- Bondi Beach Astra Retirement Village Pty Ltd v Hohman

Affidavit evidence

The Plaintiffs rely on the affidavits dated 17 June 2021, 18 August 2021, 7 September 2021 and 13 October 2021 of Mr Bradley Sparrow. Mr Sparrow's first affidavit exhibits a copy of the Shareholders Agreement and addresses the position in respect of the governance of STUS and refers to certain proceedings between STUS and Mr Wilson in Utah in the United States. Mr Sparrow's second affidavit refers to several matters which arose in those proceedings. His third affidavit refers to resolutions of the directors of STPL and to correspondence between the parties' solicitors. His fourth affidavit addresses a board meeting of STPL held on 31 March 2021, at which a chief executive officer was appointed to STPL.
An affidavit dated 10 August 2021 of Mr Michael Green addressed provisions of Utah and Delaware law, in evidence admitted with a limiting order under s 136 of the Evidence Act 1995 (NSW) as submission, which ultimately has limited relevance to any matter that I have to determine. The Plaintiffs also rely on several affidavits dated 9 July 2021, 13 August 2021 and 27 October 2021 of their solicitor, Mr Stuart Blaxell. The first of those affidavits exhibits company searches of relevant companies. The second and third refers to correspondence between the parties' legal representatives.
By his affidavit dated 9 September 2021, Mr Peter Webb, who is an accounts manager who provides services under contract to STUS refers to an email dated 25 August 2021 from Mr Wilson, which I address below. By an affidavit dated 3 February 2022, Mr Ben Jensen, who was previously a consultant to STUS, referred to two text messages from Mr Wilson, the second of which was purportedly signed by Mr Wilson as "CEO SecureNet Technologies". Mr Wilson admits sending the first and denies sending the second of those text messages. Mr Jensen was cross-examined and it appears that he inferred that the second text message annexed to his affidavit was sent by Mr Wilson, because it purported to be signed by Mr Wilson as CEO of STUS. It is plain that those text messages were not sent in the order that Mr Jensen's affidavit implied, because the second text message is dated 10 January although it does not indicate the year it was sent and Mr Jensen's evidence is that the first was sent on 28 January 2022. Obviously enough, the reference to "my text" in the second text message is not a reference to the text message sent on 28 January 2022 by Mr Wilson, since it was not sent until after that second text message. The state of the evidence as to the order in which those text messages were sent, and the consequential uncertainty as to the year in which the second text message was sent, means that I should give them little weight as providing any indication that Mr Wilson is still describing himself as the CEO of STPL or STUS.
Mr Wilson in turn relies on his affidavit dated 23 July 2021, which also referred to the Shareholders Agreement, addressing the deregistration and reinstatement of SBU, and sought to justify his earlier claims to be the chief executive officer of the SecureNet companies. Mr Wilson also referred to his resignation as a director of STPL with the intention of appointing Mr Fink in his place. By his second affidavit dated 29 September 2021, Mr Wilson referred to the email dated 22 October 2020 in respect of his resignation and referred to an occasion on which he described himself as "CEO/Director" and contended that he meant to refer to SBU's director on the board of STPL. By a third affidavit dated 12 November 2021, Mr Wilson acknowledged that he was not the chief executive officer of any company in the SecureNet Group and claimed not to have represented to any person that he held that position since the commencement of these proceedings. He referred to SBU's holding of shares in STPL and claimed to have retained voting rights when he (or more likely SBU) sold certain shares in STPL to third parties. By a fourth affidavit dated 7 February 2022, Mr Wilson admitted sending the first text message referred to in to Mr Jensen's affidavit to him and denied sending the second text message to Mr Jensen, and claimed not to recognise the telephone number from which that text message originated.

Declaratory relief sought by the Plaintiffs

Mr Bonnell, who appears for the Plaintiffs, notes that s 75 of the Supreme Court Act 1970 (NSW) authorises the Court to grant declaratory relief, whether or not consequential relief is sought. He accepts that the case law establishes that declaratory relief must be directed to the determination of legal controversy and the person seeking that relief must have a "real interest" in the question. The Court will generally not grant a declaration, even if it has jurisdiction to do so, unless it is satisfied both that the declaration sought is appropriate and that it has sufficient practical utility, and a declaration should generally not be made where the consequences that flow from it may leave other issues between the parties undetermined and no other relief is sought: Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286; [1974] HCA 18; Trans Realties Pty Ltd v Grbac [1975] 1 NSWLR 170 at 173, 176; JR Consulting and Drafting Pty Ltd v Cummings [2014] NSWSC 1700 at [10]. It seems to me that in this case, like Cypjayne Pty Ltd v Rodskog [2009] NSWSC 301, Bondi Beach Astra Retirement Village Pty Ltd v Hohman [2010] NSWSC 260 and JR Consulting and Drafting Pty Ltd v Cummings above, the declaratory relief sought by the Plaintiffs is not merely an anterior step to inevitable future litigation and, while the possibility of further disputes cannot be excluded, they may well involve different issues. That declaratory relief is also not hypothetical and has utility to the extent that there are real controversies as to the governance of the SecureNet companies and Mr Wilson's role in those companies. I accept that the issues in dispute in these proceedings appear to involve an ongoing controversy between the Plaintiffs on the one hand and Mr Wilson on the other, and the Plaintiffs plainly have an interest in resolving that controversy. Validity of Mr Wilson's resignation as a director of STPL
First, the Plaintiffs seek a declaration that the resignation of Mr Wilson as a director of STPL dated 22 October 2020 was valid and effective. The Plaintiffs plead (ASC [3]) that Mr Wilson was a director of STPL, relevantly, until 22 October 2020, although they accept that he was reappointed from 3 September 2021. Mr Wilson denies (Defence [3]) that he ceased to be a director of STPL between 22 October 2020 and 3 September 2021 and contends that his notice of resignation as a director of STPL (to which I refer below) was conditional upon its acceptance of the appointment of another person, Mr Fink, as a director of STPL in place of Mr Wilson; STPL did not accept that condition; and that resignation did not become operative.
Clause 24.5 of STPL's constitution provides that, once appointed, a director shall remain in office until the director resigns, is removed from office by STPL or ceases to be a director by reason of a requirement in the constitution or the Corporations Act 2001 (Cth). Clause 25.1 of STPL's constitution then provides that the position of a person as a director ceases and becomes vacant if, inter alia, he or she resigns by notice in writing. There is no reference to a director's resignation in the Shareholders Agreement although it does address removal of a director in specified circumstances.
By an email dated 22 October 2020, Mr Wilson advised the "SecureNet Board" as follows: "Dear SecureNet Board I am writing to address several important issues. First, pursuant to Section 2 of the Shareholders Agreement, I am resigning as the representative of SBU on the board of directors and appointing Alan Fink to take the SBU seat. The Company has been unlawfully withholding information from me in violation of its fiduciary duties, I hope the appointment of Mr Fink will encourage the Board to act appropriately. …"
Mr Afshar, who appears for Mr Wilson, submits that Mr Wilson's email could only have been, at its highest, a request for his removal as a director of STPL with no immediate effect, because his removal depended on a further board resolution; the request could not have been made by SBU because it had been deregistered and the request was never effected by a board resolution to remove Mr Wilson. That submission turns on the premise that the provision for a means to remove a director by shareholders, in cl 2 of the Shareholders Agreement, excludes the constitutional provision providing for a director's resignation. I do not accept that premise, which is inconsistent with the fact that statutory and constitutional provisions for the removal of a director have long operated in parallel with constitutional provisions for a director's resignation in English and Australian company law. The position for which Mr Afshar contends would also have highly adverse consequences for individual directors, where an individual director may properly wish to resign where a company is insolvent or acting unlawfully rather than incur continued potential liability by remaining in office, rather than depending on shareholders' decisions whether to remove him or her at his or her request. Mr Afshar also submits that Mr Wilson never "intended" to leave SBU's seat on the board empty. It is not necessary to determine that question, where the constitutional provision for a director's removal does not turn on a director's subjective intention, but on whether he or she gave the requisite notice of resignation to the company, and that should be determined by the objective construction of the notice.
It seems to me that the reference to the "SecureNet Board" and "the board of directors" in Mr Wilson's email dated 22 October 2020 must be understood as a reference to STPL's board. The use of the singular in the email, by the reference to "the board" not "the boards" indicates that it is directed to a resignation from one board and there is nothing to suggest that board is the board of either subsidiary rather than STPL. It was in writing as required by cl 25 of STPL's constitution and it stated, in the present tense, that Mr Wilson was resigning as SBU's representative on the board of directors. It may be that, as Mr Bonnell accepts, Mr Wilson then understood or expected that Mr Fink would then be appointed to STPL's board in his place, and other shareholders in STPL would have been obliged to take that step had SBU not then been deregistered and unable to require them to do so. However, that understanding or expectation does not seem to me deprive that resignation of operative effect, so far as it was unconditional in its terms and complied with the constitutional requirements for resignation under STPL's constitution. To the extent that may have been necessary for STPL or its board to accept that resignation, they did so with alacrity.
I note, for completeness, that Mr Bonnell also advances an alternative argument that Mr Wilson's right to remain a director of STPL lapsed when SBU ceased to hold 200 shares on 12 January 2020, because it was deregistered, ceased to have legal existence and its property vested, by statute, in ASIC. Even if those propositions were correct, that would not have the result that Mr Wilson ceased to be a director of STPL, where no step had been taken under STPL's constitution to remove him as a director, notwithstanding his entitlement under the Shareholders Agreement to remain in that position might have lapsed. Mr Bonnell also submits that SBU had no capacity to nominate a director of STPL on 22 October 2020, since it did not then have legal existence and Mr Wilson's purported nomination of Mr Fink as a director of STPL was ineffective. That submission is plainly plausible, where STPL was then deregistered and not a legal entity, but it is not necessary to determine the point where no relief is sought in respect of that question.
I am satisfied that the declaration sought by the Plaintiffs that Mr Wilson's resignation as a director of STPL dated 22 October 2020 was valid and effective should be made, where there is plainly a real dispute as to that matter and Mr Wilson has contended to the contrary. Whether Mr Wilson resigned as a director of STPL's subsidiaries
Second, the Plaintiffs seek a declaration that, with effect from 22 October 2020, Mr Wilson ceased to be a director of STPL and its subsidiaries. I have held above that, by the notice of resignation given in his email dated 22 October 2020, Mr Wilson ceased to be a director of STPL, since that was the consequence of a notice of resignation given in accordance with the terms of STPL's constitution.
After a degree of hesitation in his oral submissions, Mr Bonnell did not submit that email in terms amounted to a resignation as a director of SMS or STUS. In any event, the Plaintiffs could not establish that email amounted to such a resignation since they did not establish the mechanism for resignation as a director of SMS or STUS. The constitution of SMS is not in evidence. Two constituent documents are in evidence in respect of STUS. The first is headed, oddly, "Regulations of Creative SecureNet Technologies LLC" and the recitals refer to it as having been adopted by the "managers" of STUS and as constituting an agreement between those "managers" and STUS' members. That document provides for the term of office and election of the "managers" (who may have a similar role in Delaware law to directors in Australian law) and that any "manager" may be removed for any reason, with or without cause, on a resolution adopted by the members. A second constituent document relating to STUS is headed "Amended and Restated Limited Liability Company Operating Agreement of SecureNet Technologies, LLC" and was effective from 24 January 2020. That document, inter alia, deals with the term of office and the election of the "managers" and provides for the removal of a "manager" by a resolution of members at a meeting called expressly for that purpose. That document also provides for another category of persons described as "officers" who hold office until he or she resigns, dies or is removed by the "managers". An exhibit to that document identifies the board of managers as being Mr Wilson and four other persons, suggesting that the position of "managers" corresponds to that of company directors in respect of STUS. The two constituent documents of STUS do not provide a mechanism for a director's resignation, although one might expect that some means for resignation would exist under Delaware corporate law.
Mr Bonnell instead relied on the Shareholders Agreement to bring about Mr Wilson's resignation or removal as a director of the two subsidiaries. As I noted above, cl 2(a)(iii) of the Shareholders Agreement provides that, unless otherwise determined by the board, the board of directors or other governing body of each of STPL's subsidiaries would be the same as that of the board of STPL. The Plaintiffs contend that, by reason of that clause, Mr Wilson resigned as a director of SMS and STUS when (as I have held) he resigned as a director of STPL on 22 October 2020.
It seems to me that the Shareholders Agreement did not, without more, have the effect that Mr Wilson ceased to be a director of SMS, STUS or any other subsidiary of STPL. Clause 2(a) of the Shareholders Agreement, to which I referred above, imposes obligations upon shareholders to take actions to ensure that the composition of the board of directors of STPL's subsidiaries shall be the same as that of STPL's Board, but nothing in that clause brings about that result without further action of those shareholders taken in accordance with those companies' constitutions or other constituent documents. There is no evidence that SBU or other shareholders took any further action that would have had the consequence of removing Mr Wilson as a director of any of the subsidiaries, and SBU could not have done so since it did not then have legal existence. Whether Mr Wilson was or is the "CEO Director"
The parties also made submissions as to the scope of the reference to the term "CEO Director" in cl 8(a) of the Shareholder Agreement. That issue only arises so far as Mr Wilson's Defence relied on that clause to support Mr Wilson's denial that he had ceased to be a director of SMS or STUS. It is therefore not necessary to determine that question, where it has not been established that Mr Wilson had otherwise ceased to be a director of either of those entities.
I recognise that there are plainly difficulties of construction of cl 8(a) of the Shareholders Agreement, where the Shareholder Agreement neither defines the concept of "CEO Director" nor sets out any mechanism for the appointment of a "CEO Director", as distinct from a mechanism for the appointment of a director representing each of the several shareholders under cl 2 of the Shareholders Agreement. Three possible constructions of that concept include that Mr Wilson was the CEO Director, because he was the chief executive officer and a director at the time of the Shareholders Agreement in perpetuity or while he was both a director and chief executive officer of STPL (as the term "CEO Director" might seem to require) or so long as he remained at least a director of STPL. Neither party contends for any of those three constructions, although Mr Afshar acknowledged the third as a possible alternative construction to Mr Wilson's preferred position. Another three possible constructions are that Mr Wilson or SBU's nominee as director of STPL in his place was the CEO Director, in perpetuity, or while he or she was both a director and chief executive officer of STPL (again, as the term "CEO Director" might seem to require) or so long as he or she remained at least a director of STPL. The first and fourth readings of that concept are arguably inconsistent with the fact that Mr Wilson's entitlement to be a director of STPL continued only so long as SBU held the specified minimum number of STPL shares.
Mr Afshar contended for the sixth construction, which preserved SBU's right of veto if Mr Wilson caused SBU to appoint another director in his place or was replaced as chief executive officer but did not explain why a person who was not the chief executive officer would be described as the "CEO Director" or why it should be assumed that other shareholders would have consented to conferring a right of veto on an unknown person who might in future be nominated by SBU as "CEO Director", particularly where he or she was not SBU's chief executive officer. Mr Bonnell in turn points to a difficulty with the proposition that the Shareholders Agreement provides for the appointment of the CEO Director by SBU and requires that director's assent to "Major Decisions" as defined, namely that there arguably could not be a "CEO Director" and "Major Decisions" could not then be made if Mr Wilson resigned as a director and SBU ceased to exist (as occurred for a significant period) or ceased to hold the specified minimum number of shares in STPL that are required for it to appoint a director to STPL.
A seventh possibility, for which neither party contended, is that the CEO Director could be appointed not only by SBU so long as it held the minimum number of STPL shares but also by a person who acquired those shares from SBU. An eighth possibility, for which the Plaintiffs contend, is that the CEO Director is any person who is both chief executive officer and a director of STPL at any time, so that the board could confer a veto right upon one of its members by appointing him or her as chief executive officer. That construction has the difficulty that, as Mr Afshar points out, SBU's veto right could then be defeated by a decision of a simple majority of the board that removed Mr Wilson as chief executive officer and appointed another director as chief executive officer, and there is no apparent commercial purpose in conferring such a veto right on a member of the board from time to time, which does not advance the apparent purpose of cl 8 of the Shareholders Agreement in protecting shareholders' or at least SBU's position in respect of "Major Decisions" as defined. It seems to me that cl 27.1 of STPL's constitution, to which Mr Bonnell refers, provides no support for this contention, since the concept of a "managing director" under that clause is well understood in company law and is not coincident with the concept of "CEO Director" with a right of veto under the Shareholders Agreement.
A ninth possibility, which may be the most plausible in the absence of an textual or contextual indication of which of the eight possible constructions should be adopted, is that the reference to "CEO Director" is void for uncertainty, because various meanings of that concept are open and it is not possible to say which one of them was intended: Brown v Gould [1972] 2 Ch 53 at 61-62; Braude v Kaye [2013] VSC 705; Re Leslie Muir Holdings Pty Ltd [2019] NSWSC 1519 at [37]ff. It is preferable that I do not express any concluded view as to that question, where it does not arise given the other findings that I have reached above.
I note, for completeness, that the Plaintiffs also relied on the resolution passed by STPL's directors on 28 July 2021 in order to seek to avoid any requirement to reappoint Mr Wilson as a director of SMS or STUS. Mr Bonnell submits that the effect of that board resolution is that, while Mr Wilson was reappointed a director of STPL, he was not thereby appointed a director of SMS or STUS. Mr Wilson recognises the purported passage of that resolution by STPL's board but denies that that was a valid resolution. He contends that, if he did cease to be a director of SMS or STUS, that resolution did not validly operate to prevent his appointment as a director of those entities because cl 8 of the Shareholders Agreement provides that certain "Major Decisions" in relation to STPL and its subsidiaries shall not be made without "the approval of the CEO Director", and he contends (as I noted above) that term means the director which SBU was entitled to appoint to STPL's board and the board of its subsidiaries in accordance with cl 2(a)(ii)(A) of the Shareholders Agreement. Mr Wilson also contends that, on the proper construction of that clause of the Shareholders Agreement, the board of STPL or its subsidiary could not "otherwise determine" so as to refuse a nomination of the "CEO Director" by SBU. It is not necessary to address this question where the Plaintiffs have not established that Mr Wilson had resigned as a director of SMS or STUS and no question of any obligation to reappoint him arises.
Accordingly, the declaration sought by the Plaintiffs that, with effect from 22 October 2020, Mr Wilson ceased to be a director of STPL and its subsidiaries cannot be made. Whether Mr Wilson is the chief executive officer of STPL, SMS or STUS
Third, the Plaintiffs seek a declaration that Mr Wilson is not the chief executive officer of all or any of STPL, SMS or STUS and they plead occasions on which Mr Wilson has claimed to be the chief executive officer of one or more of those companies. By his email dated 25 August 2021 to Mr Webb, Mr Wilson stated that he was "back in my position as the CEO/Director" and he signed that email as "CEO/Director". Mr Wilson contended that was a reference to the position of "CEO Director" under the Shareholders Agreement, but a recipient of that email who was not familiar with the detailed terms of that Agreement would have understood it as a claim that Mr Wilson was again the chief executive officer of STUS. By a letter dated 26 August 2021, the Plaintiffs' solicitors referred to that email and sought an undertaking that Mr Wilson would not represent that he was a director of STUS or SMS; would not represent that he was chief executive officer of STUS, STPL or SMS and would not seek to issue instructions to any employee of STUS, STPL or SMS. There is no suggestion that undertaking was then provided.
The fact that Mr Wilson is not chief executive of any of those companies is now common ground between the parties. This declaration should be made where it appears that Mr Wilson does not always act in accordance with the position that he acknowledged in these proceedings.

At a glance

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Judgment (7 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (8)