Gregor v British-Israel-World Federation [2002] NSWSC 12 | Case summary

It is therefore proposed that we engage our solicitor (Peter Kelso) to proceed with the necessary action to appoint a Provisional Liquidator and To further proceed to bring about the earliest possible Winding-Up of the Company, with the residual assets being placed in "the jurisdiction of the British- Israel-World Federation, London, UK". 115 The motion proceeded to make provision for the BIWF to request the liquidator that the books and other library assets not be liquidated but that all debts be met from be Company's bank accounts and that residual assets then pass "as is" to the BIWF. 116 It appears that there was no meeting to consider Mr Gregor's motion. Instead, he circulated the text to the people he regarded as members of the Board, with provision for each of them to signify their approval or disapproval and to sign and date the document. The document identified seven people as board members, and each of them signed a copy of it. 117 The letter implied, wrongly, that the provisions of the Corporations Law (as then in force) dealing with directors' circulating resolutions without a meeting were applicable. There is no provision in the defendant's constitution for decisions of the directors to be made by circulated resolutions without a meeting. Section 248A of the Corporations Act (replacing the equivalent provision of the Corporations Law), which permits the directors of a company to pass a resolution if all the directors sign a document stating they are in favour of the resolution, does not apply to the defendant, because it is a replaceable rule not applying to a company registered before 1 July 1998 unless the company repeals its constitution after that day (s 135 (1) (a)). 118 There is evidence to indicate that during the latter half of 2000 Mr Gregor, Mr Macindoe and others purported to act on behalf of the defendant by collecting donations and otherwise. Mr Gregor said that in addition to the circulating resolution proposed on 18 September 2000, he had some meetings with his Board by Telstra tele-conference, although he gave no particular evidence about the content of the meetings. Section 248D now permits companies such as the defendant to hold directors' meetings using technology such as a video-conference or telephone conference, but only if this is consented to by all the directors. The Purported Annual General Meeting of 21 January 2001 119 The Tabone Board purported to issue a notice of annual general meeting on 11 December 2000, calling for nomination of candidates for positions as directors of the company for the year 2001. The notice stated that nominations must be signed by the candidate and by at least two active members as proposers. Retiring directors would be eligible for re-election. The meeting was to be held on 21 January 2001. 120 A meeting purporting to be the annual general meeting of the defendant was held on 21 January 2001. Mr Tabone was chairman, and Mr Palmer, Mr Druskat, Ms Meyer, Mr Rafty and Mr Pavic (apparently this time as a member) were present, together with 10 others. The meeting resolved that all members who had been nominated and consented to serve on the Board of Management were thereby raised to active membership. Fewer candidates were nominated than there were positions available to the filled, and accordingly all candidates were declared to be elected. Those purportedly elected included Mr Tabone as President, Mr Palmer as Vice-President and Secretary, Ms Meyer, Mr Druskat and Mr Rafty, and nine others. 121 The validity of this meeting as an annual general meeting depends upon whether it was properly convened. Article 12 of the constitution of the defendant permits general meetings to be convened by the Board. It cannot be suggested that all of the directors entitled to be notified were given notice of a meeting of the Board to resolve to convene the general meeting. The purported decision of the directors to convene the general meeting would be invalid subject to s 1322. Another ground for invalidity would arise if it appeared that a significant number of members were not duly given notice of the meeting. This raises a question about the integrity of the Tabone Board's Register of Members 122 Mr Gregor claims that only six of those in attendance were in fact members. He relies on a list of members which he and other members of the Gregor Board have maintained, though the basis for admitting people to the list and rejecting others from it was not clearly stated in evidence. When he eventually obtained a copy of the Register of Members maintained by the defendant in July 2001, he compared it with the register maintained by the Gregor Board and found that of the 84 names appearing on the defendant's register, only 15 names also appeared on be register maintained by the Gregor Board. Mr Gregor gave evidence that in some other cases memberships were not financial, and that his Board did not accept the remaining persons whose names appear on the defendant's register as members of the defendant, for reasons that he did not explain. The Register of Members 123 One of the issues of controversy relates to the accuracy of the defendant's Register of Members. Mr Palmer gave evidence that he prepared the Register in order to comply with the requirement of the Court that it be supplied to the plaintiffs. He said that the previous Register of Members had been removed by Mr Macindoe, and that the company had many times asked Mr Macindoe to return it but he refused to do so. Therefore it was necessary for Mr Palmer to prepare a new Register from receipts, old membership lists, photocopies of membership lists and other information supplied by Mr Tabone and received from members. He said that difficulties had arisen because Mr Gregor had redirected company mail to another address, and therefore some membership subscriptions had not been received by Mr Palmer and his colleagues. 124 Mr Gregor made numerous criticisms of the Register in his affidavit and in his oral evidence. It is not possible for the Court to decide, on the meagre evidence before it, the correct status of the individuals and groups who were questioned by Mr Gregor. To a substantial degree, the Court has before it no more than a series of allegations by Mr Gregor and counter-allegations by Mr Palmer and his colleagues. 125 However, it is of some significance to this case that in cross-examination, Mr Palmer acknowledged (Transcript, page 138) that the Register of Members was produced in a hurry and is inaccurate. Many of the people recorded as having apologised for not attending the annual general meeting of 21 January 2001 are not recorded as members in the Register of Members. Mr Palmer acknowledged that there were "a couple of dead people" recorded on the list. And he acknowledged that it would be difficult to find out the correct membership position as at today (Transcript, page 142). 126 Mr Palmer also acknowledged that there was a "complete mix up" about membership fees at the annual general meeting on 21 January 2001 and that most of those attending would not have paid the correct membership fee (Transcript, page 141). He said that Mr Gregor's diversion of company mail had cause a lot of confusion, and that if someone said they had paid the membership fee to Mr Gregor's address, the Board's policy was to accept that person as a member. However, he said he was not prepared to apply that policy to Mr Trevor Baker because Mr Baker was under the influence of Mr Gregor. 127 Mr Palmer gave evidence that the Register of Members was highly confidential and politically sensitive material. He explained that he did not want Mr Gregor and his companions to have access to it because he was afraid they would contact the people on the list and send them literature and cartoons (Transcript, page 176). Of course, the register of members of a company, required to be maintained by ss 168 and 169 of the Corporations Act, is open for inspection without charge by any member under s 173, subject to the restriction in s 177. 128 In cross-examination Mr Palmer said that about 30 of the 84 members in the Register of Members had been admitted to membership since December 1999. Some of them were admitted as a block admission by resolution of the Board of Management on 16 April 2000, in the circumstances I have explained. Mr Palmer said he thought that seven or 11 members were admitted in that way. He said the new members were admitted as associate members and he expressed the opinion that they were entitled to vote at meetings of members. This opinion is directly contrary to the provisions of the Conditions of Membership brochure. There is no direct evidence as to whether associate members were permitted to vote at the meeting held on 21 January 2001, but in view of the opinion expressed by Mr Palmer in cross-examination, it seems likely that they were. Since, however, the Conditions of Membership brochure is probably invalid to the extent that it purports to deprive the members of voting rights, a decision to permit newly admitted members to vote would have been correct. The defendant's attempts to "unfreeze" bank funds 129 On 18 July 2000 Westpac Banking Corporation wrote to Mr Gregor as President confirming that the term deposit would not be released until the true owner of the money was confirmed to the bank, the most likely method of confirmation being by Court Order. A similar letter was written by the Commonwealth Bank of Australia to Mr Palmer on 21 December 2000 with respect to a cheque account and a savings investment account, stating that until a court order or resolution within the Federation's constitution was made, the accounts would remain "stopped" and cheques and direct debits would be dishonoured. 130 The defendant's solicitor wrote to the Commonwealth Bank on 21 May 2001 challenging the bank's decision to stop the accounts, and demanding a detailed written justification of the bank's position. The bank replied on 22 March 2001, saying that according to the information in its possession, questions arose about whether meetings had been properly held from February 2000, and reiterating that it needed an appropriate court order or other satisfactory documentation before it would allow the company to operate the accounts. Payment of rent for the York Street premises 131 On 24 May 2001 the agents for the landlord of the York Street premises wrote to the defendant's solicitor saying that rent was in arrears in the sum of $8511.71 and that eviction was highly probable unless funds were received within the next seven days. 132 The defendant's solicitor has proposed to the plaintiffs' solicitor that the plaintiffs consent to the release of funds in the Commonwealth Bank account for payment towards arrears of rent. The plaintiffs have said they would consent only if it was agreed that the bookroom be closed. Not surprisingly, this proposal has not been accepted by the defendant. Financial records 133 There is evidence that Mr Macindoe with the acquiescence of Mr Gregor arranged for the Australian Taxation Office to issue an Australian Business Number to the defendant, and that he lodged a Business Activity Statement. However, the Statement did not take into account book sales from the York Street bookroom after the split between the rival boards. 134 Mr Palmer gave oral evidence that no financial statements were laid before the annual general meeting held on 21 January 2001, and that no financial statements had since been prepared. He said that he was unaware that anyone had ever filed financial statements for the year ended June 2000 with ASIC. The "just and equitable" ground 135 In Re-Westbourne Galleries Ltd [1973] AC 360 the House of Lords stressed that this ground of winding up confers upon the Court a discretionary power of a very wide character, which the Court should be ready to apply in new situations falling outside the previous illustrations. Of course, especially given the seriousness of the remedy, the discretion must be exercised judicially, and the Court must give reasons for the exercise of the discretion that can be examined and justified: Baird v Lees 1924 SC 83, 90; Ford's Principles of Corporations Law (Butterworths, looseleaf), paragraph [11.388]. 136 The Westbourne Galleries case had the effect of expanding the "just and equitable" ground to bring in broad equitable considerations, overriding the categories into which the case law was previously subdivided. Nevertheless, judges considering the "just and equitable" ground frequently have regard to the pre-existing categories, while taking care not to treat those categories as rigid or comprehensive: see, for example, International Hospitality Concepts v National Marketing Concepts (No 2) (1994) 13 ACSR 369, where Young J (as the Chief Judge in Equity then was) identified the following three categories (at 371): · where initially it is, or later becomes, impossible to achieve the objects for which the company was formed; · where it has become impossible to carry on the business of the company; or · where there has been serious fraud, misconduct or oppression in regard to the affairs of the company. 137 It is not easy to apply the recognised categories directly in a case of the present kind, where the company is not a commercial company. Nevertheless the plaintiffs seek to bring the facts within the recognised categories by specifying complaints of the following four kinds: (1) Oppression by those controlling the defendant in the expulsion of the first plaintiff, and other members, as directors and members of the defendant. (2) Practical impossibility of carrying on the activities of the defendant resulting from a bifurcation in the Board of the defendant, which cannot be remedied by resolution of members. (3) Failure on the part of those controlling the defendant to comply with statutory requirements and with the provisions of the constitution of the defendant. (4) The wish of the UK Federation, as the parent body of the defendant, that the defendant would not continue to operate under its present control and be wound up. 138 As to paragraph (1), I am not sure that it is correct to categorise the case as one of oppression of one faction by another. It is rather case of bitter conflict in which each side has endeavoured to use the rules of the organisation, frequently mistakenly, to achieve its objectives. While the facts bear an analogy with the facts in the Re Ingleburn Horse and Pony Club Ltd [1973] 1 NSWLR 641, where oppression was found, there are also some factual points of distinction. In that case the majority of the committee represented the minority faction of members, and the Court appears to have concluded that while they believed they were acting in the best interests of the company, the majority committee members acted in order to preserve their control and exclude those interested in competing activities. Here, the factions are more finally balanced and the purported exclusionary activities by the Palmer group have largely been unsuccessful in law. 139 It appears to me that the plaintiffs' paragraph (2) identifies a valid and weighty ground for making a winding up order in this case. On the analysis that I have presented, both factions remain on the board, and although the Palmer group may have an edge in voting power over the Gregor group, the position at the membership level is totally obscure. The membership records of the company appear, on the evidence, to be in an irretrievable mess. Mr Palmer admits that the Register of Members of the company is inaccurate, indeed substantially so, and Mr Gregor's list is based only on the information known to him, which is necessarily less than the full picture. And the lists are very different from one another. 140 Re-admission of all members, without an overhaul of the composition of the Board, would involve the exercise of discretion as to whether applicants for membership were people having Christian principles. In my judgment the present Board, so riven by strife, would find it almost impossibly difficult, as a practical matter, to exercise that discretion validly, such would be the temptation to admit supporters and exclude opponents. There are substantial allegations by each faction against the other that this has occurred already. 141 One is left with a company the Board of which comprises bitterly opposed factions who clearly cannot work together and make sensible decisions for the future of the company. It was very plain from the oral evidence that the relationship between Mr Gregor and Mr Palmer has completely broken down, and they are bitterly opposed to one another. Mr Gregor claimed that Mr Palmer utterly lack integrity (Transcript, page 87) and Mr Palmer referred to Mr Gregor as a "Svengali" who wished to torpedo the company and to receive benefits by forming a new company (Transcript, pp 136 and 143). 142 This deplorable situation has occurred at the very time in the affairs of the company when rational forward planning and sensible decision-making are greatly needed, because of the cost pressures on the York Street bookroom and the arrival of the Nichols bequest. It will be possible for the Board to make decisions only if the ascendant group for the time being exercises, necessarily in a ruthless fashion, its voting power, and yet that voting power will depend upon the annual decisions of members as to the election of the directors, and the identity of the membership is not and cannot as a practical matter be known. 143 Not surprisingly, the banks have decided to prevent the company's accounts from being used until the situation is clarified by Court order or otherwise. The Court has a responsibility to produce the necessary clarification if it is satisfied, as I am in this case, that the parties will be unable to achieve clarification for themselves. 144 As to paragraph (3), the plaintiff points out that failure to comply with statutory and constitutional requirements may in appropriate circumstances provide grounds for winding up: Loch v John Blackwood Ltd [1924] AC 783; Re Kurilpa Protestant Hall Ltd [1946] St R Qld 170. The plaintiff says that the defendant has failed to prepare the annual financial report and directors report for the year ended 30 June 2000, and to have the financial report audited, contrary to the requirements of ss 292 and 301 of the Corporations Act. It has failed to send reports to members, contrary to s 314. It has failed to lay the financial report, the directors report and the auditors report before the annual general meeting purportedly held on 21 January 2001, contrary to s 317. It has failed to comply with the provisions of paragraph 57 of the constitution of the company by failing to collect annual subscriptions. 145 I find all these contraventions to have been made out. However, I have also found that the Gregor group has contravened some provisions of the constitution of the company in purporting to conduct a separate Board to the exclusion of the Palmer group. Moreover, given the nature of the company, I would not regard the contraventions by the defendant as warranting an order that the company be wound up. 146 Were it not for the more fundamental problems identified in my comments on paragraph (2) above, I would regard the contraventions as soluble by some lesser remedy. Given, however, the situation described in my comments on paragraph (2), the contraventions provide an additional but not independently weighty ground supporting the making of a winding up order. 147 Paragraph (4) also raises a matter of some significance. It is incorrect to describe the BIWF as the parent body of the defendant. However, it has a significant role to play in the affairs of the defendant, both with respect to affiliation and communications generally, and with respect to the destination of surplus assets on winding up. These matters give the BIWF a legitimate interest in the affairs of the defendant. 148 The BIWF has made its position plain. It does not want the Palmer group to continue in control of the defendant. It supports the present application for the winding up of the company. It sees this is a means of reconstituting the New South Wales Branch under the control of people in whom the BIWF will have confidence. It does not seek access to or control over the Nichols bequest or the British-Israel company of New South Wales on ongoing basis, but wishes to intervene only to resolve what it sees as a serious problem arising in the present circumstances. 149 It is, of course, not for the BIWF to determine whether the defendant should be wound up. Its interest in surplus assets on winding up does not give it standing to apply for winding up, since it is not a contributory, let alone to dictate the outcome of the application. It does not purport to do so. However, its attitude is a relevant factor for the Court to take into account. Intervention by the BIWF in the manner it proposes provides a way forward. It offers the prospect of permitting the Nichols bequest to be applied towards the objects of the British-Israel movement in accordance with the wishes of the testator and in a manner which the ordinary subscribers to British-Israel beliefs would regard as sensible. The BIWF has the religious credentials necessary for making decisions with respect to the accreditation of a new body to carry on the work of the British-Israel movement in New South Wales. As I have said, I was impressed by Mr Browning, who has substantial experience in managing an organisation of this kind and clearly takes a personal interest in the affairs of the New South Wales Branch. 150 Weighing up these factors as best I can, it seems to me that a strong case for the making of a winding up order has been made out. Discretionary considerations against the making of an order 151 The defendant made submissions to the effect that the Gregor group has been motivated by an improper motive, namely that by winding up the company and forming a new entity with the support of the BIWF, they will obtain control of the Nichols bequest. In my opinion that is partly true, but unobjectionable. The evidence indicates that the plaintiffs believe that the Palmer group should not have control of the company's assets, including the Nichols bequest. They wish to have the company wound up so that, under the memorandum of association, the assets will pass to the BIWF, which has indicated that it will investigate the matter and apply the assets to a new entity. The plaintiffs aspire to be part of that new entity. I see nothing objectionable in their doing so. 152 The defendant made a similar argument contending that the plaintiffs lack clean hands. That was partly because of their alleged ulterior motive, and partly because, according to the submission, Mr Gregor created the problem for himself by choosing to exclude himself from the Board's deliberations leading to his removal and expulsion. Reliance is also placed on the fact that Mr Trevor Baker was said to be a stooge or puppet. In my opinion there is no substance to this claim. My findings of fact leave no room for the submission that Mr Gregor brought the dispute with Mr Palmer upon himself by his actions. I do not condone his decision to keep away from the meeting of which he had notice, namely the meeting on 18 June 2000. But by that time three meetings had been held of which he had not been notified. I have analysed the position of Mr Baker and have concluded that he is a bona fide member entitled under the Corporations Act to be a plaintiff. 153 The defendant also criticises the plaintiffs for not bringing the dispute within article 62. To bring their dispute before a group of people who were their enemies would have been a fiasco. The article should not be construed to produce such an effect. In my opinion, article 62 does not apply because the dispute between the Gregor group and the Palmer group is not properly characterised as a dispute between a member and the company or between an officer and a member. 154 The evidence includes a body of correspondence between the solicitors for the parties, Boyle Associates (their letters dated 29 March 2001, 4 April 2001, and 9 April 2001) and Taylor Kelso (their letters dated 2 April 2001 and 6 April 2001) debating the question whether Mr Kelso should cease to act for the plaintiffs because he had previously acted for the defendant company. As Taylor Kelso observed in their letter of 6 April 2001, it was open to the defendant to make an appropriate application to challenge Mr Kelso's retainer. It has not done so, but instead it seeks to rely on Mr Kelso's continuing to act as a matter to be taken into account in the Court's determination of the plaintiffs' application for relief. 155 It seems to me not established that Mr Kelso has at any stage been in a position of conflict such as to require him to withdraw from representing the plaintiffs. In their letter of 2 April 2001, paragraph 3, Taylor Kelso justified their continuing to act. If the assertions made in that paragraph are correct, their justification for continuing to act is, in my view, made out. Although some of the statements in paragraph 3 were challenged by Boyle Associates in their correspondence, they have not been disapproved by evidence. As to one of the matters in dispute, namely whether Taylor Kelso was paid by the company or Mr Gregor personally, it seems to me that Mr Kelso would not be precluded from continuing to act if the company rather than Mr Kelso had paid him, provided that the work related to the contest between the two "Boards", or to work unrelated to matters of conflict, as Taylor Kelso alleges. Therefore, in my view, the fact that Mr Kelso has continued to act for the plaintiffs provides no basis for denying them the relief they seek. 156 By a letter dated 31 May 2001, Taylor Kelso on behalf of the plaintiffs wrote to the defendant's solicitor, Boyle Associates, putting forward a proposal to resolve the deadlock in the management of the company and to enable the company to continue to operate. The proposal involved the BIWF of the UK appointing seven Australian residents to be directors of the defendant company, to operate the Board pending the convening of a meeting of members. The new directors would invite everyone appearing on the lists of members of the defendant maintained respectively by the Gregor Board and see Tabone Board to reapply for membership of the company. The new Board would have full authority to admit or reject applicants for membership, and would act in accordance with the Conditions of Membership brochure. Once applications for membership has been processed, the new Board would convene a meeting of members with a view to electing a Board which would then have full authority to manage the company. 157 That seems to me to be a sensible proposal that would have been worth further exploration. Unfortunately, by their letter dated 13 June 2001 Boyle Associates responded negatively and, indeed, in a hostile fashion. The basis for their objection seems to have been that there had been a without prejudice discussion along similar lines, which led them to believe that it was somehow unethical for Taylor Kelso to raise the matter in open correspondence. That is absurd. Boyle Associates said: "If you wish to obtain a response, please withdraw that letter and re-issue as a without prejudice letter". That comment seems to misunderstand the purpose and effect of Taylor Kelso's letter, and is an unreasonable response. 158 Section 467 (4) of the Corporations Act requires the Court to make a winding up order where the stated conditions are satisfied, unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy: see Belgiorno-Zegna v Exben Pty Ltd (2000) 35 ACSR 305, 332. In my opinion the plaintiffs acted reasonably in instructing Taylor Kelso to put forward their proposal of 31 May 2001. In light of the reply by Boyle Associates, it is not unreasonable for the plaintiffs to seek to have the company wound up instead of pursuing the alternative arrangements outlined in Taylor Kelso's letter. Sadly, Boyle Associates' letter points to the conclusion that there is no practical likelihood of the plaintiffs succeeding in negotiating any proposal with the defendant short of winding up. 159 I agree with the plaintiffs that it is reasonable for them not to pursue the remedy of convening an extraordinary general meeting of members to consider appropriate resolutions, because the identity of the membership is highly uncertain. I do not see any other basis of reaching a modus vivendi between the two factions. Nor has any reasonable and plausible order been suggested for relief under Part 2F.1, assuming that one of the grounds for relief under the Part is available. I see no practicable alternative to a winding up order. Conclusion 160 It is established by the facts that it would be just and equitable for the defendant company to be wound up. Winding up will provide the best chance for the assets of the company, including the KD Nichols bequest, to be applied for the purposes of the present company and more generally, the British-Israel movement. I shall make a winding up order accordingly. 161 The plaintiffs have nominated Geoffrey David McDonald, an official liquidator, to be the liquidator in the event that an order is made. The defendant has nominated another official liquidator, Andrew Hugh Wily. There being no evidence before the Court as to the non-suitability of either person, in my view the plaintiffs' choice should be preferred. It is no longer the practice of the Court to select an official liquidator from the Registrar's list. However, I would like to see a fresh consent to the appointment from Mr McDonald before I make the orders. 162 I shall stand the proceedings over for a short time to give the plaintiffs the opportunity to obtain a fresh consent to appointment by Mr McDonald, and I shall make orders and hear submissions as to costs on the next occasion. **********

Gregor v British-Israel-World Federation

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Judgment (8 paragraphs)

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