BI Constructions Pty Ltd v Shad & Anor; Bayeh v BI Constructions Pty Ltd - [2010] NSWSC 484 - NSWSC 2010 case summary — Zoe

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BI Constructions Pty Ltd v Shad & Anor; Bayeh v BI Constructions Pty Ltd

[2010] NSWSC 484

Supreme Court of NSW|2010-03-17|Before: Slattery J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2010-03-17

Before

Slattery J

Source

Original judgment source is linked above.

Judgment (38 paragraphs)

[1]

Background to the Dispute 8 BI Constructions was incorporated in November 2002. The company commenced operation with three directors, Mr Samir Bayeh, Mr Issa and Mr Joe Bayeh. Those three directors each held two shares in BI Constructions. Those six shares constituted the total capital of the company. Since 2002 BI Constructions has undertaken multiple property developments. Between December 2007 and June 2009 BI Constructions undertook the Bankstown development using as the builder a company in which Mr Samir Bayeh had an interest, Bidana.

[2]

9 The three directors of BI Constructions made different capital contributions to fund the development. Mr Samir Bayeh advanced $600,000 personally and through Bidana he contributed expertise to the project. Mr Joe Bayeh and Mr Issa contributed $1,260,000 and $690,000 respectively. The financial arrangements between the three directors and shareholders were that they should each contribute one third of the capital to the project. These financial arrangements, overlapping as they did with the engagement of Bidana, caused tension among the directors during the mutual accounting that was required at the end of the development. The parties are in contest about substantial proceeds of sale, of the order of approximately $8 million. Chikal is entitled to 50% of the sum. The parties are in contest about the other approximately $4 million. Consent orders on 16 December 2009 in the trust proceedings ordered Shad Partners to pay various sums totalling a little over $5 million into Court.

[6]

11 It is unsatisfactory that these substantive issues are still largely unresolved. Neither side wants to authorise any distributions to the joint venturers until the issues are resolved. The fact that they are still outstanding is generating procedural disputes between the parties. Once the procedural disputes are resolved by this judgment the parties will be directed to advance the resolution of the substantive issues. A Short Chronology of the Principal Disputed Events 12 The compass of the events in dispute in these proceedings is narrow. It spans a period between mid-June and mid-July 2009. Three important meetings are said to have taken place in this period. The first meeting was a meeting said to have taken place between Mr Issa and Mr Samir Bayeh and Mr Joe Bayeh at Mr Issa's office in Hunter St. Parramatta. This was a heated meeting in which Mr Issa and Mr Joe Bayeh sought an understanding from Mr Samir Bayeh of the revenue and expenditure of the Bankstown development project. They wanted a full accounting of Bidana's expenditure, substantiated by documents. They were not satisfied as a result of this meeting. 13 The second meeting took place on 7 July 2009. Mr Samir Bayeh was already overseas at this time. He was not present at the meeting. He had gone overseas on 29 June as a result of the requests made of him at the meeting on 26 June Mr Samir Bayeh was supposed to bring project documents to the meeting which would satisfy Mr Issa's and Mr Joe Bayeh's requests for information. Unsurprisingly as he was overseas he neither attended the meeting nor produced documents. As a result of Mr Samir Bayeh's non attendance though, Mr Issa says he communicated with Mr Barrak to get advice about what to do next. The communications with Mr Barrak resulted in another meeting taking place on 13 July 2009. It was the character of this meeting which was in strong dispute in the proceedings. 14 The third meeting was convened on 13 July 2009. Present were Mr Issa, Mr Joe Bayeh and Mr Barrack. The meeting resolved to remove Mr Samir Bayeh as a director. Exactly what the meeting resolved and the precise form of the minutes are of some importance for the issues to be determined in the proceedings. The minutes of that meeting were signed as a correct record the following day, 14 July 2009, in the following form: MINUTES OF A MEETING OF THE DIRECTORS OF BI CONSTRUCTIONS PTY LTD ACN 102 756 169

[12]

19 The meeting that removed Mr Samir Bayeh on 13 July 2009 was a directors' meeting. I do not accept Mr Issa's contention that a general meeting of members removed Mr Samir Bayeh as a director. I reach this conclusion for the following reasons. 20 First, it is difficult to accept that the 13 July meeting was even conceived and convened as a general meeting. Mr Issa's version of his first discussing the holding of such a meeting with Mr Samir Bayeh was that on 26 June 2009 he said to him, " I put to you Samir that we should convene a general meeting of BI. We want you to go to Arraj and collect all the documentation and bring it to my office by 7 July 2009 and the issue of your directorship should be voted on at meeting which will be held here on 13 July 2009 at 2 pm." 21 This version of Mr Issa seems inherently improbable. At the time that this conversation is said to have occurred the occasion for Mr Samir Bayeh to deliver the requested accounting and financial documents to Mr Issa and Mr Joe Bayeh had not yet arrived. Before Mr Issa received and examined the documents to be supplied by Mr Samir Bayeh it is difficult to see why he would have made up his mind to call a general meeting to remove Mr Samir Bayeh. Mr Issa is a solicitor and a person of apparent intelligence and business sophistication. I do not accept that he prejudged the issue of what kind of documents Mr Samir Bayeh was going to produce even before they were produced. The logical course was to examine the documents produced on 7 July, determine their adequacy and then decide whether or not it was necessary to convene a general meeting of members afterwards. I accept that Mr Joe Bayeh and Mr Issa were keen to get an understanding of Mr Samir Bayeh's accounting for the project. But I do not accept that Mr Issa had actually formulated the idea by 26 June 2009 that a general meeting of the members of BI Constructions should be called as distinct from his planning to hold another directors meeting in order to discuss the consequences of what had been produced on 7 July.

[27]

Did BI Constructions Validly Resolve to Commence the Trust Proceedings and Retain Cambridge Group Lawyers? 39 I have found that Mr Samir Bayeh continued as a director of BI Constructions after 13 July 2009. He was not given notice of any directors meetings after that date. One of those meetings was a meeting, which resolved to commence the trust proceedings. As he remained a director he should have been given reasonable notice of such meetings: Corporations Act s 248C and see clause 14 of the Constitution of BI Constructions. The question now arises whether or not a resolution passed by a directors meeting of which he had no notice is a valid resolution sufficient to authorize the commencement of the trust proceedings? 40 It is important to focus on several relevant facts before deciding this question. Those relevant facts are that Mr Joe Bayeh and Mr Sam Issa deliberately pursued a course of action of removing Mr Samir Bayeh from the Board of BI Constructions on 13 July 2009. Their chosen means of doing so was invalid. They then excluded Mr Samir Bayeh from further involvement in directing the affairs of BI Constructions by not giving him notice of subsequent directors meetings. They took this course acting upon their invalid decision to remove him as a director. Consistent with their case that Mr Samir Bayeh had been validly removed as a director on 13 July they did not seek to propound a case that they had notified him of any subsequent directors meeting. Further I can infer that the removal and exclusion were deliberate because they were openly motivated by Mr Issa's and Mr Joe Bayeh's displeasure at Mr Samir Bayeh's refusal to give them an account of Bidana's financial dealings with and on behalf of the building and development joint venture at Bankstown. The other directors made a deliberate strategic decision not to give notice to Mr Samir Bayeh of all subsequent directors' meetings of BI Constructions. 41 These circumstances do not warrant any application of s 1322 to cure the irregularity in the failure to give notice to Mr Samir Bayeh of the directors meeting purporting to authorise commencement of these proceedings. The decision was invalid.