Bodikian v Sproule [2009] NSWSC 599 | Case summary

6242/08 HARRY BODIKIAN & ORS V DAVID HUGH SPROULE & ANOR JUDGMENT 1 HIS HONOUR: There two notices of motion before the court, which I have heard together at the invitation of the parties, as they raise the same issues. In a notice of motion filed on 24 February 2009 the defendants seek against the plaintiffs an order striking the third plaintiff, SBC Developments Pty Ltd ("SBC" or "the company"), from the summons and the proceedings; and in a notice of motion filed on 28 April 2009 the defendants seek against the plaintiffs an order dismissing SBC's claims against the defendants. They also seek an order for indemnity costs against the first and second plaintiffs and their solicitors. The notices of motion contain other prayers for relief but these are the ones specified by counsel for the defendants in opening the interlocutory hearing. The applications for relief raise the same question, namely whether the individual plaintiffs had authority to join SBC as a plaintiff and to retain solicitors to act for it. 2 This is an application for summary dismissal of the proceedings so far as they relate to claims by SBC. Counsel for the defendants invited the court to apply the principles in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 and in accordance with that approach, he invited the court to deal with the applications on the basis that the plaintiffs' evidence is taken to be correct. At the trial much of the plaintiffs' evidence will be contested. Counsel for the plaintiffs did not demur from this course. 3 In Commonwealth of Australia v Griffiths [2007] NSWCA 370 Beazley JA (with whom Mason P and Young CJ in Eq agreed) said this about applications for summary disposal of claims: "11 The general principles relating to the summary disposal of proceedings are well-known: see General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 129. If it is demonstrated that there is a real question to be tried, the matter is inappropriate for the entry of summary judgment: Dey v Victorian Railway Commissioners [1949] HCA 1; (1949) 78 CLR 62. The tests stated in the authorities as to whether it is appropriate that the case be disposed of by the entry of summary judgment include statements such as that the matter is 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless' or 'would involve useless expense': see General Steel Industries at 129. "12 The summary disposal of proceedings or part thereof deprives a party of the right to a contested hearing. For that reason it is said that the requirement for establishing that there is no triable issue is demanding: Air Services Australia v Zarb (Court of Appeal, 26 August 1998, unreported). In Webster & Anor v Lampard [1993] HCA 57; (1993) 177 CLR 598, Mason CJ, Deane and Dawson JJ said at 602: '… the issue before the learned Master on the application for summary judgment was not whether [the plaintiffs] would probably succeed in their action against [the defendant]. It was whether the material before the Master demonstrated that that action should not be permitted to go to trial in the ordinary way because it was apparent that it must fail. The power to order summary judgment must be exercised with "exceptional caution" and "should never be exercised unless it is clear that there is no real question to be tried".' [Citations omitted]" 4 In the Griffiths case Young CJ in Eq, while agreeing with the judgment of Beazley JA, made this observation: "155 The only other comment I need to make is that whilst I agree that the present claim should be struck out under the traditional test laid down in General Steel Industries … , I wish to reserve the position I tentatively took during argument that the overriding purpose stated in s 56 of the Civil Procedure Act 2005 may well warrant courts striking out proceedings on less substantial grounds than those stated in General Steel ." 5 Counsel for the plaintiffs did not suggest that the matter raised in the notices of motion is inappropriate for summary termination. Neither counsel invited me to do otherwise than to proceed in accordance with the "traditional test". I shall therefore apply the traditional test to the notices of motion. The plaintiffs' case 6 The following is a summary of the case pleaded by the plaintiffs in their amended statement of claim filed on 1 June 2009. 7 SBC was formed in November 2004 on behalf of the first plaintiff (Mr Bodikian), the second plaintiff (Mr Cassar), and the first and second defendants (Mr and Mrs Sproule), for the purpose of buying, developing and selling property. Allegedly it was agreed that the shareholding was to be divided into three portions, owned respectively by the interests of Mr Bodikian, Mr Cassar, and Mr and Mrs Sproule. Those four individuals were the directors. 8 Later in November 2004 the company purchased a property at Ettalong Beach and the four directors entered into a joint venture agreement with respect to the purchase, development and sale of that property. 9 In 2005 the company encountered some difficulties in obtaining development approvals from the relevant local council, and consequently in about October 2005 it was agreed by the directors that another property, located at Pearl Beach, would be purchased, developed and sold pursuant to the joint venture agreement. However, it was agreed that the Pearl Beach property would be purchased in the names of Mr and Mrs Sproule (there is evidence that the directors were advised that the financial position of Mr Bodikian and Mr Cassar, which was said to be not strong, might be an obstacle to the company obtaining finance for the purchase of the Pearl Beach property secured over the Ettalong property, if they remained directors and shareholders of the company). The Pearl Beach property was acquired in December 2005, in part with money obtained from using the Ettalong Beach property of SBC as security for a bank loan. 10 Subsequently the Pearl Beach property was developed, and the plaintiffs say that Mr Bodikian and Mr Cassar provided their own labour and money during that enterprise. The Ettalong Beach property was sold in March 2008 and the bank loan that had been used to purchase the Pearl Beach property was paid out from the proceeds of sale. But Mr Bodikian and Mr Cassar, on the one hand, and Mr and Mrs Sproule on the other hand, could not agree about how the proceeds of sale of the Ettalong Beach property should be distributed, or how the Pearl Beach property should be developed and sold, and therefore over the months from March 2008 onwards there was a breakdown in their relationship. 11 The plaintiffs say that in March or early April 2008, without the consent of Mr Bodikian or Mr Cassar, Mr and Mrs Sproule listed the Pearl Beach property for sale. Then on 3 April 2008 they denied that Mr Bodikian and Mr Cassar were directors of SBC and claimed that they were the legally registered owners of the Pearl Beach property. The plaintiffs say that by doing so, Mr and Mrs Sproule impliedly denied that they held the property in trust for SBC. Mr and Mrs Sproule denied further access to the Pearl Beach property on the part of Mr Bodikian and Mr Cassar. 12 The plaintiffs' principal claim is that from the time of acquisition, Mr and Mrs Sproule have held Pearl Beach property on behalf of SBC. They say that in those circumstances Mr and Mrs Sproule as directors of SBC are in breach of their fiduciary duties and their statutory duties under s 182 of the Corporations Act, by diverting a company asset, the Pearl Beach property, to themselves. They allege that Mr and Mrs Sproule hold the Pearl Beach property on constructive trust for SBC. 13 In the alternative the plaintiffs claim that if the court finds that the Pearl Beach property is not held in trust for SBC, then Mr Bodikian and Mr Cassar seek "restitutionary damages or compensation" against Mr and Mrs Sproule for the labour they have provided and the payments they have made for building work in respect of the Pearl Beach property. 14 The plaintiffs also claim an order for the winding up of SBC on the just and equitable ground. 15 The plaintiffs' principal claim asserts SBC's rights against Mr and Mrs Sproule as directors of the company. SBC is the proper plaintiff for the making of that claim. The notices of motion seek to remove SBC as a plaintiff. If that relief were to be granted, it would presumably be necessary for the remaining plaintiffs, Mr Bodikian and Mr Cassar, to join SBC as a defendant and pursue the claim foreshadowed in the present amended statement of claim for an order under s 237 of the Corporations Act, granting them leave to continue the proceedings (so far as they relate to the assertion of the company's rights) in the name of and on behalf of SBC. If that leave were not granted, and again assuming that the notices of motion were to succeed in removing SBC as a plaintiff, all that would remain of the proceedings would be the claim for winding up SBC on the just and equitable ground (again requiring joinder of SBC as a defendant) and the personal claim by Mr Bodikian and Mr Cassar against Mr and Mrs Sproule for restitutionary compensation. Evidence about directorships and shareholding 16 Mr Cassar addressed these matters in his affidavit of 14 May 2009, which attaches relevant ASIC documentation. The application to register SBC, made on an ASIC Form 201 on 19 November 2004, identifies Mr Bodikian, Mr Cassar, and Mr and Mrs Sproule as the four directors of the company, and says that one each of the four issued ordinary shares of the company is held by (or by the investment company of) each party. 17 An ASIC Form 484 lodged on 22 November 2005 gave notice that on 15 November 2005 Mr Cassar and Mr Bodikian ceased to be directors and their respective investment companies ceased to be shareholders, and the shareholdings of Mr and Mrs Sproule respectively increased from one to two shares. There are no share transfers in evidence but (as noted above) for the purposes of these applications I am to assume that the plaintiffs' evidence is correct. 18 Mr Cassar gave evidence that in October 2005, when the four directors were discussing the proposal to acquire the Pearl Beach property, they agreed that for the purposes of the Pearl Beach project the shareholding of SBC be changed so that Mr and Mrs Sproule together would hold one third of the shares, Mr Bodikian would hold one third and Mr Cassar would hold one third. That agreement (contested by the defendants) was not implemented at the time, evidently because the parties believed that Mr Bodikian and Mr Cassar should stay off the share register because their weak financial position might interfere with SBC raising finance. But Mr Cassar has provided evidence of some acknowledgements by Mr and Mrs Sproule that the interests were one-third interests. 19 An ASIC Form 484 lodged on 7 November 2007 purported to give notice that on 1 November 2007 Mr Cassar and Mr Bodikian were appointed directors of SBC, and eight ordinary shares were issued, four each to Mr Cassar and Mr Bodikian, giving each of them one third of the shares and leaving Mr and Mrs Sproule with two shares each. 20 On 8 April 2009 Mr Cassar purported to give notice to Mr Bodikian and Mr and Mrs Sproule, as shareholders, that as a director of SBC he was convening a meeting of members to be held on 1 May 2009, for the purpose of removing Mr and Mrs Sproule as directors of the company. He and Mr Bodikian attended at the appointed time and place but Mr and Mrs Sproule did not attend. After waiting for 30 minutes they purported to pass resolutions removing Mr and Mrs Sproule as directors. They then purported to hold a meeting of directors between themselves, and they resolved to ratify the legal proceedings and the retainer by SBC of Giles Payne & Co as solicitors. The internal management rules of SBC 21 It is common ground that SBC was formed as a proprietary company in 2004 and has not adopted a constitution, and so the replaceable rules of the Corporations Act apply to it. Under the replaceable rules: a company may appoint a person as a director by resolution passed in general meeting (s 201G); the directors of a company may appoint a person as a director (s 201H(1)), but if a person appointed under this power is a director of a proprietary company, the company must confirm the appointment by resolution within two months after the appointment is made, and if the appointment is not confirmed, the person ceases to be a director at the end of those two months (s 201H(2)); the directors of a proprietary company may refuse to register a transfer of shares in the company for any reason (s 1072G); before issuing shares of a particular class, the directors of a proprietary company must offer them to the existing holders of shares of that class, in proportion to the number of shares of the class that they already hold (s 254D(1)), and the directors may issue any shares not taken up under the offer as they see fit (s 254D(3)), although the company may by resolution of a general meeting authorise the directors to make a particular issue of shares without complying with subsection (1) (s 254D(4)); a director may call a meeting of the company's members (s 249C), and under s 249D, which is not a replaceable rule, the directors are required to call and arrange a general meeting at the request of members with at least 5% of the votes, or at least 100 members entitled to vote; a directors' meeting may be called by a director giving reasonable notice individually to every other director (s 248C). 22 Every company is required by s 168 of the Corporations Act to set up and maintain a register of members. By s 169, in the case of the company with share capital the register must contain information including each shareholder's name and address, the date on which the shareholder's name was entered into the register, the date of every allotment of shares and particulars of the allotment, and share certificate numbers (if any). While the directors of a company to which the replaceable rules apply have the power to issue shares, the issuing of shares is a process that is not perfected simply by a decision of the directors that the shares be issued. Section 231(b) states that a person is a member of a company (a shareholder, if the company is limited by shares) if the person agrees to become a member and his or her name is entered on the register of members. The process of becoming a shareholder by the issue of shares involves several steps: the company and the subscriber enter into a contract under which the subscriber agrees to become a member in partial satisfaction of s 231; the relevant company organ (usually the board of directors) resolves to appropriate the agreed number of shares and to enter the subscriber's name in the register of members, thereby "allotting" the shares to the subscriber, and then particulars of the subscriber and the allotment are entered in the register of members, thereby causing the shares to be "issued" and completing the requirements of s 231 (see the cases cited in Ford's Principles of Corporations Law at [17.170] and [17.181]). While for certain purposes the law may recognise a subscriber as a shareholder prior to the entry in the register of members, it is clear that becoming a shareholder by the issue of shares is not an event constituted solely by the directors' decision, but rather it is a process ending in entry in the register. The defendants' main submissions in support of the applications 23 The defendants submitted that, taking the plaintiffs' evidence at its highest, there is no evidence of any meeting of the directors of SBC in October/November 2007 (namely Mr and Mrs Sproule) to exercise their power under s 201H(1) to appoint Mr Bodikian and Mr Cassar to the board or to issue shares to them, and if there were, those appointments to the board would have come to an end two months afterwards because there is no evidence that the shareholders (Mr and Mrs Sproule) subsequently confirmed the appointments. They contended that the court cannot cure the absence of confirmation of the board appointments under s 1322. Therefore, they said, Mr Bodikian and Mr Cassar were not validly re-appointed to the board of directors of SBC, and shares were not validly issued to them. 24 They submitted that, since Mr Cassar was not a director on 8 April 2009 when he purported to convene a meeting of members for 1 May 2009, and did not purport to requisition a meeting under s 249D (and in any event he was not a member), the purported meeting of members on 1 May was not validly convened and the resolutions purportedly passed at that meeting, to remove Mr and Mrs Sproule as directors, were invalid. Since Mr and Mrs Sproule were still directors after the purported meeting of members on 1 May, the subsequent purported meeting of directors attended by Mr Bodikian and Mr Cassar on the same day, without notice to Mr and Mrs Sproule, was invalidly constituted and the resolutions they purported to pass, ratifying the retainer of Giles Payne & Co as solicitors for SBC, were invalid. Consequently the joinder of SBC as plaintiff in the proceedings was not properly authorised and orders should be made having the effect of removing the company from the proceedings. 25 For the reasons I shall explain, I have decided to reject the defendants' application. It is necessary, first, to address the evidence on the question of the authority of Mr Bodikian and Mr Cassar to cause SBC to become a plaintiff in the proceedings and to cause it to retain Giles Payne & Co as its solicitors. The plaintiffs' main submissions in response to the application 26 The plaintiffs had two principal submissions. One was that the defendants are estopped from resiling from their representation, allegedly made in October 2005 and repeated subsequently, that Mr Bodikian and Mr Cassar would be reinstated as directors and two-thirds shareholders as soon as refinancing by the company was no longer needed, and they are estopped from denying that Mr Bodikian and Mr Cassar have been directors and two-thirds shareholders since November 2007, because of their subsequent conduct, relied upon by the plaintiffs to their detriment. I shall consider the question of estoppel later. 27 The other submission was that Mr and Mrs Sproule, then the sole shareholders/directors, agreed in November 2007 that Mr Bodikian and Mr Cassar be reinstated as directors and shareholders. The plaintiffs argued that the informal assent by Mr and Mrs Sproule to the appointments was as effective as a resolution by the shareholders to appoint them as directors under the replaceable rule in s 201G, and their informal assent to the restoration of Mr Bodikian and Mr Cassar as shareholders was as effective as a resolution by the shareholders to issue shares for that purpose under the replaceable rule in s 254D(4). Counsel for the plaintiffs sought to invoke what is sometimes called "the doctrine of unanimous assent" or "the Duomatic principle". The Duomatic principle 28 As can be seen from Ford's Principles of Corporations Law, LexisNexis looseleaf, [7.590], there is now a substantial body of English and Australian case law on the Duomatic principle. While some English cases might exemplify a wider approach, on the whole the Australian case law treats the principle as an example of the doctrine of waiver. For present purposes it is sufficient to cite three Australian cases. 29 In Re Compaction Systems Pty Ltd and the Companies Act [1976] 2 NSWLR 477, at 484 Bowen CJ in Eq gave the following succinct account of Re Duomatic Ltd [1969] 2 Ch 365: "In that case, various payments were made to directors in different sets of circumstances. These payments were challenged by the liquidator of the company, which had afterwards been ordered to be wound up. Certain of these payments could have been authorised by a resolution of the company in general meeting. In fact no general meeting had met to approve them, and they had not been authorised by any resolution of a formally constituted board meeting. The evidence was that they had been made, however, with the full knowledge and consent of all the registered holders of voting shares in the company. It should be mentioned that, in addition to voting shares in the company, there had been issued 80,000 redeemable preference shares of £1 each. These redeemable preference shares did not carry the right to receive notice of meetings, or to attend meetings, or to vote. The question, therefore, was whether the principle applied where all shareholders entitled to receive notice and attend and vote at general meetings had assented. Buckley J expressed his view as follows [at 373]: '… I proceed upon the basis that where it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be. The preference shareholder, having shares which conferred upon him no right to receive notice of or to attend and vote at a general meeting of the company, could be in no worse position if the matter were dealt with informally by agreement between all the shareholders having voting rights than he would be if the shareholders met together in a duly constituted meeting.'" 30 In Herrman v Simon (1990) 4 ACSR 81, at 83, Meagher JA (with whom Samuels and Priestley JJA agreed) referred to the Duomatic principle and continued: "What is that principle? The principle is I think this: where it can be shown that all shareholders having a right to attend and vote at a general meeting of the company assent with full knowledge and consent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be. In other words, it is a doctrine dispensing with the consumptive effect of formalities. It is a doctrine that formalities may be disregarded if they have been waived by all shareholders acting in concert who want the same substantial result." 31 In Angas Law Services(in liq) v Carabelas (2005) 226 CLR 507 Gleeson CJ and Heydon J described the Duomatic line of cases as "cases in which, by reason of some feature of a company's internal structure, or some failure to comply with its articles of association, there is a potential defect in a purported exercise of corporate power". They continued (at 519): "In such a case, the unanimous consent of the shareholders, even if there has been no formal resolution of a general meeting, may be as binding as a resolution in general meeting would have been. This line of authority is often invoked to meet the contention that the company is not bound by some decision or conduct by reason of administrative irregularity, failure to comply with articles of association, or want of authority on the part of some internal organ." 32 It can be seen from these observations that the Duomatic principle allows the court to accept as valid, notwithstanding failure to adhere to formal requirements, a decision made by the unanimous assent of the members entitled to participate in the decision, whether or not they have actually met together. The doctrine does not give the members acting unanimously a power that they do not constitutionally possess (because, for example, the power is vested in the board of directors: Poliwka v Heven Holdings Pty Ltd (No 2) (1992) 8 ACSR 747 at 786-8 per Ipp J). 33 There is an issue as to whether the doctrine allows the members to rely on unanimous assent in order to satisfy a statutory requirement for a decision at a meeting (see the discussion in Ford at [7.595]). As to that question, it seems to me relevant that the statutory provisions at issue here, principally ss 201G and 254D, are replaceable rules which replicate internal management arrangements previously found in Table A articles of association; they are not statutory impositions of an external requirement for a formal meeting of members in the stated circumstances, for they can be overridden if the company adopts a constitution. Therefore, although it is not strictly necessary for me to decide the question, because I have concluded that the factual ingredients for the application of the Duomatic principle have not been established to the General Steel standard, it seems to me reasonably clear that the principle is capable of applying in a case where the members' decision-making power is conferred upon them by one of these two provisions. 34 The passages I have quoted from the cases show that the Duomatic principle applies where the members unanimously consent to some "matter" upon which they are capable of making a decision. It seems to me important to identify the matter that the members have authority to decide, as a prelude to considering whether they have assented to that matter unanimously for the purposes of application of the principle. In a case where the source of power relied upon to validate the members' decision is s 201G, the matter that the members are empowered to decide is the appointment of a person as director. One is therefore looking for evidence of unanimous assent to the proposition that a named person is thereby appointed to the board. In a case where the source of power relied upon to validate the decision is s 254G(4), the matter that the members are empowered to decide is the conferral of authority on the directors to make a particular issue of shares without complying with the pre-emption arrangements of s 254D(1). This latter point has some importance in the present case, because it means that it would not be enough for the plaintiffs to show that Mr and Mrs Sproule decided to issue shares to Mr Bodikian and Mr Cassar in order to make them, in each case, the holder of one third of the issued share capital. It would be necessary to show that their decision was about the matter that the members are authorised by subsection (4) to decide, namely (in effect) exempting the directors from compliance with the pre-emption requirements. 35 Finally on the Duomatic principle, I note that in Herrman v Simon Meagher JA said (at 83) that the principle goes to formalities and not to substance, that is, it is not a doctrine saying that substantial rights may be varied. Counsel for the defendants seized on that statement and submitted that the Duomatic principle cannot apply to remove the pre-emption rights conferred on shareholders by s 254D(1). The proposition that the application of the Duomatic principle cannot affect substantive rights was not necessary to the decision in Herrman v Simon, and depending precisely on what is meant by "substantial rights" it may significantly narrow the availability of the principle in Australia, in comparison with the English cases discussed in Ford. I regard the issue as a difficult one, to be addressed only after full argument and full consideration of the authorities. For reasons explained below, I have reached the conclusion that the Duomatic principle does not apply (to the General Steel standard) on the facts of the present case, and it is therefore unnecessary for me to decide whether it would be capable in law of applying to a unanimous informal decision of shareholders to allocate shares inconsistently with the pre-emption rights in s 254D(1). Evidence on the question of authority 36 There is no evidence of any purported meetings of directors or shareholders prior to 1 May 2009 at which the joinder of SBC as a plaintiff and the commencement of these proceedings was authorised or even considered, or at which the retainer of the solicitors Giles Payne & Co for the purposes of the proceedings was approved or even considered. The plaintiffs claim that the proceedings were ratified by the combination of the purported members' meeting held on 1 May 2009 and the purported directors' meeting held immediately thereafter. The validity of those meetings depends upon whether the shareholders' meeting was properly convened by Mr Cassar purporting to act as director, and whether Mr Bodikian and Mr Cassar were shareholders at the time of the meeting. 37 That, in turn, depends upon whether they were "reinstated" as directors and shareholders. There is no evidence that there was any formal meeting of Mr and Mrs Sproule as directors or shareholders for those purposes. But there is a substantial amount of evidence going to less formal discussions about those questions. 38 In October 2005 the directors received advice from a mortgage provider that the company might encounter difficulty in obtaining finance secured over the Ettalong property to fund the purchase of the Pearl Beach property, because of the financial circumstances of two of its directors/shareholders, Mr Bodikian and Mr Cassar. Consequently Mr Bodikian, Mr Cassar and Mr and Mrs Sproule agreed that Mr Bodikian and Mr Cassar would "stay off" as directors and shareholders of SBC in case the company needed to raise funds, but according to the plaintiffs' evidence, it was agreed that if the company did not need to raise funds, they would be reappointed as directors and their shares would be transferred back to them. Subsequently a Form 484 was lodged with ASIC on 22 November 2005 removing Mr Bodikian and Mr Cassar as directors and shareholders of the company, although Mr Cassar remained as company secretary. Although there is no evidence of any meeting of directors or shareholders of SBC to give effect to the informal decision of the parties in October 2005 that Mr Bodikian and Mr Cassar would cease to be directors and shareholders, it is accepted for the purposes of the present application that they did validly retire from the board and transfer their shares to Mr and Mrs Sproule. 39 Later the company obtained a bank loan secured over the Ettalong Beach property, which was used to provide part of the funds for the purchase of the Pearl Beach property. On two occasions (13 September 2006, 12 April 2007) Mr Bodikian and Mr Cassar reiterated to Mr Sproule their understanding that they would be reinstated as directors and shareholders if the company no longer needed to obtain finance. 40 On 16 May 2007 Mr Bodikian, Mr Cassar, and Mr and Mrs Sproule met at a restaurant in Gladesville. According to Mr Cassar's evidence, he told the meeting that the Pearl Beach building work was nearing completion and therefore they should discuss "the matter of Harry and my re-appointment as directors and shareholders of SPC". Mr Sproule said it would be best to leave the issue of refinancing open, just in case it became necessary to raise additional funds over the ensuing months. The implication was, I take it, that Mr Bodikian and Mr Cassar should not come back into the company as long as there was a possibility that finance would be needed. Everyone agreed not to change the directorships and shareholdings while further financing was a possibility. 41 However, Mr Cassar gave evidence that he said: "I strongly recommend that at the point that we decide not to refinance, Harry and I should be reinstated as directors and shareholders on a one-third basis as discussed when we originally resigned." 42 Mr Cassar said that subsequently, the following was said: Mrs Sproule: "I agree to re-appointing you both [looking at Mr Bodikian and Mr Cassar] as directors and making you shareholders again if we don't need refinancing. Let's leave it there but as far as we are concerned we are all directors and equal shareholders of SPC." Mr Sproule: "I agree also to re-appointing you both [looking at Mr Bodikian and Mr Cassar] directors, and making you shareholders again once the refinancing is sorted out." 43 Counsel for the plaintiffs submitted that the assent of Mr and Mrs Sproule expressed at that meeting constituted a resolution valid and binding on the members, under the Duomatic principle. In my view (applying the General Steel standard), that submission is wrong, because the evidence falls short of establishing the unanimous assent of Mr and Mrs Sproule as to the shareholdings of Mr Bodikian and Mr Cassar. If Mr and Mrs Sproule assented to anything at all, it was that Mr Bodikian and Mr Cassar would be restored as directors and equal shareholders, whereas Mr Cassar proposed a one-third shareholding arrangement. Moreover, what was agreed between Mr and Mrs Sproule was that the restoration of the directorships and shareholdings would not be implemented until it was clear that further financing was not needed. 44 I should note that Mr Bodikian also gave affidavit evidence about the conversation in May 2007, which was somewhat different from Mr Cassar's evidence. According to Mr Bodikian, Mrs Sproule's agreement was to the reappointment of both of them as directors and to making them one-thirds shareholders, and that Mr Sproule said he also agreed. If that evidence were accepted, it would not constitute evidence of an informal decision of Mr and Mrs Sproule as shareholders to reinstate Mr Bodikian and Mr Cassar as shareholders and directors in May 2007, because it is clear from Mr Bodikian's affidavit that the alleged agreement was to do something in future, if no further refinancing was needed. 45 In early October 2007 it was agreed that the Ettalong Beach property would be sold and therefore there would be no further financing needed for Pearl Beach. Mr Cassar gave evidence that on about 15 October 2007 he met with Mr Sproule in Concord, and they discussed placing the Pearl Beach property on the market as well as refinancing the Pearl Beach loan. He deposed to the following conversation: Mr Cassar: "Seeing that we don't need to refinance the properties [Ettalong Beach and Pearl Beach], David, I want to reinstate myself and Harry [Mr Bodikian] as officeholders and members of the company. That was part of our deal for raising the finance for Pearl Beach back in 2005." Mr Sproule: "No problem. We did agree to change things over so perhaps now is a good time to change things back to the way they were. I was concerned that as Margaret and I were the only directors that we would be liable for loans in the event of anything happening so I would prefer that you are both reinstated." Mr Cassar: "If that's the case, I will prepare the necessary form with ASIC and submit it electronically when I get a chance." Mr Sproule: "If you could let Margaret [Mrs Sproule] know this is happening as well." 46 Mr Cassar said that his first available opportunity to prepare the necessary form (4484) to submit to ASIC was on 7 November 2007. He submitted the form electronically and signed it in his capacity as secretary of SBC, an office he retained after ceasing to be a director and shareholder. He said that a few days after his meeting with Mr Sproule in Concord, but apparently after his electronic lodgement of the form with ASIC, he rang Mr Sproule and then Mrs Sproule to confirm that the reinstatement had actually taken place. He said that in his telephone conversation with Mr Sproule, Mr Sproule said: "Thanks for letting me know … give Harry and Margaret a call and let them know as well." 47 Mr Cassar said he then rang Mrs Sproule and the following conversation took place: Mr Cassar: "I've now submitted the form with ASIC reinstating me and Harry as directors and shareholders, I thought I'd just give you a call to let you know." Mrs Sproule: "Thanks for letting me know. David did mention that this was going to happen when you had the meeting with him at Concord a few weeks ago. I agree to your re-appointment as directors, and to you becoming shareholders again." 48 Counsel for the plaintiffs submitted that the evidence I have set out establishes that Mr and Mrs Sproule, then the sole shareholders of SBC, informally assented to the re-instatement of Mr Bodikian and Mr Cassar as directors and shareholders of the company. Some of the plaintiffs' evidence is denied by the defendants, but applying the General Steel standard and on the assumption that the plaintiffs' evidence is wholly correct, in my view it does not rise to the level of "unanimous assent to a matter that the members are capable of deciding" so as to attract the Duomatic principle. 49 First, the matter put to Mr Sproule on 15 October was that Mr Cassar wanted to reinstate himself and Mr Bodikian as office holders and members. It was an expression of his desire and it was expressed in general terms with no particularity about how that desire would be given effect. 50 The lack of specificity was particularly evident as to reinstatement of the membership. According to Mr Cassar's evidence of what he said to Mr Sproule on 15 October, nothing was said by Mr Cassar about issuing new shares. Indeed, Mr Cassar's evidence of the conversation of the parties in October 2005 was that he told Mr and Mrs Sproule "you will have to transfer our shares back to us". That would mean that Mr and Mrs Sproule respectively would transfer one share each to Mr Bodikian and Mr Cassar respectively, so that each of the four of them would hold a single share. 51 Nor, according to Mr Cassar's evidence, did he put the proposition to Mr Sproule in their conversation on 15 October that the shareholding would be one-third each to Mr Bodikian and Mr Cassar. Counsel for the plaintiffs submitted that Mr Cassar was referring to the conversation in October 2005 during which the parties agreed on one-third shareholdings for the purpose of the Pearl Beach investment. I note that according to Mr Cassar, at the meeting on 16 May 2007 he referred to one-third shares, although according to Mr Cassar's evidence, Mrs Sproule agreed that "we are all directors and equal shareholders of SBC". On 15 October 2007 Mr Cassar referred to "our deal for raising the finance for Pearl Beach back in 2005". But he told Mr Sproule he wanted to "reinstate" himself and Mr Bodikian as members, suggesting reversion to the earlier shareholding of one share in each. Moreover Mr Sproule's response was that "now is a good time to change things back to the way they were". The "way they were" was that each of the four parties held one share. 52 In my view Mr Cassar's statements to Mr Sproule on 15 October 2007, as deposed to by Mr Cassar, were too uncertain to convey any specific information as to what he proposed to be done about the shareholding of SBC, and therefore too uncertain to provide evidence of a decision about shareholding. 53 That conclusion affects the proposal to reinstate the plaintiffs as directors as well as the proposal to reinstate them as members. The two proposals were advanced by Mr Cassar together as a package, and Mr Sproule responded "no problem" to that package. The fact that Mr Cassar was so vague about the shareholding proposal indicates that everything he put to Mr Sproule was a proposal for some future implementation rather than a matter for immediate decision. 54 Mr Sproule assented to Mr Cassar's statement that he would prepare the necessary form with ASIC and submit it electronically when he had the chance, and asked Mr Cassar to "let Margaret know this is happening". But in view of the lack of specificity in the content of the proposal, it cannot be contended that by acquiescing in Mr Cassar's plan to prepare the necessary form for electronic submission, he was assenting to the information that the electronic form eventually contained, namely that SBC had allegedly appointed Mr Bodikian and Mr Cassar as directors and had issued four new shares to each of them. 55 Mr Cassar's evidence of his subsequent telephone conversation with Mr Sproule does not improve the plaintiffs' position, in my view. He said that he rang Mr Sproule "to confirm that the reinstatement has actually taken place". He did not say that he explained to Mr Sproule the full content of the form he had lodged with ASIC, including the provision for the issue of four new shares to each of him and Mr Bodikian, and he did not say that Mr Sproule agreed to the contents of the form, but only that Mr Sproule thanked him for letting him know that the reinstatement had taken place. 56 Similarly Mr Cassar's evidence of his conversation with Mrs Sproule was that he told her he had submitted the form with ASIC, reinstating him and Mr Bodikian as directors and shareholders, but he did not say he told her the specific contents of the form or that he sought her assent to those contents. 57 According to Mr Cassar's evidence, Mr Sproule said her husband had mentioned to her that the reinstatement was going to happen, and she said she agreed to the reappointment of Mr Cassar and Mr Bodikian as directors, and to their becoming shareholders again. But she did not say that her husband had told her that there would be an issue of new shares, let alone that four shares would be issued to each of Mr Bodikian and Mr Cassar, or that she agreed to that issue taking place, or even that it was said to her that Mr Bodikian and Mr Cassar were to become one-third rather than one-quarter shareholders. There is no basis for inferring that the meeting between Mr and Mr Sproule, capable of becoming a meeting of shareholders of SBC if formalities were waived, was any more specific than the separate conversations that Mr Cassar had with Mr and Mrs Sproule. 58 I should note that Mr Bodikian also gave evidence, but only to say that he received a telephone call from Mr Cassar in late October or early November 2007, in which (he said) Mr Cassar told him he had spoken to Mr and Mrs Sproule, and he was arranging for Mr Bodikian and himself to be reinstated as directors and for them each to be allocated a one-third shareholding, since there would be no further refinancing. That evidence does not advance the plaintiffs' argument, because it is merely evidence of an account of what Mr Cassar was doing, not an account of what Mr and Mrs Sproule agreed. 59 Quite apart from the vagueness of the evidence of Mr Cassar's conversations between Mr and Mrs Sproule respectively, there are two reasons why this evidence should not be treated as having the consequence that Mr Bodikian and Mr Cassar were thereafter shareholders of any number of shares. One is that the Duomatic principle applies, as I have said, where there is unanimous consent about a "matter" about which the shareholders are capable of deciding. As I have pointed out, the only relevant matter within the power of shareholders, as regards the issue of shares, is the matter of determining to waive the pre-emption requirements of s 254D(1), a matter confided to the shareholders by s 254D(4). The evidence does not give the slightest suggestion that Mr and Mrs Sproule unanimously assented to the exercise of that power. Secondly, even if they had exercised the power to waive the pre-emption rights in their capacity as shareholders, and they had exercised their power as directors to appropriate four new shares to each of Mr Bodikian and Mr Cassar, there is no evidence that the issue of the shares was then effectuated by entry of the required particulars in the share register of the company. Indeed, there is no evidence about the share register at all, and counsel for the plaintiffs even expressed some doubt about whether it exists. 60 My conclusion, applying the General Steel standard, is that there is no scope for the application of the Duomatic principle on the facts deposed to by the plaintiffs. The plaintiffs' evidence that they were subsequently treated as directors and shareholders 61 The plaintiffs gave evidence in their affidavits of conversations after about 6 November 2007 concerning the sale of the company's Ettalong property, in which Mr and Mrs Sproule treated them as participants in the decision-making. That evidence seems to me to be too general to imply, of itself, that Mr and Mrs Sproule treated them as directors at this time. It is consistent with the proposition that Mr and Mrs Sproule regarded them as former directors and shareholders with whom they had an arrangement that in future they would be restored as directors and shareholders on an equal basis. 62 However, there are some specific items of evidence that need to be considered. First, the transfer of the Ettalong property was signed by Mr Cassar and Mr Bodikian as directors of SBC. The plaintiffs' evidence indicates that Mr Sproule was aware that this happened as he came to Mr Cassar's house to pick up the document after signature. Mr Bodikian said that Mr Cassar told him that Mr Sproule wanted him to sign the document as a director of SBC. 63 Secondly, on 6 March 2008 Mr Sproule rang Mr Cassar to say he was faxing through a mortgage discharge authority that needed to be signed by all the directors, and he asked Mr Cassar to complete and sign the document and then fax it to Mr Bodikian, and Mr Sproule would pick the document up from Mr Bodikian later. A copy of the document is in evidence, and it is signed by Mr Bodikian, Mr Cassar, Mrs Sproule and Mr Sproule on behalf of SBC. 64 There is also some evidence about the respective financial contributions of the parties. The plaintiffs' evidence is that Mr Cassar and Mr Bodikian contributed to the ongoing development of the Ettalong Beach property up to about August 2006, although Mr Cassar said he was not in a position to contribute much until he sold his house at Castle Hill in July 2006. He said that after he sold his house he had a discussion with Mrs Sproule in which she said that she and her husband had spent $30,000 on behalf of SBC, and that Mr Cassar and Mr Bodikian owed two-thirds of that amount, namely $20,000. Mr Cassar said he could make the payment immediately and he subsequently transferred $20,000 to Mr and Mrs Sproule's bank account. There is also in evidence a calculation said to be prepared by Mrs Sproule which acknowledges receipt of the $20,000 on 8 August 2006 and shows a breakdown of interest payment into one-third parts. 65 Mr Cassar said that from time to time Mr and Mrs Sproule sent him e-mails requesting payment of development costs for the Ettalong Beach and Pearl Beach properties, and on every occasion the requests for contribution more on a one-third basis. He annexed some examples to his affidavit. 66 The plaintiffs contended before me that it was not until 3 April 2008 that Mr Sproule disputed that Mr Cassar and Mr Bodikian were directors of SBC. That occurred in Mr Sproule's e-mail to Mr Cassar, which responded to an e-mail from Mr Cassar complaining that the property had been listed for sale without his consent or Mr Bodikian's consent. 67 It is plain from the terms of the e-mail that by that time, the relationship had broken down or at least was in the course of breaking down. In the e-mail Mr Sproule complained that Mr Cassar had represented that he was an accountant but the representation had turned out to be false. He said that some minutes of directors' meetings were false, and asserted that Mr Cassar and Mr Bodikian were not directors of SBC and that the meetings were general meetings where they had attempted by lies and pressure tactics to extort money from himself and his wife. Mr Sproule asserted that he and his wife were the legal registered owners of the Pearl Beach property and that all access to the property required their consent, and he denied access to Mr Cassar and Mr Bodikian, making allegations against them of criminal conduct in respect of the property. 68 Subsequently Mr Cassar and Mr Bodikian each lodged a caveat on the Pearl Beach property on the ground that they had contributed money towards the acquisition and improvement of the property and that the registered proprietors were constructive trustees. Apparently no caveat has been purportedly lodged on behalf of SBC. The plaintiffs' submission based on estoppel 69 In written submissions, counsel for the plaintiffs submitted that by virtue of events at the meeting in October 2005, and also by virtue of events at the meeting on 16 May 2007, at each of which (he alleged) there was an agreement constituting a "resolution", Mr and Mrs Sproule were estopped from denying the validity of the respective resolutions. In October 2005 the "resolution" was said to be constituted by the agreement of Mr and Mrs Sproule to reinstate Mr Bodikian and Mr Cassar as directors and transfer their shares back to them once finance was no longer needed. On 16 May 2007 the "resolution" was said to be their agreement that if it was decided that the company did not need any re-financing for the Ettalong Beach property, then Mr Cassar and Mr Bodikian would be reinstated as directors and shareholders on a one-thirds basis. 70 Counsel cited Grundt v The Great Boulder Proprietary Gold Mines Ltd (1937) 59 CLR 641; Thompson v Palmer (1933) 49 CLR 507; and Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387. He did not elaborate on the nature of the estoppel he claimed to have arisen, and he gave no particular page references to the judgments in those cases, which are of course leading cases containing discussion of estoppels of more than one kind. 71 Although he addressed in detail the events and discussions of October/November 2007, counsel did not claim in written submissions that they gave rise to any estoppel, nor that any of the subsequent events did so. However in oral submissions he informed the court that the plaintiffs relied on estoppel in relation to the whole course of events from the meeting of 2005, including the evidence that financial contributions were made to expenses on an equal one-third basis and the evidence that Mr and Mrs Sproule asked Mr Bodikian and Mr Cassar to sign documents as directors of the company. 72 I am dealing with an interlocutory application to be assessed in accordance with the General Steel standard, in which the argument by counsel for both sides focused more on the facts than on the law, and in which the principal emphasis was placed on facts said to support the application of the Duomatic principle. This is not an occasion to embark upon a detailed exposition of the law of estoppel. But it is necessary to say enough about that subject to indicate what it is that I am addressing and what it is that I regard as irrelevant. Having given brief consideration to the categories of common law and equitable estoppel that might be relevant to the facts contended for by the plaintiffs, I have concluded that this is not a case in which the plaintiffs would rely on proprietary estoppel (estoppel by acquiescence or encouragement). Rather, what is being invoked is either estoppel by convention or promissory or equitable estoppel. 73 In Legione v Hateley (1983) 152 CLR 406 at 430, Mason and Deane JJ described the species of estoppel in pais, saying: "Estoppel in pais includes both the common law estoppel which precludes a person from denying an assumption which formed the conventional basis of a relationship between himself and another or which he has adopted against another by the assertion of a right based on it and estoppel by representation which was of later development with origins in Chancery." The authors of Meagher, Gummow & Lehane's Equity Doctrines & Remedies (4th edition, 2002) note that in two of the cases relied upon by counsel, Thompson v Palmer and Grundt v Great Boulder , Dixon J did not distinguish between estoppel by representation and estoppel by convention, speaking in terms of whether it should be considered unjust and inadmissible to depart from an assumption adopted between the parties. 74 For estoppel by convention to arise, there needs to be evidence that an assumption was adopted by the parties forming the conventional basis of their relationship, from which one of them subsequently has purported to resile. The evidence about events up to 7 November 2007 does not seem to me to be capable of giving rise to an estoppel by convention. Rather the plaintiffs' complaint with respect to that period is that the defendants made some statements that were about future intention, possibly promissory in character, to the effect that when finance was no longer needed they would restore Mr Bodikian and Mr Cassar to their directorships and to shareholdings of some form. However, there is evidence satisfying the General Steel standard that after 7 November 2007, the conventional basis for the relationship between the parties, adopted mutually, was that all four of them were directors, and that the shareholdings were distributed to Mr Bodikian, Mr Cassar, and the Sproules respectively, on a one-thirds basis. That is, the estoppel by convention argument is not so obviously untenable that it could not possibly succeed, on the assumption that the plaintiffs' evidence is accepted. 75 Specific evidence for the former assumption is that Mr Bodikian and Mr Cassar were required to co-sign the notice of discharge of mortgage, along with Mr and Mrs Sproule, as directors on behalf of SBC, and they were required to be the sole signatories, as directors on behalf of SBC, of the transfer of the Ettalong Beach land. Specific evidence for the latter assumption is the evidence showing that expenses of the development of the properties were split in equal one-thirds. Mr Bodikian and Mr Cassar acted to their detriment in relying on the conventional basis that had been adopted, by the contributions they made to expenses and by other work to achieve the sale of the Ettalong property and the development of the Pearl Beach property. 76 The defendants invite me to say, taking the plaintiffs' evidence at its highest, that the individual plaintiffs had no authority to bind SBC to become a plaintiff and to retain solicitors. However, the effect of estoppel by convention, if proven of the trial, would be that they would be estopped from asserting that Mr Bodikian and Mr Cassar were not in April and May 2009, directors and the holders in each case of one third of the shares. Since the plaintiffs have a not obviously untenable argument that the defendants are subject to an estoppel by convention, the defendants cannot be heard to deny, on the interlocutory application, that Mr Cassar had the authority of a director to convene, on 8 April 2009, the meeting of shareholders purportedly held on 1 May 2009; and they cannot be heard to deny on the interlocutory application that Mr Cassar and Mr Bodikian had the authority as shareholders to exercise the voting rights attached to two-thirds of SBC's shares at that meeting. 77 The conventional basis that would be established by the plaintiffs' evidence does not go so far as to stipulate the number of shares held by each of the shareholders or how they were acquired. The evidence is just that all parties acted as if they were directors and equal one-third contributors to expenses in circumstances indicating a common intention formed at an earlier time that they would be one-third shareholders as well as directors. However, it is enough to defeat the present applications that the plaintiffs have a not obviously untenable argument that the defendants are estopped from denying that Mr Cassar and Mr Bodikian hold in each case one-third of the shares. As that estoppel would prevent the defendants from denying that the plaintiffs were shareholders (indeed, one-thirds shareholders), it would consequently prevent the defendants from denying that the shareholders' meeting of 1 May made valid decisions when the plaintiffs voted in favour of the resolutions that were put. 78 As I have said, it seems to me there is another kind of estoppel relevant to the present case, namely promissory or equitable estoppel. The importance of promissory estoppel can be seen by comparing it with estoppel by representation. It seems reasonably clear after Foran v Wight (1989) 168 CLR 385, especially at 385 per Deane J, that estoppel by representation extends to representations of law as well as representations of fact, to that extent is substantially expanding its scope (see also Meagher, Gummow & Lehane at [17-030]). But according to orthodox opinion based upon Jorden v Money (1854) 5 HL Cas 185; 10 ER 868, estoppel by representation does not extend to representations of future intention (see the discussion in Meagher, Gummow & Lehane at [17.035]). On the other hand, promissory or equitable estoppel specifically applies where the party asserting the estoppel relies upon a representation that is promissory in nature, or expresses an intention about some future matter. The doctrine of promissory estoppel has been accepted in several cases in the High Court, including the Waltons Stores case cited by counsel. It was held in that case to apply where the representations in question were not about the future exercise of existing contractual rights, but rather about the existence of a contract that in fact was never entered into. 79 I have held that the evidence about the meetings in October 2005, 16 May 2007, 15 October 2007 and the subsequent telephone conversations between Mr Cassar and respectively Mr and Mrs Sproule, fell short of establishing, to the General Steel standard, that there was unanimous assent by Mr and Mrs Sproule to a decision on a matter that they were capable of deciding as shareholders. A party should not be estopped on an ambiguity, and therefore the representation should be clear and unequivocal (Meagher, Gummow & Lehane at [17.050], citing Legione v Hateley at 152 CLR 435-7, and Foran v Wight at 168 CLR 410-1). The question is whether the representations were sufficiently clear and specific to attract the promissory estoppel doctrine. 80 In Waltons Stores at 164 CLR 428-9, Brennan J said: "In my opinion, to establish an equitable estoppel, it is necessary for the plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff's action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation otherwise." 81 I shall consider whether the plaintiffs' evidence provides a not obviously untenable case for satisfaction of each of these ingredients, on the General Steel standard. 82 First, according to their evidence, Mr Bodikian and Mr Cassar (relevantly the plaintiffs) assumed prior to 7 November that they would become co-directors and shareholders of one-third each, when financing through the company was no longer necessary ("the first assumption"); and they assumed after 7 November that they had become co-directors and one-third shareholders ("the second assumption"). 83 Secondly, the defendants induced the first assumption by what they said at the meeting in October 2005. Although Mrs Sproule spoke about equal shareholdings on 16 May 2007, the defendants did not in any clear way resile from their earlier agreement that when finance was no longer needed the shareholdings would be held on a one-thirds basis; nor did they do so on 15 October or in their subsequent telephone conversations with Mr Cassar. Therefore while the evidence did not establish an informal decision as to the shareholdings and directorships in any of those discussions, it does seem to establish a reasonably clear assumption about the shareholdings and directorships induced by the defendants. 84 The second assumption, the assumption made after 7 November that they had become co-directors and one-third shareholders, was induced by the defendants' conduct in causing them to act as directors in signing the transfer and the notice of discharge of mortgage and in requiring them to contribute two-thirds of expenses. 85 Thirdly, there is evidence that Mr Bodikian and Mr Cassar acted in reliance on the first assumption by contributing work and payments on the basis that they were involved in the Ettalong and Pearl Beach projects as, in effect, co-venturers with the defendants and therefore as directors and shareholders. They acted in reliance on the second assumption by signing the documents as directors, as requested, and by making financial contributions in one-third shares, as requested. Fourth, it seems to me that Mr and Mrs Sproule must have known and intended Mr Bodikian and Mr Cassar to contribute as co-venturers on the assumption that they would become directors and one-third shareholders when finance was no longer required through the company, and they knew that contributions were in fact made on that basis. Fifth, the actions of Mr Bodikian and Mr Cassar in making their contributions to the developments at Ettalong Beach and Pearl Beach would obviously occasion detriment to them if the assumptions were not fulfilled. Sixth, the defendants have failed to act to avoid that detriment, by denying that Mr Bodikian and Mr Cassar are directors and shareholders and purporting to exclude them from access to the Pearl Beach property. 86 Therefore it seems to me, on balance, that although there was insufficient specificity to establish informal shareholder decisions, the evidence relied upon by the plaintiffs is enough to give the plaintiffs and not obviously untenable case based upon promissory estoppel. The application of the doctrine of promissory estoppel would reinforce the conclusion I have reached with respect to estoppel by convention, namely that the plaintiffs have a not obviously untenable case that the defendants cannot deny that Mr Cassar was a director on 8 April when he purported to convene a shareholders' meeting, or that he and Mr Bodikian were one-third shareholders when they participated in the meeting on 1 May. That is sufficient for dismissal of the defendants' notices of motion. It is not necessary for me to consider whether the establishment of promissory estoppel would provide a foundation for Mr Cassar and Mr Bodikian to obtain other relief (see Meagher, Gummow & Lehane at [17.065]). The plaintiffs' application under s 1322(4) 87 Having reached a conclusion based on the plaintiffs' estoppel case, it would be open to the court to dismiss the notices of motion without considering the plaintiffs' application under s 1322. However, it seems to me necessary to deal with that application, because if an order were to be made under that section either in respect of the meeting of Mr and Mrs Sproule to consider a reinstatement of the other parties in October/November 2007 or the purported shareholders' meeting of 1 May 2009, the latter meeting and the decisions taken at it would be valid for all purposes and the issue would not merely rest on estoppel; and that could be important in respect of the further conduct of this litigation. 88 I have reached the conclusion that this is not an appropriate case for invoking s 1322. I shall consider, first, "automatic" validation under s 1322(2), and then whether a validating order should be made under s 1322(4). 89 As to s 1322(2), while the purported meeting of shareholders of 1 May was a proceeding within the definition in s 1322(1)(a), and it was a proceeding under the Corporations Act by virtue of s 203C, which allows a proprietary company by resolution to remove directors from office, the cause of invalidity of the resolutions purportedly passed by Mr Bodikian and Mr Cassar at that time was not a "procedural irregularity" as defined in s 1322(1)(b), because the invalidity arose from the fact that they were not shareholders, and consequently the resolutions purportedly passed were not "automatically" cured by s 1322(2). As to the informal meeting between Mr and Mrs Sproule to discuss reinstatement of the other parties as shareholders and directors, after the meeting of 15 October 2007, the effect of my findings is that this was not a "proceeding" under the Corporations Act, and it was therefore not validated by s 1322(2). 90 The remaining question is whether the court should make a validating order under s 1322(4), validating either the resolutions purportedly passed on 1 May or the informal "decision" alleged to have been made in October/November 2007. 91 As to the purported meeting of 1 May, it seems to me arguable that invalid resolutions passed at a purported meeting of people who are not shareholders of the company cannot be cured under s 1322(4). Subsection (4) permits the court to make orders in four circumstances, but only subparagraph (4)(a) could possibly be relevant here. It says the court may make: "an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Act or in relation to a corporation is not invalid by reason of any contravention of a provision of this Act or a provision of the constitution of a corporation". 92 Where the problem is that the people who have purported to pass resolutions at a meeting of shareholders are in fact not shareholders, it seems arguable that the invalidity does not arise by reason of contravention of a provision of the Act or of the constitution of the corporation, but simply because outsiders to the corporation have intermeddled in the company's affairs by purporting to exercise powers they do not have. However even if there is power under subparagraph (4)(a) to make an order, I would not in the exercise of my discretion exercise that power in the circumstances of this case. I am not persuaded that the act of purportedly passing the removal resolutions on 1 May was essentially of a procedural nature, as required by s 1322(6)(a)(i), or that it would be just and equitable to make the order in the present interlocutory circumstances (s 1322(6)(a)(iii)), or that, again in the present interlocutory circumstances, I can be satisfied that no substantial injustice would be likely to be caused (s 1322(6)(c)). 93 As to the informal "meeting" between Mr and Mrs Sproule in October/November 2007, my principal difficulty is that in view of my findings, there is no real clarity about what they purported to do, particularly as regards the issue of shares. For that reason alone I would not make a validating order under s 1322(4)(a), which is the only available subparagraph. I would also have doubts about s 1322(6)(a)(i) and (iii) and (c) for the reasons earlier given. 94 Finally I note a matter touched upon in argument, which, as it happens, does not have to be resolved for the reason I shall explain. It appears, according to a case cited by counsel for the defendants, Smolarek v Liwszyc [2006] WASCA 50 at [56]-[60], per Steytler P, McClure and Buss JJA, that failure by the directors of a proprietary company to confirm within two months an appointment of a director by the board, as required by the replaceable rule in s 201H(2), is not a procedural irregularity "automatically" cured by s 1322(2). The reasoning of the Court of Appeal of the Supreme Court of Western Australia in that passage might raise some doubt about the availability of the court's power to make a curative order in those circumstances under s 1322(4). But it is not necessary to consider that matter further, since at the interlocutory hearing counsel for the plaintiffs did not claim that in October/November 2007 Mr and Mrs Sproule decided as directors to appoint Mr Bodikian and Mr Cassar under s 201H, but rather he said that they purported to do so as shareholders under s 201G. Conclusions 95 The defendants have succeeded in showing (to the General Steel standard) that, if the plaintiffs' evidence is taken at its highest, there is no tenable basis for arguing that a valid decision of SBC was made to make Mr Bodikian and Mr Cassar shareholders and directors, and no tenable argument for the application of the Duomatic principle. However, the plaintiffs' evidence, assumed to be correct for the purposes of the application, provides an obviously untenable case based on estoppel by convention and promissory estoppel against the defendants, and the effect of those estoppels (if established at the trial) would be to prevent the defendants from asserting or relying on the invalidity of the resolutions purportedly passed by Mr Bodikian and Mr Cassar as directors and shareholders of SBC on 1 May 2009. Consequently the notices of motion must be dismissed. 96 Although the defendants have had some partial success, nevertheless their applications have failed and in my view the usual order for costs in the interlocutory circumstances should follow, namely that the plaintiffs' costs of the two notices of motion be their costs in the proceedings. In my view there is no basis for departing from the usual order, either in terms of requiring immediate assessment and payment of costs or ordering costs on the indemnity basis. 97 I assume that, in view of my decision, it will be unnecessary for Mr Bodikian and Mr Cassar to pursue the application to constitute a statutory derivative proceeding under s 237 of the Corporations Act. I shall be looking to make directions to prepare the case for final hearing with appropriate expedition. **********

Bodikian v Sproule

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Judgment (10 paragraphs)

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Legislation Cited (1)

Cases Cited (14)

Cited By (4)