Gudgeon v Gudgeon

BACKGROUND FACTS 6 Maurice and Peter have been P & M Gudgeon's sole directors since 15 December 1993. On 21 August 2018 the Form 484 recording Maurice's removal as a director of P & M Gudgeon was lodged with ASIC. 7 Historically, P & M Gudgeon's business was the operation of an orchard at 31 Balgal Beach Road, Balgal Beach, Queensland, which Peter operated on a day to day basis and where Peter lived with his wife. For a number of years, because of distance, Maurice had very little direct role in P & M Gudgeon's affairs, trusting Peter to operate its business and manage its day to day affairs. 8 For reasons that are not explained, over the years Maurice's and Peter's relationship has unfortunately deteriorated and, in recent years, they have not spoken directly at all. 9 By letter dated 5 June 2018 from Brendan Long of Celtic Legal, Peter's solicitors, Maurice was informed that: Please note we act for Mr Peter Gudgeon, co-director of P & M Gudgeon Pty Ltd (A.C.N. 30 061 799 746). 1. Meeting: Please be advised our client Mr Peter Gudgeon has called a General Members Meeting as per the Company Memorandum and Articles of Association section 16-21 (Articles). 2. Notice: As required under the Corporations Act 2001 (Cth) s249H (1), you have been given 21 days notice to attend the meeting which will be held on Wednesday 27 June 2018. 3. Venue: The meeting will be held at the Celtic Legal office - Level 5, 49 Sherwood Road, Brisbane as it is conveniently located between your respective residences being Townsville and Sydney. 4. Agenda: The sole item on the Agenda is the future of the company and in particular section 24-28 of the Company's Articles regarding a matter of fraud and a breach of Director's Duties under the Corporations Act 2001 (Cth) s181. 10 On 21 June 2018 Paul Jessop of Corbett Jessop Law, Maurice's solicitors, sent an email to Alec Spencer of Celtic Legal, which included: We are instructed that attending the meeting proposed by your client in Brisbane is an expense that our client docs not wish to incur and the alternative of a telephone conference for the purposes of any meeting is preferred, as it would reduce our client's exposure lo legal and other costs. Would you please have your client confirm that the proposed meeting can take place by telephone conferencing on the proposed meeting date. Our client will attend our office for that purpose. We look forward to your client's response to this request well in advance of the proposed meeting date of 27 June 2018. 11 By email dated 24 June 2018 Mr Long informed Mr Jessop that Peter "[did] not consent to [Maurice] appearing via telephone" and "[did] not believe that such a course of action would facilitate the Agenda". 12 As Maurice was of the opinion that the notice of meeting did not disclose any actual resolutions or meaningful business to be conducted, merely proposing discussion about "the future of the company" and "a matter of fraud and a breach of Director's Duties", he thought that the meeting was unlikely to achieve anything but an argument. Having been refused permission to attend by telephone, Maurice did not see any point in travelling to Queensland to attend the meeting in person and so did not take any further steps to attend. 13 Maurice was not given any notice of the outcome of the meeting and assumed that, as he had declined to attend, it did not proceed. 14 Maurice first became aware of his removal as a director of P & M Gudgeon when Peter provided his response, I infer, to this proceeding. 15 Peter gave evidence about the meeting which he said took place on 27 June 2018. According to Peter: (1) the meeting of P & M Gudgeon took place at 10.00 am on 27 June 2018 at the offices of Celtic Legal; (2) there was no appearance by Maurice. He waited until 11.00 am for Maurice to attend; (3) as Maurice did not appear Peter proceeded with the meeting. He did so on the following basis: (a) notice had been provided to Maurice of the meeting; (b) Maurice had elected not to attend; (c) it was extremely important to finalise the future of P & M Gudgeon; (d) he concluded that he "had a Board present"; and (e) he relied upon cll 14, 16 and 37 of the Articles; (4) at the meeting "a motion was put forward by [him] that [Maurice] be removed as a director" and "[t]here was no opposition to that motion and the motion was carried unanimously as [he] was the only person present"; and (5) as there was no other business to be conducted, the meeting closed at 11.05 am. 16 Following the meeting Peter lodged the Form 484 with ASIC to update P & M Gudgeon's records.

P & M Gudgeon's Articles 17 The Articles relevantly provide as follows: 1. Except as hereinafter modified or excluded the Articles contained in Table "A" in the First Schedule of the Corporations Law shall apply to this Company. In case of any conflict between any provision hereafter appearing and a provision in the Articles contained in the said Table "A" the provision hereinafter appearing shall prevail notwithstanding that the provision in the Articles contained in the said Table "A" has not been expressly modified or excluded. … PROCEEDINGS AT GENERAL MEETINGS 13. Subject to the provisions of Section 253 of the Law a resolution signed in person or by representative by all members entitled to receive notice of and to vote at any meeting of the company at which such a resolution might be considered shall be as effectual as if the same had been passed by the requisite majority at a duly constituted meeting of which due notice had been given. … DISQUALIFICATION OF DIRECTORS 24. The following clause shall be substituted for article 65 of Table "A":- The office of a Director shall ipso facto be vacated:- (i) If by notice in writing to the company he resigns the office of Director. (ii) If he becomes bankrupt or insolvent or enters into arrangement with his creditors. (iii) If he becomes mentally sick within the meaning of the Mental Hygiene Act of 1938 or of such infirm health as to be (in the opinion of his Co-directors) incapable of managing his affairs. (iv) If he is removed from office pursuant to clause 25 of these Articles. 25. The following provisions shall apply:- (a) The company at a general meeting at which the holders of at least two-thirds of the capital for the time being issued are present in person or by proxy or by a representative appointed pursuant to Section 244 of the Law may at any time or from time to time - (i) appoint one or more new Directors but so that the number of Directors shall not exceed the maximum number referred to in clause 20 hereof. (ii) remove any Director except the first Directors appointed under clause 20(b) hereof. (b) A resolution in writing signed by the holder or holders of at least two-thirds of the capital for the time being issued shall be as valid and effectual for the purpose of effecting any such appointment or removal as aforesaid as if it had been passed at a general meeting of the company duly convened and constituted under sub-clause (a) of this clause. In the case of a corporation being the holder of any shares the execution of such writing under its common seal or under the hand of its attorney duly constituted shall be deemed to be its signature for the purposes of this clause. 18 Table A in Sch 1 to the now repealed Corporations Law (Cth) (Corporations Law) includes the following provisions: General Meetings … 41. (1) A notice of a general meeting shall specify the place, the day and the hour of meeting and, except as provided by subregulation (2), shall state the general nature of the business to be transacted at the meeting. (2) It is not necessary for a notice of an annual general meeting to state that the business to be transacted at the meeting includes the declaring of a dividend, the consideration of accounts and the reports of the directors and auditors, the election of directors in the place of those retiring or the appointment and fixing of the remuneration of the auditors. Proceedings at General Meetings 42. (1) No business shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business. (2) For the purpose of determining whether a quorum is present, a person attending as a proxy, or as representing a body corporate that is a member, shall be deemed to be a member. 43. If a quorum is not present within half an hour from the time appointed for the meeting: (a) where the meeting was convened upon the requisition of members - the meeting shall be dissolved; or (b) in any other case: (i) the meeting stands adjourned to such day, and at such time and place, as the directors determine or, if no determination is made by the directors, to the same day in the next week at the same time and place; and (ii) if at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting: (A) 2 members constitute a quorum; or (B) where 2 members are not present - the meeting shall be dissolved. … Appointment, removal and remuneration of Directors … 62. (1) The company may by resolution remove any director before the expiration of his period of office, and may by resolution appoint another person in his stead. 19 While Table A was repealed by the Company Law Review Act 1998 (Cth) (CL Review Act), there was no dispute between the parties that the Articles continue to incorporate Table A rather than the replaceable rules. That is so because of the operation of s 1415 of the Corporations Law, inserted by the CL Review Act, and s 1378 of the Corporations Act 2001 (Cth) (Corporations Act).

PARTIES' SUBMISSIONS 20 Maurice submits that the answer to the Separate Question is "no" for the following reasons: (1) there is no evidence that any resolution removing Maurice as a director was passed; (2) the general meeting was inquorate; and (3) the notice calling the general meeting was invalid for failing to comply with the Articles. 21 Peter submits that the answer to the Separate Question is "yes" for the following reasons. 22 First, he submits that it is not in dispute that the notice of meeting did not contain a time. Peter relies on s 1322 of the Corporations Act and on Maurice's evidence that "having been refused permission to attend by telephone, [he] did not see any point in travelling to Queensland to attend such a meeting and did not take any further steps to attend". 23 Peter submits that it is clear that, regardless of the time of the meeting, Maurice would not have attended and thus the omission of a time for the meeting is not a factor which would invalidate the notice of meeting. 24 Peter points out that Maurice could have easily sought details about the time of the meeting, that he clearly turned his mind to the time and, having done so, the failure to include a time is not a reason to invalidate the notice of meeting. 25 Peter submits that, in the alternative, Maurice's solicitor could have made an inquiry about the time the meeting was to take place but he did not do so. 26 As to the description of what was to occur at the meeting included in the agenda Peter submits that, whilst Maurice made various assumptions about the purpose of the meeting, the description "the future of the company" indicated that it was an important meeting. Peter contends that, on any reasonable reading, "the future" would include an assessment of the management of P & M Gudgeon but Maurice had clearly made up his mind not to attend. 27 As to the conduct of the meeting itself Peter relies on cl 13 of the Articles (see [17] above) and his own evidence that a motion was unanimously passed to remove Maurice as a director. Peter contends that cl 13 provides its members with a framework for a quorum for a general meeting and how resolutions can be passed. Peter submits that cl 13 has the following effect: (1) the resolution that removed Maurice as a director was effected by the majority of attendees at the meeting; (2) it is as effectual as if passed by a duly constituted meeting of which notice had been given; (3) Maurice's election not to attend the meeting can be taken as his election not to vote at the meeting as constituted; (4) it allows all members in attendance to vote provided notice of the meeting has been given to all members entitled to vote; and (5) it allows the attendees of the meeting to vote on resolutions as they see fit. 28 Peter submits that cl 13 can be interpreted as allowing the conduct of the meeting as deposed to by him and that Maurice's removal as a director was in accordance with P & M Gudgeon's constitution and was subsequently lodged with ASIC. 29 Peter submits that cl 25 of the Articles is not the appropriate framework for the removal of a director because the heading under which that clause appears clearly outlines that cl 25 is to deal only with the "disqualification of directors". Peter notes that this was not a disqualification matter.

CONSIDERATION 30 The first matter raised by Maurice is that there is insufficient evidence for the Court to find that any resolution was passed to remove Maurice as a director of P & M Gudgeon on 27 June 2018. 31 Peter's evidence in relation to what occurred at that meeting, which was admitted over objection by Maurice, is set out at [15] above. There are no minutes of the meeting in evidence and Peter conceded that no minutes had been prepared. Thus the only record of what occurred is that given by Peter for the purpose of this proceeding. 32 The failure to prepare minutes of a meeting constitutes a breach by P & M Gudgeon of s 251A of the Corporations Act which requires that a company must keep minute books in which it records within one month, among other things, proceedings and resolutions of meetings of the company's members. Maurice says that the failure to comply with s 251A goes to the lack of weight that I would afford Peter's evidence of what occurred at the meeting. I accept that there is no corroborating evidence of what occurred at the meeting and that the only account is that given by Peter. That is not surprising as he was the only person present. While P & M Gudgeon has breached s 251A of the Corporations Act by failing to enter a record of the meeting in P & M Gudgeon's minute books within one month of the meeting taking place, that does not lead me to afford little weight to Peter's evidence. P & M Gudgeon is a family held company where the two shareholders, who were at least until the meeting in issue in this proceeding also its directors, have fallen out and are no longer speaking directly to one another. While its failure to follow the legislative obligations imposed on it is a matter of concern and one to be taken seriously, it is not surprising in the circumstances. 33 The second matter raised by Maurice relies on the decision in Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361 (Kuhl) at [63] where Heydon, Crennan and Bell JJ said: The rule in Jones v Dunkel is that the unexplained failure by a party to call a witness may in appropriate circumstances support an inference that the uncalled evidence would not have assisted the party's case. That is particularly so where it is the party which is the uncalled witness. The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn. These principles have been extended from instances where a witness has not been called at all to instances where a witness has been called but not questioned on particular topics. Where counsel for a party has refrained from asking a witness whom that party has called particular questions on an issue, the court will be less likely to draw inferences favourable to that party from other evidence in relation to that issue. That problem did not arise here. The plaintiff's counsel did ask the plaintiff relevant questions. (Footnotes omitted.) (Emphasis added.) 34 Maurice submits that the statement in Kuhl at [63] applies equally to written evidence and that Peter's evidence does not include any written records, e.g. minutes or a signed resolution, that one might expect to exist by reason of s 251A of the Corporations Act and, based on the observations in Kuhl, that would weigh against drawing any inferences in favour of Peter arising from any ambiguity in his evidence, although no particular ambiguity was identified. But this is not a case where there has been a failure to call evidence. Peter has given evidence. Nor is it a case where there has been a failure to ask Peter questions about particular topics. Peter has given evidence about the topic in issue: what occurred at the meeting which took place on 27 June 2018. Peter was not asked nor did he give evidence in his affidavit about minutes of the meeting. Rather, a concession has been made that no minutes exist. 35 It was open to Maurice to cross-examine Peter about his version of events and to put questions to him about the failure to produce a documentary record. That did not occur. That there is no corroborating written documentation supporting Peter's version of events is a matter that may go to weight but, on the current state of the evidence, it would not lead me to infer that the meeting did not take place as Peter recounts. 36 The final matter on which Maurice relies and which, he submits, weighs heavily against accepting Peter's evidence is the Form 484 which, Peter says, records that Maurice ceased to be a director on 20 August 2018. Maurice says that that date is not referable to anything in Peter's evidence. Maurice contends that, taking Peter's evidence at its highest, and accepting that a motion to remove Maurice was put to the meeting on 27 June 2018 and passed, then the relevant cessation date was 27 June 2018. Relying on Kuhl at [63] Maurice submits that the Court would not draw any inference favourable to Peter because Peter has not given evidence when in fact he could have done so. 37 The date included in the Form 484 is not explained by Peter and is not consistent with Peter's evidence that a resolution was purportedly passed on 27 June 2018 to remove Maurice as a director of P & M Gudgeon. However, once again that does not cause me to reject Peter's evidence of what occurred on 27 June 2018 or to conclude that there is insufficient evidence to find that any resolution was passed. Peter has given his version of what he says occurred on 27 June 2018. As I have already observed, he was not cross-examined. I would accept Peter's evidence for what it is, namely a description of what he says occurred on 27 June 2018 at the meeting of P & M Gudgeon that he had purportedly convened. 38 Putting that to one side, there are two reasons why, in any event, the answer to the Separate Question must be "no". 39 Most critically there was no quorum present at the time of the purported meeting. 40 The Articles, including Table A, are silent on what constitutes a quorum for the purpose of a meeting of members of P & M Gudgeon. However, s 249(1)(a) of the Corporations Law as it applied at the time of P & M Gudgeon's incorporation and on which Maurice relies relevantly provided: (1) So far as the articles do not make other provision: (a) in the case of a proprietary company, 2 members of the company, and in the case of any other company, 3 members, personally present constitute a quorum; Relevantly, s 249(1)(a) of the Corporations Law applies to P & M Gudgeon because it was incorporated prior to 1 July 1998 and its constitution was not repealed after that day: see s 135(1)(a) of the Corporations Act. 41 On the evidence before me, only Peter was present at the meeting. Thus there was no quorum and the meeting was not validly constituted. Regulation 43 in Table A (see [18] above) sets out what is to occur if no quorum is present at a general meeting. Subject to the nature of the meeting, it is either to be dissolved or to be adjourned to such day, time and place as the directors determine or, if no determination is made by the directors, to the same day in the next week at the same time and place. Neither of those things occurred. Rather, Peter purported to proceed with the meeting despite the fact that it was not validly constituted. 42 Even if, contrary to that conclusion, there was a quorum present for the purposes of a meeting of members, cl 25 of the Articles relevantly provides that the removal of a director may be effected at a general meeting at which "the holders of at least two-thirds of the capital for the time being issued are present in person". To the extent that cl 25 is inconsistent or "in conflict" with reg 62 in Table A (see [18] above), which it is, cl 25 prevails notwithstanding that reg 62 has not been expressly excluded: see cl 1 of the Articles. 43 There is no dispute that the only person present at the meeting was Peter who holds 50% of the issued capital of P & M Gudgeon, which is of course less than the required two-thirds to constitute a sufficient quorum of members present to effect the removal of a director. 44 Peter contends that, because cl 25 of the Articles appears under the heading "disqualification of directors", it only operates where P & M Gudgeon intends to disqualify, as opposed to remove, a director. I disagree. The terms of cl 25 are clear. That clause prescribes the way in which P & M Gudgeon can remove or appoint a director. Clause 24, on the other hand, concerns when, on the happening of any of the events specified therein, the office of director will be ipso facto vacated. Relevantly, that includes when a director is removed from office pursuant to cl 25. The heading "disqualification of directors" or the placement of cl 25 under that heading does not affect the clear meaning of cl 25. 45 Nor does cl 13 of the Articles assist Peter. That clause clearly concerns circular resolutions. That is, the ability to pass a resolution by all members entitled to receive notice of and vote at any meeting of P & M Gudgeon at which the proposed resolution might be considered signing a resolution. Contrary to Peter's submission, it does not apply to validate the conduct of the meeting of P & M Gudgeon in the way in which he contends (see [27] above). It does not permit a member who has convened a meeting to proceed with the meeting and pass a resolution by signing a minute of that resolution in the absence of a quorum. 46 The second reason concerns the notice of meeting which, in my opinion, was defective. 47 The Articles are silent on the requirements of the content of a notice of meeting. However, reg 41(1) in Table A requires a notice of general meeting to "specify the place, the day and the hour of meeting" and, except as provided by reg 41(2), to state "the general nature of the business to be transacted at the meeting". Regulation 41(2) in Table A applies to notices for annual general meetings and provides that "[i]t is not necessary for a notice of annual general meeting to state that the business to be transacted at the meeting includes the declaring of a dividend, the consideration of accounts and the reports of the directors and auditors, the election of directors in the place of those retiring or the appointment and fixing of the remuneration of auditors". 48 In Clarke v Australian Computer Society Incorporated [2019] FCA 2175 at [142] Wigney J summarised the principles governing the requirements of a notice of general meeting as follows: The relevant principles concerning the requirements of a notice of general meeting are fairly well settled. As noted earlier, the information provided in a notice of general meeting must be such as will enable members to judge for themselves whether to attend the meeting and vote for or against the proposal or whether to leave the matter to be determined by the majority attending and voting at the meeting. Where, as here, the notice must state the purpose of the meeting and the business to be transacted, it "should be so drafted that ordinary minds can fairly understand its meaning … [i]t should not be a tricky notice artfully framed": McLure v Mitchell (1974) 6 ALR 471 at 494; 24 FLR 115 at 140; Dhami v Martin [2010] NSWSC 770; 241 FLR 165 at [51]. 49 Here, the notice of meeting was required to set out the "nature of the business to be transacted at the meeting". However, in my opinion, the description included in the notice in the item "Agenda" (see [9] above) was so broad in its terms that Maurice could not fairly understand that the intended business of the meeting was to move a resolution for his removal as a director, which, on the evidence, was the only business in fact transacted at the meeting. That is so notwithstanding the reference to cll 24 to 28 of the Articles, and thus implicitly cl 25, and s 181 of the Corporations Act which concerns the requirement that a director act in good faith. 50 The notice of meeting also omitted a time for the meeting and thus did not comply with reg 41(1) in Table A. However, Maurice accepts that, of itself, that would not invalidate the notice. That is so. The real vice is in the failure to include in the notice information that would enable Maurice to decide for himself whether to attend the meeting. When taken together the two defects and in particular that concerning the failure to give proper notice of the business of the meeting render the notice defective. 51 In Moala v Free Wesleyan Church of Tonga in Australia (Victoria) Inc [2019] VSC 205 at [350] Ginnane J said: Though not the subject of submissions, the law seems clear that notice requirements must be strictly complied with. Where a meeting of a governing body has been convened, or as the case may be its business has been conducted, in breach of the rules with respect to the giving of notice to all members, in due time and with proper notification of business, or with respect to the numbers required to attend the meeting, the meeting is null and void to all intents and purposes and no business can be validly transacted at the meeting. (Footnote omitted.) 52 Here, given the defect in the notice, the meeting of P & M Gudgeon was convened in breach of the Articles. It follows that the meeting was "null and void" and no business could have been validly transacted at it. 53 Before leaving this issue it is necessary to address Peter's submission in relation to the effect of s 1322(3) of the Corporations Act. That subsection relevantly provides: A meeting held for the purposes of this Act, or a meeting notice of which is required to be given in accordance with the provisions of this Act, or any proceeding at such a meeting, is not invalidated only because of the accidental omission to give notice of the meeting or the non‑receipt by any person of notice of the meeting, unless the Court, on the application of the person concerned, a person entitled to attend the meeting or ASIC, declares proceedings at the meeting to be void. 54 However, assuming that the meeting was held for the purposes of the Corporations Act and/or it was a meeting notice of which was required to be given in accordance with its provisions, s 1322(3) of the Corporations Act has no application here. Maurice does not contend that he did not receive notice of the meeting. Rather his contention, which is made out, is that the notice is defective as to its form.

CONCLUSION 55 For those reasons the answer to the Separate Question is "no". 56 As Peter has been unsuccessful, he should pay Maurice's costs of this aspect of the proceeding. 57 The proceeding should be listed for case management hearing before me on a date to be determined in consultation with the parties. 58 I will make orders accordingly. I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.