) gives members with at least 5% of the votes that may be cast at a general meeting of a company the right to call, and arrange to hold, a general meeting, at their own cost; and s 249N(1)(a) gives members the right to give a company notice of a resolution that they propose to move at a general meeting so long as the members have at least 5% of the votes that may be cast on that resolution.
The only condition for the exercise of the power under s 249G to call a meeting of members is if it is impracticable to call the meeting "in any other way". The criterion of "impracticability" means that the issue for the Court on a s 249G application is, in broad terms, whether there are matters which are operating so as to obstruct or frustrate, in a practical sense, the ability of members to convene a meeting and to conduct business at that meeting, using the processes otherwise available under the company's constitution or the Act.
The purpose of s 249G is to provide a means to address, and remove, such obstacles to the proper functioning of those processes.
Section 1319 is a provision which applies where the Court orders a meeting under another provision of the Act and is ancillary in nature. It gives the Court a broad power to make directions so as to ensure that the meeting which the Court has ordered is able to be convened and conducted. Accordingly, where the Court orders a meeting of members to be called pursuant to s 249G because it is impracticable to conduct a meeting in any other way as a result of a quorum requirement, it is consistent with the object of both s 249G and s 1319 for the Court to make an order modifying the quorum requirement so as to ensure that the meeting ordered by the Court is able to be conducted.

Authorities on exercise of discretion

As regards the principles governing the exercise of the discretion under s 249G, the Defendants relied on the decision of Young J in Jenashare at 349. In that case, the plaintiff contended, and his Honour found, that several meetings of the defendant company which had been called by certain directors of that company were invalid and ineffective. The plaintiff sought an order under s 251 of the Corporations Law convening a meeting of members of the company for the purpose of removing the directors in question. This order was sought on the following basis (at 349, emphasis added): "[Counsel for the plaintiff] put that it would be appropriate for the court to convene the meeting because it could be seen that these people will continue to war unless something is done about it, and whilst it is possible for his client to requisition a general meeting, it may be that when such requisitioned meeting is held there will not be a quorum."
Young J declined to make the order sought, for the following reasons (at 349-350): "Section 251 permits the court to order meetings in case of impracticability. Impracticability will cover a wide range of circumstances, from the case where all the corporators have been killed in an aircraft accident, down to situations where it is extremely inconvenient for a meeting to be called. The court has a discretion whether or not to order a meeting, even in the circumstances of this case. However, the court does not view favourably intervening in a situation and exercising its discretion under s 251 unless there is evidence that there is a good reason to do so. Where there is a procedure under the memorandum and articles and the Corporations Law for a meeting to be called in the ordinary course of events, then the court ordinarily does not, at least without strong evidence, make an order under s 251. There is nothing more than speculation in the instant case."
The Defendants submitted that this passage stood for the proposition that, where the requirement of impracticability is established, the Court will not exercise its discretion unless there is "strong evidence" supporting that there is a "good reason" for the meeting in question.
I do not accept this proposition, insofar as it suggests that the Court needs to enquire into the purpose of the meeting, including the outcome that the member seeks to achieve, and to form a view as to whether or not there is a "good reason" for seeking to achieve this outcome (such as, in the present case, whether there is a "good reason", supported by "strong evidence", for seeking to appoint two additional directors to the Company).
The merits of the proposed resolutions are a matter for the members of the Company. The Defendants did not refer to any reported decision where the Court had declined to exercise its discretion to order that a meeting be called under s 249F (or any predecessor provision) because the plaintiff had not established that there was a "good reason" for propounding the resolutions which were sought to be put to the members.
In Jenashare, Young J did not, for example, consider whether there was a "good reason", supported by "strong evidence", for seeking to remove the three defendant directors. Instead, the focus on whether there was a "good reason", supported by "strong evidence", for the Court to make an order convening a meeting, in circumstances where there was a procedure available for a meeting to be called in the ordinary course of events. In that regard, the only reason advanced for doing so was that "it may be that when [a meeting is requisitioned under the procedures which are available] there will not be a quorum" (see paragraph [45] above). It is, plainly enough, this submission which his Honour was addressing when observing that there was "nothing more than speculation in the present case". In those circumstances, it had not been established that there was a strong reason for the Court to intervene, and accordingly his Honour refused to make an order.
In the present case, it is not a matter of speculation, but a fact, that when a meeting of members was convened by Kentel under s 249F, Bronson chose not to attend (despite sending its solicitor to observe), with the result that there was not a quorum and the meeting could therefore not proceed. Further, the Defendants conceded that, by reason of the quorum requirement, it is impracticable for any meeting to be called by any other available means for the purpose of considering the proposed resolutions (because, in short, Bronson will not attend and will thereby render any such meeting inquorate).
It is well established that one situation where it may be appropriate to exercise the discretion under s 249G to order that a meeting of members of the company be convened is where a quorum requirement is being used by a minority shareholder to frustrate the ability of the majority shareholder to convene and conduct a meeting of the company by other available means.
In El Sombrero, the applicant held 900 shares of the 1,000 shares in the company and the two respondents held 50 shares each. The two respondents were directors of the company, and had been directors prior to the applicant acquiring its shares. The company's articles of association provided that the quorum of general meetings was two members in person or by proxy. No general meeting of the company had ever been held. Wynn-Parry J found that it was "impracticable" to conduct a meeting because the quorum requirement and the distribution of the shareholding meant that that the respondents had the ability to prevent the applicant from holding and conducting the meeting (at 905-906). His Honour was satisfied that this was "eminently a case in which the court ought to exercise its discretion" to order that a meeting of members be called (at 906). His Honour observed that it is "quite obvious that the only reason why the respondents refuse to call an annual general meeting is because the inevitable result of convening and holding that meeting would be that they would find that they had ceased to be directors" (at 907). Wynn-Parry J accordingly ordered that a meeting be convened, and also directed that one member of the company present in person or by proxy should be deemed to constitute a quorum.
El Sombrero was followed by Brightman J in In re H R Paul & Son Ltd (1973) 118 Sol J 166. In that case, a minority of members of a company opposed a proposed takeover and merger and did not attend meetings convened for the purpose of amending the company's articles, thereby frustrating the appointment of new directors. Brightman J is reported as having granted the relief sought under s 135(1) of the Companies Act 1948 (UK) for the following reasons: "The jurisdiction conferred by the section was discretionary and his Lordship was therefore not bound to make an order. But to refuse B. Ltd's application would deprive a majority shareholder of the right to alter the articles of association, and confer on a minority a right of veto not commensurate with their shareholding. His Lordship did not accept that the quorum provisions should be regarded as a right vested in the minority to frustrate the wishes of the majority, and he would therefore grant the relief sought."
A similar approach has been adopted in a number of decisions in relation to sections 249G and 1319 of the Act.
In Re Statewide Office Furniture, Mr Stojic held at least 80% of the voting shares in the company, and Mr Bezina held the remaining 20%. Mr Stojic sought, inter alia, an order under s 249G convening a meeting of members for the purpose of putting resolutions, including for the removal and replacement of Mr Bezina as a director, and an order modifying the quorum requirements in the company's articles of association. In that case, as here, the company's constitution required a quorum of two persons qualified to vote in respect of a shareholders' meeting. Black J made the orders sought, for the following reasons (at [19], emphasis added): "I am satisfied that the relevant impracticability is established, where there is reason to think … that any further meeting called by Mr Stojic will also be inquorate, because Mr Bezina may not attend it, notwithstanding that any obstacle to his attendance arising from the orders made by Lindsay J has been removed. In these circumstances, it seems to me that there would be strong reason to make that order, where Mr Bezina's non-attendance at that meeting would, in effect, allow a minority shareholder to frustrate the exercise of the majority's power to pass a resolution to remove or elect a director and amend the Company's articles."
In Laine Commodities, the shares in the company were held as to 51% by the plaintiff, and as to 49% by the defendant. Again, as in the present case, the company's constitution provided that the quorum for a general meeting was two members. A receiver had been appointed to the plaintiff. On five separate occasions, the plaintiff had attempted to hold a properly constituted meeting, in order to replace some of the company's current directors with its own nominee directors. On each occasion, the defendant had declined to attend, rendering the meetings inquorate. O'Callaghan J found that, in those circumstances, the requirement of impracticability was satisfied, and made orders calling a meeting of members and modifying the quorum requirements, so that one member holding more than 50% of the shares of the company at the time when the meeting proceeds to business would constitute a quorum. His Honour described as "untenable" a submission by the minority shareholder that the Court should decline to exercise the discretion to order a meeting on various grounds, including that there was no issue regarding the current management or proper functioning of the company, or that there were concerns about the purpose for which the receiver of the majority shareholder sought to appoint new directors (see further at paragraphs [102] to [104] below).
In Sheref, there were two shareholders in a company, holding respectively 80% and 20% of the shares. Again, the constitution of the company specified a quorum at a general meeting to be two members. The majority shareholder attempted to use the procedure under s 249D of the Act to convene a shareholders' meeting to consider resolutions for the appointment of additional directors. The minority shareholder failed to attend this meeting and the subsequent adjourned meeting, rendering it inquorate. Hill J held (at [59]) that, while the majority shareholder might be able to seek once more to have a meeting of shareholders convened under s 249D of the Act, it was impracticable to do so because of the likelihood that the minority shareholder would not attend the meeting. Her Honour determined that, in these circumstances, the Court should exercise the discretion under s 249G to order that a meeting be called and should make an order pursuant to s 1319 that, at the meeting, a quorum shall be constituted by one member present in person or by proxy. Her Honour said (at [59]-[60], emphasis added): "In my view, [the minority shareholder] and the [sole director] should not be permitted to use the quorum requirement to prevent the [majority shareholder] from exercising his rights to have these resolutions considered and voted on at any meeting of shareholders. Unless an order is made by the court, I accept that the [majority shareholder] will not be able to have these resolutions put and considered at a general meeting of the Company. At present, the evidence is that the ongoing dispute between the parties is affecting the day-to-day management of the Company and that contradictory instructions are being provided to staff of the business. There is no evidence before the court that would enable an inference to be drawn that the parties will resolve their differences in the near future."
The Defendants submitted that the cases outlined above were (or might be) distinguishable from the present case. The Defendants noted that s 249T of the Act, which provides for a quorum of two members for a meeting of a company's members, is a replaceable rule pursuant to s 135 of the Act; and, therefore, at the time of the incorporation of the Company, Mr Kennedy and Mr Scott could have agreed that the constitution would provide for a quorum of only one member, but did not do so. In advancing this submission, Senior Counsel for the Defendants fairly acknowledged that he did not know whether the companies in the cases referred to above adopted a quorum requirement of two members at a time when s 249T was a replaceable rule.
As regards Sheref, it is apparent from the report of that decision that the company in question was incorporated in June 2020, at a time when s 249T was a replaceable rule, and that its constitution adopted a quorum requirement of two members. There does not, therefore, appear to be any such point of distinction between Sheref and the present case (although I acknowledge that, in Sheref, it does not seem to have been submitted that the Court should decline to exercise its discretion because the shareholders had chosen to include this quorum requirement in the company's constitution in circumstances where it was a replaceable rule).
Even if there was such a distinction between the present case and, for example, Statewide Office Furniture and Laine Commodities (which has not been established), I do not consider that this would mean that the reasoning in those authorities was inapplicable to the circumstances of this case. The focus of the decisions outlined above was on the manner in which the quorum provision was able to be used by the minority shareholder to frustrate the ability of the majority shareholder to put resolutions at a meeting of the company's members. I do not consider that it was relevant to that reasoning to consider whether the quorum requirement was imposed on, or selected by, the members at the time of incorporation.
In re Opera Photographic Ltd [1989] 1 WLR 634 (Ch D), a submission was advanced that the Court should not apply the reasoning in El Sombrero and H R Paul in circumstances where two shareholders had agreed to establish a corporation on the basis that they would have equal participation in decisions affecting the company. The applicant held 51% of the issued share capital of the relevant company, and the second respondent held 49%. The applicant and second respondent were the only directors. The second respondent declined to attend any meeting of the company for the purpose of considering his own removal as director, in circumstances where the necessary quorum for the meeting of members required both the applicant and second respondent's attendance. Counsel for the second respondent submitted that the company was "what is conventionally described as a quasi-partnership case in which each of the individuals had an equity of equal management participation"; and that El Sombrero was of no assistance because it proceeded on the basis that a majority shareholder had "an absolute right to remove a director" and this had been overtaken by the decision of the House of Lords in In re Westbourne Galleries Ltd [1973] AC 360 to the effect that the legal rights of the parties may be overlaid by equitable considerations arising out of the constitution and their agreement (at 636).
Morritt J rejected this submission, stating (at 636) that the "plain fact of this matter is that deadlock exists between the two individuals which has to be resolved one way or another". Morritt J held (at 637) that the distinction which counsel for the second respondent sought to draw was not "a valid one", continuing: "As Brightman J's decision in In re H.R. Paul & Son Ltd, 118 SJ 166 shows, the quorum provisions cannot be regarded as conferring upon the second respondent some form of veto as being his entitlement".
Morritt J accordingly made orders calling a meeting and modifying the quorum requirements so that one member of the company present in person or by proxy would be deemed to constitute a meeting.
In Hancock Family Memorial Foundation Ltd v Porteous (2000) 22 WAR 198; [2000] WASCA 29, the Full Court of the Supreme Court of Western Australia (Ipp, Owen and McKechnie JJ) applied Opera Photographic in the context of a dispute concerning a closely held family company. Mr Lang Hancock held what was described as the "Life Governor's share" in Hancock Prospecting Pty Ltd (HPPL) which gave him control of HPPL and its Board, including the power to declare discriminatory dividends. A question arose as to whether that power could have been frustrated by the refusal of Mr Hancock's daughter, Mrs Rinehart, to attend a general meeting of the company. The Court held that it is not open to a minority shareholder, by failing to attend a meeting, to deny it a quorum and thereby obstruct the determination of the majority to declare discriminatory dividends. The Court said (at [139]): "[It was] submitted that Mrs Rinehart could have prevented HPPL from resolving to declare discriminatory dividends by refusing to attend any general meeting of the company, thereby preventing the formation of a quorum. There are a number of answers to this proposition. It is sufficient to state that the courts will not allow a minority of shareholders to so obstruct the wishes of the majority: In Re Opera Photographic Ltd [1989] 1 WLR 634; Favretto v Eagland (1995) 18 ACSR 19 at 198."
In Clark-Ugle v Clark [2016] VSCA 44 at [106], Tate JA (Ferguson and McLeish JA agreeing) referred to the decisions in El Sombrero, H R Paul and Opera Photographic (at [99]-[103]), quoted the passage from Hancock Family Memorial Foundation which is set out above (at [104]), and concluded that (at [106]): "The authorities well recognise that a quorum requirement cannot be used to prevent an organisation's capacity to conduct business, and to pass resolutions in accordance with the wishes of a majority."
Importantly, her Honour said that: "I do not consider that there is any relevant difference in this respect between a quorum stipulated under a company's articles of association and one prescribed by statute."
Having regard to the purpose of s 249G, and the authorities outlined above, I am satisfied that it is appropriate for the Court to exercise its discretion to order that a meeting of members be called in circumstances where, as here, it is impracticable to call the meeting in any other way, by reason that a quorum requirement (whether imposed by statute or adopted by articles of association) is able to be used, and has been used, by a minority shareholder to frustrate the ability of a majority shareholder to employ the processes otherwise available under the company's constitution or the Act to conduct a meeting and to pass resolutions for the appointment or removal or directors.
The Defendant advanced various reasons as to why the discretion to call a meeting under s 249G should not be exercised in the circumstances of this case. These included that: 1. there was no deadlock in the management of the Company which needs to be resolved; 2. the proposed resolutions were contrary to the basis on which the Company had been established, would "sideline" Mr Scott from management, and would therefore be the "first (and essential) step in oppressive conduct by Kentel and Mr Kennedy"; 3. Kentel and Mr Kennedy were seeking to appoint the Proposed Directors for the purpose of bringing the Company's claims in the Primary Proceeding to an end; 4. there was a delay by Kentel in taking steps to appoint any director following Mr Kennedy's resignation in June 2022 and, if the Proposed Directors are now appointed and the Company's claims in the Primary Proceeding are brought to an end, Mr Scott, who has paid significant amounts by way of security for costs and legal fees in the Primary Proceeding, will have been prejudiced by reason of that delay; and 5. having regard to the Proposed Directors' lack of experience in the television and streaming industries, and their location in Hong Kong and Perth, the appointment of the Proposed Directors would "cause real practical difficulties in the management of the Company" and would therefore "not be in the interests of the Company". Each of these submissions is addressed below.

Absence of deadlock at board level

The Defendants submitted that in Opera Photographic an important factor was that there was a deadlock in management between the two directors and, in the present case, there was no such deadlock (because Mr Scott was the sole director of the Company). In this regard, the Defendants also referred to Beck v Tuckey where Austin J declined to make an order under s 249G, in a case where the requirement of impracticability was established, for the following reasons (at [51]): "In the present case there are several discretionary considerations that have led me to conclude that I should decline to make orders. This is not a case of general deadlock preventing the day-to-day management of the company. Moreover, the parties have indicated that they are prepared to negotiate to resolve their differences. I believe the court should be reluctant to intervene in the dispute in a partial fashion when there is a prospect that such negotiations will take place and might succeed."
It is apparent from the passage quoted above that Austin J regarded the absence of any general deadlock in management, together with the real prospect of a resolution being able to be achieved through negotiation, as providing grounds for declining to make an order under s 249G. This is underlined by the fact that his Honour went on to explain (at [56]-[58]) his reasons for considering that there was a prospect of resolution through mediation, and the steps which should be taken in order to proceed to a mediation.
In the present case, no party suggested that there was any prospect of resolution through mediation. It appeared to be common ground that Mr Kennedy and Mr Scott were unable to work together.
Further, Austin J's observation that there was no general deadlock in day-to-day management of the company was made in circumstances where each of the plaintiff and the second to fourth defendants was a director of the company (which was the first defendant). I do not consider that observations regarding the significance of an absence of any deadlock at the board level, in a situation where each of the relevant shareholders was a director of the company, are applicable to the situation where the minority shareholder is the sole director of the company. In the latter situation, the absence of any deadlock at board level is explained by management being solely in the control of the minority shareholder. It is precisely this situation which the majority shareholder, Kentel, seeks to redress, by calling a meeting of members and putting forward resolutions for the appointment of the Proposed Directors. However, the majority shareholder is unable to avail itself of the processes available for taking such steps under the constitution and the Act, because the quorum requirement and the existence of a deadlock between the majority shareholder and the minority shareholder mean that no such meeting can be conducted.
I acknowledge that, in the passage from Hill J's decision in Sheref which is set out in paragraph [59] above, her Honour referred, in exercising the discretion to order a meeting of members, to evidence that "the ongoing dispute between the parties is affecting the day-to-day management of the Company". However, Hill J plainly did not regard any deadlock at board level as a prerequisite to the exercise of the discretion to call a meeting, stating as follows (at [51], emphasis added): "Courts have exercised their discretion to order the calling and conduct of a meeting in circumstances where shareholders have refused to attend a meeting and so there is or will be no quorum for the meeting, and also where there is a deadlock between directors."
As her Honour observed, courts have exercised the discretion whether either situation arises (and not only where both co-exist).
Significantly, in Sheref, the company had a sole director. When Hill J was referring to the dispute affecting the "day-to-day management" of the company, her Honour was plainly not referring to a deadlock at the board level, but a deadlock at shareholder level, in circumstances where the relationship between the majority shareholder and the minority shareholder had broken down, and the minority shareholder was not attending meetings of members called by the majority shareholder for the purpose of considering resolutions for the appointment of additional directors (at [58]).
Similarly, in Laine Commodities, the s 249G order was sought (and granted) in circumstances where the controller of the majority shareholder did not have any nominee on the board of the company and was unable, by reason of the quorum provisions, to put a resolution to a member of meetings seeking the appointment of new directors. O'Callaghan J described (at [30]) the plaintiffs' case as "simple": "They say that the defendant's actions have had the result that no meeting of the Company can be held and no business of the Company can be conducted. There is a deadlock, with the majority shareholder frozen out of playing any role in the running of the Company. They say that relief of the type sought should be granted."
O'Callaghan J granted the relief sought, in circumstances where there was no suggestion of any deadlock between the current directors of the company, but there was the "deadlock" described above between the majority shareholder and the minority shareholder.
Accordingly, I do not consider that it is necessary to establish that there is any deadlock at a board level, which is affecting the day-to-day management of the company, in order for the discretion under s 249G to be exercised. As the cases outlined above establish, that discretion may be exercised in circumstances where there is a falling out between two shareholders and where the existence of a quorum requirement is being used by the minority shareholder to prevent the majority shareholder from being able to conduct a meeting of members for the purpose of considering a resolution for the appointment of a new director.

Oppressive conduct?

The Defendants contended that the Company was "a closely held company in the nature of a quasi-partnership created on the understanding that only Mr Scott and Mr Kennedy would be the directors and ultimate shareholders and would manage the company between themselves". This led to the following submission: "… the obvious inference is that the convening of the meeting and the appointment of the Proposed Directors at this time is the first (and essential) step in oppressive conduct by Kentel and Mr Kennedy in excluding Mr Scott from control over the decisions made by directors of the Company at directors' meetings. Despite Mr Kennedy's majority shareholding, the men agreed upon a Constitution which gave them equal voting rights at meetings of directors, and expressly did not provide the chairperson of the meeting with a casting vote: clause 64 (AB 41). The premise on which the Company was incorporated was that Mr Scott and Mr Kennedy would be the only directors and that they would have an equal say at directors' meetings; effectively that they were equal in respect of the management of the Company's affairs, and the Company could not embark upon any course of action unless they both agreed to it. If the meeting is permitted to be convened with a quorum of one member and the Proposed Directors are appointed, neither of those propositions will hold good. There will be two other directors, unknown to Mr Scott and strangers to the Company, and Mr Scott will have no ability, in his capacity as a director, to prevent the Proposed Directors from causing the Company to embark upon any course they may determine. In the defendants' submission it is obvious that the purpose and consequence of the appointment of the Proposed Directors will be to sideline Mr Scott in the management of the Company going forward in a manner that will be oppressive given the basis on which the Company was incorporated."
The Defendants relied on various factual matters as supporting their contention that the Company was created on the basis of an understanding between Mr Scott and Mr Kennedy that they, and only they, would be directors of the Company and that the Company "could not embark upon any course of action unless they both agreed to it". These included the following matters. 1. In January 2018, Mr Kennedy and Mr Scott exchanged text messages in which they discussed using "Benjamin James Productions" as the name for their proposed company (being a combination of the first names of each of Mr Kennedy and Mr Scott). 2. Mr Scott deposed that, around the same time as these text messages, he and Mr Kennedy had a conversation to the following effect: Mr Kennedy: "I don't usually go into companies with other people because I am high profile. I am willing to go into a company with you because of our long friendship, but only you and I are to be the directors and shareholders of the company." Mr Scott: "I appreciate that, thank you." 1. In August 2018, shortly prior to incorporation of the Company, Minter Ellison sent an email to Mr Scott, copied to Mr Kennedy, asking for confirmation that "James [Kennedy] will be the only other director". Mr Kennedy responded: "James [Kennedy] and Ben [Scott] are directors". 2. On 30 June 2022, when Mr Kennedy resigned as director of the Company, he wrote to Mr Scott stating as follows: "You are now the sole director and secretary of the Company. You are solely responsible for the management and administration of the affairs of the Company. This is consistent with your stated intentions in your recent emails. You should ensure that you are aware of your fiduciary and statutory obligations as director and take appropriate advice should you need it. Kentel Pty Ltd will of course continue to retain its 70% shareholding."
There was a dispute about the conversation set out at subparagraph (2) above. Mr Scott was cross-examined, and presented as an honest witness who made a number of concessions (which are referred to below). In circumstances where Mr Kennedy did not put on any evidence disputing the terms of this conversation, I accept that it occurred. It is consistent with the email correspondence with Minter Ellison referred to at subparagraph (3) above and with the fact that, upon registration, Mr Kennedy and Mr Scott were appointed as directors.
However, I do not consider that this conversation (or the other evidence outlined above) establishes that the parties were proceeding on the basis of an understanding or expectation that Mr Kennedy and Mr Scott would be the only persons able to be directors of the Company, at any time in the future and under whatever circumstances may arise. The terms of the conversation do not go so far. It was, as set out above, a conversation about the terms on which Mr Kennedy was willing to "go into" the proposed company (that is, to enter into an incorporated business venture with Mr Scott).
In advancing the submission set out above regarding the parties' expectations, the Defendants referred to, and relied on, the terms of the Company's constitution. Significantly, the constitution does not contain any requirement that there be only two directors, and specifically provides that it is not necessary for a director to be a shareholder. Clauses 52 to 54 relevantly provide as follows: "52. Number of Directors 52.1 Subject to the Corporations Act, the Company may by resolution passed at a general meeting increase the number of Directors. 52.2 Until the Company resolves otherwise there will be: (a) a minimum of one Director; and (b) a maximum of ten Directors. 53. Qualification Neither a Director nor an Alternate Director has to hold any Shares. 54. Appointment and removal of Directors 54.1 The Initial Directors of the Company are the persons who have consented to act as directors and are set out in the Company's application for registration as a company. Those persons hold office subject to this Constitution. 54.2 The Company may by resolution passed in a general meeting: (a) remove any Director; and (b) appoint another person in the Director's place."
Those clauses indicate that, although Mr Kennedy and Mr Scott may have "gone into" the Company on the understanding that they would be the only directors (and, consistently with this, on registration of the Company, they were the only directors), they wanted to have the flexibility to appoint other persons as directors in the future, including persons who were not shareholders, if circumstances changed.
Further, the Defendants' submission that the Company was incorporated on the premise that Mr Kennedy and Mr Scott would be "equal in respect of the management of the Company's affairs, and the Company could not embark upon any course of action unless they both agreed to it" is inconsistent with Mr Scott's own evidence. In cross-examination, he frankly acknowledged that Mr Kennedy had the "final say" on "commercial matters". This was supported by various contemporaneous communications: 1. in November 2017, Mr Scott stated in an email to a person who was providing him with some preliminary advice in relation to the proposed business venture that: "Ultimately James [Mr Kennedy] will decide what he wants to do, and will be underwriting the project as planned"; 2. in February 2021, Mr Scott stated in a text message to Mr Kennedy that "I appreciate you always empowered me as second in charge"; 3. in June 2021, Mr Scott stated in a text message to Mr Kennedy that he regarded himself as "the junior co founder" of the Company, adding that: "I think the name of the company [being a portmanteau of 'Kennedy' and 'television'] is self explanatory as to who is in charge"; 4. also in June 2021, Mr Kennedy told Mr Scott that "If Kentel (Me) decides as majority shareholder not to proceed with a development Thats just the way it is unfortunately", to which Mr Scott replied "Ok fair I agree to that"; and 5. in February 2022, Mr Scott stated in an email to Ms Feeney, who was CEO of the Company, that he was "happy for James [Mr Kennedy] to always have ultimate control, as I know that's how he rolls".
After being taken to these documents, Mr Scott made the following concessions in cross-examination: "Q. As a matter of practical reality, Mr Scott, it is not correct that you and Mr Kennedy had an equal say in respect of the management of the company, is it? A. In what aspect of the management? Q. In respect of - let's take for example commercial decision? A. Correct. Q. So it would be wrong to say, would it, that you had an equal say in respect of commercial decisions in respect of the management of the company, correct? A. Correct. Q. And that it did not require both you and Mr Kennedy to agree to undertaking a commercial course of action in respect of the company unless you both agreed to it, correct? A. He would inform of what he wanted to do, but ultimately he would make the decision, correct."
The Defendants submitted that "it was Mr Kennedy's unilateral decision to voluntarily resign as a director of the Company on 30 June 2022" and having voluntarily absented himself from the management of the Company, "he can hardly be heard to complain now that he should be entitled to appoint two strangers to the board of the Company".
I accept that it was Mr Kennedy's choice to resign. I do not need to go into the circumstances in which he decided to do so. For present purposes, it is sufficient to note that, at the time he resigned, the Company was not undertaking any further development work and was, in effect, a dormant vehicle for the purpose of receiving any ongoing payments under the terms of the Amazon Agreement. However, since then, the Company, under Mr Scott as sole director, has brought and is pursuing the Primary Proceeding. This is a significant change in circumstances. I do not consider that, by reason of any decision made some years ago in different circumstances, Mr Kennedy has lost any entitlement, as a 70% shareholder, to have any say in the composition of the board of the Company.
In the submission set out at paragraph [81] above, the Defendants contended that the appointment of the Proposed Directors would be "the first (and essential) step in oppressive conduct by Kentel and Mr Kennedy in excluding Mr Scott from control over the decisions made by directors of the Company at directors' meetings". This submission was put on the basis that: 1. the appointment of the Proposed Directors would be contrary to the "premise on which the Company was incorporated", namely, "that Mr Scott and Mr Kennedy would be the only directors and that they would have an equal say at directors' meetings; effectively that they were equal in respect of the management of the Company's affairs, and the Company could not embark upon any course of action unless they both agreed to it"; and 2. the purpose and consequence of the appointment of the Proposed Directors would be "to sideline Mr Scott in the management of the Company going forward in a manner that will be oppressive given the basis on which the Company was incorporated" (emphasis added).
For the reasons given above, I am not satisfied that the stated premise for this submission (set out in subparagraph (1) above) has been established.
Even if that premise were established, it would be problematic to advance a case of oppression (or, here, a submission regarding a "first … step in oppressive conduct") based on a denial of legitimate expectations, the real enquiry being whether equitable principles makes it unfair for a party to exercise legal rights: Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd (2014) 88 NSWLR 689; [2014] NSWCA 326 at [201] per Barrett JA (Bathurst CJ and Beazley P agreeing).
The Defendants referred to a number of authorities to the effect that, in cases where shareholders have entered into association upon the understanding that each will participate in the management of the company, it will usually be considered unjust, inequitable or unfair for a majority to use their voting power to exclude a member from participation in management without giving him or her the opportunity to remove his or her capital upon reasonable terms: O'Neill v Phillips [1999] 2 All ER 961 at 970 (Lord Hoffmann); Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97 at [416]-[420] (Spigelman CJ); Mopeke Pty Ltd v Airport Fine Foods Pty Ltd [2007] NSWSC 153 at [43]-[54] (Brereton J); Re Scientific Management Associates Pty Ltd [2019] NSWSC 1643 at [191]-[192] (Rees J).
However, if the resolutions proposed by Kentel are passed, Mr Scott will not be excluded or "sidelined" from management of the Company. He will remain a director of the Company, with equal rights to the other two directors. The Defendants' submission that Mr Scott will be effectively excluded from management depends on assumptions that the Proposed Directors would vote as a bloc and would vote in a manner contrary to Mr Scott's wishes. Those assumptions appear to depend, in turn, on an assumption that the Proposed Directors "are likely to act in accordance with the wishes of their appointor, Kentel", such that Kentel will have "numerical control of the board of the Company".
I do not consider that, on the evidence before the Court, those assumptions are made out.
Mr Ashton is the executive chairman of the White Knight Fund, which is based in Perth, and Mr Sutton is a founding partner of Fortune Ark Restructuring, which is based in Hong Kong. They have together formed the Ark Knight Partnership, and have a number of common non-executive directorships.
On 9 September 2024, the Defendants' solicitors wrote to each of Mr Ashton and Mr Sutton asking a number of questions, in advance of the meeting called by Kentel under the August Notice. In particular, the Defendants' solicitors asked each of the Proposed Directors whether he had any pre-existing relationship with, or knowledge of, Mr Kennedy or Kentel's solicitors. Each answered that he did not, with Mr Sutton adding that he had never met Mr Kennedy and that he had had one meeting on Microsoft Teams with Kentel's solicitor, Ms Barwick.
The Defendants' solicitors also asked when the Proposed Directors were approached about becoming a director of the Company. Mr Sutton indicated that he was approached on 20 August 2024, and Mr Ashton indicated that he was approached on 21 or 22 August 2024 (shortly before the August Notice was issued by Kentel on 26 August 2024).
The Defendants' solicitors asked each of the Proposed Directors to indicate the terms on which he was approached in relation to becoming a director of the Company. Mr Ashton responded that he had been approached by Ms Barwick to "become an Independent Non-Executive Director as there is a dispute between the members of [the Company]"; and Mr Sutton responded that he was "broadly advised" by Ms Barwick that "there was some type of dispute", stating "I regularly take such appointments to settle disputes". Each also indicated that remuneration had not been finalised and that he had requested an indemnity, but (as at 10 September 2024) nothing had been drafted. Mr Sutton added, in his email response to the Defendants' solicitors: "The thought occurs to me that you haven't asked directly. (Was I instructed by Amy [Barwick] to carry out my duties in any particular way). The answer is no The instruction was to act independently as a non executive director"
Ms Amy Barwick swore an affidavit on this application. The Defendants chose not to cross-examine Ms Barwick about her dealings with Mr Ashton and Mr Sutton and, in particular, about the terms of any discussion with them regarding the proposed appointment, or about remuneration, or about the terms of any discussion concerning an indemnity.
Upon appointment, Mr Ashton and Mr Sutton would owe fiduciary and statutory obligations to the Company. According to the resumes of each of them, which were annexed to the August Notice, each has previously held a number of board appointments. There is no reason on the evidence before the Court to conclude that, upon their appointment as directors, either of them would do otherwise than seek to perform their obligations to the Company, including taking steps to inform themselves in relation to any matters coming before the board, obtaining advice where appropriate, and acting in what they perceived to be the best interests of the Company. Given that is so, there is no basis to conclude that their views in relation to any particular matter coming before the directors of the Company (let alone every substantive matter coming before the directors) would be at odds with the views of Mr Scott, such that he was effectively "sidelined" from management.
Even if it were established both (a) that the Company was established on the basis that Mr Scott and Mr Kennedy "were equal in respect of the management of the Company's affairs, and the Company could not embark upon any course of action unless they both agreed to it", and (b) that the effect of the proposed resolutions being passed would be to exclude or "sideline" Mr Scott from management of the Company, it would not follow that the Court should decline to exercise its power under s 249G to call a meeting of members for the purpose of considering those resolutions.
Opera Photographic was, as outlined above, a case where it was said that the company had been created on the basis that it was a quasi-partnership with each of two individuals having "an equity of equal management participation". The 51% shareholder sought orders convening a meeting for the purpose of considering a resolution for the removal of the 49% shareholder as a director, and modifying the quorum requirements so that one member would constitute a quorum. Morritt J, in making the orders sought, made the following observations (at 637): "If [the 49% shareholder] is, as no doubt he will be, removed if I make the order sought it may then well be that further proceedings will have to be undertaken by one side or another to procure the purchase of the other's shares, but that seems to me to be inevitable in any event. It would be in those proceedings that the wrongfulness or otherwise of the conduct of either of the individuals would have to be determined in order to decide what order to make and what form the relief should be."
In Laine Commodities, the 49% shareholder "relied on matters that might be seen as oppressive to raise a discretionary basis for withholding relief" (at [59]). Those matters were as follows (at [39]): "(a) there was no imminent risk to the property the subject of receivership and no complaint had been made relating to the profitability, management or proper functioning of the Company; (b) the receiver had come into the shoes of the entity under receivership, who had bound itself to the Company's constitution (requiring two members to be present to form quorum), and had known that only two members existed and that the management of the company was to be performed by the directors; (c) the defendant had made 'an offer to implement protective measures', such measures including continuing to trade in the ordinary course, disclosing information reasonably requested, not divesting assets without notice, and consenting to the appointment of a single director to represent Laine Commodities; (d) the court 'should have real concerns' about the effect of granting control to the receiver of the 51% shareholder of the Company 'when its real interest is in realising the value of the debt rather than promoting the interests of [the Company] as a whole'; and (e) the current board has deep, industry-specific management experience that the proposed new directors lack."
O'Callaghan J rejected the minority shareholder's submission that the Court should decline to exercise its discretion under s249G by reason of the matters set out above, describing this contention as "untenable" (at [38]). That was because "none of those considerations, even if made out, goes to the exercise of the court's discretion to make or refuse an order under s 249G(1), once impracticability is established" (at [40]).
In that regard, O'Callaghan J adopted (at [40]), with respect to the exercise of the power under s 249G, the observations of Campbell J in Turnbull v National Roads and Motorists' Association Ltd [2004] NSWSC 577 at [51]. In that passage, Campbell J, in the course of considering whether to make an order under ss 232 and 233 of the Act, said as follows: "The court is extremely reluctant to interfere, in advance, with the ordinary processes of company democracy. It is a well-established rule of thumb that a court will, only in the rarest of circumstances, injunct the holding of a company meeting. Questions of what is, or is not, in the interests of the members as a whole are often best left to be decided by the officers, organs and procedures of the company itself, or by the court deciding, after events have happened, whether those events fall short of a legally required standard of conduct by virtue of them not having occurred in the interests of the members as a whole. If the court is asked to make an order under s 233 on the ground that some proposed course of conduct is contrary to the interest of the members as whole there will frequently be factual difficulties in demonstrating with sufficient certainty that that course of conduct is indeed contrary to the interests of the members as a whole. All these matters combine to show that it is likely to be only in a very rare case that a Court will decide to order that a company meeting validly requisitioned need not be held, or that a resolution validly proposed need not be put to a meeting."
Having regard to those authorities, even if the premises for the Defendants' submission had been established, I would not have exercised the discretion under s 249G to refuse to order that a meeting of members be called, on the basis that any step to be taken at the meeting might, or would be, the first step in a course of oppressive conduct. If the Proposed Directors are appointed and, at some point in the future, there is an allegation that the affairs of the Company have been, since their appointment, conducted in a manner that is oppressive to Bronson, any such allegation will be able to be considered and determined as and when it arises, on the evidence then available.

Effect on management or continuation of the Primary Proceeding

The Defendants described the present application as "an apparent attempt by [Mr Kennedy and Kentel] to effect a director change of control of [the Company], with a view to seeking to affect the continued prosecution by the Company of [the Primary Proceeding]".
As noted above, in that proceeding, the Company and Mr Scott have advanced various claims against Mr Kennedy and companies associated with him.
I indicated at the hearing that, for the purposes of this application, I would proceed on the basis that the claims in the Primary Proceeding were reasonably arguable, and that I would not otherwise form any view as to the merits of those claims. None of the parties expressed any disagreement with that course.
Mr Scott confirmed that the Company is currently performing only two functions: the receipt of any further payments under the Amazon Agreement; and the prosecution of the Primary Proceeding. "Q. You say the company exists for two purposes: (1) to prosecut[e] litigation. Correct? And, (2) to receive in perpetuity royalties. Correct? A. Correct. Q. Otherwise, it's dormant. Is that right? A. Yes."
In those circumstances, it is open to infer, and I do infer, that the purpose of Kentel and Mr Kennedy in seeking to appoint the Proposed Directors, and thereby to bring about a change in the management of the Company, is, at least in part, to bring about a change in the management or conduct of the Company's claims in the Primary Proceeding.
However, the appointment of the Proposed Directors would not, of itself, bring about a change in the management or conduct of the Company's claims in the Primary Proceeding. Instead, any change in the management or conduct of those claims, following the Proposed Directors' appointment, would depend on whether the directors (Mr Scott, Mr Ashton and Mr Sutton) determined that there should be such a change.
The Defendants submitted that: "it is a short step to infer that Mr Kennedy will urge the Proposed Directors to, at the very least, terminate the retainer of the solicitors presently retained by the Company, and potentially cause the Company to discontinue the Primary Proceeding or take some other step advantageous to Mr Kennedy personally and disadvantageous to the Company, in circumstances where no application to strike out or summarily dismiss the Primary Proceeding has been brought by Mr Kennedy in the entire time they have been on foot".
The Defendants did not identify any reason why Mr Kennedy would seek to terminate the retainer of the Defendants' current solicitors. I accept that Mr Kennedy may "urge" the Proposed Directors to take steps which he considers to be in his interests in relation to the management or conduct of the Company's claims in the Primary Proceeding. However, whatever steps Mr Kennedy may urge them to take, it is a matter for the Proposed Directors to determine, consistently with the information and advice available to them and consistently with their duties, what course should be taken.
In particular, it is likely, in circumstances where the main business of the Company is the prosecution of its claims in the Primary Proceeding, that Mr Ashton and Mr Sutton would, upon appointment, seek a briefing on, and advice about, those claims. They would likely seek such advice in the first instance from the Company's solicitors or from counsel briefed in the Primary Proceeding. (In the response which Mr Sutton sent to the questions asked by the Defendants' solicitors, he indicated that he "look[ed] forward to you giving me a briefing" about the Primary Proceeding.) Mr Ashton and Mr Sutton might also consider it appropriate to seek an opinion on the Company's claims in the Primary Proceeding from other solicitors or counsel. This might include seeking an opinion regarding available options for the management or resolution of the Company's claims in the Primary Proceeding. It is unknown what such advice might be, let alone how it might impact the management or conduct of those claims. Depending on the terms of the advice, the Proposed Directors might form the view that it is appropriate to continue to prosecute the Company's claims in the Primary Proceeding in their current form, or to narrow the parties or issues, or to expand the parties or issues, or to seek to resolve those claims.
Further, if the Proposed Directors were to form the view, following receipt and consideration of any such advice, that an attempt should be made to resolve the Company's claims in the Primary Proceeding, there is, on the evidence before the Court, no means of knowing on what terms the Proposed Directors would consider it appropriate to resolve those claims (in particular, because this would likely depend upon the terms of any such advice). It follows that there is no means of determining, at this stage, whether or not such a step would be in the interests of the Company. If there is, at some point in the future, any dispute about those matters, it can be determined as and when it arises.

Delay

The Defendants advanced a related submission concerning the Primary Proceeding, namely, that "the delay of Kentel and Mr Kennedy in bringing the present application has the result that Mr Scott is likely to suffer real prejudice if the Proposed Directors take steps to bring the Primary Proceedings to an end". The submission that Mr Scott would suffer "real prejudice" in such circumstances was based principally on the fact that he has paid $445,000 into Court as security for the defendants' costs of the Primary Proceeding, and has personally spent, to date, a further $300,000 on prosecuting the proceeding. None of the Company's funds have been expended on prosecuting its claims in the Primary Proceeding.
The submission regarding "the delay of Kentel and Mr Kennedy in bringing the present application" needs to be considered in a context where the present application was brought by Kentel only several days after the meeting called by Kentel pursuant to the August Notice was unable to proceed due to the lack of a quorum. Kentel acted swiftly to approach this Court as soon as it knew, by reason of the quorum provision and Bronson's refusal to attend the s 249F meeting at which the proposed resolutions were to be considered, that it was impracticable for a meeting to be convened and conducted for the purpose of considering those resolutions by any means other than an application under s 249G of the Act.
The submission of "delay" therefore depended not on any delay between the aborted s 249F meeting and the s 249G application (since there was none), but rather a "delay" between the commencement of the Primary Proceeding in February 2023 and the taking of steps by Mr Kennedy and Kentel in August 2024 to seek to appoint the Proposed Directors and thereby to bring about a change in the management of the Company (and the management or conduct of the Primary Proceeding).
I do not consider that a majority shareholder, who has been dissatisfied with the management of a company for a period of time, who takes steps to call a meeting to appoint new directors, and who (when it proves impracticable for such a meeting to be convened and conducted) immediately brings an application under s 249G can be said to have "delayed" in any relevant sense. It is a matter for members of a company whether they take any steps to seek to change the composition of the board, what steps they take, and when they take those steps. I do not consider that the Court should refuse relief under s 249G to a shareholder who seeks to call a meeting of members for the purpose of considering a resolution for the appointment of an additional director, on the basis that the shareholder could have, or should have, taken steps to propose such a resolution at an earlier point in time.
Even if any "delay" by Kentel in seeking to convene a meeting under s 249F for the appointment of the Proposed Directors were regarded as a relevant "delay" for the purposes of Kentel's subsequent s 249G application, the submission that Mr Scott would suffer "real prejudice" by reason of such delay depended on the proposition that the Proposed Directors will likely take steps to bring the Company's claims in the Primary Proceeding to an end. For reasons outlined above, I am not satisfied that this proposition has been established.
Further, whether Mr Scott would suffer "real prejudice" in such a scenario would depend not only on whether the Company's claims in the Primary Proceeding were brought "to an end", but also the terms on which those claims were brought to an end.
It might be that the terms of any resolution require a payment to the Company (including in respect of the fees incurred in the Primary Proceeding), or require that the amounts paid by Mr Scott into Court as security for the defendants' costs be repaid to him, thereby ensuring that he is compensated for all amounts expended on that proceeding.
It might be that, if the Company sought to resolve its claims in the Primary Proceeding, Mr Scott would continue to prosecute his personal claims in the Primary Proceeding and, additionally, bring an application for leave to continue the claims in the name of the Company. Any issues which may then arise regarding the implications of such steps for moneys which have already been paid into Court as security for costs are matters which are best determined in the Primary Proceeding.
In any case, I do not consider that the mere prospect that the Proposed Directors may, following appointment, take some step in relation to the management of the Company's claims in the Primary Proceeding, which may cause prejudice to Bronson or Mr Scott, provides a sufficient basis for the Court to decline to exercise its discretion under s 249G to call a meeting of the members of the Company for the purpose of considering resolutions for the appointment of the Proposed Directors.

Suitability of Proposed Directors

Finally, the Defendants submitted that "the Company trades in the television and streaming industries"; that, having regard to the resumes of each of the Proposed Directors, neither of them had any apparent experience in those industries; that Mr Sutton lives in Hong Kong and Mr Ashton lives in Perth; that these matters "will obviously cause real practical difficulties in the management of the Company"; and that the Court should therefore conclude "that the appointment of the Proposed Directors will not be in the interests of the Company".
There are three main difficulties with this submission.
First, the Company is not trading in the television and streaming industries. On Mr Scott's own evidence its only functions are to conduct the litigation and to receive any further payments made under the Amazon Agreement (noting that the Company has received a single payment of $92,544.34 under the Amazon Agreement in the period of over two years since Mr Kennedy resigned as a director).
Secondly, there is no reason for concluding that the geographic location of the Proposed Directors would be an impediment to their ability to perform their duties as directors of the Company. The constitution of the Company provides that, subject to the Act, a meeting of directors "may be held by the Directors communicating with each other by any technological means by which they are able simultaneously to hear each other and to participate in discussion" (cl 63.2) and that the "Directors need not all be physically present in the same place for a Directors' meeting to be held" (cl 63.3).
Having regard to those matters, I am not satisfied that the appointment of the Proposed Directors would "cause real practical difficulties in the management of the Company".
Thirdly, and in any event, the question of the suitability of Mr Sutton and Mr Ashton for appointment as directors of the Company, and whether their appointment is "in the interests of the Company", are matters for the members of the Company who will vote on the proposed resolutions. As noted above, in Laine Commodities, the defendant submitted that the Proposed Directors lacked the "deep, industry-specific management experience" that the current board possessed (at [39(e)]). O'Callaghan J held that, even if this was established, it was not a matter which went to the exercise of the court's discretion to make or refuse an order under s 249G (at [40]).

CONCLUSION & ORDERS

I am satisfied that the Court should exercise its discretion under ss 249G and 1319 of the Act to grant the relief sought on this application, in circumstances where the quorum requirement in the Company's constitution has been used by the minority shareholder, Bronson, to frustrate the ability of the majority shareholder, Kentel, to avail itself of the means available under the constitution and the Act to convene a meeting of members of the Company for the purpose of putting resolutions regarding the appointment of additional directors to the Company. For the reasons given above, the matters upon which the Defendants relied in contending that the discretion should not be exercised in Kentel's favour either have not been established on the evidence before the Court, or do not provide a basis for declining to exercise the discretion under ss 249G and 1319 in the circumstances of this case.
As Kentel has been successful on this application, costs should follow the event. Kentel submitted, and I accept, that those costs should be borne by the Second Defendant, Bronson.
Accordingly, the Court makes the following orders. 1. Order that a meeting of the members of the First Defendant, Kentel Australasia Pty Ltd, be convened at 10.30am on 6 November 2024 at Level 6, 25 Bligh Street, Sydney NSW 2000 and using online video link technology, for the purpose of considering and voting on the resolutions set out in Annexure A to the Originating Process. 2. Order that: 1. the members of the First Defendant be permitted to attend the meeting convened pursuant to Order 1 using online video link technology; 2. the Plaintiff is to give notice in writing to the First Defendant by 5.00pm on 5 November 2024 of the online video link that may be used to attend the meeting; and 3. a single member is to constitute a quorum of members of the First Defendant at that meeting. 1. The Second Defendant pay the Plaintiff's costs of the proceeding.

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: 28 October 2024

At a glance

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Judgment (13 paragraphs)

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Legislation Cited (1)

Cases Cited (16)