(B) Was Art 37 Capable of Being Varied and, In Fact, Varied?
64 Section 136 of the Corporations Act relevantly provides that a company "may modify or repeal its constitution, or a provision of its constitution, by special resolution". "Special resolution" is defined in s 9 of the Corporations Act to mean a resolution of which notice has been given under s 249L(1)(c) of the Corporations Act, and that has been passed by at least 75% of the votes cast by members entitled to vote on the resolution. In the present case, no notice of a special resolution was given under s 249L(1)(c) of the Corporations Act and, therefore, no special resolution to modify the Constitution was passed by at least 75% of the votes cast by members entitled to vote on the resolution.
65 In addition to the statutory power to modify the Constitution, Art 37.13 itself provided a mechanism for variation of Art 37 in particular and defined circumstances. All members could, by written agreement, waive compliance with the provisions of subclause 37.2 to 37.12 (inclusive) in respect of a proposed transfer of shares by a member: Art 37.13. Neither of these mechanisms was adopted in the circumstances.
66 Instead, Vermillion submitted that there was an agreement between the Savage interests and the Gibbins interests to displace the pre-emptive rights under Art 37 of the Constitution. First, it contended that by a special resolution of Sitzler Savage, 100 per cent of the shareholders had agreed to displace the rights under Art 37. Vermillion submitted that this variation to Art 37 was able to be effected "orally or implicitly by conduct". Secondly, it contended that the variation was able to be effected by each side giving up the right to rely on Art 37. During the course of final submissions and in a supplementary note filed after the hearing, Vermillion labelled this as a "waiver" argument. In the "supplementary note" filed after hearing, Vermillion also identified two other kinds of "waiver" relied upon - election and estoppel.
67 Before turning to consider Vermillion's contentions, it is necessary to recall what the High Court said in Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at [50] - [55] (see also [100]) about "waiver":
… "[W]aiver" is a word applied in a variety of senses. Leading scholars have long cautioned against, even condemned, its use. Roscoe Pound, in his Foreword to Ewart's work Waiver Distributed, described waiver as one of a number of "solving words" which are "but substitutes for thought" and as one of a number of "pseudo-conceptions" or "soft spots in what appears a hard legal crust".
…
And Corbin spoke of waiver as a word of "indefinite connotation" which "like a cloak ... covers a multitude of sins".
Waiver has often been used in senses synonymous with election or estoppel. It has been suggested that waiver is indistinguishable from one or other of those doctrines. Sometimes, although expressed in terms of waiver, the reasoning adopted in cases reveals the elements for applying a more specific principle, typically election or estoppel. And it may be that in cases of the several kinds last mentioned, the term is used as no more than a conclusionary word stating the consequences of the operation of that more specific principle, rather than as indicating the application of any distinct and independent principle.
Nonetheless, it is clear that there are cases in which the word has been used in senses other than those embraced by principles of election, estoppel or variation of contract. So, for example, waiver has been used in the sense of rescission where what has occurred is "an entire abandonment and dissolution of the contract". It has been used in connection with a party not insisting upon a term of a contract which is identified as a term for that party's sole benefit. And from time to time "waiver" has been used to describe some modification of the terms of a contract without the formalities, or consideration, necessary for an effective contractual variation.
The uncertainties and difficulties which attach to the use of the term "waiver" have been recognised in judgments of this Court. Yet "waiver" remains firmly embedded in the lawyer's lexicon.
…
The uncertainties and difficulties which attach to the use of the term have prompted attempts to construct a taxonomy of waiver in which distinctions are drawn between "waiver by election" and "pure waiver" or between "waiver by election" and "unilateral waiver". It is not necessary to consider whether such classifications are useful. Rather, it is important to identify the principles that are said to be engaged in the particular case.
(Footnotes omitted.)
68 Against that stark warning, what is the principle Vermillion says is engaged in this particular case?
69 Ultimately, in support of the contention that there was an agreement to displace the pre-emptive rights under Art 37 of the Constitution, Vermillion referred to Cain v Aero Marine Consulting Pty Ltd (2003) 133 FCR 1 at [46] - [48] where the Full Court stated:
A company can dispense with the formalities set out in its constitution in relation to the resignation of a director by agreement. In Latchford Premier Cinema Limited v Ennion [1931] 2 Ch 409 the company's articles provided that the office of director would become vacant if a director resigned in writing. The defendants orally tendered their resignations as directors at the company's annual general meeting and the meeting accepted their resignations. The court held that the resignations were valid. Bennett J said at 410:
I see no reason in law why the contract of service between the company and its directors should not be terminated by the same means as that by which the contract of service between two individuals may be terminated, and I see no ground in law for saying that where a written contract has been made for service which requires a written notice on either side before it can be terminated, it cannot be terminated by word of mouth by mutual agreement between the parties.
Latchford was implicitly approved by Windeyer J in Marks v Commonwealth (1964) 111 CLR 549. There the High Court considered the purported resignation of an officer whereby the officer had tendered his written resignation but no assent had been given by the Governor-General as was required by the Defence Act 1903-1956 (Cth). Windeyer J said at 571:
Turning from municipal corporations to trading corporations: A director of a company incorporated under the Companies Acts holds a public office: McMillan v Guest, yet he may resign without his resignation having to be accepted by the company, unless the articles require it: Transport Limited v. Schonberg; Glossop v Glossop; Re The Neokratine Safety Explosive Company of New South Wales Ltd; Latchford Premier Cinema Ltd v Ennion. This has been put on the ground that a director is an agent of the company, and that an agent can renounce his agency: Palmer, Company Precedents, 16th ed., vol. I, p. 580.
(Footnotes omitted.)
In Knight v Bulic (1994) 13 ACSR 553 Hayne J gave tacit approval to the reasoning in Latchford. His Honour said at 561:
Both sides accepted that although the articles provide for a director to resign his office by notice in writing, a binding agreement of resignation could be reached by the director tendering his resignation orally and the company accepting that resignation. Latchford Premier Cinema Ltd v Ennion [1931] 2 Ch 409.
This is so because the constitution of a company is a contract between the directors of the company and the company itself (s 140(1)(b) of the [Corporations] Act) which can be varied orally or implicitly by conduct. Hence a director can orally resign despite a requirement of written notice in the company's constitution, provided that such form of resignation is accepted by the company.
70 Vermillion submitted that each of the authorities cited in the above passage supports the proposition that when members of a company agree to act in a way other than in accordance with the Constitution, Courts will not stand in their way even if the acts are informal, with the result that members cannot later resort to a technical, formal reading of the Constitution to undo their acts. That contention requires closer analysis.
71 Each of the authorities cited dealt with a different subject matter to the one presently in issue - i.e. the ability of directors to resign without giving written notice (as required by the company's constitution) where the company and the director informally agree to vary these constitutional requirements. Each of the cases is factually specific. None of them considers the principles that might apply where a company's constitution, as a contract between members, is to be varied. None of the parties referred the Court to any authority that specifically dealt with the variation of constitutional pre-emptive rights clauses by informal agreement of members.
72 In a sense that is not surprising because the authorities address the question by reference to the doctrine of unanimous assent, often otherwise known as the Duomatic principle or rule (from Re Duomatic Ltd [1969] 2 Ch 365). In Herrman v Simon (1990) 4 ACSR 81 at 83 the principle was summarised as follows:
… where it can be shown that all shareholders having a right to attend and vote at a general meeting of the company assent with full knowledge and consent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be. In other words, it is a doctrine dispensing with the consumptive effect of formalities. It is a doctrine that formalities may be disregarded if they have been waived by all shareholders acting in concert who want the same substantial result.
See also Angas Law Services Pty Ltd (in liq) v Carabelas (2005) 226 CLR 507 at 519, Bodikian v Sproule (2009) 72 ACSR 598 at 606 and Re New World Alliance Pty Ltd (rec and mgr apptd); Sycotex Pty Ltd v Baseler (1994) 51 FCR 425 at 439-440, where Gummow J described the doctrine as "a function of the contractual relationship between the company and its members".
73 There is still some uncertainty about the precise scope of this doctrine in Australia: see Ford HAJ, Austin RP and Ramsay IM, Ford's Principles of Corporations Law, (Butterworths, 2000) at [7.590] and following. For example, there is uncertainty about whether the doctrine permits members to effectively override an express statutory requirement that a decision be made in meeting. Generally, under this doctrine shareholders are not required to physically meet in order to make a decision by unanimous assent: see Bodikian at 606. However, where the Corporations Act expressly requires a decision to be made in meeting, the case may be different: see Ford's at [7.595]. In Bodikian, Austin J did not ultimately have to decide this question, but thought it was relevant that the rules requiring a meeting in that case were replaceable rules (and therefore could be overridden if the company adopted a constitution). In Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1990) 3 ACSR 649 at 686-7, Ormiston J ultimately rejected a contention that members must express their agreement in general meeting for the Duomatic principle to apply.
74 Whatever the uncertainties, the Duomatic doctrine does appear to have limits. For example:
1. it does not give members a power that they do not constitutionally possess (e.g. powers vested in the Board): see Bodikian at [32];
2. it has been suggested that it only permits shareholders to vary procedural rights (e.g. notice requirements), not substantive rights (Herrman v Simon (1990) 4 ACSR 81). However, note the discussion of this requirement in Ford's at [7.595]; and
3. it requires actual, not merely potential assent, and the assent must be informed assent. Meagher JA spoke of the need for "full knowledge and consent" in Herrman v Simon at 83, and noted that "it would be a very odd result if one could waive the destruction of rights of whose destruction one was ignorant".
75 In the present case, two competing principles are in play. On the one hand, there are the statutory requirements of the Corporations Act arising from the combination of the s 9 definition of "special resolution" and s 249L ("Contents of Notice of Meetings of Members") which would suggest that an actual meeting is in fact required for a special resolution to be passed by shareholders to amend the Constitution. On the other hand, Art 37.13 of the Constitution contained its own process for variation or "waiver" of the relevant requirements of Art 37 in particular and defined circumstances, a process which itself was limited - if all the members by written agreement waive[d] compliance with the provisions of subclause 37.2 to 37.12 inclusive in respect of a proposed transfer of shares by a member, then the pre-emptive provisions of the Article would not apply to that proposed transfer of shares by a member.
76 Of course, there was no written agreement of the kind envisaged by Art 37.13. There was in fact a failure by the members to comply with Art 37.13 in a number of important respects - first, a failure by written agreement to waive compliance with the provisions of subclauses 37.2 to 37.12 and, secondly, and no less importantly, a failure by written agreement to waive compliance with the provisions of subclauses 37.2 to 37.12 in respect of a proposed transfer of shares by a member.
77 Even if I was of the view that these failures were merely procedural and therefore (presumably) clearly within the ambit of the Duomatic doctrine, (about which I have formed no concluded view), I do not consider that by their actions on 10 July 2009 (see [23] to [27] above), it can be said that Messrs Jack Savage and Gibbins agreed to waive compliance with the provisions of subclauses 37.2 to 37.12 in respect of a proposed transfer of shares by a member. Article 37 was not referred to. A specific proposed transfer of shares was not identified. Further, the evidence disclosed that there was neither actual consent nor informed consent by the members to waive these formalities, and therefore, no unanimous informed consent, which is a necessary element for the operation of the unanimous assent doctrine. Moreover, what was it that the members were said to have unanimously agreed on that a general meeting of the company could carry into effect? Put another way, it cannot be said that "all shareholders having a right to attend and vote at a general meeting of the company assent[ed] with full knowledge and consent to some matter which a general meeting of the company could carry into effect" so that the assent was as binding as a resolution in general meeting.
78 For the same reasons, I reject Vermillion's alternative theory that on 10 July 2009, each party agreed to give up or displace the right to rely upon Art 37.