Capricornia Credit Union Ltd v Australian Securities and Investment Commission

AND: AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION

INTRODUCTION 1 This is an appeal from a decision of a presidential member of the Administrative Appeals Tribunal (the "Tribunal"). The appeal is brought pursuant to s 44 of the Administrative Appeals Tribunal Act 1975 (Cth) (the "AAT Act"). 2 The second respondent ("Mackay") proposes to take over or merge with the appellant ("Capricornia") and to facilitate its so doing, wishes to communicate directly with Capricornia members. Because Capricornia is a credit union the general rules relating to access to the members' register apply in a modified form. Access may be utilized only for a purpose approved by the first respondent ("ASIC"). ASIC approved access by Mackay for certain purposes connected with the intended takeover or merger, but refused to approve one proposed purpose. Both Capricornia and Mackay sought review of those decisions in the Tribunal. The Tribunal upheld ASIC's decisions. Capricornia appeals from the Tribunal's decision.

LEGISLATION 3 Subsection 173(3B) of the Corporations Act 2001 (Cth) (the "Corporations Act") relevantly provides that in the case of a credit union: '…, the body corporate may refuse to give a person a copy of the part of the register for members of the body who hold member shares if the body is not satisfied that: (a) the person is a member of the body who intends to call a meeting of members, or of particular members, of the body; or (b) the person proposes to use information obtained from that part of the register for a purpose that is approved in writing by ASIC: (i) on its own initiative; or (ii) on the written application of the person or of another person.' Subsection 173(3B) was inserted by reg 12.8.06 of the Corporations Regulations 2001 (Cth).

THE PROPOSED TAKEOVER OR MERGER 4 On 29 June 2004 representatives of Mackay met with members of the Capricornia board for the purpose of submitting a proposal for merger of the two corporations. The basis of the proposal appears from a letter dated 29 June 2004 delivered at that meeting. Mackay shares were to be issued in exchange for Capricornia shares by way of either a 'scheme of arrangement' or a 'regulated takeover'. Mackay sought the Capricornia board's 'in principle' approval of the proposal. 5 Capricornia is a public company limited by shares. It is organized on the basis of 'principles of mutuality'. Those principles include the following: · Subject to certain irrelevant exceptions, a person may not be a customer unless he or she is a member. · A member must hold a 'member share'. · Generally, a person may hold only one such share. · Each member share entitles the holder to one vote at members' meetings. · No dividends are payable in respect of member shares. · A member will share in the distribution of any surplus on winding-up. · A member may redeem a member share on request but must settle any outstanding financial accommodation extended by the corporation. · Member shares generally may not be transferred. · The corporation may issue shares other than member shares. · Such 'additional shares' may not carry any right to vote other than at meetings of holders of additional shares on questions affecting the continuing existence of the corporation. · Holders of additional shares may participate in profits through dividends and in any surplus on winding-up, limited to repayment of capital and payment of arrears of dividends. · Additional shares may be transferred to another member who has been a member for the preceding six months. · Only a member of the corporation may be a director. 6 As appears from Division 2 of Appendix 3 to its constitution, Capricornia may issue "investment shares". They carry no right to vote and no right to require re-purchase by Capricornia. 7 Presumably because of the obstacles which the 'principles of mutuality' offer to any takeover or merger, Mackay indicated in its letter of 29 June 2004 that its proposal was likely to require 'approval of the members of Capricornia', presumably meaning approval at a general meeting. 8 On 12 July 2004 the chief executive officer of Mackay (Mr Nealy) wrote to the company secretary of Capricornia (Mr Mobb) advising that Mackay would 'shortly be requesting a copy of Capricornia's register of members.' On 15 July 2004 the chairman of Capricornia (Mr Strelow) wrote to the chairman of Mackay (Mr Wallace) as follows: 'Thank you for your letter of 13th July 2004. As you can appreciate, a merger proposal raises significant issues for our members and for our Credit Union. As mentioned previously we are currently assessing whether or not your proposal is beneficial to our members, taking into account value and all other issues. Having just passed the end of the last financial year, we do not yet have any financial information that could reasonably be released to anyone. In any event, before we would agree to the release of any information to you, we need to better understand the value equation and exactly what your proposal means for Capricornia and its members, going forward. As the consideration is made up wholly of shares in your organization, the value equation alone is not straight forward. What a merger with a non-mutual means for our members is even more difficult to ascertain. We are considering all Issues now but don't expect to be in a position to respond immediately.' 9 On 5 August 2004 Mr Strelow wrote to Mr Wallace as follows: 'After due consideration of all relevant matters, and having reviewed appropriate professional advice, my Board is very strongly of the view that the proposed merger with your society would not be in the best interests of the members of Capricornia Credit Union. Accordingly, I am writing to inform you that we have no interest in your proposition. Please be aware that your society will be sued for recovery of our costs should you initiate an action which is without merit and not practically capable of completion. 10 On 19 October 2004 Mackay applied to ASIC for an approval pursuant to subs 173(3B) of the Corporations Act. On 31 January 2005 ASIC wrote to Capricornia, advising of its intention to grant such an approval and inviting submissions. It advised Mackay that it had done so. On 2 February 2005 Mr Wallace wrote to Mr Strelow as follows: 'We have been notified that subject to submissions from Capricornia Credit Union Limited (Capricornia), ASIC propose to approve our request to obtain a copy of the register of members of Capricornia. This approval will enable us to communicate with the members of Capricornia for the purpose of providing information in relation to a proposal to merge Capricornia with Mackay Permanent Building Society Limited. Such a proposal will reflect recently released financial information on Capricornia. Accordingly our merger proposal of 29 June 2004 is withdrawn. Once we have appropriate access to the members' register, if you so wish we would be prepared to enter into discussions with the Board of Capricornia regarding a merger proposal that your board is prepared to recommend to members.' 11 On 29 June 2005 Mr Strelow wrote to Mr Wallace as follows: 'I refer to your telephone call to me on 21 June. I request that all future communications from you to the Credit Union Board or myself be put in writing. I reiterate my Board's position in this matter: We accept, in principle, that members are entitled to full disclosure of proposals relevant to them, but any proposal to allow Mackay to contact our members direct is inappropriate. Mackay should not contact Capricornia's members before the Board of Capricornia has had an opportunity to:

1. consider any proposal;
2. satisfy itself that the proposal is legally permissible;
3. obtain independent professional advice regarding the merits of the proposal;
4. negotiate with Mackay on any points which are not in the best interests of Capricornia's interests; and
5. formulate an appropriate recommendation to members. If you have a proposal, please put it in writing to the Board.'

MACKAY'S APPLICATIONS 12 In its application of 19 October 2004 (the "first application") Mackay applied pursuant to subs 173(3B)(b)(ii) for ASIC's approval of its using information derived from Capricornia's share register for the following purposes: 'To communicate (in writing, by telephone or by public forum) with the members (members) of Capricornia Credit Union Limited (Capricornia) for the sole purpose of providing material and other information to them:- (a) about the content (and consequences for them) of a proposal (proposal) to merge Capricornia with Mackay Permanent Building Society (Mackay) ["purpose 1"]; (b) to assist them consider and understand the proposal ["purpose 2"]; (c) to assist or facilitate convening a meeting of members to consider, and if thought proper pass, resolutions; (i) giving directions to Capricornia's board in relation to the proposal ["purpose 3"]; and/or (ii) changing the composition of Capricornia's board so that a majority of its directors (at least) are prepared to give effect to the directions of the members (as set out in any resolution passed by members) with regard to the proposal ["purpose 4"]; and the appointment of proxies to vote at such a meeting on behalf of members.' 13 The Tribunal summarized Capricornia's submissions in opposition to Mackay's application as follows: '(i) In relation to subparagraph (c)(i) in Annexure "A" [that is purpose 3] Capricornia contended that a resolution of the members in general meeting that purports to instruct the directors as to the manner in which the directors should exercise their powers was unlawful; (ii) Capricornia referred to a Clause in its Constitution which, it submitted, vested in the Board the power to manage the credit union's business and to exercise all of the powers of the credit union, except any powers that the Act or the Constitution expressly allocated to the general meeting; (iii) Capricornia referred to case law which it submitted stood as authority for the proposition that when a resolution cannot lawfully be effectuated at a general meeting the directors are entitled to decline to act on the resolution; and (iv) Accordingly, Capricornia contend that the resolutions contemplated by subs (c)(i) in Annexure "A" were unlawful and that ASIC should not approve a purpose which involved a meeting of Capricornia's members being requisitioned to consider these resolutions; (v) Capricornia made a number of other submissions in relation to other proposed approved purposes.' 14 By the time at which Capricornia's submissions were made, the original "offer" had been withdrawn. On 24 February 2005 Mackay informed ASIC that it intended to increase its "offer". As far as we know, no further offer has been made. Nonetheless, by letter dated 4 March 2005 ASIC advised Mackay that it had approved purposes 1, 2 and 4 but had declined to approve purpose 3. Both Capricornia and Mackay sought review of this decision in the Tribunal. 15 On 27 April 2005 Mackay applied (the "second application") for approval of a further purpose ('purpose 5'), namely: 'To communicate (in writing, by telephone or by public forum) with the members (members) of Capricornia Credit Union Ltd (Capricornia) for the sole purpose of providing material and other information to them to assist or facilitate convening a meeting of members (members) of Capricornia Credit Union Ltd (Capricornia) to consider, and if thought proper pass, resolutions: (a) amending Capricornia's constitution so as to expressly confer upon its members the right, power or entitlement to give directions or recommendations to Capricornia's board (by the passing of an ordinary resolution at a general meeting) with respect to the proposal to merge Capricornia and Mackay Permanent Building Society (Mackay), including directions and recommendations regarding - (i) making applications to the court required by section 411 of the Corporations Act and the preparation of all explanatory memoranda and notices and engaging appropriate experts to prepare any necessary reports required for a scheme meeting for the purpose of considering a scheme of arrangement for the merger of Capricornia and Mackay; (ii) a date for the holding of a scheme meeting to consider a scheme of arrangement for the merger of Capricornia and Mackay (subject to the terms of any order made by the Court pursuant to any application made under section 411 of the Corporations Act); (iii) seeking the co-operation, support and assistance of Mackay for the purposes described above or for the purposes of attending to any other step required or convenient for advancing proposal for merger.' 16 ASIC invited submissions from Capricornia concerning this application. Capricornia made submissions opposing it. On 20 June 2005 ASIC informed Capricornia that it had approved purpose 5 (the "second approval"). Capricornia sought review of that decision in the Tribunal.

THE TRIBUNAL'S DECISION 17 The Tribunal entertained three separate applications for review, namely: · Mackay's application for review of ASIC's first decision; · Capricornia's application for review of that decision; and · Capricornia's application for review of ASIC's second decision. 18 At [19] the Tribunal observed: 'ASIC's role is to balance the importance of protecting the privacy of members of a mutual and the risk of the release of commercially sensitive information on the members' register, against the generally accepted principle, enshrined in section 173 of the Act, that it is conducive to the good governance of a company that non-members should be able to communicate with members of a company regarding the affairs of the company.' 19 The Tribunal considered that it was unnecessary that it consider the merits of Mackay's "proposal" or the methods by which it might proceed. Of course, by that time, there was no proposal. The Tribunal assumed that Mackay would comply with relevant legislative requirements in connection with its proposal, and that there were no issues of privacy or commercial sensitivity which should affect its decision. It rejected Capricornia's submission that Mackay was attempting to circumvent legislation relating to takeovers and demutualization. It observed at [28]: 'The fact of the matter is that subsection 173(3B)(b)(ii) of the Act allows for the procedure which has taken place. It allows for members of a credit union to be fully informed about the nature of a proposal being made to them. It protects members of a credit union from being mis-informed, being subjected to possibly deceptive conduct or being kept in the dark.' 20 It is a little difficult to understand the Tribunal's meaning in saying that the relevant provision 'allows for the procedure which has taken place'. What was or was not a permissible purpose for the purposes of para 173(3B)(b) was one of the issues for determination by the Tribunal. 21 The Tribunal then listed various factors which it took into account, one of which was that the purposes proposed by Mackay were 'those contemplated by subsection 173(3B)(b)(ii)' and that such purposes 'appear to be consistent with legislative requirements'. The Tribunal observed that: 'If as a result of Mackay's proposals a new Capricornia board is constituted, the members of that new board would comply with all of the requirements of the legislation relating to their obligations and duties that they are to perform.' 22 It asserted that: 'A purpose that relates to allowing the takeover process to be started should be allowed. … There is ample opportunity for those who oppose the takeover to put their points of view to the members. … Credit unions are not exempt from takeover applications. The reality is that they are a permissible commercial target for any entity.' 23 We doubt whether it would be correct to start with the assumption that any purpose related to the commencement of a takeover process should be approved. The discretion is not so limited. However the Tribunal probably meant only that it was not a prohibited purpose. Under the heading 'Consideration of the Purposes' the Tribunal concluded that purpose 3 (to give directions to the board): '… does not appear to be a legitimate purpose because it cannot legitimately be pursued. The members of Capricornia have no power in general meeting to give the directors instructions as to the manner in which they exercise their powers as directors. Directions to the directors of Capricornia which relate to Capricornia dealing with the merger proposal would amount to directions which relate to the affairs of the company which are vested in the directors and not in the company in general meeting.' 24 However, as to purpose 4 (to change the composition of the board) the Tribunal said: 'The fourth purpose is to effect a change in the composition of Capricornia's board so that a majority of its directors are prepared to give effect to the directions of the members with regard to the proposal. That is, to encourage the members of Capricornia to exercise their rights as members to call and vote at a general meeting, to vote onto the Board of Directors those directors who indicate a willingness to vote in favour of the merger proposal. The purpose of encouraging members to exercise their voting power relates to an interest or rights of members in relation to their capacity as members. This purpose should be approved.' 25 This paragraph seems to identify three different aims. The first is to change the composition of the board so that the majority are prepared to give effect to members' directions. The second is to elect directors who are willing to vote in favour of Mackay's proposal. The third aim is to encourage members to exercise their voting rights. This plurality of aims says much about purpose 4. The first aim merely reflects the wording of purpose 4. The second aim no doubt reflects Mackay's real intention. The third aim is benign window dressing. We wonder how the Tribunal could have rejected purpose 3 on the basis that members may not direct the board, but approve purpose 4 which contemplates such direction. 26 As to purpose 5 (to amend Capricornia's constitution) the Tribunal said: 'Such a purpose is one which closely relates to the rights or interests of the members in their capacity as members. Whether or not the proposed amendment is appropriate is a matter for the members, not ASIC nor the Tribunal. This purpose should be approved.' 27 The basis for the Tribunal's approval of purpose 5 is unclear. No doubt a proposal to amend the constitution is closely related to the members' rights and interests. However it is not every day that one company proposes to campaign for a change in the constitution of another. Such conduct may cause serious damage to the way in which the target company operates. Such a purpose may be capable of approval, but we would have expected some recognition of the disruption which the process might cause.

THE APPEAL 28 At the commencement of the hearing of the present appeal, the question of law was said to be: 'Whether on the facts found by the Tribunal, the purposes proposed by Mackay Permanent Building Society were purposes which could be approved under s 173(3B)(b)(ii) of the Corporations Act.' 29 This very broad statement of the question of law was to some extent narrowed by the amended notice of appeal which is exhibit 1. The grounds upon which it was alleged that the relevant purposes could not be so approved were: '(a) Section 173(3B)(b)(ii) of the Corporations Actis a section of general application. (b) Mackay Permanent Building Society sought approval for the purposes so that it might engage in a takeover of Capricornia Credit Union. (c) In the alternative, Mackay Permanent Building Society sought approval for the purposes so that it might engage in a scheme of arrangement to effect a merger with Capricornia Credit Union. (d) Specific provision to the Corporations Act set out the conditions and restrictions which must be observed and the course which must be followed in the conduct of a takeover (see Chapter 6, Part V of the Act; in particular, s.641 provides specifically for the provision of the names and addresses of securities holders) or a scheme of arrangement (see Chapter 5 of the Act). (e) It is impermissible to approve the subject purposes under the general provisions of s.173(3B)(b)(ii) when there is a provision which specifically applies to the circumstances.' 30 In argument counsel for Capricornia referred to provisions in the Corporations Act concerning schemes of arrangement (Ch 5) and takeovers (Ch 6). These chapters were said to be relevant because Mackay was proposing to effect its takeover or merger pursuant to the provisions of one Chapter or the other. To the extent that the argument was articulated in any detail it was that as a scheme of arrangement or takeover was contemplated, only the statutory procedures prescribed in connection with such transactions could appropriately be adopted. It was implied that there could be no legitimate communication between Mackay and Capricornia's members other than pursuant to one Chapter or the other. Counsel did not identify any particular provision which had that effect. We see nothing in Ch 5 or Ch 6 which would prohibit Mackay from communicating with members in advance of a formal bid. There may be a risk to Mackay in undertaking such communication, but that is not to the point. 31 Apart from the Corporations Act, the appellant referred to the Financial Sector (Transfer of Business) Act 1999 (Cth) (the "Financial Sector (Transfer of Business) Act"), the Financial Sector (Shareholdings) Act 1988 (Cth) (the "Financial Sector (Shareholdings) Act") and the Banking Act 1959 (Cth) (the "Banking Act"). We understand that those acts regulate the ownership of particular types of financial institution. Section 10 of the Financial Sector (Transfer of Business) Act provides for approval by the Australian Prudential Regulation Authority of any transfer of a relevant business. Subsection 63(1) of the Banking Actmakes it an offence for an authorized deposit-taking institution to enter into any arrangement or agreement for sale or disposition of its business, by amalgamation or otherwise, without the Treasurer's prior consent. No particular provision of the Financial Sector (Shareholdings) Act was referred to in argument, but we understand that legislation to be designed to avoid undue concentration of ownership of financial institutions. In particular, Div 3 of Part II regulates the circumstances in which a person may hold a stake in a financial institution in excess of 15 per cent. Capricornia has not demonstrated that any of these provisions prohibits communication with the members of a corporation, the affairs of which are affected by one or more of those Acts. We see no reason to believe that achieving any of the approved purposes would necessarily infringe against a provision contained in any of them. 32 These statutory references appear to have been designed to justify Capricornia's purported invocation of the decision of the High Court in David Grant & Co Pty Ltd v Westpac Banking Corporations (1995) 184 CLR 265 and other similar decisions. That case concerned s 459G of the Corporations Law (Vic) (the "Law") which provided that a company could apply to set aside a statutory demand within 21 days from service. However s 1322 of the Law conferred a general power to extend time for doing any act, matter or thing, or instituting or taking any proceedings under the Law or in relation to a corporation, including an order extending a period where the period in question had ended before the application was made for the extension. 33 For reasons of construction of the part of the Law in which s 459G was located, the Court concluded that the general power contained in s 1322 did not authorize an extension of time for making an application to set aside a statutory demand. Gummow J referred to the reasons of Gavan Duffy CJ and Dixon J in Anthony Hordern & Sons Ltd v Amalgamated Clothing & Allied Trades Union of Australia [(1932) 47 CLR 1 at 7] where their Honours said: 'When the legislature explicitly gives a power by a particular provision which prescribes the mode in which it shall be exercised and the conditions and restrictions which must be observed, it excludes the operation of general expressions in the same instrument which might otherwise have been relied upon for the same power.' Capricornia seeks to rely on that proposition. 34 The decision in Anthony Hordern was considered by the High Court in Minister for Immigration and Multicultural and Indigenous Affairs v Nystrom (2006) 230 ALR 370. At [59], Gummow and Heydon JJ observed, concerning Anthony Hordern: 'Anthony Hordern and the subsequent authorities have employed different terms to identify the relevant general principle of construction. These have included whether the two powers are the "same power" …, or are with respect to the same subject-matter …, or whether the general power encroaches upon the subject-matter exhaustively governed by the special power … . However, what the cases reveal is that it must be possible to say that the statute in question confers only one power to take the relevant action, necessitating the confinement of the generality of another apparently applicable power by reference to the restrictions in the former power. In all the cases considered above, the ambit of the restricted power was ostensibly wholly within the ambit of a power which itself was not expressly subject to restrictions.' 35 At [165], Heydon and Crennan JJ (with whom Gleeson CJ agreed) observed: 'The line of authority … beginning with Anthony Hordern … upon which Mr Nystrom relied, has no application here as there is no repugnancy between the two powers. In fact, they are consonant with each other.' 36 Clearly, any argument on behalf of Capricornia based upon the decision in Anthony Hordern or that in David Grant, must depend upon a detailed analysis of the statutory context. In the present case no attempt has been made to demonstrate, by reference to subs 173(3B) itself, other provisions of the Corporations Act or provisions of the other legislation to which we have referred, that it should have a more limited operation than that indicated by its wording. There seems to be general agreement that subs 173(3B) recognizes the peculiar position of credit unions and similar organizations where the members are, in many cases, also customers. Whether this be so or not, we see no reason for reading subs 173(3B) as being limited in its operation by statutory prescriptions regulating particular types of transaction not specific to such organizations. 37 We do not accept general statements made by counsel for the respondents concerning the desirability of using the subsection to facilitate the communication to members of takeover offers. Nothing in the section leads us to conclude that a particular purpose of the section was to facilitate such offers. On the other hand, we see no basis for concluding that such a purpose is incapable of being an approved purpose. Capricornia suggested that to allow such communications with members would be undesirable because it might lead to their being misled. That may be so, but they would have such remedies as are available to them under the general law or by statute. In particular other provisions of the Corporations Act might be engaged. 38 In the Tribunal Capricornia asserted that it was in competition with Mackay. In some cases that may be a relevant consideration, but the Tribunal found that they were not competitors. That is a question of fact. The submission was not pressed before us. 39 Capricornia submitted that the Tribunal had relied upon the proposition that there is a 'generally accepted principle enshrined in s 173 of the Act that it is conducive to the good government of the company that non-members should be able to communicate with members of a company regarding the affairs of the company'. It submits that there is no such principle. We do not think that there is, but we consider that the Tribunal meant simply that such communications may be for a legitimate purpose. We see nothing erroneous about that approach to the ambit of operation of subs 173(3B). 40 In this appeal, the question is whether the Tribunal erred in law. We see no error based upon Ch 5 or Ch 6 of the Corporations Act or any provision of the other legislation to which we have been referred. On the grounds initially argued, Capricornia's appeal must fail.

OTHER GROUNDS 41 In the course of argument we became concerned that there appeared to have been, to that point, inadequate consideration of the body of law concerning the relationship between members of a corporation and its board and the particular duties placed upon directors. Much of this law is now to be found in the Corporations Act. The Tribunal, in its reasons for upholding ASIC's decision concerning purpose 3 (giving instructions to directors), recognized one aspect of that body of law, namely that members generally may not give directions to the board as to the management of the affairs of a company where such management has been vested in the board by the company's constitution. However the Tribunal approved purpose 4 (changing the composition of the board so that a majority of its directors were prepared to give effect to directions from members). Similarly, the Tribunal approved purpose 5 (amending the constitution so as to confer upon members the power to give directions to the board). 42 After the conclusion of submissions we further considered the law regulating the duties of directors and the powers of members in general meeting. We became concerned that certain fundamental issues may not have been addressed by ASIC, the Tribunal or in submissions before us. Because of the importance of these matters, we invited Capricornia to consider whether it should further amend its notice of appeal. Capricornia subsequently applied to do so by adding the following paragraphs to its grounds: '(f) Further and alternatively, the fourth and fifth purpose each contemplate a contravention of fundamental principles of company law. (g) The fourth and fifth purposes each undermine the duties of directors of the applicant who are each required to comply with Chapter 2D of the Corporations Act as well as general duties imposed by law, including fiduciary duties. (h) Further, a resolution by members to change the composition of the board so that a majority of its directors (at least) are prepared to give effect to the directions of members (as set out in any resolution passed by members) with regard to the proposal: (i) Interferes with each director's decision-making process who will instead act or appear to act, in whole or in part: A. in the interests of preserving his or her position on the board; B. in the interests of the members who vote for the resolution rather than the company as a whole. (ii) removes the management of the applicant from its directors and places it in the hands of the members who vote for the resolution where those members are under no legal obligation to act in the interests of the company nor are they subject to any of the legal duties owed by the directors and, indeed, where those members may not be the majority of the applicant's members; (iii) exposes the members who do not vote for the resolution to a situation where they own shares in a company which is not being governed by directors who are acting according to law; (iv) causes directors to be appointed with the pre-formed intent of acting in accordance with the wishes of a proportion of members rather than acting in accordance with their duties according to law; (v) is unlawful because it is contrary to the applicant's constitution. (i) Further, any purpose designed to facilitate the giving of directions by members to the current or replacement directors which directions must be complied with by those directors: (i) removes the management of the applicant form its directors and places it in the hands of the members who vote for the resolution where those members are under no legal obligation to act in the interests of the company nor are they subject to any of the legal duties owed by the directors and, indeed, where those members may not be the majority of the applicant's members; (ii) exposes the members who do not vote for the resolution to a situation where they own shares in a company which is not being governed by directors who are acting according to law; (iii) seeks to override or displace the duties owed by the directors according to law and may expose the directors to a situation where, if they abide a direction given by the members, they act unlawfully; (iv) is unlawful because it is contrary to the applicant's constitution.' 43 It is difficult to understand why these matters were not raised at an earlier stage, given that at least some of the issues are associated with those raised by Capricornia and taken into account by the Tribunal in connection with purpose 3. No real explanation has been offered for this failure. We proceed upon the basis that those advising Capricornia did not identify them as having substance. ASIC adopts no position with respect to the proposed amendments. As we understand it Mackay does not dispute that there is power to allow an amendment to raise these grounds, notwithstanding that they were not argued below. However it submits that for discretionary reasons we should not do so. 44 Mackay submits, correctly, that the application is very late and that Capricornia had numerous prior opportunities to raise the relevant matters. At one stage, it submitted that the issues may raise questions of fact. No attempt was made to identify any such questions. Mackay submits that we should not embark upon a hearing of matters which need not be decided because of 'the inevitable possible consequence of adverse effect on members who are not represented on the hearing of this appeal'. We do not entirely understand this argument. We certainly have no intention of deciding anything other than issues which fairly arise in the case. Finally, Mackay submits that it would be unjust to allow the amendment because, had the relevant matters been raised at an appropriate time (that is prior to ASIC's original decisions) the decisions could have been 'more felicitously expressed'. This may be a valid point, but if so, it will be a relatively simple matter to obtain new approvals. 45 It is finally submitted that there has already been 'inevitable procedural unfairness and prejudice to the second respondent as a result of the long delays in the determination of this appeal and the very late attempt to raise new grounds of appeal'. We do not accept that there has been any "inevitable" or other procedural unfairness to Mackay. We accept that the delay has been substantial. However the issues raised are of very great importance, not only to the members of Mackay and Capricornia, but also in the general administration of the relevant provisions of the Corporations Act, and in connection with corporations law generally. Further, if Capricornia's new grounds have substance then Mackay has, to some extent, brought about its own prejudice in that, in order to gain a commercial benefit, it sought to achieve more by invoking the relevant provisions than it was entitled to achieve. 46 The primary thrust of Mackay's argument is that the proposed amendment comes very late and after numerous previous opportunities to raise the relevant matters. We acknowledge the validity and strength of those considerations. However the issues in question are of such significance that there might well be significant injustice to the members of Capricornia if they are not ventilated. We do not consider that Mackay will be exposed to prejudice of the same order if we allow the proposed amendment. We will do so. The consequences in costs may be addressed at a later stage.

DIRECTORS AND SHAREHOLDERS 47 At the outset we point out that we are not presently concerned with the question of members' authorization or ratification of board decisions. The distinction between that question and the present problem was noted by Lander J (Millhouse and Duggan JJ concurring) in Pascoe Ltd (In Liquidation) v Lucas (1999) 75 SASR 246 at 262-263. The distinction is between authorizing or ratifying a board decision and directing the board as to the decision to be made. Santow J considered the notion of ratification in Miller v Miller & Anor (1995) 16 ACSR 73 at 87. That case concerned s 241 of the Corporations Law, a precursor to ss 199A of the Corporations Act to which we will presently refer. His Honour said: 'The essential difference between ratification, which has had a long history of co-existence with various versions of s 241 and that section is this. Ratification can never be a blanket indemnification or exemption on a prospective basis, clearly prohibited by s 241 as such would be. Rather it is a specific absolution, afforded usually though not always, retrospectively, but necessarily for specific and properly disclosed infractions of the director's duties and subject to certain limitations, more fully set out in (6) below. The essence of ratification is that the release so given obviates the liability, so far as any right of action to enforce it by existing shareholders is concerned.' 48 Although this is not a case of authorization or ratification, it is worthy of note that the extent to which members are able to authorize or ratify a board decision may not be as wide as was once thought. See Residues Treatment and Trading Co Ltd v Southern Resources Ltd (1989) 51 SASR 177 at 204-205 per King CJ, (Matheson and Bollen JJ concurring). His Honour doubted the correctness of the decision in Bamford v Bamford [1970] ChD 212, referring to the decision of the High Court in Ngurli Ltd v McCann (1933) 90 CLR 425. It was there held that 'voting powers conferred on shareholders and powers conferred on directors by the articles of association of companies must be used bona fide for the benefit of the company as a whole'. The High Court recently endorsed that decision. See SGH Ltd v Commissioner of Taxation (2002) 210 CLR 51 at [29]-[30] (per Gleeson CJ, Gaudron, McHugh and Hayne JJ). See also Glover v Willert (1996) 20 ACSR 182 at 188 (per Byrne J). 49 Returning to the present case, the Corporations Act offers substantial guidance as to the duties of directors. Sections 179 to 185 provide: '179 Background to duties of directors, other officers and employees (1) This Part sets out some of the most significant duties of directors, secretaries, other officers and employees of corporations. Other duties are imposed by other provisions of this Act and other laws (including the general law). (2) … 180 Care and diligence-civil obligation only Care and diligence-directors and other officers (1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director of officer of a corporation in the corporation's circumstances; and (b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer. … Business judgment rule (2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they: (a) make the judgment in good faith for a proper purpose; and (b) do not have a material personal interest in the subject matter of the judgment; and (c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and (d) rationally believe that the judgment is in the best interests of the corporation. The director's or officer's belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold. … (3) In this section: business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation.' 181 Good faith-civil obligations Good faith-directors and other officers (1) A director or other officer of a corporation must exercise their powers and discharge their duties: (a) in good faith in the best interests of the corporation; and (b) for a proper purpose. … (2) A person who is involved in a contravention of subsection (1) contravenes this subsection. … 182 Use of position-civil obligations Use of position-directors, other officers and employees (1) A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. … (2) A person who is involved in a contravention of subsection (1) contravenes this subsection. … 183 Use of information-civil obligations … 184 Good faith, use of position and use of information-criminal offences Good faith-directors and other officers (1) A director or other officer of a corporation commits an offence if they: (a) are reckless; or (b) are intentionally dishonest; and fail to exercise their powers and discharge their duties: (c) in good faith in the best interests of the corporation; or (d) for a proper purpose. … Use of position-directors, other officers and employees (2) A director, other officer or employee of a corporation commits an offence if they use their position dishonestly: (a) with the intention of directly or indirectly gaining an advantage for themselves, or someone else, or causing detriment to the corporation; or (b) recklessly as to whether the use may result in themselves or someone else directly or indirectly gaining an advantage, or in causing detriment to the corporation. (3) … 185 Interaction of section 180 to 184 with other laws etc. Sections 180 to 184: (a) have effect in addition to, and not in derogation of, any rule of law relating to the duty or liability of a person because of their office or employment in relation to a corporation; and (b) do not prevent the commencement of civil proceedings for a breach of a duty or in respect of a liability referred to in paragraph (a). This section does not apply to subsections 180(2) and (3) to the extent to which they operate on the duties at common law and in equity that are equivalent to the requirements of subsection 180(1).' 50 Subsections 199A(1) and (2) of the Corporations Act provide: '(1) A company or a related body corporate must not exempt a person (whether directly or through an interposed entity) from a liability to the company incurred as an officer or auditor of the company. (2) A company or a related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through an interposed entity) against any of the following liabilities incurred as an officer or auditor of the company. (a) a liability owed to the company or a related body corporate; (b) a liability for a pecuniary penalty order under section 1317G or a compensation order under section 1317H or 1317HA; (c) a liability that owed to someone other than the company or a related body corporate and did not arise out of conduct in good faith. This subsection does not apply to a liability for legal costs'. 51 Section 199C provides: '(1) Sections 199A and 199B do not authorise anything that would otherwise be unlawful. (2) Anything that purports to indemnify or insure a person against a liability, or exempt them from a liability, is void to the extent that it contravenes section 199A … .' 52 Pursuant to ss 1317E and 1317G any breach of subss 180(1), 181(1) or 181(2) may result in the imposition of pecuniary penalties. Pursuant to s 1317H a person so infringing may also be ordered to pay damages to the corporation. 53 The Capricornia board is obliged to perform the functions conferred upon it by that corporation's constitution. In participating in that process directors must act in accordance with their statutory and general law duties. Section 198A of the Corporations Act provides: '(1) The business of a company is to be managed by or under the direction of the directors. (2) The directors may exercise all the powers of the company except any powers that this Act or the company's constitution (if any) requires the company to exercise in general meeting.' 54 That section is a "replaceable rule". See s 135. Capricornia's constitution excludes all replaceable rules. See r 1.4. However r 14.1 of the constitution provides: 'The board (a) manages the credit union's business; and (b) may exercise all the powers of the credit union except any powers that the Corporations Law or this Constitution expressly allocates to the general meeting.' 55 There seems to have been no such "allocation". The management of Capricornia's business is, therefore, vested in the directors. Such a conferment of authority has traditionally been widely construed. See, in particular, Strong v Brough & Son Strathfield Pty Ltd (1991) 5 ACSR 296 (per Young J). As that case demonstrates, it includes authority to sell the business of the company. In the present case it seems to be accepted that the board is empowered to take steps in connection with Mackay's proposal. The power to manage the business of the company is presumably the basis for such power. 56 In Gore-Browne on Companies at 14[4] it is said that: 'Unless the articles require directors to conform to directions given by the company in general meeting, the company cannot (under the usual article), except by special resolution, take the conduct of the business out of the directors' hands, or compel them to adopt a particular line of action, such as sealing a draft deed or effecting a sale of the company's property … or discontinuing legal proceedings commenced in the name of the company on the instructions of the board … .' 57 Early authority for this proposition is to be found in Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame [1906] 2 Ch 34. At 43, Collins MR said: 'If the mandate of the directors is to be altered, it can only be under the machinery of the memorandum and articles themselves.' 58 Cozens-Hardy LJ said: 'It is somewhat remarkable that in the year 1906 this interesting and important question of company law should for the first time arise for decision, and it is perhaps necessary to go back to the root principle which governs these cases under the Companies Act 1862. It has been decided that the articles of association are a contract between the members of the company inter se. … We must therefore consider what is the relevant contract which these shareholders have entered into, and that contract, of course, is to be found in the memorandum and articles. … it seems to me that the shareholders have by their express contract mutually stipulated that their common affairs should be managed by certain directors to be appointed by the shareholders in the manner described by other articles, such directors being liable to be removed only by special resolution. If you once get a stipulation of that kind in a contract made between the parties, what right is there to interfere with the contract, apart, of course, from any misconduct on the part of the directors? There is no such misconduct in the present case.' 59 Although directors may now be removed by ordinary resolution (s 204D), the proposition that members generally may not instruct directors as to the performance of their duties remains valid. In the present case, it is supported by the constitutional vesting of management in the board. That may only be amended by special resolution (subs 136(2)). To allow members to direct the board would detract from that provision. For this reason we agree that purpose 3 (directions to the board) should not have been approved. 60 We turn to purpose 4 (change in the composition of the board). We should state briefly our understanding of this purpose. Mackay wishes to communicate with members of Capricornia to 'assist or facilitate convening a meeting'. The purpose of the meeting would be to consider a resolution 'changing the composition of the board'. The proposed new board would comprise 'a majority … (at least) …prepared to give effect to directions of the members (as set out in any resolution passed by members) with regard to the proposal'. 61 The absence of any extant proposal might render such purpose nugatory if not meaningless. Apart from that matter the ultimate purpose is to constitute a board which will act in accordance with directions from members. We would have thought that for the reasons which led to the rejection of approval in connection with purpose 3 there should have been no approval of purpose 4. No doubt the members are entitled to meet for the purpose of removing a director. However, for reasons which we will discuss at a later stage it may not be competent for the members in general meeting (other than at an annual general meeting) to elect new directors. In any event, the point is that the power to manage the company remains vested in the board. Sections 180 and 181 of the Corporations Act and the general law require that directors exercise their powers and discharge their duties with due care and diligence and in good faith, in the interests of the corporation, and for a proper purpose. Mackay submitted that there is no reason to assume that any members' direction would lead the board to act in a way which was inconsistent with those obligations. In other words, it may be that a director, acting in accordance with his or her statutory and other obligations, would act in the same way as the members directed. However we consider that the effect of the proposal is that the board be re-constituted to comprise directors who will act in accordance with members' directions without exercising any personal judgment. A director who is prepared to give effect to members' directions, by definition, does not propose to fulfil the obligations outlined above. 62 The first respondent submitted that the position of such a director was the same as that of a director nominated by a particular shareholder or group of shareholders. It was said that he or she might act in the interests of the nominator or nominators, unless it would not be in the interests of the company so to do. The rationale for that proposition appears in observations made by Jacobs J in Levin v Clark [1962] NSWR 686 at 700-1 as follows: 'It is of course correct to state as a general principle that directors must act in the interests of the company. There is no necessity to refer to the large body of authority which supports this as a general proposition. However, that leaves open the question in each case-what is the interest of the company? It is not uncommon for a director to be appointed to a board of directors in order to represent an interest outside the company-a mortgagee or other trader of a particular shareholder. It may be in the interests of the company that there be upon its board of directors one who will represent these other interests and who will be acting solely in the interests of such a third party and who may in that way be properly regarded as acting in the interests of the company as a whole. To argue that a director particularly appointed for the purpose of representing the interests of a third party, cannot lawfully act solely in the interests of that third party, is in my view to apply the broad principle, governing the fiduciary duty of directors, to a particular situation, where the breadth of the fiduciary duty has been narrowed, by agreement amongst the body of the shareholders. The fiduciary duties of directors spring from the general principles, developed in courts of equity, governing the duties of all fiduciaries-agents, trustees, directors, liquidators and others-and it must be always borne in mind that in such situations the extent and degree of the fiduciary duty depends not only on the particular relationships, but also on the particular circumstances. Among the most important of these circumstances are the terms of the instrument governing the exercise by the fiduciary of his powers and duties and the wishes, expressed directly or indirectly, by discretion, request, assent or waiver, of all those to whom the fiduciary duty is owed.' 63 See also Re Broadcasting Station 2GB Pty Ltd [1964-65] NSWR 1648 at 1663 and Re The News Corporation Ltd (1986-1987) 70 ALR 419 at 436. However the correctness of the proposition identified by Mackay as flowing from those cases appears to have been tacitly doubted by the High Court in SGH (supra) at [30]. In any event the qualification to the proposition is essential to its validity, and no such qualification appears in purpose 4. There is no reason to doubt that the present directors would act in accordance with their perceptions as to Capricornia's best interests. Hence, if the intention is that all directors act in the best interests of the corporation, there would be no point in conducting an election to choose other directors to do so. The clear intention is to elect directors who are committed to following members' directions concerning a proposal which has not yet been made, rather than observing the duties imposed upon them by ss 180 and 181 and the general law. 64 Pursuant to s 249Q of the Corporations Act, a meeting may only be called for a proper purpose. To convene a meeting to constitute a board comprised of directors who will act in breach of duty can hardly be proper. Although ASIC's discretion is undoubtedly very wide, we do not accept that it extends to the authorization of a step intended to facilitate such a process. 65 Another matter requires comment in connection with purpose 4. The proposal to 'change the composition of the board' says little about the mechanism for so doing. Clause 13.1 of the constitution provides that there be at least five, and not more than eight, directors. There are seven serving directors. We do not know how many of them are considered to be unlikely to give effect to members' directions concerning Mackay's proposal. However we assume that at least a majority must be in that category. Reconstitution of the board may involve removal and/or appointment of directors. Whilst members may remove directors pursuant to s 203D, appointment is not so easy. 66 Rule 13.5 provides that subject to the Corporations Law and the rotation provisions in that rule, a director's term of office starts at the end of the annual general meeting at which his or her election is announced and concludes at the end of the third annual general meeting after that annual general meeting. The election of directors by members is regulated by Appendix 5. Any such election is to be conducted at the annual general meeting. Although s 201G of the Corporations Act confers a wider power to appoint directors, it is a replaceable rule which does not apply to Capricornia. Appendix 5 appears to prescribe the only circumstances in which the members may elect directors. There is no suggestion that the proposed meeting is to be an annual general meeting. Pursuant to r 13.4 the board may appoint a person as a director if a director's office becomes vacant other than because of the expiry of his or her term or if, for any other reason, there are fewer directors than the maximum number prescribed by r 13.1. Thus, although the members may remove a director pursuant to s 203D, they may not appoint replacement or additional directors other than at an annual general meeting. Vacancies may only be filled by the board. 67 In argument, Mackay submitted that the reconstitution might be effected by removal without the need to appoint new directors. It was also faintly submitted that the members had a residual power to elect directors. As to the first submission, if only a bare majority of the board of seven were unwilling to follow directions, the desired effect could be achieved by removing two of them. This would leave a board of five, with a bare majority willing to follow members' directions. We would have thought that the proposed purpose suggested that rather more was intended. However, in view of our conclusion that purpose 4 was not able to be approved for other reasons, it is not necessary to take the matter further. Similarly, we need not consider the residual power of members to elect directors. However we doubt whether such a power exists where the constitutional mechanism for doing so remains effective. 68 Subject to one other matter, we conclude that purpose 4 was not capable of approval. The other matter is Mackay's submission that its application for ASIC's approval of purpose 4 must now be considered in light of its application for approval of purpose 5. It submits that if purpose 5 is approved, purpose 4 would no longer be offensive as the board would be obliged to follow members' directions. In that case, there would seem to be no point in changing the composition of the board. Any board would be similarly obliged. 69 It is true that if the proposed amendment is adopted, directors will be obliged to give effect to members' directions in connection with Mackay's proposal. If the proposed amendment fails, it will be improper for directors to so act. Purposes 4 and 5 have been proposed independently. If purpose 4 were approved on the basis that purpose 5 might be successful, it would be open to Mackay to pursue purpose 4 and abandon purpose 5. That would lead to its seeking to encourage the holding of a meeting to re-constitute the board on the basis of a misconception as to how it should operate. Whether or not it was appropriate to facilitate such a procedure should be determined upon the facts as they were at the time of the Tribunal's decision, not as they might be if the proposed amendment is adopted. Purpose 4 should not have been approved for the reasons which we have given. That the constitution might be amended to allow members' directions is not to the point. 70 We turn to purpose 5 for which approval was sought in Mackay's second application. The purpose is to provide material and other information to members in order to assist or facilitate the convening of a meeting of members. The meeting is to consider a proposed amendment to Capricornia's constitution to enable members to give directions or recommendations to the board 'with respect to the proposal to merge Capricornia and Mackay ….', including directions or recommendations regarding Capricornia's obligations pursuant to s 411 of the Corporations Act and regarding 'seeking the co-operation support and assistance' of Mackay in connection with its proposal. 71 It is a little surprising that it should be proposed to amend the constitution to enable members to make "recommendations" to the board. However it may be that there would otherwise be no power to convene a meeting in order to consider a proposed ordinary resolution containing such a recommendation. Fairly clearly, the real intention of the proposal is that the members have the authority to give directions. Nothing is said about the effect or standing of such directions or recommendations or about the effect to be given to them by the board. The word "recommendations" carries the implication that the board should consider, but not necessarily adopt them. The word "directions" carries the implication that the board is to obey them. Any direction or recommendation must be with respect to the proposed merger. Once again we note that, as far as we know, there is no current proposal, and that there was no such proposal at the time of ASIC's approval. Presumably, the intention is that the power be in respect of any future proposed merger. 72 The proposed amendment does not purport to relieve the board of any of its functions. In the absence of any direction or recommendation, the directors will be obliged to continue to act in accordance with their constitutional and statutory obligations. They may not refrain from acting simply because the members might, in the future, give a direction or make a recommendation. If a direction or recommendation is made, the directors will have to consider their response to it. In particular they will have to consider its effect upon their constitutional and statutory obligations. In the event of a recommendation, they might take it into account but still act in accordance with those obligations. In the event of a direction, the position is not so clear. 73 Mackay submits that the effect of the proposed amendment will be to reduce the scope of the directors' powers and duties under the constitution so that action taken pursuant to any direction will not involve breach of any statutory or general law obligation. The traditional view under the general law seems to have been that members could so amend the corporation's constitution. See Marshall's Valve Gear Company Ltd v Manning v Wardle & Co Ltd [1909] 1 Ch 267 at 274. The question is whether the same approach should be taken in connection with ss 180 and 181 of the Corporations Act. In Australian Corporation Practice (Butterworths) at 13.215 it is said, concerning those sections: 'While the extent of an officer's duties to the corporation has been determined by ss 180-185 and the common law, the constitution of the corporation may limit the scope of those duties by setting out the officer's responsibilities in given circumstances. To overcome the dual loyalties of nominee directors, for example, the corporate constitution may allow the directors to act pursuant to the directions of the appointors in specified matters, notwithstanding that the act may not be in the best interests of the corporation as a whole. However, a provision of a company's constitution is void if it seeks to exempt the officer from liability in respect of a breach of duty to the company involving lack of good faith: s 199A. The corporate constitution may only limit the scope of a duty and so preclude a breach. They may not excuse liability for a breach once it has occurred.' 74 In Ford's Principles of Corporations Law (Butterworths) the matter is discussed at paras 8.400 to 8.410. In discussing subs 199A(1) the authors assert that 'There are no exceptions to the prohibition in s 199A(1) on a company or a related body corporate exempting a person from a liability to the company incurred as an officer or auditor of the company.' They contrast this position with that pursuant to subs 199A(2) and subs (3), which contain specific exceptions. At 8.410 the authors observe: 'Section 199A(2) prohibits indemnification by a company or a related body corporate of an officer or auditor in relation to liability incurred by the officer or auditor to the company or related body corporate. This could include contractual liability. It will also include liability for breach of a general law duty or statutory duty. Whether there is a breach of duty will depend on the instrument or law which imposes the duty. The framers of constitutions have some freedom to define duties of directors and other officers in broad or narrow terms. An act or omission which in one company may be a breach of duty against the consequences of which the company cannot indemnify an officer may in another company not be a breach of duty at all. The extent to which the constitution may reduce the scope of duties in the face of s 199A(2) is not clear. … Certainly, duties imposed on an auditor by the Act could not be reduced. Nor could duties imposed by legislation on directors and other persons be limited without legislative authority. Thus s 181 imposes duties on company officers to act in good faith in the best interest of the company and to act for a proper purpose in the exercise of their powers and the discharge of their duties. There is no express legislative authority to a company to lessen that duty. There have been judicial suggestions that the constitution may narrow down the range of a director's duty of good faith: Levin v Clark [1962] NSWR 680 at 700-701; Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 … . At least it is accepted that a director's duty to avoid a conflict of interest may be limited by permitting a director of a proprietary company to vote at board meetings in relation to company contracts in which he or she is personally interested … .' 75 Both extracts suggest a degree of uncertainty as to the operation of s 199A. 76 Whatever may have been the position under the general law, there is no statutory authorization for members to relieve directors from the duties imposed by ss 180 and 181. Sections 199A and 199C proscribe any exemption from, or indemnity against, liability to the corporation arising from any breach of duty. Sections 180 and 181 apply to directors' powers and duties arising under a corporate constitution but also to powers and duties from other sources such as a statute. Whilst the exercise of powers and discharge of duties derived from the constitution may be amenable to members' direction, if permitted by that constitution, the exercise of powers and discharge of duties derived from other sources may not be so amenable. The decision of the High Court in Gambotto v WCA Ltd (1995) 182 CLR 432 places a further limitation upon the power to amend the constitution. If an amendment is oppressive, in the sense used in Gambotto, it will be invalid. In the present case, oppression was raised by Capricornia. It is difficult to see how the proposed amendment could, per se, be oppressive. Nonetheless directions made pursuant to it might be oppressive. 77 The proposed amendment has the potential capacity to create numerous problems and anomalies in the conduct of Capricornia's affairs. It says nothing about the way in which any direction is to be carried into effect. There is no suggestion that the members will, themselves, give effect to any direction. Directions are to be addressed to the board, presumably in the expectation that it will give effect to them. Even if a direction is binding on the directors, they will be bound by their statutory and general law duties in taking any steps to give effect to it. 78 It is unlikely that this mechanism for giving directions (by resolution adopted in general meeting) will be effective to provide timely direction to the board as to decisions which will have to be made concerning any proposal by Mackay. As we have observed the board will continue to exercise all of its powers and discharge all of its duties under the constitution until such time as a direction is given. By the time that a general meeting has been convened, the board may well have taken a contrary decision and carried it into effect. It is unlikely to be satisfactory, from the point of view of Capricornia or its members, for a board decision to be revoked as the result of a members' direction. We very much doubt whether a corporation such as Capricornia can be effectively managed by a combination of decision-making in general meeting and by the board, even if that mechanism is limited to matters concerning Mackay's proposal. 79 Another matter of concern is that ASIC's approval of purpose 5 enables Mackay to facilitate amendments to Capricornia's constitution which may have the effect of substantially changing the relationship between its board and its members. Mackay's directors have a responsibility to act in the best interests of that company. Neither they nor Mackay itself have or has any duty to uphold the best interests of Capricornia. Those interests are the primary concern of its board. The capacity of that board to protect those interests will inevitably be weakened if Mackay's purpose 5 is carried into effect. 80 We turn to a more specific aspect of purpose 5, namely giving directions and making recommendations in connection with the performance of Capricornia's obligations pursuant to s 411 of the Corporations Act. This section and supporting sections and regulations are designed to facilitate the consideration by members of a corporation of any proposal put to them in connection with its structure and affairs. Those provisions contemplate relevant information being collected and supplied to members. See, in particular, ss 412 and 413 of the Corporations Act and para 8301 of Sch 8 to the Regulations. Although s 411 places the relevant duty upon Capricornia, it will be necessary that the directors co-operate in the provision of much of the information. Subsection 412(5) obliges them to do so. Normally, the directors would be primarily responsible for the corporation's compliance with the requirements of Pt 5.1 of the Act and the supporting regulations. In so doing they would be obliged to act in accordance with their obligations as directors, as prescribed in ss 180 and 181 and by the general law. A majority of members in general meeting will not bear those obligations. 81 By the time the first and second approvals were given there was no firm proposal capable of acceptance by the members of Capricornia. We would have thought that the absence of a firm proposal militated against any exercise of the discretion in Mackay's favour. Purposes 4 and 5 were potentially disruptive of the relationship between Capricornia members and the board and likely to impede the board's conduct in connection with any proposal. 82 If no offer were to eventuate, or if any offer were to fail, the members of Capricornia would be left with a corporation in disarray. Had Capricornia's shares been listed on the stock exchange one can only speculate about the effects of these events upon the price. Although the shares are not listed it seems likely that the confusion and disruption in the management of Capricornia's affairs incidental to the proposal and adoption of purposes 4 and 5 would inevitably undermine members' confidence in the board and foster a perception that continued membership was problematic. Such an uncertainty could only assist Mackay in achieving its own entirely appropriate commercial ends, but at the expense of Capricornia's members. 83 These were all matters for consideration by ASIC and by the Tribunal. We assume that appropriate weight was given to them. It is not for us to assess the merits of their decisions. We are concerned only to determine whether or not the Tribunal made an error of law. 84 As we have observed, it is difficult, in advance, to identify the effect which the proposed amendment, or directions made thereunder, may have upon the powers and duties of the directors, or upon the ways in which they might exercise those powers and discharge those duties. Our concern has been that the proposed amendment and any such direction might deprive Capricornia's members of the benefit normally derived from a corporation's board during takeover or merger negotiations. The focus has been upon the application of ss 180 and 181 to such functions of the board. Those sections largely reflect the standard of conduct demanded of directors under the general law. It seems to have been accepted that the members may release the directors from their duties under the general law. There is no power to do so in connection with the obligations imposed by ss 180 and 181. The proscriptive effect of ss 199A and 199C reinforces this absence of power. Any direction given under the proposed amendment will only serve the intended purpose if it reduces the directors' powers and duties to the exercise or discharge of which ss 180 and 181 apply. In other words the validity of any direction will depend upon its capacity to limit the powers and duties of the directors. 85 Prima facie, the proposed amendment contemplates directions to the board as to the exercise of its powers and discharge of its duties with regard to Mackay's proposal, leaving such powers and duties unchanged. However Mackay sought to characterize it as contemplating the withdrawal of powers and duties. It submitted that the board would be obliged to give effect to any direction, retaining no capacity or duty to exercise any judgment or discretion in connection with matters affected by it. 86 The question is whether it is consistent with the directors' obligations to comply with ss 180 and 181 that the members have such power. In answering that question it must be kept in mind that, in the absence of such a direction, the directors will not be relieved of any power or duty. Depending upon the nature of any direction, they may continue to have relevant functions even after it is made. It is not inconceivable that the directors could be put in the position of having to give effect to a direction of which they disapprove, and then having to consider whether to take inconsistent action to remedy perceived disadvantage to Capricornia resulting from implementation of the direction. It is certainly possible that the board will have to take decisions which are inconsistent in desired outcome from that of any member's direction. It may be that the only sensible and effective direction which could be given would be to direct the board to act in accordance with the directions of a small committee of members. Of course that might arguably result in the committee members becoming de facto directors. Questions of oppression might also arise. 87 The applicant submits that the proposed amendment to the articles referred to in purpose 5 would be invalid because it would be oppressive within the principles discussed by the High Court in Gambotto at 444‑445. We are not inclined to allow the applicant to raise this argument. It is not clearly articulated in the amendments to the notice of appeal and it is not an argument discussed by the Tribunal in its reasons. It is not clear to what extent it was pressed before the Tribunal. It is conceivable that it is a matter upon which the parties would have called evidence. In any event, we cannot see how an amendment to the articles which affects the allocation of power between directors and shareholders generally is oppressive within the principles stated in Gambotto. The fact that a subsequent resolution involving a direction to directors may be oppressive to minority shareholders is not sufficient to render purpose 5 unlawful such that approval ought to be withheld under s 173(3B)(b). 88 There are likely to be considerable difficulties with the implementation of purpose 5. However those problems will arise from the nature of any direction which might be given pursuant to the amendment rather than from the amendment itself. The proposal seems to be contrary to the expectations underlying Pt 5.1 of the Corporations Act. However we are unable to conclude that the purpose is unlawful or improper. It follows that we must uphold the Tribunal's decision. The validity of any direction will have to be assessed on its individual merits.

ORDERS 89 We grant leave to Capricornia to further amend its notice of appeal in accordance with annexure C to the affidavit of Stephen Edward Quartermain filed on 8 May 2007. The appeal should be allowed in part. The Tribunal's approval of purpose 4 should be set aside as should ASIC's approval of that purpose. The appeal should otherwise be dismissed. Following publication of these reasons we will adjourn proceedings to enable the parties to make any submissions as to forms of order and as to costs.

I certify that the preceding eighty-nine (89) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Dowsett, Edmonds and Besanko.

Associate: Dated: 5 June 2007 Counsel for the Appellant: Mr G Martin SC

Solicitor for the Appellant: Gilshenan & Luton

Counsel for the First Respondent: Mr R Derrington SC

Solicitor for the First Respondent: Australian Securities and Investments Commission

Counsel for the Second Respondent: Mr D Jackson QC Mr P Bickford

Solicitor for the Second Respondent: McCullough Robertson

Dates of Hearing: 14 August 2006 and 26 March 2007