Gosford Christian School Limited v Totonjian [2013] NSWSC 1990 | Case summary

The plaintiff repeats the particular set out under paragraph 15 above. 2This amendment is proposed in the light of objection taken in the defendant's written submissions to so much of the plaintiff's submissions as appears under the heading "Fraud on the Power", in which the plaintiff argues that the purported appointment on 19 July 2013 by the then directors of the plaintiff of a corporate representative pursuant to (Cth) Corporations Act 2001, s 250D, was a "fraud on the power" to appoint a corporate representative. The defendant's objection is that no such allegation was made in the pleadings and that the defendant has made a significant forensic decision not to adduce any evidence on the basis of the pleading as it stands. 3The extant statement of claim, in paragraph 14, impugns the purported appointment of a corporate representative on two bases: namely, first, that the appointment of a corporate representative was ultra vires and, secondly, that no meeting of the directors of the plaintiff was held on 19 July. Alternatively, paragraph 15 contends that, to the extent the appointment of a corporate representative was valid, it did not authorise the first defendant to exercise power as an agent of the plaintiff in his own interests and in disregard of the interests of the members of the plaintiff as a whole. That allegation, however, would go not to the validity of the appointment, but to the manner in which the corporate representative acted having been appointed, and would not impugn the resolution appointing the corporate representative per se. 4The allegation as to purpose is particularised, including an allegation that the first defendant, in proposing his own appointment as corporate representative, had the purpose of preferring his own interests by effectively entrenching his position in the second defendant, to the prejudice of the plaintiff's position. 5In light of the circumstance that paragraph 15, as presently pleaded, does not impugn the validity of the appointment of the corporate representative, it may be understandable that the defendant, notwithstanding the allegation of collateral purpose in particular 7, made a forensic judgment that it was not necessary to adduce evidence on that question. At the least, I cannot say that the defendant's forensic judgment not to adduce evidence could not have been affected or would inevitably have been the same, had the pleading stood with the proposed amendment. In those circumstances, it seems to me that I must refuse leave to amend. 6The application for leave to amend is therefore refused.

Substantive Application 7By its originating process the plaintiff ME Shelf No 16 Pty Limited claims a declaration that the purported amendment of the articles of association of the second defendant Richardson & Wrench Holdings Pty Limited by members' circular resolution dated 23 July 2013, inserting a new article 44A in those articles, is invalid and of no effect; and alternatively an order pursuant to Corporations Act s 233 that purported article 44A be modified or repealed. The first defendant Kie Chie Wong is the other shareholder in the second defendant. 8At all material times the second defendant has had two shareholders, namely the plaintiff as to approximately 71 per cent and the first defendant as to approximately 29 per cent of the shareholding. Prior to 11 March 2013 it had three directors: Kie Chie Wong, Kie Yik Wong and Kie Nai Wong. The plaintiff, prior to 11 March 2013, had the same three directors. Its shares were held as to 4.68 per cent by the first defendant Kie Chie Wong, as to 45.18 per cent by Kie Nai Wong, as to 5.079 per cent by Kie Nai Wong's wife Kathryn Ma, and as to 45.12 per cent by Patrick Wong, the son of Kie Yik Wong. 9Kie Nai Wong died on 11 March 2013. Probate of his will was granted to Kathryn Ma in Malaysia on 11 April 2013 and in New South Wales on 12 June 2013. A transmission application in respect of his shareholding in the plaintiff appears to have been lodged on 25 July 2013 [court book 73]. After obtaining probate in Malaysia, but before doing so in New South Wales, Kathryn Ma on 3 May 2013 wrote to the plaintiff, notifying that her late husband and herself were both shareholders in the plaintiff, requesting a copy of the constitution and to inspect the register of members, and appointing her lawyers to do so. That inspection took place. 10On 2 July 2013, Ms Ma gave notice that she was the holder of at least five per cent of the votes that may be cast at a general meeting of members of the plaintiff, and pursuant to Corporations Act, s 249F, convened a meeting of members to be held on 8 August 2013 to consider, and if thought fit pass, resolutions to remove Kie Chie Wong and Kie Yik Wong as directors and replace them with Neil Hou Lianq Wong and Mimi Wong Hou Wai. Apparently in response to that, on 19 July 2013 the remaining directors of the plaintiff, Kie Yik Wong and Kie Chie Wong, resolved by way of directors' circular resolution, pursuant to article 74(1) of the plaintiff's articles (1) to appoint Kie Chie Wong chairman with immediate effect, (2) to appoint Patrick Wong Haw Yeong as an additional director, (3) to convene an extraordinary general meeting of the shareholders on 13 August 2013 to consider and if deemed fit resolve to amend the articles of association to insert a new article 44A to the effect that all resolutions of the company should only be passed, carried and effected with the affirmative votes of at least 75 per cent majority of the votes of members present and voting, and (4) to appoint a corporate representative pursuant to Corporations Act, s 250D. That resolution was in the following form: APPOINTMENT OF CORPORATE REPRESENTATIVE THAT WONG KIE CHIE (MALAYSIAN PASSPORT NO. K32056509) or failing him, PATRICK WONG HAW YEONG (MALAYSIAN PASSPORT NO. K23135509) be appointed with immediate effect as the Company's Corporate Representative to attend all meetings at which the Company is a shareholder of and to exercise all powers on behalf of the Company as the Company could have exercised at such meetings. 11Also on 19 July 2013, Kie Yik Wong and Kie Chie Wong, being the only then remaining directors then of the second defendant, purported to resolve by way of directors' circular resolution pursuant to article 74(1) of the second defendant's articles, (1) to appoint Kie Chie Wong as chairman, (2) to appoint Patrick Wong Haw Yeong as an additional director, (3) to approve the transfer of one share from Kie Chie Wong to Patrick Yong and of one share from Kie Chie Wong to Kie Yik Wong, and (4) to appoint, pursuant to s 250D, a corporate representative of the second defendant. 12Subsequently, on 23 July 2013, Kie Chie Wong, on his own behalf and purportedly as corporate representative of the plaintiff, purported to resolve, by way of circular resolution of members of the second defendant pursuant to Corporations Act s 249A, as follows - AMENDMENTS TO THE CONSTITUTION THAT THE CONSTITUTION OF THE COMPANY BE AMENDED WITH IMMEDIATE EFFECT BY INSERTING THE FOLLOWING NEW ARTICLE 44A:- "THAT NOTWITHSTANDING ANYTHING TO THE CONTRARY, ALL RESOLUTIONS OF THE COMPANY SHALL ONLY BE PASSED, CARRIED AND EFFECTED WITH THE AFFIRMATIVE VOTES OF AT LEAST 75% MAJORITY OF VOTES OF THE MEMBERS PRESENT AND VOTING". 13For the sake of clarity, it is to be noted that while in both cases the reference was to a new article 44A, the proposed extraordinary general meeting to effect such an amendment in respect of the plaintiff did not proceed, and it is only with the amendment to the articles of the second defendant that I am presently concerned. 14The plaintiff impugns the amendment essentially on two grounds that were ultimately pressed: first, that the members' circular resolution of 23 July 2013 was invalid because Kie Chie Wong was not duly authorised as corporate representative of the plaintiff to assent to a circular resolution; and secondly, that it was, within the meaning of Corporations Act, s 232(c), a resolution of members that was contrary to the interests of the members as a whole or oppressive to, unfairly prejudicial to or unfairly discriminatory against a member or members, whether in that capacity or in any other capacity. 15Corporations Act, s 250D, provides as follows: (1) A body corporate may appoint an individual as a representative to exercise all or any of the powers the body corporate may exercise: (a) at meetings of a company's members; or (b) at meetings of creditors or debenture holders; or (c) relating to resolutions to be passed without meetings; or (d) in the capacity of a member's proxy appointed under subsection 249X(1). The appointment may be a standing one. (2) The appointment may set out restrictions on the representative's powers. If the appointment is to be by reference to a position held, the appointment must identify the position. (3) A body corporate may appoint more than 1 representative but only 1 representative may exercise the body's powers at any one time. (4) Unless otherwise specified in the appointment, the representative may exercise, on the body corporate's behalf, all of the powers that the body could exercise at a meeting or in voting on a resolution. 16While s 250D(4) provides that all of the powers the body could exercise, at a meeting or in voting on a resolution, may be exercised by the representative unless otherwise specified in the appointment, it is instructive that that subsection itself reflects the distinction drawn in s 250D(1)(a) and (c) between powers exercised at a meeting, and powers exercised in voting on resolutions to be passed without meetings. 17Subsection (1) has the effect that a representative may be appointed to exercise all or any powers of the body corporate either at meetings of members (see subparagraph (a)) or relating to resolutions to be passed without meetings (see subparagraph (c)). That is not to say that an appointment could only be made for one or the other: it is clear that it is intended that a representative could be given power to do all the things referred to in s 250D(1). But it is also clear from subsection (2) as well as from subsection (4), that an appointment under 250D need not necessarily be to exercise all the powers in all the circumstances described in s 250D(1). 18So much was recognised by Barrett J, as his Honour then was, in Gosford Christian School Limited v Totonjian [2006] NSWSC 725, in which his Honour was concerned with an appointment that was expressed in bare and general terms as an appointment of the named person as the representative of the company "pursuant to s 250D" without any more. Faced with the submission that those words were insufficient to attract the operation of s 250D, because it did not specify the powers to be exercised, being some or all of the powers referred to in subparagraphs (a) to (d) of s 250D(1), his Honour said - I do not accept that submission. Read together, ss 250D(1) and 250D(4) make it clear that an instrument of appointment may do one of two things. First, it may entrust to the appointee the totality of the powers of the specified kind, that is, all powers that the appointor body corporate may exercise at meetings of the company's members, all powers that it may exercise at meetings of the company's creditors or debenture holders, all powers that it may exercise in relation to resolutions of the company to be passed without meetings, and all powers that it may exercise in the capacity as a proxy appointed under s 249X(1). Alternatively and as s 250D(4) makes clear, it may entrust to the appointee some only of those powers. 19The effect of Barrett J's decision is that a general appointment of the type with which his Honour was concerned in that case is effective to cover all of the circumstances described in subparagraph (1), but that that subsection also has the effect that the corporation may choose not to empower the representatives in the totality of the circumstances, but only in some of the specified circumstances. 20It seems to me that a distinction is drawn in s 250D between the powers that may be exercised by the representative embraced by the concept "all or any of the powers" in the chapeau which are subject to restrictions under s 250D(2) and s 250D(4), and the circumstances in which the powers conferred may be exercised, which are defined by reference to subparagraphs (a), (b), (c) and (d) in subsection (1). 21When one turns to the wording of the resolution appointing the corporate representative of the plaintiff in this case, it refers to attendance at "meetings at which the company is a shareholder" and the exercising of powers on behalf of the company such "as the company could have exercised at such meetings". Again, this reflects the terminology of the chapeau to s 250D, subparagraph (a) of s 250D(1) and, for that matter, subsection (4). 22But what is conspicuously absent is any reference that would capture the circumstances referred to in s 250D(1)(c), namely, "relating to resolutions to be passed without meetings". In this case, the appointment of the corporate representative was limited to being a representative at meetings of the company's members to do anything that the company could have done at such meetings, and did not extend to the circumstances described in subparagraph (c) of resolutions to be passed without meetings. 23Accordingly, it follows that, prima facie, Kie Chie Wong was not authorised as such representative to sign or to assent on behalf of the company to the members' circular resolution of the second defendant of 23 July 2013. 24In response to that prima facie position, a number of arguments were raised. The first was that it did not follow that there was not a meeting on 23 July 2013. However, the possibility that Mr Kie Chie Wong was present with himself in a meeting of one person on that date is no answer, essentially because what the circular resolution records is not a resolution passed at a meeting but a "resolution without meeting", expressly passed pursuant to Corporations Act, s 249A. 25More substantively, however, it was argued that the circular resolution was not invalid because what was involved was a procedural irregularity, within Corporations Act, s 1322, which relevantly provides as follows: (1) In this section, unless the contrary intention appears: (a) a reference to a proceeding under this Act is a reference to any proceeding whether a legal proceeding or not; and (b) a reference to a procedural irregularity includes a reference to: (i)the absence of a quorum at a meeting of a corporation, at a meeting of directors or creditors of a corporation, at a joint meeting of creditors and members of a corporation or at a meeting of members of a registered scheme; and (ii)a defect, irregularity or deficiency of notice or time. (2) A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid. 26In applying s 1322, it is first necessary to identify what is the proceeding that is said to be not invalid on account of a procedural irregularity. In this case, it appears to be common ground that the relevant proceeding is the members' circular resolution of 23 July 2013. It is then necessary to identify the irregularity which, but for s 1322, might otherwise affect the validity of the proceeding. In this case, the "irregularity" which would otherwise affect the validity of the proceeding is the fact that, as the purported representative of the plaintiff had no authority to assent to the resolution, it was not a resolution of all of the members of the company as required by s 249A. 27The third question is whether the irregularity so identified is one that may be characterised as "procedural." Section 1322(1)(b) contains a non-exhaustive definition of procedural irregularity, which nonetheless throws some light on what is contemplated - namely, the absence of a quorum at a meeting; or a defect, irregularity or deficiency of notice or of time. It is difficult to see how the absence of authority to cast a vote of a member, whose affirmative vote was essential to the passage of the resolution, can be seen as a procedural irregularity. Had the unauthorised assent not been given, the circular resolution could not have been passed. 28For the defendants, it was argued that it could nonetheless have been passed at a duly convened general meeting, and that the irregularity was in submitting the resolution to circular resolution rather than to a duly convened general meeting. In my judgment, that analysis fails to address the requirement to identify what is the irregularity that would otherwise affect the validity of the proceeding on which s 1322 operates. The circumstance that the same result might have been achievable in general meeting does not mean that the circular resolution was not affected by an irregularity that was more than merely procedural. 29In this conclusion, I draw support from the judgment of Barrett J, as his Honour then was, in Onefone Australia Pty Limited v One.Tel Limited [2010] NSWSC 1120, (2010) 80 ACSR 11, particularly at [5]-[12]. There, a liquidator sought to rely on s 1322 to validate a purported circular resolution adopted by members of a committee of inspection after a formal meeting had been adjourned. His Honour held that the legislation required that there be a formal meeting and did not provide in this context for a circular resolution, and that in those circumstances the fact that the same agreement could have been reached at a formal meeting did not result in there being only a procedural irregularity. As his Honour said, there is an important distinction between doing the thing to be done in the way that departs from the prescribed way, and doing something other than the thing to be done. In this case, the thing to be done was a circular resolution, and to put the same resolution to a duly called and convened general meeting is not the same thing to be done. 30In my view, therefore, there was no mere procedural irregularity involved in this case and, accordingly, s 1322 is not engaged. 31If it were engaged, it would be necessary to consider whether the irregularity caused substantial injustice that could not be remedied by any order of the court so as to require the court to make an order declaring the proceeding to be invalid pursuant to s 1322(2). In this respect, the defendants argue that because the same result could have been achieved at a general meeting, and because the effect that an ordinary resolution could not be passed without the concurrence of Kie Chie Wong would be achieved in any event as his presence was necessary to constitute a quorum at any general meeting, it could not be said that there was any substantive injustice. 32In Whitehouse v Capital Radio Network Pty Limited [2004] TASSC 12; (2004) 48 ACSR 569, Cox CJ in the Full Court of the Supreme Court of Tasmania said (at [20]): It may well be that in some situations the holding of such a meeting [being a reference to an inquorate meeting] and the passing of resolutions which would in any event have been passed notwithstanding the presence of those necessary to constitute a quorum may work no injustice. 33But his Honour went on to identify that in the circumstances of that case, involving other negotiations and arrangements that had been made between the parties, there would nonetheless be injustice even if the resolutions would still have been passed had the absent party attended the inquorate meeting. 34The only significance of that is to illustrate that the test is not simply whether the same result would have been procured in the absence of irregularity. In this case, what has effectively happened is that persons who were beneficially entitled only to a minority of votes in the plaintiff and in the second defendant have procured, by an irregular circular resolution, a result that would entrench their minority position and preclude the majority from controlling the general meeting. That has occurred apparently in response to the majority's intention to change the directorships so that the majority would control the board. In those circumstances, it seems to me that the procedural irregularity, if it were only that, results in substantial injustice. 35As to the argument that the same outcome could have been attained simply by the first defendant absenting himself from meetings, it needs to be borne in mind that the absence of a quorum at a meeting is a procedural irregularity and the first defendant could have exercised a veto by thwarting a quorum only if he satisfied a court that there was substantial injustice to him from an inquorate meeting proceeding, in circumstances where he had presumably deliberately chosen to be absent. While, as Whitehouse v Capital Radio shows, that can sometimes be so, those were rather extraordinary circumstances. Accordingly, were it necessary to do so, I would have concluded that the irregularity, if it be that, was such as to cause substantial injustice to the plaintiff, and made an order pursuant to s 1322(2) declaring the resolution void. 36I turn finally to the claim under s 232(c). The defendants submitted that the court would rarely if ever find that a majority could be "oppressed" for the purposes of s 232. In that respect reference was made to the judgment of Chesterman J in Re Polyresins Pty Limited (1998) 12 ACLC 1674. However, in Watson v James [1999] NSWSC 600, Bergin J, as her Honour the Chief Judge then was, refused to follow Re Polyresins and, referring to texts including Ford's Principle of Corporations Law, of which inter alia Austin J was an author, and to the judgment of Young J, as he then was, in International Hospitality Concepts Pty Ltd v National Marketing Concepts Inc (No 2) (1994) 13 ACSR 368, held that a minority may oppress a majority so as to entitle the latter to relief in appropriate cases. 37In the course of her Honour's reasoning (which appears at paragraphs [57] to [72] of the judgment) and in the course of considering Chesterman J's decision in Re Polyresins, her Honour noted that Chesterman J had focused on the position of the controlling shareholder, as distinct from the majority shareholder, and said (at [60]): The distinction between a majority shareholder per se and one with control of the company is an important one. 38Her Honour also observed (at [71]), with reference to Young J's comment in International Hospitality Concepts (supra) that a minority may oppress a majority so as to entitle the latter to relief in appropriate cases: It seems to me that appropriate cases will include cases in which a majority shareholder does not hold the voting control of the company or is unable to exercise such control. 39Her Honour concluded at [72]: Notwithstanding Chesterman J's compelling analysis, I do not agree that the section is only available for the protection of minorities. In my opinion this interpretation would impose an unwarranted and restrictive gloss on the language to use Doherty J's expression in the Jabaco Inc v Real Corporate Group Limited, part 2F.1 of the Corporations Law. Although one would not expect that a controlling shareholder would need recourse to the section the complexity of shareholders' and/or other directors' relationships within corporate structures are such that I am not willing to rule out the possibility of such an event. I am of the opinion the section can accommodate such an applicant. 40Her Honour rejected the submissions of Mr R White SC, as his Honour then was, to the contrary. 41The insertion of article 44A, if valid and effective, would have the effect that the majority shareholder was unable to exercise voting control, the situation posited by Bergin J (at [71]). It seems to me, on its face, that an act by directors representing a minority beneficial interest to effect a change in the articles of association such as to deny the majority the ability to carry an ordinary resolution in a general meeting is an act that is, within the language of the statute, oppressive to, unfairly prejudicial to or unfairly discriminatory against the majority. The concept that, to effect any business at a general meeting, the majority should require the assent of the minority when it had not acquired its shareholding on that basis at the outset and when that position was, in effect, foist on the company by the minority while temporarily in control, is plainly, in my judgment, within the test of oppression. In my view, the resolution was oppressive within s 232(c) and (e), and the appropriate remedy under s 233(1)(b) would be to modify the constitution by repealing article 44A. 42However, as I have reached the conclusion that the amendment was invalid in the first place, the appropriate course is simply to make a declaration to that effect, but to indicate that were I wrong in reaching that conclusion, I would have made an order that the company's constitution be modified by deleting article 44A. 43Accordingly, my orders are: (1)Declare that the purported amendment of the second defendant's articles of association by members' circular resolution dated 23 July 2013 by inserting new article 44A is invalid and of no effect. (2)Note that had the court not made order (1), it would have made an order pursuant to Corporations Act s 1322(2) declaring that the said circular resolution was invalid and of no effect, and alternatively would have made an order pursuant to s 233(1)(b) that article 44A inserted by such amendment be deleted. (3)Order that the first defendant pay the plaintiff's costs. (4)Order that a copy of this order be lodged with the Australian Securities and Investments Commission.

Gosford Christian School Limited v Totonjian

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