Countouris v Kollos

The dispute

1. At the annual general meeting held on 4 June 2016 - at least, the plaintiff so alleges and for the purposes of the present decision I accept - members were regarded as eligible to vote as life members, notwithstanding that the donation of the prescribed sum referred to in the definition of that term - which it was common ground was $1,000 - had been made by them in a number of instalments, rather than as a single donation. The plaintiff's case is that to be admitted as a life member, a person must have made the requisite donation as a single lump sum donation.
2. In addition, the plaintiff alleges - and it appears likely to be the case - that notice of that annual general meeting was given only to life members, and not to ordinary members. As will become apparent, the defendants maintain that there are no longer any ordinary members, those who were formerly ordinary members having become unfinancial and ceased to be members, unless they have become life members. Whether that is so is also a significant issue in the case.

The proceedings

1. Against that background, the plaintiff commenced these proceedings by originating process filed on 28 March 2017 - that is to say, nine months after the meeting in question - which originating process was subsequently amended on 5 June 2017, so as to seek a declaration that a member cannot be admitted to life membership unless that member has made a single donation of $1,000 or more on at least one occasion, a declaration that on the proper construction of the rules, the purported annual general meeting on 4 June 2016, and resolutions passed and elections of directors determined during that meeting, were invalid; an order requiring the retention of an accountant to conduct an audit of the membership register; and a further order requiring the defendants to convene an AGM to conduct an election in accordance with the rules.
2. The substantive proceedings have been before the Court on a number of occasions, with modest progress being made until, on 26 June 2017, the Court by consent ordered that the parties jointly engage an expert accountant to report as to the members who had applied to become life members after 1 January 2004, the payments made by them, the annual membership fees (if any) paid by them, and any other matter concerning the membership of the Association, including the financial requirements of membership, as the expert might be jointly instructed by the parties. It was contemplated that the report would be provided to the Court by 28 July. Relevantly for present purposes, liberty was reserved to the plaintiff to apply on two days' notice to restrain the holding of a special general meeting, if called by the committee, which includes any business relating to any matters concerning life members of the Association.
3. So far the parties have been unable to agree on the identity of an appropriate expert, and there has been no further progress on that front. In the meantime, the defendants determined to proceed to call a special general meeting of the kind that had been referred to in the liberty to apply to which I have referred.
4. On 23 June 2017, the defendants' solicitors wrote to the plaintiff's solicitors, expressing the view of the defendants that the issue of life membership should be resolved by the members in general meeting, and that the committee proposed to call an extraordinary general meeting to consider special resolutions to amend the constitution expressly to permit life membership donations by instalments and to confirm the regularity of all existing life memberships. The letter continued: The numbers and voting of members on each resolution would be recorded separately on a poll. The tallies would be on the basis of, firstly, all members voting and, secondly, all members whose life membership is not challenged by the plaintiff on reasonable grounds. If the 75% majority of those voting in person or by proxy is achieved by the smaller group, then our clients contend that that would be the end of any argument or a need for the Court to determine the issue.
5. Subsequently, the defendant issued a notice of special general meeting to be held on Saturday, 29 July 2017, at 11.30am. The notice states: All the life members registered in membership register and those ordinary members who have paid their annual prescribed fees and maintained currency in membership register are entitled to attend and vote.
6. The business of the meeting is described as follows: To avoid any doubt about life membership of the Association by passing as a special resolution: "Clause 6(ii) of the Constitution is deleted and replaced by a new clause 6(ii) in the following terms: "Only permanent residents and citizens of Australia are eligible to become Life Member of Association. A person may be admitted as Life Member after payment of admission fee and a lump sum donation as may be prescribed by the committee from time to time. The lump sum donation may be paid in such instalments on terms as may be prescribed by the committee from time to time and upon completion of payments of those instalments the person shall be eligible to be admitted as a life member. For the avoidance of doubt all those persons recorded as Life Members on the footing of a donation paid by instalments shall be deemed to have been duly admitted as Life Members."
7. That provides the background to the application made by the plaintiff by his interlocutory process which is now before the Court.

The issues

1. The claim for final relief in the originating process involves, as I have foreshadowed, complaints that, at the 2015 annual general meeting, persons ineligible to vote as life members were permitted to vote (and as things may have emerged in the course of the present argument, although it was not previously apparently so, that notice of that annual general meeting was not given to ordinary members who may have been entitled to notice of the meeting). The claim in the interlocutory process now before the Court raises substantially the same issues.
2. The contention that the meeting should not be permitted to proceed depends essentially on the argument that it has not been validly convened, by reason that the committee which convened it was not duly elected at the 2015 annual general meeting and/or that notice of the special general meeting has not been given to ordinary members entitled to receive such notice, and also that there is a significant risk that persons not eligible to vote as life members will be permitted to do so.
3. If, which is in a sense doubtful, the claim in the interlocutory process is truly one for interlocutory relief, the plaintiff would have only to establish a serious question to be tried, and that the balance of convenience favours the grant over the withholding of an injunction. But if it in truth be one for final relief, nonetheless, discretionary considerations not very different from those which would arise on the balance of convenience also inform the Court's discretion to grant or withhold injunctive relief as a matter of discretion.
4. Even if this be treated as an interlocutory application and the Court refrains from determining conclusively questions of fact, the same does not necessarily follow in connection with questions of law. On an interlocutory application the Court may determine questions of law, rather than simply finding that a legal proposition is seriously arguable. If the question of law can be decided on an interlocutory application, it is preferable usually that that be done, particularly if it appears that it would not be illuminated by further evidence at a final hearing.
5. In this case the key issues - which pertains to ordinary membership and life membership - are questions of construction of the constitution and, thus, questions of law. The parties have had an opportunity to argue those questions in written and oral submissions on this hearing. I have been able to reach a clear view as to the proper resolution of those questions and, having done so, it is highly desirable that that be expressed and recorded now, so as to assist the parties in resolving the remaining issues. Doing so will also have the effect of potentially removing at least some of the doubts that might otherwise have attended the imminent special general meeting.
6. Resolving those questions of law, however, does not, as will be seen, resolve the substantive proceedings.

Eligibility for life membership

1. The first question concerns eligibility for life membership, and in that respect the principal issue is whether the "lump sum donation as may be prescribed by the committee from time to time", referred to in the definition of that term, can be made by instalments paid on more than a single occasion, or whether, as the plaintiff contends, it contemplates only a single donation. It is common ground that the prescribed donation is $1,000.
2. In my view the plaintiff's contention is plainly correct. A "lump sum donation" of $1,000 means a single donation of $1,000, not multiple donations of say $200 made over a period of time. If a member or prospective member makes donations of $200 every month over five months, that represents five donations of $200, not one donation of $1,000. Even if the words "lump sum" did not appear, the reference to "a donation" would be, as it seems to me, a single donation, not "donations totally". The addition of the words "lump sum" reinforce that conclusion. This is not in the slightest affected by the provision in cl 6(5) for upgrading of membership, which essentially means that an ordinary member could upgrade to life membership "by paying a sum of money equal to respective categories of membership as prescribed by the rules". In order to upgrade from an ordinary membership to a life membership, the ordinary member would have to make a single lump sum donation of $1,000, in addition to the annual subscriptions paid while the ordinary member was an ordinary member. The ordinary member, for example, could not claim credit for amounts paid by way of annual subscriptions against the donation for life membership.
3. It was argued that this might mean that persons who had paid donations "by instalments" and had not become life members would have to have them reinstated to them, so that they could then make a single donation to become a life member. It seems to me that if persons have made donations of less than $1,000 they have nonetheless made donations to the Association and, prima facie, are not entitled to recoup them. The position may be different if they have paid those donations on a basis, encouraged by the Association, that they would be treated as a partial payment for life membership, in which case there might well be an obligation to give restitution, now that it is established that it did not entitle them to life membership. If that be the consequence, so be it, but it does not affect, in my view, the meaning of the plain words of cl 6(ii) in respect of "a lump sum donation". Two payments of $500 does not make a lump sum donation of $1,000.
4. It was also argued that a person applying to be admitted as a life member had first to be admitted as an associate member, and then apply to be admitted as an ordinary member. This submission was founded on the last sentence of cl 3(6)(ii). However, although those sentences appear under the heading and definition of life member, they do not in fact relate to life membership at all. The opening words "[e]xcept a life member" of the second sentence mean "except for" or ("except in the case of") a life member. They then provide that before becoming an ordinary member, one must first be admitted as an associate member for two years. They are concerned with the path to ordinary membership, not with the path to life membership.
5. That this is how the rules have been understood in practice is confirmed by a document which sets out the procedures for application and approval of membership, which states: Associate member: joining fee $50; annual fee $25. Ordinary member: no joining fee; prerequisite, must be an associate member for minimum of two years; annual fee $50. Life membership: $1,000 one time.
6. Accordingly, in my view, there is no requirement that a life member first be admitted as an associate member. There is presently such a requirement in respect of an ordinary member, although the resolution proposed for the special general meeting would remove that requirement.

Ordinary membership

1. I turn then to the question of ordinary membership. In short, the position of the defendants, as I understand it, is that there were formerly, until about 2005, persons who joined the Association as ordinary members; that by about 2005 many ordinary members had stopped paying the annual subscription due by them; that before about 2007, the Association ceased to send notices of meetings to ordinary members who had not paid annual membership fees; and that those with continuing interest in the Association became life members. The Association appears to have taken the view that ordinary members who became non-financial had ceased to be members and were not entitled to notice of meetings.
2. For the following reasons, in my view, the view so adopted by the Association was incorrect, and unless they were formally expelled in accordance with the constitution, unfinancial members did not cease to be members and were entitled to notice of meetings, even though not entitled to vote at them.
3. First, clause 3 of the rules provides that after a nomination is received and approved by the committee, the secretary must request the nominee to pay "the sum payable under these rules by a member as entrance fee and annual subscription", and clause 4 the secretary must on payment by the nominee of the amounts referred to in clause 3(b) within the period referred to in that provision, enter the nominee's name in the register of members, and on the name being so entered, the nominee becomes a member of the Association.
4. The definition of "ordinary member", which I have already set out, provides that to become an ordinary member a person has to pay the admission fee and annual fee prescribed from time to time. The terminology "prescribed from time to time" also appears in the definition of "life member" in respect of the quantum of the lump sum donation. The work that those words do in the definition of "ordinary member" is not to make ongoing payment of the annual subscription from year to year a condition of membership, but to require that, to obtain admission, payment has to be made of the annual fee as then prescribed by the committee at the time of admission, as well as the admission fee. Once those fees are paid and the name is entered on the register, the nominee is a member of the Association.
5. Under clause 4, a person ceases to be a member only if the person dies, resigns or is expelled. Under clause 6, a member is not entitled to resign except if all amounts payable by the member to the Association in respect of the membership have been paid and due notice is given. Under clause 8, a member of the Association must on admission pay the admission fee and in addition an annual membership fee of the prescribed amount before 1 July in each calendar year, or if the member becomes a member after that date, before 1 July in each succeeding calendar year.
6. Clause 11 provides that a complaint may be made to the committee by a person if a member of the Association has, inter alia, persistently refused or neglected to comply with a provision of the rules. Failure to pay the annual membership fee at least over a period of ten years would, prima facie, be a persistent refusal or neglect to comply with a provision of the rules. On receiving such a complaint, the committee must give notice, afford the member an opportunity to make submissions, and may resolve to expel or suspend the member. The member is given a right of appeal.
7. Under clause 32(4), a member is not entitled to vote at a general meeting unless all money due and payable by the member to the Association has been paid other than the amount of the annual subscription payable in respect of the then current year.
8. Taken together, these provisions indicate that failure to pay the annual fee, even on a sustained basis, does not of itself result in loss of membership, although it does result in loss of the right to vote, except where the only default is in respect of the then current year. The rules plainly contemplate that before resigning, a member has to be up to date in respect of annual fees. A sustained failure to attend to that would entitle the committee to take disciplinary action, including expulsion from membership, but does not result, as it were, in an ipso facto cessation of membership.
9. Because, under cl 26(1), notice of a general meeting must be given to "each member" and is not limited to those entitled to vote, such notice must be given to ordinary members who have not ceased to be members by death, resignation or expulsion.
10. That means essentially that the two legal issues are resolved in favour of the plaintiff, but it does not follow that the 2016 annual general meeting is necessarily to be declared void.

Declaratory relief

1. In Rivers v Bondi Junction-Waverley RSL Sub-Branch Limited (1986) 5 NSWLR 362, the Court of Appeal considered the discretion to grant and withhold declaratory relief in circumstances not dissimilar to the present. The Court held that, wide though the discretion was to make declarations, there was no automatic right to a declaration, and where a challenge was made to the validity of an annual election of a company's board for non-compliance with procedural requirements, declaratory relief would be refused where the circumstances did not justify the intervention of the court. Kirby P and the other members of the Court (Hope and Priestley JJA) referred to remarks of Holland J in Ryan v South Sydney Junior Rugby League Club Ltd (1974) 3 ACLR 486, where his Honour had said (at 499): … I think that it would be going too far to say that the court would have no option but to declare an election void if there was any breach of a member's rights under the articles [sic] even though, on the evidence before the court, it appeared that the majority of voters had not been prevented from electing the candidates of their choice or that there was no reasonable ground for believing that the majority might have been so prevented. To do so would be to give no weight to the interest of the members as a whole in having an election to settle a contest for control of the company brought to a conclusion with reasonable expedition so as to remove uncertainty and avoid the delay and expense involved in a succession of elections because of some breach of the articles [sic]. In my opinion, it would not be a satisfactory solution of the problem to hold that a decision in favour of a new election is a matter for an exercise of discretion by the court. Rather I think that it is a case in which it is appropriate to allocate the onus of proof.
2. In that case, where the election was close, His Honour concluded, that once a prima facie case had been made out for a new election, by reference to a breach of the rule governing elections in the club, the onus of the objector did not require him to prove positive malfeasance or irregularity so as to demonstrate that the results would have been different, but rather: In my view, the onus properly passes to the defendants to show that, notwithstanding the breaches of the articles [sic] complained of, the result of the election as declared was correct or was not likely to have been different if the breaches had not occurred. To put it more briefly, the onus passes to the defendants to satisfy the court that a new election is not justified.
3. The endorsement by the Court of Appeal of that approach would indicate that the defendant's submission, that prima facie a member is only entitled to have an election set aside if he can positively establish malfeasance or irregularity which demonstrate in all likelihood that the result would have been different, goes too far, and I do not read what was said by Street CJ in Industrial Equity Ltd v New Redhead Estate [1969] 1 NSWLR 565, or by Kenny J in Link Agricultural Pty Ltd v Shanahan [1999] 1 VR 466 at 480 referred to in the defendant's submissions, as establishing that proposition. But the judgment of the Court of Appeal very plainly establishes that the materiality of an irregularity does bear on the discretion to grant or withhold declaratory relief. Thus in Rivers it was held that where there was delay in seeking the declaratory relief, the vote was not close and no candidate suggested the election result had been adversely affected by the breaches complained of, and where there was no mala fides and the majority did not seek to overrule a minority, declaratory relief should be refused. Kirby P said (at 374): It may be concluded quite readily that, where a party approaches the court for discretionary relief suggesting intervention in the affairs of a company, that party must establish that an appropriate case exists for the court to act. In the present case, at the close of the evidence, such a case had scarcely been made out. The vote was not close. No candidate, not even the appellant, suggested that his result had been adversely affected by the breaches complained of. No evidence was forthcoming, from observations or inference, to support a thesis that the risk of interference in the election had been translated into the actuality of tampering with the ballots. It is in this connection that, in company elections, the discretion of the court provides a useful buffer against the pernickety insistence upon the letter of rules governing elections, where that letter has been breached but without any apparent consequence for the integrity and acceptability of the election.
4. Other discretionary considerations to which reference was made included (at 372G) that there was a delay of six months, in an electoral period of 12 months, before the proceedings were instituted. As I have noted, in this case there appears to have been a delay of nine months.
5. As to the ineligible life members', the significance, extent and materiality of the issue in respect of the 2016 annual general meeting is at present unestablished and unknown. How many persons were admitted to vote as life members who were not eligible is not apparent from the evidence. A further question may arise as to whether, even if they were not eligible to be admitted as life members, the fact that they were admitted de facto and how long ago they were admitted might affect whether any relief would be granted in respect of their admission in the past. It may be, at the least, that it is possible for the defendants to show that the number of ineligible life members was not such as to affect the outcome of the 2016 annual general meeting.
6. As to the failure to give notice to ordinary members, the evidence, such as it is, suggests that there might have been between 500 and 600 ordinary members, at least in or about 2005. There are, according to the present state of the evidence, 504 life members (496 at the time of the 2016 annual general meeting). At first sight in that context a failure to give notice to more than 500 ordinary members would appear to be of significance. However, it needs to be borne in mind that those ordinary members have not participated in the affairs of the Association for more than 10 years, have not paid subscriptions for more than 10 years, would not be entitled to vote and would not have been entitled to vote at the 2016 annual general meeting (at least until they brought their membership up-to-date by paying 10 years of arrears), that no such ordinary member is before the court as a party or a witness insisting on his or her rights (whereas the plaintiff is a life member, and while he probably has a right to have the Association administered in accordance with its rules, does not have the right of an ordinary member and does not stand in the shoes of one) and that were an ordinary member to seek to enforce those rights, there would potentially be available equitable defences in the nature of acquiescence, laches, want of clean hands and failure to offer to do equity, through failure to pay subscriptions for 10 years.
7. For similar reasons, it does not follow that the special general meeting would be avoided. First, so far as the life membership eligibility question is concerned, that is now clarified by the decision I have made in respect of the requirements for eligibility. With that clarification, it is now in the first instance for the chair to rule at the meeting as to who is and is not eligible to vote. Secondly, so far as the failure to give notice to ordinary members is concerned, the observations I have made in respect of the 2016 annual general meeting are again apposite. Thirdly, as to whether the special general meeting is not duly convened, on the basis that the committee that purports to have convened it is not a duly elected committee, that depends in part on the outcome of the originating process concerning the 2015 annual general meeting and it may also depend upon whether any defect in that respect could be seen as being of a merely directory as opposed to mandatory provision.

Balance of convenience

1. Insofar as the balance of convenience and/or discretionary considerations are relevant, the starting point is that courts are reluctant to restrain the convening of meetings on grounds of procedural defects, the ordinary preference being to permit the meeting to proceed and deal with the consequences of any irregularities after the event. [1] Mr Orlizki, in his customary economical and helpful way, put two main reasons for favouring the view that the meeting should be restrained. The first was that if it proceeded, there would be further chaos and confusion; and the second was that it effectively amounted to outflanking the determination of the proceedings which had been committed to the court.
2. So far as the first is concerned, I do not think that the meeting will cause additional chaos and confusion. The life member issue has now been resolved, by the Court. It is improbable that ordinary members who have not participated in the affairs of the Association for 10 years would now seek to do so, it being a necessary condition that they pay the arrears of their membership fees in order to do so. The position is further preserved by the undertaking the defendants have proffered, to keep a record, of voting so that if there is any remaining problem invalid votes can be segregated and the position worked out in the future.
3. As to the second proposition, I do not agree that the effect of the meeting is to outflank or defeat the substantive proceedings. First, it is concerned only with the future, and not with meetings that have already happened. If the resolution, the effect of which would be to permit life member donations to be paid by instalments, is carried, then that will mean that thenceforth, the constitution having been amended, persons who have become life members in that way will be treated as life members and eligible to vote; but it will not validate what happened at the 2016 annual general meeting, nor will it operate in respect of the resolution proposed for the special general meeting, which will fall to be decided according to the constitution as it now is before any such amendment. Secondly, nothing in the proposed resolution addresses or affects the relief sought in the originating process. It will not resolve the validity of the 2016 annual general meeting. Accordingly, the defendants would not be achieving out of court what they are seeking to achieve in court, by having that resolution put to and potentially carried at the special general meeting.
4. Against that, I can see no material adverse impact on the plaintiff's position if the meeting proceeds. If an injunction is wrongly granted then, on any view, there will be some waste of expenditure, and inconvenience to those who have made arrangements to attend the meeting. But if an injunction is wrongly refused, the meeting or its resolutions can still be quashed. The issues will not be expanded in any significant way, as they are the same issues that affect the 2016 annual general meeting and in the meantime the position can be adequately preserved by the undertakings which the defendants have proffered.

Conclusion

1. It was for those reasons that I indicated yesterday that I did not propose to restrain the meeting.
2. I note the undertaking of the defendants to the court that: 1. they will ensure that an accurate register is kept of those members, in person or by proxy, attending the special general meeting of members of the ninth defendant on 29 July 2017; 2. they will cause a suitable returning officer, not being one of the first to eighth defendants, to supervise and record the voting at the special general meeting; 3. they will cause a poll to be taken in respect of the special resolution proposed at the meeting; and 4. they will allow interested parties entitled to vote at the meeting to appoint scrutineers to scrutinise the votes cast in the said poll.
3. The Court orders that the interlocutory process be dismissed.
4. In my view, although the plaintiff has failed to obtain an injunction restraining the special general meeting, the effect of what has transpired is that the approach to be taken at that meeting to the admission of eligible life members has been clarified, in the manner which the plaintiff has propounded from the outset; and a significant part of the substantive case has effectively been determined in the plaintiff's favour, which should remove those issues from the scope of the final hearing. In that way, I accept the submission that this is not a straightforward case of an unsuccessful interlocutory application. Under the cover of the dismissal of the interlocutory process, the plaintiff has nonetheless achieved a measure of substantive success. Costs of the interlocutory process will be costs in the proceedings.

Endnote

1. See Countouris v Kollos [2008] NSWSC 840 at [14] and Cox v Animal Welfare League of New South Wales [2017] NSWSC 374 at [31]. 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: 17 August 2017