Campara v Australian Islamic Society of Bosnia Herzegovina Inc

Supreme Court of NSW|2020-11-30|Before: Gleeson J

ion and Ethnic Affairs (Cth); Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 Foster v Jododex Australia Pty Ltd (1972) 175 CLR 421 McClelland v Burning Palms Surf Life Saving Club [2002] NSWSC 470 Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84 Price v Price [2020] NSWCA 312 Wallersteiner v Moir [1974] 1 WLR 991 Wright v Apthorpe [2020] NSWCA 300 Texts Cited: Shackleton on the Law and Practice of Meetings (15th ed., Sweet & Maxwell, 2020) Category: Principal judgment Parties: Amir Campara (First plaintiff) Hasan Alijagic (Second plaintiff) Hasan Garibovic (Third plaintiff) Enver Hot (Fourth plaintiff) Admir Mutapcic (Fifth plaintiff) Australian Islamic Society of Bosnia Herzegovina (First defendant) Jasmin Bekric (Second defendant) Asim Begic (Third defendant) Aldin Becic (Fourth defendant) Albin Hasanovic (Fifth defendant) Semir Korjenic (Sixth defendant) Semir Islamovic (Seventh defendant) Dzvedet Alic (Eighth defendant) Zijad Haracic (Ninth defendant) Huska Kazic (Tenth defendant) Novalija Hodzic (Eleventh defendant) Representation: Counsel: T J Dixon / H Pararajasingham (Plaintiffs) D Allen (Second to Eleventh Defendants)

Judgment

GLEESON J: This proceeding concerns the internal management of the Australian Islamic Society of Bosnia Herzegovina, an association incorporated under the Associations Incorporation Act 2009 (NSW) (the Act). The plaintiffs seek to have declared void four resolutions of the Committee of the Association purporting to: 1. remove the second plaintiff as a member of the Committee on 11 March 2020; 2. remove the second plaintiff as a member of the Association on 1 October 2020; 3. remove each of the first, third, fourth and fifth plaintiffs as members of the Committee on 4 October 2020; and 4. appointing the seventh, eighth, ninth, tenth and eleventh defendants to fill casual vacancies of five members of the Committee on 4 October 2020.
On 13 October 2020, Slattery J made certain interlocutory orders pending an expedited hearing of the proceedings, given that the next annual general meeting of the Association was to take place in December 2020. The Association did not appear at the hearing. It is convenient to refer to the second to eleventh defendants collectively as the defendants.
At the hearing on 26 November 2020, following the opening by counsel for the plaintiffs, counsel referred to the substantial overlap between certain open offers that had been made by the defendants, and said that the only issue appeared to be one of costs. When the Court asked both counsel the "why" question ("So why are we here?"), counsel for the defendants responded that the defendants were content for the relief sought in prayers 10, 11, 12, 13 and 14 of the summons to be granted, and for certain interlocutory orders made on 13 November 2020 be continued and confirmed that the only matter in dispute was costs.
The question then arose as to whether the Court should make the proposed declarations by consent. I was satisfied that the proposed declarations were within the power of the Court and were appropriate. Whilst membership of the Association is voluntary, each plaintiff as a member has the benefit of a deemed covenant with the Association and each other member to observe all the provisions of the Constitution of the Association (see s 26(1) of the Act), which has as a consequence a contractual obligation on the Association and each member not to remove any committee member or expel any member save in accordance with the provisions of the Constitution of the Association: McClelland v Burning Palms Surf Life Saving Club [2002] NSWSC 470 at [109] (Campbell J). Accordingly, the plaintiffs had standing to seek the proposed declarations.
I was also satisfied that the facts established in the affidavit evidence which was read by counsel for the plaintiffs, provided a sufficient foundation for the making of the declarations. As to discretionary factors which tended against making the proposed declarations, such as that the dispute concerned the internal management of a factionalised voluntary association and that the next AGM of the Association's to be held in early December 2020, I was satisfied that the declarations were appropriate for the following reasons.
First, the removal of Mr Alijagic as a member of the Committee arose from a fundamental disagreement between the factions on the Committee as to the powers of the Committee on a proper construction of the Constitution. Second, the expulsion of Mr Alijagic as a member of the Association involved a denial of procedural fairness by the Committee when exercising the power under the Constitution to discipline a member. Third, the removal of the other plaintiffs as members of the Committee and the filling of casual vacancies on the Committee turned on the proper construction of the Constitution. Fourth, the declarations were appropriate to quell the controversy between the factions on the Committee prior to the annual general meeting, including to permit Mr Alijagic to exercise his rights as a member to nominate for election to the new Committee if he wishes to do so.
Accordingly, I made declarations and orders as asked as set out at [97] below and reserved my reasons. Counsel then proceeded to address on the question of costs. I reserved my decision on the question of costs. My reasons for making the declarations and orders as asked, and the costs order indicated below are as follows.

The Constitution

The Constitution of the Association, which was adopted in April 2019, includes provisions dealing with membership in Pt 2 and with the Committee in Pt 3. With respect to membership, the Association has two classes of membership: (1) trustee member; and (2) ordinary member (cl 2.2). It is common ground that the plaintiffs are ordinary members.
Clause 12 deals with the disciplining of ordinary members in these terms: 12 Disciplining (1) Disciplining of ordinary members A complaint may be made to the committee by any person that a member of the association: (a) has refused or neglected to comply with a provision or provisions of this constitution, or (b) has wilfully acted in a manner prejudicial to the interests of the association. (2) The committee may refuse to deal with a complaint if it considers the complaint to be trivial or vexatious in nature. (3) If the committee decides to deal with the complaint, the committee: (a) must cause notice of the complaint to be served on the member concerned, and (b) must give the member at least 14 days from the time the notice is served within which to make submissions to the committee in connection with the complaint, and (c) must take into consideration any submissions made by the member in connection with the complaint. (4) The committee may, by resolution, expel the member from the association or suspend the member from membership of the association for a period of time it considers reasonable, if, after considering the complaint and any submissions made in connection with the complaint, it is satisfied that the facts alleged in the complaint have been proven and the expulsion or suspension is warranted in the circumstances. (5) If the committee expels or suspends a member, the secretary must, within 7 days after the action is taken, cause written notice to be given to the member of the action taken, of the reasons given by the committee for having taken the action and of the member's right of appeal under clause 13. (6) The expulsion or suspension does not take effect: (a) until the expiration of the period within which the member is entitled to appeal against the resolution concerned, or (b) if within that period the member exercises the right of appeal, unless and until the association confirms the resolution under clause 13, whichever is the later.
Clause 15 deals with the Committee and provides that:

the Committee consists of the office bearers of the Association and up to seven ordinary Committee members, each of whom is to be elected at the annual general meeting of the Association under cl 16: cl 15(1);
the total number of Committee members is to be 11: cl 15(2);
the office bearers of the Association are: (a) president; (b) vice-president; (c) treasurer; (d) secretary: cl 15(3);
each member of the Committee is, subject to the Constitution, to hold office until the conclusion of the annual general meeting following the date of the member's election: cl 15(5).

The powers conferred on the Committee by cl 14 are in these terms: 14 Powers of the Committee (1) Subject to the Act, the Regulation and this constitution and to any resolution passed by the association in general meeting, the committee: (a) is to control and manage the affairs of the association, and (b) may exercise all such functions as may be exercised by the association, other than those functions that are required by this constitution to be exercised by a general meeting of members of the association, and (c) has power to perform all such acts and do all such things as appear to the committee to be necessary or desirable for the proper management of the affairs of the association.
Clause 19 deals with casual vacancies: 19 Casual vacancies (1) In the event of a casual vacancy occurring in the membership of the committee, the committee may appoint a Trustee member of the association or if there are insufficient Trustee members, an ordinary member, to fill the vacancy and the member so appointed is to hold office, subject to this constitution, until the conclusion of the annual general meeting next following the date of the appointment. (2) A casual vacancy in the office of a member of the committee occurs if the member: (a) dies, or (b) ceases to be a member of the association, or (c) becomes an insolvent under administration within the meaning of the Corporations Act 2001 of the Commonwealth, or (d) resigns office by notice in writing given to the secretary, or (e) is removed from office under clause 20, or (f) becomes a mentally incapacitated person, or (g) is absent without the consent of the committee from 3 consecutive meetings of the committee, or (h) is convicted of an offence involving fraud or dishonesty for which the maximum penalty on conviction is imprisonment for not less than 3 months, or (i) is prohibited from being a director of a company under Part 2D.6 (Disqualification from managing corporations) of the Corporations Act 2001 of the Commonwealth.
Clause 20 deals with the removal of Committee members: 20 Removal of committee members (1) The association in general meeting may by resolution remove any member of the committee from the office of the member before the expiration of the member's term of office and may by resolution, subject to clause 15(7) appoint another person to hold office until the expiration of the term of office of the member so removed. (2) If a member of the committee to whom a proposed resolution referred to in sub-clause (1) relates makes representations in writing to the secretary or president (not exceeding a reasonable length) and requests that the representations be notified to the members of the association, the secretary or the president may send a copy of the representations to each member of the association or, if the representations are not so sent, the member is entitled to require that the representations be read out at the meeting at which the resolution is considered.
The combined effect of cll 15(5), 19(2) and 20(1) is that a committee member remains in place until the next annual general meeting unless a casual vacancy arises in any of the circumstances specified in cl 19(2), or if the committee member is removed by resolution of the general meeting of the Association under cl 20.

Factual background

At the December 2019 annual general meeting the first to fifth plaintiffs and the second to seventh defendants were elected to the Committee.
The Committee soon divided over an issue concerning the second defendant, Mr Jasmin Bekric, a member of the committee, who is also employed by the Association as the Imam of the Association's Mosque in Smithfield and is its public officer. The issue involved the transparency of the Association's affairs and, in particular, whether funds collected by the Association and donated to an organisation known as the Mesihat of which Mr Bekric is the President, in order to be forwarded to an organisation in Bosnia known as the Rijaset, had been applied by the Mesihat for that purpose. Mr Alijagic was particularly vocal in seeking information from Mr Bekric concerning the use to which the Association's funds had been put. He and the other plaintiffs were met with a refusal by Mr Bekric to provide the information requested.

Removal of Mr Alijagic as a member of the committee

The minutes record that at a meeting on 11 March 2020, the Committee resolved that both Mr Alijagic and Mr Bekric be removed from the Committee. Mr Alijagic and the fifth plaintiff, Mr Admir Mutapcic, had left the meeting before this resolution was put, on the understanding that the meeting had concluded. The minutes record that eight committee members voted on the resolution. The votes were 5 for (including Mr Bekric), 1 against and 2 reserved.
Even assuming that the meeting on 11 March 2020 had not concluded before resolving to remove Mr Alijagic, the Committee had no power to remove a Committee member. So much was acknowledged by counsel for the defendants during the plaintiffs' opening.
The resolution of the Committee on 11 March 2020 purporting to remove Mr Alijagic as a member of the Committee was beyond power and is invalid.

Expulsion of Mr Alijagic from the Association

It is necessary to refer to some further facts.
On 17 March 2020 Mr Alijagic sent an email to the other committee members disputing the validity of his removal from the Committee. On 18 August 2020, solicitors acting for Mr Alijagic wrote to the Association disputing the validity of his removal as a member of the Committee, drawing attention to cl 20 of the Constitution.
On 30 and 31 August 2020, two letters of complaint were sent to the Association by purported members making general allegations about Mr Alijagic's alleged divisive behaviour.
On 2 September 2020, notice was given by email of a meeting of the Committee convened for 3 September 2020. Mr Alijagic, who remained a member of the committee, since his purported removal on 11 March 2020 was invalid, was not given notice of this meeting. That was a contravention of cl 21(3). I infer the omission of notice to Mr Alijagic was deliberate, as the email from the seventh defendant, Mr Semir Korjenic, giving notice of the meeting, stated that Mr Alijagic as a "removed member" was "excluded from the board meeting".
The minutes record that only five members of the Committee were present on 3 September 2020, being the third to seventh defendants. There was no quorum, which requires six members present: cl 21(5). The minutes record under the heading "Meeting Agenda", the following item: 4. Complaint received from ordinary members with the Association against Hasan Alijagic.
There was no such agenda item listed in the notice of meeting given on 2 September 2020. This was contrary to the requirement in cl 21(4) of the Constitution to give general notice of the business to be transacted at the meeting.
The minutes of 3 September 2020 also record: With the closure of tonight's meeting the majority of the Committee members have approved the following which constitutes a quorum: Darby Jones Lawyers have been appointed by AISBH Inc to deal with the issues raised in correspondence by Jovan Sarari of Safe Harbour Lawyers" (Safe Harbour Lawyers were the solicitors for Mr Alijagic).
Given that no valid business could be transacted at the meeting of the Committee without a quorum (cl 21(6)), this purported resolution is invalid. The five members of the Committee present on 3 September 2020 had no power under cl 12(3) of the Constitution to determine to deal with the complaints against Mr Alijagic in the manner in which they did.
Nevertheless, on 11 September 2020 Mr Korjenic, as secretary of the Association, sent a letter to Mr Alijagic which referred to the two complaints received by members of the Association alleging that Mr Alijagic had wilfully acted in a manner prejudicial to the interests of the Association, noted that the Committee had decided to deal with the complaint, gave notice of the complaints "pursuant to cl 12(3) of the Constitution, … which are attached", and drew attention to the members' right to provide submissions to the Committee in respect of the complaints within 14 days. That unilateral act by Mr Korenic was not authorised by any valid resolution of the committee exercising its powers under cl 12(3) to determine to deal with a complaint.
On 17 September 2020, Mr Alijagic sent a letter to Mr Korjenic advising that further correspondence should be addressed to his lawyers.
On 28 September 2020, Mr Korjenic gave notice of a committee meeting convened for 30 September 2020 to consider only one issue on the agenda in these terms: Consideration of complaints and possible response from Hasan Alijagic and making a decision about it. According to cl 12.3.b, it is already 14 days that complaints are served to Hasan Alijagic.
The meeting of the Committee held on 30 September 2020 lacked a quorum as only five members were present. The minutes record that those committee members resolved to reconvene within 24 hours.
On 30 September 2020, Mr Korjenic gave notice by email at 11:16 pm of the agenda for the adjourned meeting convened for 1 October 2020 at 7.30 pm, which included items 6 and 12 in these terms: 6. Resolve and confirm that Mr Alijagic will be given further time to respond to the allegations (a further 14 days). … 12. Resolve and confirm that the Committee will meet at a later date to determine an outcome in respect of Mr Alijagic's complaints. Mr Alijagic is to be provided with notice of this date in advance.
Notice of the meeting on 30 September 2020 and the adjourned meeting on 1 October 2020 was not given to Mr Alijagic. And less than 24 hours' notice was given to, at least, the first, third, fourth and fifth plaintiffs of the adjourned meeting, since the email notice given by the Mr Korjenic was sent at 11.16 pm on 30 September 2020 for an adjourned meeting to be held at 7.30 pm the following day. In each case that was a contravention of the requirement to give notice of meeting under cl 21(3).
The minutes of the meeting of 1 October 2020 record only five Committee members present, that after half-an-hour the meeting was rescheduled and those five members constituted a quorum, relying on cl 21(8). The minutes refer to a number of agenda items, including items 6 and 12 in the terms set out in the notice of meeting referred to at [33] above. Under the heading "Decisions", the minutes record: Letter of notice will be sent to Mr Alijagic electronically and by post and he will give at least 14 days from the time that the notice is served (according to the Constitution, cl 12.3.b) FAIR TRADING WILL BE NOTIFIED. … The Committee has decided to wait for Mr Alijagic's response, however, in the meantime, decision of his expulsion is affective (sic) immediately.
Mr Korjenic sent a letter to Mr Alijagic dated 2 October 2020 notifying him "that the Executive Committee has decided to expel you from the Australian Islamic Society of Bosnia Herzegovina Inc". The letter stated: It was found that you have wilfully acted in a manner prejudicial to the interests of the Association (cl 12.b).
No such finding or state of satisfaction of the Committee is recorded in the minutes of the adjourned meeting on 1 October 2020. Nor did the Association give Mr Alijagic 14 days in which to respond to the complaints, as the Committee had resolved; rather, Mr Korjenic's letter stated that Mr Alijagic had a right of appeal from the decision to expel him as a member, being the procedure under cl 12(6)(b).
The reference to a member's right of appeal was misconceived because the purported resolution of the Committee on 1 October 2020 to expel Mr Alijagic as a member of the Association was invalid for two primary reasons: 1. Mr Alijagic was denied procedural fairness; and 2. the Committee did not form the opinion or state of satisfaction required by cl 12(4), namely that the facts alleged in the complaint had been proven and that the expulsion or suspension is warranted in the circumstances.
In addition, if it were necessary to decide, I would find that the procedural irregularities attending the convening of the meeting on 30 September and the adjourned meeting on 1 October 2020 are not validated by s 1322(2) of the Corporations Act, which applies to meetings of the Association by reason of reg 18 of the Associations Incorporation Regulation 2016 (NSW) made under s 96 of the Associations Incorporation Act.

Denial of procedural fairness

As indicated, a member has an express right of procedural fairness in relation to disciplinary action by the Committee: cl 12(3). Mr Alijagic was denied that right. The letter sent by Mr Korjenic to Mr Alijagic on 11 September 2020 did not amount to affording procedural fairness to Mr Alijagic, because this letter was sent without the authority of the Committee, there being no valid determination of the Committee to deal with the two complaints made against Mr Alijagic.

Absence of formation of opinion or state of satisfaction

The power of the Committee by resolution to discipline a member of the Association by expulsion or suspension under cl 12(5) is subject to three conditions. First, as indicated, the Committee must afford the member procedural fairness under cl 12(3). Second, the Committee must consider the complaint and any submissions made by the member in connection with the complaint. Third, the Committee must reach the state of satisfaction required by cl 12(4) that the facts alleged in the complaint had been proven and that the expulsion or suspension is warranted in the circumstances.
Here, none of these conditions of the exercise of the expulsion power were met. As to the first and second conditions, the absence of procedural fairness has been addressed above. As to the third condition, the minutes of the 1 October 2020 meeting do not record any relevant "finding' by the Committee, and there is no evidence otherwise that the Committee in fact reached the opinion or state of satisfaction required by cl 12(4), namely: 1. the facts alleged in the complaint are proven; and 2. that expulsion is warranted.
The subsequent letter sent by Mr Korjenic to Mr Alijagic on 2 October 2020 purporting to expel Mr Alijagic was based on alleged "findings" that were not authorised by the 1 October 2020 resolutions is of no effect.
The resolution purporting to expel Mr Alijagic as a member of the Association is invalid.

Procedural irregularities

As indicated, there were also a number of procedural irregularities attending the convening of the committee meeting on 30 September 2020 and the adjourned meeting on 1 October 2020.
First, notice of the meeting on 30 October 2020 and the adjourned meeting on 1 October 2020 was not given to Mr Alijagic, who remained a committee member. That was a contravention of cl 21(3) of the Constitution. Second, less than 24 hours' notice was given to, at least, the first, third, fourth and fifth plaintiffs of the adjourned meeting on 1 October 2020.
I infer that the omission of notice (in the case of Mr Alijagic) and the absence of 24 hours' notice (in the case of the other plaintiffs) was deliberate.
Third, notice of the proposed resolution to remove Mr Alijagic as a member of the Association was not given in the agenda for the meeting on 30 September 2020 or the adjourned meeting on 1 October 2020, and there was no unanimous resolution of the Committee to treat the expulsion resolution as "urgent business", as required by cl 21(4). To the contrary, agenda items 6 and 12 for the adjourned meeting on 1 October 2020 contemplated as required by cl 12(3) of the Constitution, giving Mr Alijagic time to respond to the allegations, relevantly, 14 days, and that the Committee would fix a later date to determine an outcome in respect of the complaints against Mr Alijagic, and that Mr Alijagic would be provided with notice of that date in advance.
If it were necessary to decide whether the omission of notice to Mr Alijagic and the insufficient notice to the other plaintiffs of the meeting and the business to be transacted at the meeting are procedural irregularities which are not validated under s 1322(2) of the Corporations Act, I would have found that the irregularities have caused Mr Alijagic substantial injustice that cannot be remedied by an order of the Court, and that the Court should declare the meeting is invalid. Mr Alijagic was denied his contractual right to be heard by the Committee pursuant to cl 12(3) in circumstances where all members of the committee had not been given proper notice of meeting or the business to be transacted at.

Removal of Maisad Garibovic, Enver Hot, Amir Campara and Admir Mutapcic from the Committee

The minutes of the committee meeting held on 4 October 2020 record that five members of the Committee resolved to remove the first, third, fourth and defendants - Maisad Garibovic, Enver Hot, Amir Campara and Admir Mutapcic - from the Committee, because they were absent from three consecutive meetings of the Committee.
The premise of this resolution was that these members of the committee were absent, without consent, from the meetings of the committee on 3 September, 30 September and 1 October 2020, and therefore a casual vacancy was triggered by cl 19.2(g).
As to the meaning of the term "meeting" in cl 19.2(g), contrary to the plaintiffs' submission, in my view, a committee meeting which fails to achieve a quorum is nevertheless a meeting for the purposes of cl 19.2(g) because cl 21(5) dealing with committee meetings and quorum distinguishes between a meeting which has been duly convened and the inability of a meeting to transact business in the absence of a quorum. Similarly, cl 21(6) contemplates that a meeting which lacks a quorum is still a "meeting" by providing that if, within half an hour of the time appointed for the meeting, a quorum is not present, the meeting is to stand adjourned to the same place and at the same hour of the same day in the following week, or such other date the members present may decide.
In my view, the removal resolution on 4 October 2020 was invalid because the relevant plaintiffs did not fail to attend three consecutive meetings of the committee, prior to the convening on 2 October 2020 of the committee meeting for 3 October 2020.
In addition, if it were necessary to decide, I would find that the procedural irregularities attending the convening of the adjourned meeting on 4 October 2020 are not validated by s 1322(2) of the Corporations Act.

Whether absent from three consecutive meetings?

The notice given by Mr Korgenic on Friday, 2 October 2020 by email at 6.15 pm of an "urgent" meeting convened for Saturday, 3 October 2020 at 7.30 pm, was on the asserted basis that the President and Vice-President "were unwilling to act" to address the issue of the failure of some members to attend "the last three meetings" without permission to be absent. That was a reference to the commitee "meetings" on 3 September, 30 September and 1 October 2020 meeting. It should be observed that 3 October 2020 was the Saturday of the Labour-day long weekend.
The meeting on 30 September 2020 and the adjourned meeting on 1 October 2020 are deemed to be the one meeting, because an adjourned meeting is deemed to be a continuation of the former meeting: Shackleton on the Law and Practice of Meetings (15th ed., Sweet & Maxwell, 2020) at [6-18]. The failure by a committee member to attend either or both the 30 September and 1 October 2020 meeting without the consent of the committee constitutes only one "strike" for the purposes of the casual vacancy provision in cl 19(2)(g).
Thus, accepting that the first, third, fourth and fifth plaintiffs were absent, without consent, from the committee meetings on 3 September 2020 and the committee meeting on 30 September 2020 which was adjourned to 1 October 2020, there was only a failure to attend two consecutive meetings and no casual vacancy was triggered by cl 19(2)(g).
Insofar as the defendants suggested in written submissions that the first, third, fourth and fifth plaintiffs had missed three consecutive committee meetings without consent on 3 September 2020, 30 September and 3 October 2020, this was not the basis of the proposed resolution of which notice was given on 2 October 2020, nor the basis of the resolution by the committee at the adjourned meeting on 4 October 2020.

Insufficient notice of the adjourned meeting

There are also procedural irregularities with the removal resolution of 4 October 2020. Mr Alijagic was not given notice of the meeting and less than 24 hours' notice was given to the other plaintiffs on 4 October 2020 at 7.30 pm, because the email notice given by the Mr Korjenic was sent at 9.13 pm on 3 October 2020. That was a contravention of cl 21(3).
Again, if it were necessary to decide whether the omission of notice to Mr Alijagic and the insufficient notice to the other plaintiffs of the adjourned meeting on 4 October are procedural irregularities, which are not validated under s 1322(2) of the Corporations Act, I would have found that the irregularities have caused the relevant plaintiffs substantial injustice that cannot be remedied by any other order of the Court and the Court should declare the meeting invalid. The notice of meeting was given very late on the Saturday night of a long weekend when committee members could not be reasonably expected to attend a meeting on the Sunday night of a long weekend, particularly when a meeting of the Committee had already been convened by Mr Garibovic as President under cl 21(2) for 7 October 2020.
The resolution purporting to remove the first, third, fourth and fifth plaintiffs as members of the Committee was invalid.

Appointment of seventh to eleventh defendants to fill casual vacancies on the committee

Given that the removal of each of the plaintiffs as commitee members was invalid, there were no casual vacancies arising under cl 19(e) or (g). Accordingly, the resolution of the Committee on 4 October 2020 purporting to fill casual vacancies by appointing the eighth to eleventh defendants as members of the Committee is invalid.

Declarations

The Court has a wide discretionary power to make declarations under s 75 of the Supreme Court Act 1970 (NSW). It is well-established that before making declarations, three requirements should be satisfied: 1. the question must be a real and not a hypothetical or theoretical one; 2. the plaintiff must have a real interest in raising it; and 3. there must be a proper contradictor. 4. (Foster v Jododex Australia Pty Ltd (1972) 175 CLR 421 at 437-438.)
In this case, these requirements are satisfied. First, the proposed declarations relate to conduct that is in breach of the deemed contractual covenants in the Constitution of the Association. Accepting that "[i]t is not the practice of the court to make declarations of right between the parties merely on admissions or in default of pleadings": Bokhari v Bokhari [2014] NSWSC 1474 at [7] (White J), citing Wallersteiner v Moir [1974] 1 WLR 991 at 1029 and BMI Limited v Federated Clerks Union of Australia (NSW Branch) & Ors (1983) 51 ALR 401 at 412-413, in this case the facts established in the affidavit evidence provided a sufficient foundation for the making of the declarations.
Second, the plaintiffs as the members affected by the resolutions of the Committee have a real interest in establishing the invalidity of the impugned resolutions of the Committee of the Association.
Third, the defendants' written submissions advanced what may be taken to be the arguable contentions against the invalidity of the resolutions of the Committee, including the possibility that the proceedings at the meetings of the Committee were validated by s 1322(2) of the Corporations Act.
Fourth, for the additional reasons indicated above at [6] above, I am satisfied that the proposed declarations are within power and appropriate.

Costs

Section 98(1) of the Civil Procedure Act 2005 (NSW) confers on the Court a discretion as to the award of costs in the widest possible terms which is expressed to be subject to rules of court and to the Civil Procedure Act or any other Act. There are two aspects to an order for costs which are distinct from one another.
The first concerns on whom the burden of costs is to fall and in that respect there is a "general rule" which is formalised in the Uniform Civil Procedure Rules 2005 (NSW), r 42.1, commonly known as the order that "costs follow the event". The second aspect of an order for costs concerns the basis on which the costs are to be assessed: Wright v Apthorpe [2020] NSWCA 300 at [58]-[59].
In the present case the costs dispute only concerns the first matter. No submission was made by counsel for the plaintiffs that costs should be awarded on an indemnity basis from the date of the plaintiffs' offers in Calderbank letter or the offer of compromise referred to below.
The plaintiffs seek costs against the defendants on the basis that they have succeeded in obtaining the declaratory relief sought in the summons.
The defendants say that there should be no order as to costs because this is a case in which the principles stated by McHugh J in Re Minister for Immigration and Ethnic Affairs (Cth); Ex parte Lai Qin (1997) 186 CLR 622; [1997] HCA 6 at 624-625 are apposite.
McHugh J said at 624-625: In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order. In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. … Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. … But such cases are likely to be rare. … (Citations omitted.)
The defendants say that no relevant "event" has occurred for the purposes of r 42.1, UCPR, because the proceeding was settled. I accept that submission.
As explained in Price v Price [2020] NSWCA 312 (Macfarlan JA, Basten and Meagher JJA agreeing) at [32]: ... Whether in particular cases the event is taken as a reference to the outcome of proceedings as a whole or the result of determination of particular issues, for there to be an "event" there must have been a contest in which the applicant for costs has succeeded. As McHugh J pointed out in Re Minister for Immigration and Ethnic Affairs; ex parte Lai Qin (1997) 186 CLR 622 at 624; [1997] HCA 6, if there is no hearing on the merits, the rule that costs follow the event is inapplicable. To similar effect, Basten JA said in Nichols at [2] that "where there has been no trial there is no 'event'" (see also at [30] per Payne JA, Meagher JA agreeing). There was no contest or hearing as to the merits here because the orders (other than as to costs) were made by consent. That is not to say that a litigant who obtains consent orders will not ever be entitled to costs. He or she may well be, depending upon an assessment of the conduct of each party (see Minister v Lai Qin referred to at [43] below). Where there is consent, that litigant will not however have the benefit of the presumption created by r 42.1.
Here, the proceeding was settled by the declarations and orders that were made by consent on 26 November 2020. That I was satisfied that the proposed declarations were within power and were appropriate, and have now given reasons for that conclusion, does not change the position that there was no hearing on the merits.
In Nichols v NFS Agribusiness Pty Ltd [2018] NSWCA 84, Basten JA correctly observed at [1] that "[t]hat there is a tendency for litigation to feed on itself". His Honour said at [30], with reference to the approach in Lai Qin: If both parties to a proceeding which has been settled without a hearing on the merits have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings.
The plaintiffs say that they acted reasonably in commencing proceedings, referring to their solicitor's letter before action dated 22 October 2020 which outlined the relief sought and the basis of upon which that relief was sought. I accept that submission.
The defendants say that they acted reasonably in response to the litigation in that they made early and repeated open offers to settle the matter on terms equivalent to the declarations ultimately made on 26 November 2020.
After the oral argument on 26 November 2020, the defendants applied for leave to re-open on the question of costs and tender the transcript before Slattery J on 13 November 2020 (Ex 1) and the document headed "Plaintiffs Short Minutes of Order" which were provided to the Court by the plaintiffs that day (Ex 2). The re-opening application was granted on 30 November 2020 and both parties made further brief written and oral submissions.
The defendants made an offer on 12 November 2020 to consent to orders setting aside the impugned resolutions which was expressed to be "without admission and without prejudice". The relevant passages of the transcript on 13 October 2020 indicate that the defendants "unconditional" offer was made by their counsel with reference to a document prepared by the plaintiffs (Ex 2) which was expressed to be "without admissions", the terms of which included in par 1, an unrelated matter in respect of which the plaintiffs did not seek relief, namely the setting aside of the resolution on 11 March 2020 to remove Mr Bekric as a member of the Committee. That was a term that had been sought by the defendants. Whilst the inclusion of that extraneous matter in the offer was a sufficient reason for the plaintiffs to reject this offer, it does not render the defendants' conduct of the litigation unreasonable.
The defendants made other offers, in particular, an offer of 13 November 2020, which was expressed to be "without admission" and an open offer of 19 November 2020 consenting to declarations as sought in the summons on the basis that each party pay its own costs up to 10 am on 23 November 2020, and the plaintiffs are to be the defendants' costs from 19 November 2020 on an indemnity basis, unless proposed orders (i)-(viii) are accepted before 10 am on 23 November 2020, in which case each party will pay its own costs.
The defendants' open offer of 19 November 2020 indicated a preparedness to consent to the declarations sought conditional on there being no order as to costs. That should have been the end of the dispute between the parties, except for the question of costs.
The plaintiffs responded by making a Calderbank offer dated 20 November 2020 and an offer of compromise also date 20 November 2020. In each case the offers included an extraneous term in par 1 to the effect that judgment be entered for the plaintiffs. That term was inappropriate.
On 20 November 2020 the plaintiffs' solicitors sought the consent of the defendants' solicitors to sending a joint communication to my Associate alerting the Court to the fact that the parties had largely come to agreed terms in respect to the substantive issues in the proceedings. The solicitors for the defendants did not consent to the proposed joint communication and stated in a letter to the plaintiffs' solicitors dated 20 November 2020 that it was not the position of the defendants that: … the only issue remaining to be resolved between the parties is the issue of costs.
In an email from the defendants' solicitor to the plaintiffs' solicitor of 23 November 2020 the defendants solicitor said: Unless the plaintiffs have accepted the defendants' offer of 19 November 2020 as is, then the parties' are not in agreement and the plaintiffs should take it that all matters remain in dispute (Emphasis in original)
On 24 October 2020 the defendants served their written submissions putting in issue the plaintiffs' entitlement to substantive relief on seven grounds: (1) that all interested parties were not adequately represented, (2) whether there is a justiciable issue, (3) the Court's discretion, (4) what constitutes a meeting, (5) responses available to the Association in the event a meeting is inquorate, (6) whether there were casual vacancies by reason of the plaintiff's non-attendance at meetings, and (7) the appointment of members to those casual vacancies.
Counsel for the defendants said in oral argument without objection by counsel for the plaintiffs that an oral offer was made by the defendants to the plaintiffs prior to the commencement of the hearing to consent to the declarations sought with each party to pay their own costs.
It is apparent that the impediment to the parties resolving the matter was the question of who should bear the costs of the proceedings. That the defendants took a different view on that issue to the plaintiffs is not, in my view, an indication of unreasonable conduct by either party.
As indicated, it was ultimately common ground at the hearing that the only issue was costs. That circumstance should have been brought to the Court's attention immediately at the commencement of the hearing. Both parties had a responsibility to assist the Court to further the overriding purpose of facilitating the "just, quick and cheap" resolution of the real issues in dispute: Civil Procedure Act 2005 (NSW), s 56(2). Both parties delayed informing the Court that the only issue in dispute was costs.
I am not satisfied that the defendants acted unreasonably in the conduct of the litigation. The defendants made open offers early in the proceedings, including an unconditional offer in Court on 13 October 2020. The parties should have turned their attention at that time to agreeing the substantive relief sought by the plaintiffs in proceedings, excluding the defendants' suggested proposed consent declaration relating to Mr Bekric which was not the subject of any cross-claim for relief by Mr Bekric, and then having a separate argument as to costs. That they did not do so is unfortunate, but I do not find that either of the parties has a greater responsibility than the other in this regard.
Accepting that both parties have acted reasonably, the next question is whether one party was almost certain to have succeeded if the matter had been determined on the merits. McHugh J said at 624 in Lai Qin that such cases are likely to be rare.
The present case is somewhat unusual because although there has been no hearing on the merits, I have given reasons why I was satisfied that the declarations sought were within power and were appropriate. However, it does not follow that the Court can say that the plaintiffs would have almost certainly succeeded in circumstances where cross-examination of two of the plaintiffs had been foreshadowed in the defendants' written submissions covering topics such as delay and acquiescence, which may have affected the exercise of discretion to make the declarations sought. Since it was not necessary to make any findings on these matters, I cannot confidently say that one party would have almost certainly succeeded following a hearing on the merits.
In my view, having regard to all the circumstances, the appropriate order is that there be no order as to costs.
One further matter should be mentioned. There is an additional reason why there should be no order as to costs as between the plaintiffs and the second defendant, Mr Bekric. He was purportedly removed as a member of the Committee by the resolution of the Committee on 11 March 2020 (which he voted in favour of), and did not participate in any further meetings of the Committee. He did not seek relief by way of cross-claim that his removal was invalid. On the evidence, he had no involvement in any subsequent resolutions of the Committee which were invalid, or in making decisions on behalf of the Association to defend the proceedings, since he was no longer a committee member. Although written submissions were served on his behalf defending the plaintiffs' claims for relief, I infer that he had no real involvement in the matter because, as I have said, he ceased to be a member of the committee in March 2020.
The plaintiffs' submitted that Mr Bekric was "intimately" involved in the matters giving rise to the dispute relating to transparency issue, and also the 11 March 2020 resolution because he voted in favour of it. That Mr Bekric's conduct may have been the catalyst for the dispute between the factions on the Committee, is not a sufficient reason to order costs against Mr Bekric. The subject matter of the proceedings does not concern the rights and wrongs of the transparency issue. And voting in favour of a resolution of the Committee that was beyond power, without more, is not a reason to subject Mr Bekric to an adverse costs order.

Conclusion and Orders

As the proposed declarations by consent were within power and were appropriate, on 26 November 2020 the Court made the following declarations and orders as asked: 1. Declares that the displacement of the second plaintiff on or around 11 March 2020 from the Committee of the Association was invalid. 2. Declares that the displacement of the second plaintiff on or around 1 October 2020 from the Association was invalid. 3. Declares that the displacements of the first plaintiff, third plaintiff, fourth plaintiff and fifth plaintiff on or around 4 October 2020 from the Committee of the Association were invalid. 4. Declares that the appointments of the eighth defendant, ninth defendant, tenth defendant and eleventh defendant on or around 4 October 2020 to the Committee of the Association were invalid. 5. Order that order 2 of the orders made by the Court on 13 November 2020 be varied as follows: (a) Order 2(a) be varied to provide that Mr Kimber SC will also decide the time and place (venue) to hold the AGM. (b) The date to give notice of the AGM referred to in Order 2(b) be extended to on or before Monday, 30 November 2020. (c) Each of the Secretary on behalf of those whose interests align with the defendants', and the President on behalf of those who interests align with the plaintiffs', are to prove a written submission of no longer than 2 pages identifying what they consider to be the appropriate time and place (venue) to hold the AGM to Mr Kimber SC by 12pm, Friday 27 November 2020. 1. Orders that, save for the variations in Order 5 above, orders 2, 3 and 4 made by the Court in these proceedings on 13 November 2020 remain unaffected and binding on the parties. 2. Orders that, subject to order (6) above, all other orders made by the Court in these proceedings are otherwise set aside.
As to costs, the Court orders that there be no order for costs to the intent that each of the plaintiffs and the second to eleventh defendants bear his own costs of the proceedings.

Amendments 04 December 2020 - Amendments to CaseLaw and legislation DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 December 2020

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