Fiore and Hunter v Carlton Football Club Ltd [2002] VSC 455

Supreme Court of Victoria|2002-10-17|Before: WARREN J

CORPORATIONS - Resolution of no confidence in directors - Whether proposed General Meeting prior to Annual General Meeting within Constitution/Corporations Act. CORPORATIONS ACT 2001 - Section 249D.

I turn to the background events. The two plaintiffs are long-time supporters of the Carlton team and members of the club. They, together with many other members, were grossly dissatisfied with the conduct and management of Carlton by the existing board of directors. Hence, they with others formed an alliance known as "Carlton One" with a view to ousting the existing directors. The Carlton One group assembled a ticket of alternative directors to be put to the membership.

As an initial step the group requested the convening of a members' meeting on 9 October to consider a resolution of no confidence in the existing directors of Carlton. The meeting was held with substantial attendance. The resolution of no confidence was overwhelmingly supported and passed, thus the Carlton membership exercised its legal, indeed, contractual right under the company constitution and the legislation to express its attitude and lack of confidence in the current board of directors.

Prior to the meeting of 9 October, again at the request of members, the present board announced it would convene a further meeting of Carlton on 12 November 2002 to consider various motions amounting to the removal of the present directors and the election of newly nominated directors associated with the Carlton One group. Five days prior to the meeting of 9 October the membership was informed by the present board that the proposed meeting for 12 November was disruptive and expensive and that the only way to avoid the necessity to convene the 12 November meeting was to vote against the no confidence resolution.

As I have recited the resolution was passed overwhelmingly and the Carlton One group want to press on with the meeting on 12 November. The constitution of Carlton, and for that matter, the Corporations Act 2000, requires the dispatch of notices of the meeting to the membership on Friday next, 18 October 2002, hence some urgency is attached to the present applications. I turn then to the matter of the applications themselves.

In the first application the plaintiffs seek orders pursuant to the relevant provisions of the Corporations Act compelling the convening of a General Meeting on 12 November to consider resolutions that the present directors of Carlton be removed from office, [namely, John Elliott, Wesley Lofts, Kevin Hall, Peter Kerr, Colin Delutis, Barry Stones, Barry Armstrong, Gregory Williams and Stephen Kernahan]. There are further resolutions contemplated that members of the Carlton One group be appointed to office as directors of the company, [namely, Ian Collins, Graham Smorgon, Bruce Mathieson, Marcus Rose, Simon Wilson, David McKay, John Valmorbida, Lauraine Diggins, Kenneth Hunter and Stephen Silvagni].

By way of cross-application Carlton has brought separate proceedings seeking an extension of time in which a General Meeting of members is to be called pursuant to s.249D of the Corporations Act. The effect of the Carlton proceeding is to seek orders that the meeting proposed for 12 November be put over until 10 December 2002. The latter date is important because it is the date of the Annual General Meeting of Carlton. The constitution provides that one-third of the directors must resign before the Annual General Meeting and that financial members may vote for new directors, the poll for such election closing on 6 December and the announcement of the outcome of the poll and the election of the new directors occurring on 10 December.

Hence, the applications are tantamount to on the one hand seeking an order compelling the convening of the meeting on 12 November as sought by the plaintiffs, being members of the Carlton One group and thereby facilitating the election of solely Carlton One persons as directors of Carlton. On the other hand, the application by Carlton seeks to put off until 10 December the spill of directors and the election of Carlton One members.

Mr A.J. Myers Q.C., who appeared with Mr M. Gronow for Carlton agitated for the effective deferment of the meeting on 12 November until 10 December on five grounds.

First, that by reason of the constitution of Carlton either there is no power for the resolution proposed by the Carlton One group on 12 November or, alternatively, that the resolution amounts to an election that is contrary to the intention of the constitution itself.

Secondly, extending the time for the 12 November meeting until 10 December would grant persons other than members of the Carlton One group an opportunity to stand for election.

Thirdly, there would be a substantial savings in costs if the meeting on 12 November was deferred, a likely saving in the order of $100,000.

Fourthly, even if an election as contemplated proceeded on 12 November, then pursuant to the constitution there would need to be in any event a further election on 6 December at which time one-third of the persons elected on 12 November would be compelled to retire. Hence, it was said such persons would be members for a period of about three and a half weeks. Such interim election to office was said to be futile and wasteful.

Fifthly, it was said no countervailing harm has been demonstrated by the plaintiffs if the present board of directors remains in place until 6 December 2002.

Effectively, Mr Myers relied on these grounds to support the Carlton application for extension.

Mr P.J. Hayes Q.C. appeared with Mr M. Clarke for the plaintiffs, Fiore and Hunter. Essentially, their argument was that the constitution of Carlton does not contemplate an election in the unusual prevailing circumstances. Accordingly, it was submitted that the court should exercise its powers to require Carlton to convene a meeting on 12 November so that the resolution facilitating the removal of existing directors and the election of the proposed new directors could proceed.

I was taken by Mr Hayes to a number of authorities concerned with company meetings. His analysis of the authorities was not challenged by Mr Myers. Essentially, the determination of the applications came down to a question of that which was permitted under the constitution of Carlton.

In summary, the constitution provides that directors must call meetings on the request of members subject to the satisfaction of certain prerequisites (see clause 20). One-third of directors is required to retire immediately before the Annual General Meeting (see clause 46(a)). A procedure is set out in the constitution for the nomination and election of directors including a requirement that voting is effected by post (see clauses 47 and 48). The board at any time is empowered to appoint any person as a director, either to fill a casual vacancy or as an addition to the existing directors (see clause 49). The constitution sets out, also, the circumstances whereby vacation of office of a director arises including matters such as bankruptcy, notice, unsound mind, incapacity, absence and other matters (see clause 51).

Nowhere do the rules enshrined in the constitution contemplate circumstances where an overwhelming amount of the membership have lost confidence in the board of directors and the desire of the membership to replace such directors. Furthermore, none of the authorities to which I was taken involved circumstances as extreme as have occurred here, namely, that an existing board of directors has been the subject of an overwhelming loss of confidence of the membership and that a no confidence resolution has been overwhelmingly passed prior to an imminent Annual General Meeting. (See: D.V.T. Holdings Limited v Bigshot.com.au Limited and Anor;[1] Grant and Ors v John Grant and Sons Pty Ltd and Ors;[2] National Roads and Motorists' Association Limited v Snodgrass;[3] NRMA Insurance Limited v Carroll;[4] Jenashare Pty Ltd v Lemrib Pty Ltd.[5])

"The court does not view favourably intervening in a situation and exercising its discretion unless there is evidence that there is good reason to do so. Where there is a procedure under the memorandum and articles and the corporations law for a meeting to be called in the ordinary course of events, then the court ordinarily does not, at least without strong evidence, make an order."

It seems to me that the loss of confidence by the membership as demonstrated by the support for the resolution on 9 October bears out the basis contemplated by Young J in Jenashare. In my view, it constitutes the strong evidence necessary to invoke the exercise of the discretion.

Whilst dealing with a different set of circumstances, the Court of Appeal in Link Agricultural Pty Ltd v Shanahan and Ors[6] restated the position at common law that the company constituted by the members in General Meeting retains an inherent power to appoint a director by ordinary resolution (see p.485).

I am assisted also by the observations of Windeyer J in NRMA v. Snodgrass:[7]

"I do not consider blanket type factional removal resolutions are suitable for debate at an annual general meeting of this company in a non-election year. It is essential that the financial and other statutory business of this meeting be given proper attention which is unlikely to happen in the heated atmosphere which is almost certain to be generated by these proposed resolutions. Nor do I consider it a good idea to consider them in a separate meeting on the same date but prior to the annual general meeting. One can take judicial notice of the fact that on past experience that would make it very difficult to determine a certain time for the commencement of the annual general meeting and members attending both could well be worn out well before the annual general meeting came to an end. A meeting summoned for the day prior to the annual general meeting has some attraction but on balance not sufficient to justify such an order. The reasons for this are that the result of the meeting could throw the annual general meeting into disarray. It is possible that six directors only would remain. On what seems to be the present balance of power it might be difficult for them to conduct the annual general meeting. It is also possible that as a result of the meting the company would have no directors. It is not beyond the bounds of possibility that members may be so disillusioned and fed up with the ructions at directors' level in their company that they would vote in favour of both the Snodgrass and the Dupree resolutions thinking that administration in some form might be preferable to the existing position. This consideration would also apply if the resolutions became part of the business at an annual general meeting."

I am satisfied that all the circumstances are made out in the present case such that the constitution does not contemplate the unusual circumstances that prevail here. Accordingly, it is appropriate for the court to make orders if satisfied for the convening of a meeting. It was submitted by Mr Myers that the court should not order the convening of a meeting to facilitate a resolution that is illegal for the purposes of the constitution. However, in light of the common law position stated in Link I am satisfied that there is no power under the constitution but that there is a common law right remaining with the members to elect new directors in the circumstances.

These remarks deal with the first ground relied upon on behalf of Carlton. In so far as it is necessary I turn to the remaining four grounds.

So far as it was suggested that extending the time for the 12 November meeting until 10 December would enable persons other than the Carlton One group nominees to stand for election as a director, it seems to me that opportunity has in all likelihood been open to such persons, if indeed such persons exist. In any event, such persons can stand at the annual spill due to occur in December. So far as cost savings are concerned, it was not suggested that the cost of the meeting on 12 November is unduly onerous or would cause financial difficulty for Carlton. On the other hand, as the members wish to exercise their democratic right to have such a meeting convened, they may be taken to have contemplated the magnitude of the cost involved. In the overall scheme of things, it is not a matter that I consider sufficient to deprive the members of their right to have the meeting proceed on 12 November.

So far as it was submitted that one-third of the persons elected on 12 November would be compelled to retire on 6 December, again, it seems to me that it is a matter that the members have taken into account, but that the lack of confidence in the existing directors is such that the inconvenience attaching to such a short term in office is a matter they are prepared to contemplate in the interests of the company. Whilst in the ordinary scheme of things it would be undesirable for a company to convene a meeting for the purpose of electing new directors for a very short time and, indeed, in some cases it may well be futile and wasteful, the loss of confidence in the membership in the existing directors of Carlton is so dramatic that I do not consider the convening of the meeting on 12 November can be viewed in present circumstances as futile and wasteful.

The remaining ground of opposition to be considered is the question of harm. It is the fact that a three week period of office will arise for some of the new directors if so elected on 12 November. On the other hand, it is said that if the meeting is put off for three weeks no harm will be done. It was submitted on behalf of Carlton that there is no evidence to support the assertions of concern and anxiety put forward by the plaintiffs Fiore and Hunter. I am not so satisfied.

Hunter deposed that a significant number of decisions have to be made by the board of Carlton concerned with recruitment, player contracts, sponsorship contracts and the finalisation of company accounts for the purposes of the Annual General Meeting. Save for broad assertions to that effect, Hunter did not substantiate his concerns. An affidavit was sworn by Donald Hanly, the Chief Executive Officer of Carlton. He deposed, among other matters, that the areas of recruitment and player contracts are "essentially determined by the football department of the club." He deposed that the persons "largely responsible for making decisions" are the coach, Kernahan, Williams, and other persons including the football manager and recruiting manager. Hanly did not depose that these persons or the football department of Carlton had sole responsibility for the areas of recruitment and player contracts. In any event, such matters in all likelihood would in some form or another involve participation or at the very least approval by the board of directors of Carlton. It is conceivable at least at a financial level that the directors would have some input and responsibility for those decisions.

So far as the finalisation of accounts was concerned, Hanly deposed that those matters would be overseen by independent accountants and auditors of Carlton. That may very well be the case, but directors of companies have legal obligations, including obligations with respect to accounts and they bear ultimate responsibility for those accounts when presented to an Annual General Meeting. Given the present circumstances of substantial loss of support in the current directors as demonstrated by the passing of the resolution on 9 October, it is reasonable that the membership have the opportunity to pursue their resolutions on 12 November, that is, before the Annual General Meeting on 10 December 2002. Lastly, I turn to sponsorship contracts. There is no evidence as to a threat or risk to contracts contemplated by Carlton for 2003, and I could not be satisfied that there are any decisions to be made at all. Hence, it is not a matter that I take into account. Hunter deposed, also, as to his concern that if the meeting of 12 November was deferred the result would be ongoing management of Carlton by a caretaker board that lacked the confidence of the membership. It seems to me that that may well not be the case. It is in fact a question of directors exercising their lawful responsibilities as directors of a company. For the reasons I have stated, I consider that the membership should have the opportunity to pursue the resolutions proposed at the meeting on 12 November.

It seems to me that even for a period of three weeks, given the lack of support for the current directors as demonstrated by the support for the no confidence resolution passed on 9 October it is appropriate that the members be entitled to exercise their right if they so wish to remove the existing directors and elect new directors for the remaining period.

There is a remaining matter. Objection was taken on behalf of Carlton to matters deposed to by the first plaintiff, Fiore, in an affidavit sworn 15 October 2002 relating to paragraphs 3, 4 and 5 of that affidavit, in effect, purporting to give evidence as to the opinion of the membership. I uphold the objections made by Mr Myers on the grounds he submitted. It follows that matters deposed to in those paragraphs were not considered by me in formulating my reasons.

One final matter, there was the matter of undertakings proffered by the current directors to resign on 6 December effective 10 December 2002. I do not consider the undertakings are appropriate to accept for two reasons. First, it could potentially immerse the court inappropriately in ongoing internal difficulties and disputes of the company. Secondly, the acceptance of the undertaking would necessarily potentially frustrate the exercise by the membership of their lawful rights.

It follows from these reasons that I am satisfied that the plaintiffs, Fiore and Hunter succeed, and I will order that the meeting proposed on 12 November 2002 be convened. It follows, also, that Carlton has failed on its application to extend the meeting over under 10 December 2002. I will hear the parties as to the form of order.

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