Hawcroft v Jamieson - [2017] NSWSC 1478 - NSWSC 2017 case summary — Zoe

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Hawcroft v Jamieson

[2017] NSWSC 1478

Supreme Court of NSW|2017-04-12|Before: Gleeson JA

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2017-04-12

Before

Gleeson JA

Source

Original judgment source is linked above.

Judgment (47 paragraphs)

[1]

Background

The company operates a hotel business in Newcastle known as the Quality Hotel, Noah's On The Beach (the Hotel), and owns real property, including two residential properties in East Newcastle. Up until about 2010, the company also operated a farming business at Merriwa and a motel at Muswellbrook.
The founding director of the company was Mr Edward Hawcroft, the father of Martin, Peter, Michelle and John. He died on or about 7 July 2003. From that time, Martin and Peter were the directors of the company. Peter was responsible for the management and control of the cattle property at Merriwa, and Martin was responsible for the Hotel at Newcastle and the motel in Muswellbrook. It is common ground that Peter and Martin did not get on well. In September 2007, Michelle and John were appointed additional directors of the company.
In August 2011, arrangements were finalised in relation to Peter's exit from the company. A directors' meeting held on 17 August 2011 resolved to increase the share capital of the company from 100 ordinary shares to 600 ordinary shares. Following the transfer of shares between existing shareholders, the shareholding position became that Martin, Michelle and John each held 200 shares in the company. Peter resigned as a director on or about 25 August 2011.
On the evening of 30 August 2011, Mr Hugh McKensey, who was an accountant and acted as a consultant to the company, raised the idea of the proposed Protocol for the first time during a telephone conversation with Martin. Mr McKensey deposed in his affidavit (par 16) that he told Martin that he would put together "a set of basic rules for managing the company so that you, Michelle and John are of one mind as you start this next chapter of your relationship". Mr McKensey said he indicated his view to Martin that following Peter's resignation, and while the three directors were getting along, "it would be a good time to establish the basis for you to work together as directors. The rules could then be modified or amended as required." Mr McKensey said that Martin replied that he thought that it was "a very good idea".

[2]

The Proposed Preliminary Protocols

The document prepared by Mr McKensey was entitled "Proposed Preliminary Protocols for Managing Hawcroft General Trading Co Pty Ltd from 1 September 2011". Mr McKensey said in cross-examination that he had a couple of telephone conversations with Martin about some of the provisions in the document (it seems on 30 August 2011). It is common ground that Mr McKensey first provided the document to each of the directors at the directors' meeting on 31 August 2011.
The proposed Protocol comprised a three-page document containing 17 clauses. The Protocol dealt with who would be directors of the company (cl 1); the frequency of directors meetings (bi-monthly) (cl 2); minimum directors fees of $50,000 per annum for each director, but which would not be paid if franked dividends were paid exceeding $150,000 per annum (cl 3); the appointment of a chairman of all directors and shareholders meetings (cl 4); the appointment of Martin as managing director with a salary of $190,000 per annum commencing on 1 September 2011 (cl 5); Martin's sole responsibility for the day-to-day operation and management of the Newcastle hotel (cl 7); Martin's authorised operating expenditure limits (cl 8); annual auditing of financial accounts (cl 9); voting majorities for decisions of directors or shareholders to vary the manner in which the company is managed or operated (cl 10); the provision of new motor vehicles to each of Michelle, John and Martin (cls 12 and 13); the payment of premiums for key-man insurance in respect of Martin and the disposition of proceeds from a claim on that policy (cl 16); and a dispute resolution procedure (cl 17).
In addition to cl 10, it is necessary to set out in full cls 1, 3, 5, 12, 13 and 16 of the Protocol which have particular significance to Jennifer's contract case based on alleged post-contract conduct after 31 August 2011: (1) Martin Hawcroft ("MH"), Michelle Jamieson ("MJ") and John Hawcroft ("JH") will continue to be the directors of Hawcroft General Trading Co Pty Ltd ("HGT") until they cease holding any shares in HGT or they resign. … (3) Directors' fees will be a minimum of $50,000 per annum for each director and may be varied from time to time by unanimous agreement of all directors. No directors fees will be payable for as long as franked dividends paid by HGT exceed $150,000 per annum. … (5) MH will be the managing director of HGT until he is unable to act or resigns. His salary will be $190,000 per annum commencing on 1 September 2011 plus superannuation at the minimum rate for Superannuation Guarantee purposes. The salary is to be indexed annually by changes in the Average Workers Ordinary Times Earnings index or equivalent index and reviewed to market every five years by an external recruitment company agreed to by all directors. … (10) Other than for requiring that HGT be placed into liquidation, at any meetings of directors or shareholders of HGT where a vote is required the vote of each director or shareholder will represent the number of shares controlled by that director or shareholder in HGT at that time and any decision of the directors or shareholders of HGT that is required to vary the manner in which HGT is managed or operates, including funding and capital expenditure, dividend policy and structure, will require the vote of directors or shareholders representing at least 70% of issued shares in HGT. … (12) MJ and JH will be provided with new fully found motor vehicles of their choosing to the value of the luxury car tax threshold currently $57,466 at the earlier of every five years or 150,000 kilometres. (13) MH will be provided with a new fully found diesel motor vehicle equivalent to a Toyota Land Cruiser at the earlier of every five years or 250,000 kilometres. … (16) HGT will take over and continue the payment of key-man insurance on the life of MH for $2,000,000 at a cost of approximately $1,800 per month that was previously paid by HGT prior to the death of Edward Samuel Hawcroft. In the event of a claim on this policy the proceeds are to be used by HGT to employ a competent manager to prepare NOTB for sale within a maximum period of two years from the receipt of such proceeds of claim to enable the liquidation of HGT.
The circumstances in which the Protocol document was signed by the directors are controversial. There are a number of conflicts in the evidence. The first concerns Mr McKensey's explanation of the document and whether he described the Protocol as a "working document" and a "road map to move the company forward". The second concerns the discussion relating to cl 10. The third, and most important, concerns whether the directors' expressly qualified their assent before they signed the document. My review of the conflicting evidence and factual findings are set out below: see [60] - [107]. In short, I prefer the evidence of Michelle and John to that of Mr McKensey, and find that they expressly qualified their assent to the Protocol before signing the document.

[4]

19 October 2011 - directors meeting

The next directors' meeting was held on 19 October 2011. The notice of meeting dated 10 October 2011 included as Item 9 of the Business agenda: "To discuss the company protocols signed 31 August 2011".
The minutes of the 19 October 2011 meeting record: 5. MJ tabled a discussion regarding the company protocols 31 August 2011. 6. All directors agree to amend point 16 in the company protocols to include incapacitated, mentally unable, etc. 7. HMcK to prepare the variation and send through to all directors.
It is common ground that item 5 of the minutes of the October 2011 meeting was a reference to Michelle reading from the email she had received from Mr Hourigan dated 12 September 2011, and noting his view that cls 3, 5 and 16 of the document need to be amended. Mr McKensey deposed that Michelle asked him to prepare some variations to those three clauses along the lines suggested by Mr Hourigan and that he agreed to draft the changes and circulate a revised document. Mr McKensey did so (it seems sometime after 21 October 2011: see [30] below) and circulated an unsigned document to the directors entitled "Proposed Preliminary Protocols" dated 31 August 2011, together with a further two pages containing four proposed variations, including to cls 3, 5 and 16.
In an email to Mr Hourigan dated 21 October 2011 entitled "Preliminary Protocols", Mr McKensey described the document as "nothing other than a platform on which to build" and stated that he was drafting changes to the three clauses raised in Mr Hourigan's email to Michelle of 12 September 2011.
John was challenged on his affidavit evidence (par 20) that at the time of the 19 October 2011 meeting he remained dissatisfied with many aspects of the proposed protocols. He said that the directors were working their way through the document, and the agreement to amend cl 16 was one step but the document needed a lot of work. I accept his evidence.
John disagreed with the cross-examiner's suggestion that after the October 2011 directors' meeting, the only matters that required variation concerned cls 3, 5 and 16. He said that the directors were completely dissatisfied with the proposed preliminary protocols, they were going nowhere, and they had wasted enough time on the Protocol and decided to approach Moray & Agnew to get a shareholders agreement done by a lawyer. I also accept this evidence. John said that the decision to approach Moray & Agnew was probably made around February 2012.

[5]

14 December 2011 - directors meeting

The next meeting of directors was held on 14 December 2011. The notice of meeting dated 7 December 2011 included the following items on the Business agenda: 7. Company protocols - Consideration of ability to exit the company in the event of one of the three wanting to exit or upon their death. 8. To discuss the variations to the Company protocols dated 19 October 2011.
The minutes of meeting of 14 December 2011 record: 5. MJ tabled a discussion regarding the company protocols variation dated 19 October 2011. 6. HMcK to prepare a variation to the protocols dated 14 December 2011 and distribute to all directors.
Mr McKensey deposed (par 31) that he did not recall the precise discussion at the December 2011 meeting, but he believed it primarily concerned the provisions of the Protocol regarding the exit of one of the directors from the company and the sale of the Hotel. He said that following the December 2011 meeting, he prepared and circulated a further amended version of the Protocol. This document was headed "Proposed Preliminary Protocols for Managing Hawcroft General Trading Co Pty Ltd from 1 September 2011". It comprised five pages with 27 clauses (the Amended Protocol). Clause 10 of the Protocol had been renumbered cl 9; this seems to have been the consequence of a change in the numbering in the earlier provisions. Clause 3 of the Protocol remained, but was no longer separately numbered. It simply followed on after cl 2. Clauses 16 to 24 dealt with the exit of any of the directors. Clause 27 provided: This document, when signed by MH, MJ and JH is a replacement document for that of the same name signed by them on 31 August 2011.
Michelle deposed (par 22) that at the December 2011 meeting, she said that she was not happy with the way the protocols were written and that "as it is a legal issue we should sit down with Reg and do it properly". (This was a reference to Mr Reg Whare of Moray & Agnew, Newcastle, the company's solicitor.) Michelle said that Martin responded: "We should get Reg to prepare a formal shareholders' agreement", and that John indicated his agreement to that course. Michelle was not challenged on this evidence in cross-examination. I accept her evidence.
John gave evidence that at the 14 December 2011 directors' meeting, the proposed variations to the company protocols were discussed, but they were never agreed to. He said that during the December 2011 meeting, Mr McKensey was asked to prepare some variations and distribute them and that he received a further version of the protocol containing 27 clauses. I accept his evidence.

[12]

The Chairperson resolution

Shortly before the 2 February 2016 directors' meeting, Michelle circulated a proposal by email regarding the appointment of one of the directors to act as chairperson of the company. The proposal was in the following terms: Proposal for the appointment of a Chairperson of HGT It is proposed that there be a designated role of Chairperson of HGT, that a Director be appointed to that role from the date of this meeting until the Board resolves otherwise, and that the Chairperson be authorised to: 1. Approve non-budgeted Company expenditure up to $5,000 for any one item and up to $50,000 in aggregate in a financial year; 2. Act as the Company's primary representative in dealing with external parties such as banks, professional services providers and, if and when appropriate, key suppliers; 3. Act as the Company's primary representative in discussions with external parties relating to any potential sale of Company assets; 4. Attend relevant conferences and functions as a representative of the Board and the Company, with the objective of expanding the Company's networks and centres of influence (expected to be usually in conjunction with the GM); 5. Investigate opportunities to improve the performance of the Company and the effective and prudent management of the Company's assets and business (including in relation to external suppliers, service providers and consultants) and make recommendations to the Board as to such opportunities; 6. Seek such internal and external assistance as is reasonable and appropriate to perform the duties of Chairperson, provided that the cost of any such assistance in excess of the limits set out in item 1 above will be approved by the Board; 7. Be the link between the Board and the GM by: * providing support and guidance to the GM; * being the GM's first point of contact with the Board in between Board meetings; * meeting with the GM as appropriate between Board meetings to discuss key operational issues (such as quality control, customer experience, marketing and promotions) and the financial performance of the Company; * under advisement from the Board, undertake the GM's annual performance review on behalf of the Board. It is further proposed that: 8. Carl Scarcella would continue to act as meeting chairman for Board meetings of the Company until further notice; 9. In consideration of the additional time to be spent in performing the Chairperson role, the director's fee payable to the Chairperson will be increased to $20,000 per annum above the fee payable to the other directors, and the Chairperson will be entitled to utilise Noah's accommodation and services at the Company's expense when performing the Chairperson role. It is noted that nothing in the above resolutions is intended to: * limit the provision of information to the Board; * limit the ability of the Board to govern and monitor the Company's business or to set the strategic direction for the Company; * limit the authority of the Board to make decisions; * change the reporting line of the GM to the Board; * limit the authority of the GM in the performance of her role; * imply or require that the Chairperson be involved in the day to day operation of Noah's or in the direct management of hotel staff.
Following discussion of the proposal at the 2 February 2016 meeting, it was agreed that Michelle and Jennifer would email their respective positions on the matter, including the rationale behind those positions to all directors and the chairperson (Mr Scarcella) prior to the next meeting, for a decision at that meeting.
At the directors' meeting held on 28 June 2016, the following resolution concerning the chairperson proposal was carried by majority (with Jennifer dissenting): 3(c) Chairperson proposal i. The directors discussed and it ws resolved, with Jen H dissenting, to adopt the proposal tabled at the February 2016 Board meeting (and attached to these minutes) for MJ to be appointed Chairperson of Hawcroft Trading Co Pty Ltd. The proposal is to be amended to include an obligation for the Chairperson to report at each board meeting on activity she has undertaken in that role each month. The directors requested the GM review the proposal. The directors confirmed the GM continues to report directly to the Board.
At a subsequent directors' meeting held on 13 December 2016, the directors discussed what were referred to in the minutes of that meeting as the "Preliminary Protocols". Jennifer maintained her position that the protocols were valid, while Michelle and John maintained they were invalid. Mr Hourigan joined the meeting and following a discussion the directors resolved, (again with Jennifer dissenting), that the protocols did not apply to the company.

[13]

Assessment of the witnesses

Each of Mr McKensey, Michelle and John, gave affidavit evidence and were cross-examined about what was said at the meeting on 31 August 2011, and at subsequent directors' meetings, and also the conduct of the directors after 31 August 2011.
To anticipate what follows, there is a direct conflict in the evidence concerning the discussions at the 31 August 2011 meeting and the circumstances in which Michelle and John, as well as Martin, signed the Protocol. That evidence is founded on their recollection of the discussions. The only contemporaneous document is the Protocol itself. For reasons that he could not adequately explain, Mr McKensey did not prepare any minute of the directors' meeting of 31 August 2011, as was his usual practice. Accordingly, the credit and reliability of recollection of the three principal witnesses is critical to the determination of the factual issues in dispute.
There is also a dispute in relation to what occurred at the February 2012 directors' meeting. Again, this raises issues of credit and reliability.
Mr McKensey was an independent witness in the sense that he does not have any interest in the company, and is no longer a consultant to the company. However, his recollection and perception of events was coloured by what he was subjectively intending to achieve at the time in his own interests as the chairperson of meetings of directors, and what he perceived (from his perspective) to be in the best interests of the company at that time. Mr McKensey's recollections were also affected by his somewhat dismissive view of Michelle and John as directors. This was reflected in the way in which he dealt with them at the time and also when giving his evidence. While I accept that he was trying to give truthful evidence, some parts of his evidence were unimpressive and cannot be accepted, and important parts of his evidence are unreliable.
Michelle and John both have an interest in the outcome of the proceeding. I find that they were each honest witnesses who attempted to give their best recollection of what occurred nearly six years earlier, unassisted by any written record of the 31 August 2011 meeting. Given the passing of time, it is not surprising that they each made some concessions in cross-examination as to their respective recollections of what occurred, and there were some mistakes in their evidence. Nonetheless, on the critical issues, I consider their evidence to be reliable. Overall, where the evidence of Michelle and John conflicts with the evidence of Mr McKensey on the critical matters identified below, I prefer their evidence to that of Mr McKensey, unless indicated.

[14]

31 August 2011 - directors' meeting

The directors' meeting on 31 August was held on short notice of about half an hour in one of the function rooms at the Hotel. Martin, Michelle and John, attended the meeting, as did Mr McKensey, Ms Nicole Cooke and Ms Kellie Wright. Ms Cooke was the company's internal accountant and Ms Wright was an accountant from Forsythes, the company's external accountants. Unlike previous directors' meetings, no notice of the meeting was given to the directors and there was no agenda for the meeting.
At the beginning of the meeting, Mr McKensey provided each of the directors with a copy of the proposed Protocol. He proceeded to take the directors through each of the 17 clauses line by line. At the end of the meeting the three directors signed the document, as did Mr McKensey.
In cross-examination, Mr McKensey agreed that there was not any discussion at the meeting between directors which might be characterised as designed to produce an agreement. Rather, he did most of the talking. No-one was taking minutes and Mr McKensey did not take any notes of the meeting. His evidence of what occurred at the meeting was totally reliant upon his memory.
Mr McKensey disagreed with the cross-examiner's suggestion that he did not subsequently draw up any minutes of the meeting because no decision was made at the meeting. Yet when asked why he did not make a minute of the meeting, Mr McKensey gave an unresponsive answer: "I did not". I find this evidence unimpressive. That Mr McKensey could not explain why he did not prepare a minute of the meeting, as was his usual practice, is telling as to the likelihood that the directors gave their unqualified assent to the terms of the proposed Protocol, which is what Mr McKensey was seeking to achieve at that meeting. The absence of the formality of minutes prepared by Mr McKensey, is also difficult to reconcile with the assertion in his affidavit (par 22) that after the directors signed the document he commented that "this could be the most significant moment of your lives" and that he congratulated the directors on "reaching this agreement". Further, the absence of this formality, like the absence of an agenda, is consistent with the evidence of Michelle and John (referred to below) concerning Mr McKensey's description of the Proposed Protocol as a "working document" and a "road map".
Turning to the conflicts in the evidence as to what occurred during the meeting, the first concerns Mr McKensey's explanation of the document.

[15]

Mr McKensey's description of the Protocol

Mr McKensey gave affidavit evidence (par 18) that at the beginning of his explanation of the document, he said to the directors: I have prepared some basic, fundamental rules for managing the Company now that there are only three directors. It is important to establish the basis upon which you will all work together going forwards, and to do that now while you all love and trust each other. It is critical that you fully understand and accept the document that I have prepared. I will take you through it line by line, clause by clause until you are satisfied that you understand and accept this. These protocols can be changed at any time with the agreement of all three of you.
Both Michelle and John disputed this part of Mr McKensey's evidence. Michelle deposed in her affidavit (par 15) that when Mr McKensey circulated the document at the meeting he said words to the following effect: In order for us to move forward, we need to have a set of protocols for the operation of the company.
Michelle adhered to her affidavit evidence in cross-examination. She denied that Mr McKensey said that, "the protocols can be changed at any time with the agreement of all three of you". She said that Mr McKensey did not say that there were going to be any binding conditions put into the document.
John deposed in his affidavit (par 17) that shortly after the meeting commenced, Mr McKensey said words to the effect: I have prepared this document for you all to look at. It is a working document, a road map to move the company forward.
John disputed in his affidavit (par 50) that Mr McKensey said words to the effect set out at [65] above, but agreed that Mr McKensey took the directors through the document point by point.
I accept that it is likely that at the beginning of the meeting, Mr McKensey gave an outline of the nature of the document consistent with its terms. I do not accept that he had a precise recollection of the exact words he used. His evidence was a reconstruction of what he thought he would have said, consistent with the terms of the document and what he was seeking to achieve at the meeting.
I find that during the meeting Mr McKensey described the document as a "set of protocols for the operation of the company" and as a "working document, a roadmap to move the company forward". In addition to finding the evidence of Michelle and John on this aspect more persuasive, the inherent probabilities are that Mr McKensey spoke in these terms. Mr McKensey was not a lawyer. He was addressing directors of a family company. It would have been natural for him to speak in non-technical terms. His desire (as expressed to Martin) was to establish some "basic fundamental rules" for managing the operations of the company following the departure of Peter as a director and shareholder. It is inherently likely that he described the document as a "working document" and a "road map to move the company forward" when none of the directors had been provided with a copy of the proposed Protocol in advance of the directors' meeting.

[16]

Discussion of clause 10

Mr McKensey deposed (par 19) that when he came to cl 10 he said words to the following effect: Clause 10 of the document protects you all, because it means that you all have to agree on any important operational decisions. In any relationship where there are three people involved, there is a risk of two people ganging up on the third. We need to make sure that does not happen.
In cross-examination, Michelle accepted that Mr McKensey may have said that cl 10 "protects you all" and that was because it means that "you all have to agree" on any important operational decisions. She also agreed that she understood that cl 10 would obviate the risk that two people might gang up on the third.
John deposed that if Mr McKensey had given an explanation of cl 10 in terms of par 19 of Mr McKensey's affidavit (as set out at [72] above), he would have challenged him, because Martin, Michelle and he were family members and had always sorted out any differences by talking with each other, and he did not consider there was any risk of any of them ganging up on each other. I find this aspect of John's evidence to be a reconstruction, influenced by how he now believes he would have responded at the time.
John disagreed that Mr McKensey said that "clause 10 protected you all because it means that you all have to agree on any operational decisions". He also disagreed that there was ever any question of people ganging up on anybody, although he could not recall whether Mr McKensey identified that as a risk he wanted to protect against.
Given Michelle's concession in cross-examination as to what Mr McKensey said concerning cl 10 (see [73] above), I accept Mr McKensey's affidavit evidence of what he said in relation to cl 10. There is no apparent reason why Mr McKensey would withhold expressing to the directors what he was seeking to achieve.
Michelle also deposed (par 88) that when Mr McKensey read through cl 10, she responded with words to the effect: Well what if Martin is not performing properly as managing director, if he is not doing a proper job managing the hotel, there is no way of getting him to stand down as he would need to vote himself out. What if Martin becomes sick and can no longer do his job?
It was suggested to Michelle in cross-examination that this part of her evidence was mistaken and that she first raised the subject of Martin's performance at the subsequent October 2011 directors' meeting, after receiving advice from her solicitor, Mr Hourigan, in relation to the document. Michelle responded that she had thought about "the subject of Martin's performance" before the October 2011 meeting and had raised it at the 31 August meeting.
I find that Michelle's evidence is mistaken. It seems to me that Michelle conflated her consideration before the October 2011 directors' meeting of cl 5 of the Protocol (having regard to Mr Hourigan's advice on that topic) with what occurred at the 31 August 2011 meeting. Michelle received advice from Mr Hourigan on 12 September 2011 concerning Martin's appointment under cl 5 "until he is unable to act or resign". Given that Michelle had not received advance notice of the Proposed Protocol, it is more likely that she first raised the topic of Martin's performance and cl 5 of the Protocol at the October 2011 directors' meeting, after receiving advice from Mr Hourigan on 12 September 2011.

[17]

Did the directors qualify their assent to the Protocol?

Mr McKensey deposed (par 21) that when he had finished explaining the terms of the Protocol, the directors each expressed their acceptance of the Protocol in words to the following effect:

Michelle said: "I am not really happy about this, but I will sign it and I understand it";
Martin said: "I understand these protocols and I am happy to sign them"; and
John said: "I understand these protocols and I will sign them". after which they each signed the Protocol in his presence. Mr McKensey further stated (par 22) that he then wrote on the last page of the document the words "SIGNED IN THE PRESENCE OF HUGH S McKENSEY" and signed the document, and then congratulated the directors by saying to them: This could be the most significant moment of your lives. Congratulations on reaching this agreement.

Both Michelle and John disputed Mr McKensey's evidence as to what they each said before signing the document. Michelle deposed (par 16) that at the end of the meeting Mr McKensey said words to the following effect: I don't want anyone to leave the room until this document has been signed by all of you. and that she responded: Okay, but I'm only signing it as a draft and a work-in-progress. Michelle said that at that point, the directors each signed the document.
Michelle also deposed (par 89) that she did not say the words attributed to her by Mr McKensey (set out at [80] above), and that she did not hear Martin and John say the words attributed to them by Mr McKensey. (The reference in par 89 of Michelle's affidavit to "Hugh", rather than "Martin", when read in context, is plainly an error.)
John deposed (par 19) that towards the end of the meeting, after Mr McKensey finished his review of the contents of the document, the following conversation took place: Hugh: Everyone will need to sign this document before we leave the meeting. Me (John): I don't want to sign, I want to take advice. Hugh: We don't want to get in to the same situation we had with Peter. These protocols will make it crystal clear how things will be managed. It's up to you. The only way the company can move forward is by having this document signed. It is a working document. We're not leaving this meeting until the document is signed. Me (John): I'm only signing it as a draft and a working document. Michelle: On that basis, I'm happy to sign it as a draft.
In cross-examination, Mr McKensey said he could not recall either of the above statements by John and Michelle at the meeting. He did not deny John's evidence.
John also gave evidence in his affidavit (par 52), that Martin did not say the words or words to the effect that Mr McKensey attributed to him, that he understood the protocols and was happy to sign them (see [80] above). Significantly, John was not challenged on this paragraph of his affidavit.
Although Michelle did not mention wanting to obtain advice in her affidavit, when pressed by the cross-examiner she said that she did say at the meeting that she wanted to get advice. (That was a reference to Mr Hourigan, her personal solicitor.) She could not offer an explanation as to why she had not included that in her affidavit.
I find that, at least, John mentioned before signing the document that he wanted to obtain advice. On balance, I think that Michelle conflated what she was thinking at the meeting (that she needed to obtain advice) with what she said at the meeting. This part of her evidence seems to me to be a reconstruction.
When asked in cross-examination why she signed the document if she did not agree with cl 10, Michelle responded that she signed the document as a "work in proposed [sic] preliminary protocol" (I think the transcript should be corrected to "work-in-progress preliminary protocol"), and that she said at the meeting "I'm only signing it as a proposed preliminary protocol". When pressed by the cross-examiner that those latter words did not appear in her affidavit, Michelle responded: Well, that's the same thing, isn't it? A proposed preliminary protocol, and it's a draft in progress.
When asked by the cross-examiner what was the point of signing the document as a draft, Michelle responded: I didn't want to sign it, Hugh would not let us leave the room without signing it, and he was very, very insistent, and so, when I signed it I said, "I'm signing it as a proposed preliminary approach protocol", and it wasn't until we all signed it that Hugh brought out this stamp and stamped it, and I thought that was a bit - over the top, but that's sometimes - how he was, but I just think - I signed it not as a protocol, but as a proposed preliminary protocol.
Michelle agreed with the cross-examiner's proposition that if she did not want to sign the document she could have left the meeting, but said "it was very difficult" to leave the meeting, explaining that Mr McKensey kept "badgering". Michelle denied the proposition that she well-understood the reference in the document to the "proposed preliminary protocol" was an agreement that was to be reached. I accept that evidence.
When asked why she did not write the word "draft" before she signed the document to make clear that it was not an operative document, Michelle responded that she wished she had, but she had made her position very clear, and that Martin and John understood, if Mr McKensey did not, exactly what she was saying. When pressed again that she could have refused to sign the document, Michelle responded: I could have, but I was badgered and badgered, and that's why I signed it, as a proposed preliminary protocol.
When asked to explain how she was "badgered" by Mr McKensey, Michelle gave the following evidence: He said I couldn't - we couldn't leave the meeting, "It's absolutely imperative that you sign this", and I was shaking my head, and I thought, "right", you know it's a - sorry, it's a proposed preliminary protocol. You know you want me to sign it to say I've sighted it, but I'm not going to sign it - I only signed it on that reasoning, that it was a proposed preliminary, and just a work in progress. I couldn't understand it myself why he was so adamant, unless it was signed as the proposed, and I said, I was signing it as a proposed preliminary protocol.
Michelle denied that she well-understood that by signing the document she was agreeing to the document having operative force in relation to the management of the company going forward. I accept that evidence.
John generally adhered to his affidavit evidence in cross-examination. He was adamant that Mr McKensey did not say that "it is critical that you fully understand and accept the document I prepared". John reiterated his affidavit evidence that Mr McKensey said that the proposed preliminary protocols was a working document and that Mr McKensey described the document as a road map to move the company forward.
John adhered to his affidavit evidence that before he signed the document he said he needed to obtain advice before signing it off. When asked in cross-examination why he signed the document if he wanted to get advice, John said that in response to Mr McKensey having advised that it was a document prepared to move the company forward, and that it was a working document, he (John) said to Mr McKensey: If it's a working document, I'm happy to sign it as a draft.
When asked why he didn't add the word "draft" on the document to make his position clear, John said that he probably wanted to go home after so many hours of sitting down at a meeting. He added that he did not think it necessary to add the word "draft" or "working document" next to his signature because Martin, Michelle and himself were brother and sister and at that stage "we had a complete trust in Hugh McKensey".
The cross-examiner put to John that he was content with what had been prepared, but understood that there was going to be further work done on the document and that any amendment could be done with the agreement of everyone. John said that there were things in the document that needed work and that it was not finalised.
In answer to the suggestion that he understood a "working document" to mean a document that worked in the sense of regulating how things were going to be managed in the company going forward, John responded that he understood those words to mean a document that was not finalised and was still being worked on.
In answer to the suggestion that he could have left the meeting at any time, John said that it would have been very difficult for him to do so as he was sitting in a room with his brother and sister and Mr McKensey, in whom they had placed their trust at the time.
Mr McKensey agreed in cross-examination that he was insistent that the directors sign the document at the meeting. He accepted that he said to the directors: "I don't want anyone to leave the room until this document has been signed". He was quick to explain why, without being asked. He said that he wanted the directors to "be bound by their agreement". I find this evidence unimpressive. It was self-serving and a reconstruction, based on what Mr McKensey subjectively considered was in the company's best interests.
Mr McKensey denied the cross-examiner's proposition that the "urgency" to produce an agreement was generated by him. He said he wanted to avoid what had previously happened during the period when he had acted as chairman. When pressed by the cross-examiner that there was no basis for supposition that there would be any enmity or difficulty between Martin, Michelle and John, Mr McKensey said that he could not answer that, before asserting that he had already given an explanation for why there was an urgency. Again, I did not find this response impressive.
In re-examination, Mr McKensey said there had been a great deal of dysfunctionality between the directors and shareholders. Objection was taken to this answer. The question and answer were allowed. Mr McKensey said that he used the word "dysfunctional" to describe the abuse between the parties he saw at meetings of the company. He referred to verbal abuse between the parties; physical confrontation between two of the directors; and "a lack of disharmony [sic] on many matters". The reference to physical confrontation between two of the directors can be taken to be a reference to Peter and Martin. Mr McKensey did not give any evidence of abuse or disharmony or physical confrontation between Martin, Michelle and John.
I find, contrary to Mr McKensey's evidence, that the "urgency" in terms of procuring the directors' signatures was generated by Mr McKensey given the short notice of the meeting which he suggested should occur, the absence of an agenda, the lack of prior notice of the contents of the document and Mr McKensey's insistence that the document be signed at the meeting. Contrary to the impression that he sought to convey in response to cross-examination, Mr McKensey was extremely keen to have the directors sign the document he had prepared before Martin embarked on his new position as managing director of the company.
Mr McKensey accepted in cross-examination that Michelle had said at the meeting that she was not really happy about the document and that she wasn't happy to sign the document. Mr McKensey gave evidence that if John had said, "I don't want to sign, I want to take legal advice", he would not have had the document signed. I do not accept this evidence. Mr McKensey also gave evidence that if John had said, "I'm only signing it as a draft and a working document", he would have asked him what he meant by the reference to "draft" because he would have believed that John might not have understood what he (John) meant by "draft". I consider this explanation to be a reconstruction. This evidence was also an example of Mr McKensey's dismissive attitude to John's ability as a director. I do not accept this part of Mr McKensey's evidence. I prefer the evidence of John.
Mr McKensey accepted that he would not have thought it unreasonable if the directors had said they wanted to get legal advice on the document, but added again, somewhat dismissively, that he considered advice was not necessary. Mr McKensey explained that, "You don't get legal advice on everything you do". When the cross-examiner suggested that one would normally get legal advice for "everything important", Mr McKensey disagreed and offered the example of buying a car as an important decision not requiring legal advice. Mr McKensey later denied in cross-examination that one or more of the directors said that they would like to get legal advice on the document. I do not accept this part of Mr McKensey's evidence. He sought to justify his position that none of the directors said they would like to get legal advice on the document, by rationalising why legal advice would not be necessary. Yet seeking advice would be the natural response of directors confronted without advance notice with the terms of such a significant document. Mr McKensey's exchange with the cross-examiner about buying a car was argumentative and highlighted the self-justificatory character of this aspect of his evidence.
I accept Michelle's evidence that she expressly qualified her acceptance of the document by stating before signing words to the effect that she was not happy with the document, and that she was only signing it as a draft and a work-in-progress. I also accept that, in response to Mr McKensey's insistence that the directors not leave the meeting without signing the document, Michelle said words to the effect that she was signing it as a proposed preliminary protocol.
I also accept John's evidence that before signing the document he stated that he was only signing the document as a draft and a working document. I find that there is no evidence that Martin accepted the document before signing it, as asserted by Mr McKensey.

[18]

15 February 2012 - directors' meeting

There is a further factual dispute concerning what occurred at the directors' meeting held on 15 February 2012 in relation to the Amended Protocol prepared by Mr McKensey. It is necessary to deal with this dispute, at least insofar as Jennifer relies upon the directors' conduct at this meeting as subsequent communications and conduct consistent with the existence of an earlier immediately binding agreement in terms of the Protocol.
Mr McKensey deposed in his affidavit (par 33) that he said to the directors at the February 2012 directors' meeting: You have all seen the Amended Protocol, which includes all of the variations that were discussed and agreed at the directors' meeting in December. Are you all now generally satisfied with the protocols as they currently stand subject to a final version incorporating provisions covering the exit of a shareholder being completed? [emphasis added]
Mr McKensey gave evidence that each of the directors replied, "Yes", however, the document was not signed by the directors at that meeting or any subsequent time.
Michelle denied in her affidavit that Mr McKensey said the words set out at [109] above at the February 2012 meeting. Michelle deposed (par 95) that at the time of the February 2012 meeting, she and the other directors had decided to engage Moray & Agnew to prepare a shareholders' agreement, rather than continue with the Proposed Preliminary Protocols. She said that she had made an appointment for this meeting with Moray & Agnew for the following day, 16 February 2012, prior to attending the directors' meeting on 15 February 2012. Michelle also denied that she agreed to the Amended Protocol at the 15 February 2012 meeting.
John accepted in his affidavit (par 58) that at the February 2012 meeting, Mr McKensey addressed the latest changes to the protocols. John said that he was not sure which version of the document was discussed at the February 2012 meeting because there were so many versions of the proposed protocol "going around by this stage". He disputed that Mr McKensey asked him whether he was generally satisfied with the protocols as they currently stood. At that time, he still held a number of concerns with many aspects of the document. He considered that the time spent discussing the development of the protocols was unnecessary in circumstances where the directors were all family members and close to each other. He added that at this stage the directors had arranged to attend a meeting with Mr Whare from Moray & Agnew to look at preparing a shareholders' agreement instead of continuing with the Proposed Preliminary Protocols.
John adhered to his affidavit evidence in cross-examination. He said that he did not think he would have said "yes" to the version of the company protocols which contained new provisions dealing with the buyout of another shareholder, if any of the directors ceased to be a director for any reason (cls 16-24). He said that the time periods referred to in those provisions gave "a very short time to come up with a lot of money".
In his oral evidence in chief, Mr McKensey corrected his affidavit evidence (par 33) and said that the italicised words (set out at [109] above) were said by him at the 14 December 2011 directors' meeting, not the 15 February 2012 meeting. Mr McKensey explained that he realised the error in his March 2017 affidavit on the weekend prior to the hearing, because it was at the December 2011 meeting that he was requested to update the Protocol to include provisions dealing with the exit of shareholders, and that by the February 2012 meeting, that had already been done. Mr McKensey said that he had accessed the hard drive of the document, which showed that he prepared the last version incorporating the provision dealing with the shareholder exit at 4.26pm on 14 December 2011. Mr McKensey said that the mistakes in his March 2017 affidavit were a result of him being in hospital at the time, heavily drugged, having broken his femur on 12 February 2017.
Mr McKensey was then taken to an earlier affidavit he had sworn on 24 April 2015 in the Insurance Proceedings (Ex A). In par 36 of his April 2015 affidavit, Mr McKensey deposed that, following Peter's exit from the company (in August 2011) he was advising Martin, Michelle and John regarding the ongoing management of the company and he circulated the proposed Protocol. In par 38, Mr McKensey deposed that there were several changes to the protocols discussed by him with the directors over the following months and that: A final draft was accepted by them at a directors' meeting on 15 February 2012 reflecting variations "per the determination of the Board at the meeting on 15 December 2011.
In par 39 of his April 2015 affidavit, Mr McKensey deposed: At the directors meeting on 15 February 2012 I asked the directors: Are you all now generally satisfied with the amended draft protocols as they currently stand subject to a final version incorporating provisions covering the exit of a shareholder being completed? The directors each said: Yes.
In cross-examination, Mr McKensey said that he had also made a mistake in his April 2015 affidavit because "the timing is such that it was wrong".
Accepting that there was a mistake by Mr McKensey in both affidavits (sworn two years apart), there remains a material difference between pars 38 and 39 of the April 2015 affidavit and par 33 of the March 2017 affidavit. In his April 2015 affidavit, Mr McKensey described the document he presented at the December 2011 directors' meeting as "the amended draft protocols as they currently stand" and similarly described the document presented at the February 2012 meeting as a "final draft". Those qualifications relating to the "draft" nature of the document do not appear in Mr McKensey's March 2017 affidavit.
In cross-examination, Mr McKensey accepted that the document presented at the February 2012 directors' meeting was accurately described as a "final draft"; yet this significant qualification did not appear in his March 2017 affidavit. He did not explain this omission. Mr McKensey also accepted that he asked the directors at the February 2012 meeting whether they were generally satisfied with the "amended draft protocols as they currently stand".
The minutes of the 15 February 2012 directors' meeting record: Protocols have been updated to generally reflect the variations per the determination of the Board at the meeting held 14 December 2011.
The minutes do not corroborate Mr McKensey's evidence that each of the directors signified their oral assent to the Amended Protocol at the February 2012 meeting.
I find Mr McKensey's evidence concerning the February 2012 meeting unreliable. First, he did not satisfactorily explain the material differences between his April 2015 affidavit and his March 2017 affidavit. It would ordinarily be expected that his recollection was more likely to be better in April 2015 than two years later in March 2017, particularly given his explanation that at the time of his March 2017 affidavit he was heavily affected by medication.
Second, I accept Michelle and John's evidence that they did not signify their oral affirmation of the Amended Protocol at the February 2012 meeting. That would have been inconsistent with their then state of mind and their contemporaneous conduct. Not only did the directors not sign the Amended Protocol at the February 2012 meeting, but they had already arranged to meet with the company's solicitor the following day for the purposes of giving instructions in relation to the preparation of a shareholders agreement, rather than pursue further consideration of the proposed Amended Protocol.
Third, accepting that the last version of the document was prepared by Mr McKensey at 4:26pm on 14 December 2011 (after the conclusion of the directors' meeting on that day at 1:30pm), I find that Mr McKensey described the document presented to the February 2012 meeting as a "final draft" and the "amended draft Protocols as they currently stand", yet he omitted those words (without explanation) from his March 2017 affidavit.
I do not accept Mr McKensey's evidence that each of the directors affirmatively agreed to the amended Protocol at the 15 February 2012 meeting. I prefer the evidence of Michelle and John that the directors did not signify their assent orally to the Amended Protocol at the February 2012 meeting.

[19]

Issue 1: Is the chairperson resolution beyond power under the constitution of the company?

It is convenient first to address the validity of the chairperson resolution by reference to the powers of the directors under the constitution of the company. (In this case, the articles of association of the company adopted the Table A articles in the Fourth Schedule of the Companies Act 1961 (NSW), with some qualifications which are not presently relevant). The following analysis does not depend on whether the Protocol is legally binding.
The following provisions of the Table A articles adopted by the company were referred to in argument: Art 49 The chairman, if any, of the board of directors shall preside as chairman at every general meeting of the company, or if there is no such chairman, or if he is not present within fifteen minutes after the time appointed for the holding of the meeting or is unwilling to act, the members present shall elect one of their number to be chairman of the meeting. Art 70 The remuneration of the directors shall from time to time be determined by the company in general meeting. That remuneration shall be deemed to accrue from day to day. The directors may also be paid all travelling, hotel, and other expenses properly incurred by them in attending and returning from meetings of the directors or any committee of the directors or general meetings of the company or in connection with the business of the company. Art 85 The directors may elect a chairman of their meetings and determine the period for which he is to hold office; but if no such chairman is elected, or if at any meeting the chairman is not present within ten minutes after the time appointed for holding the meeting, the directors present may choose one of their number to be chairman of the meeting. Art 86 The directors may delegate any of their powers to committees consisting of such member or members of their body as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the directors.
Reference should also be made to Corporations Act, s 198D, which provides: (1) Unless the company's constitution provides otherwise, the directors of a company may delegate any of their powers to: (a) a committee of directors; or (b) a director; or (c) an employee of the company; or (d) any other person. Note: The delegation must be recorded in the company's minute book (see section 251A). (2) The delegate must exercise the powers delegated in accordance with any directions of the directors. (3) The exercise of the power by the delegate is as effective as if the directors had exercised it.

[22]

Delegation of directors' powers - Art 86

Article 86 permits the directors to delegate their powers to a committee of only one director. Articles in the form of Art 86 have a long history. The power of delegation of the directors' powers to a committee consisting of "such member or members of their body as they think fit", includes a committee of only one director: Re Fireproof Doors Ltd; Umney v The Company (1916) 2 Ch 142; Taurine Co (1884) 25 Ch D 118.
Re Fireproof Doors Ltd concerned Art 91 of Schedule 1 to the Companies (Consolidation) Act 1908 (UK), also known in that legislation as Table A. That article also allowed the directors to delegate their powers to a committee consisting of "such member or members of their body as they think fit", as did predecessor provisions, such as Art 68 of Table A to the Companies Act 1862 (UK) and Art 57 of Table B to the Joint Stock Companies Act 1856 (UK). As counsel for Jennifer ultimately conceded, Art 86 permits delegation of the powers of directors to a committee of only one director.
The same position pertains under the Corporations Act, s 198D(1)(b), which allows the directors to delegate any of their powers to a single director, unless the company's constitution provides otherwise. It was not submitted that there was any contrary provision here in the constitution of the company.
With respect to the subject matter of the chairperson resolution, I reject Jennifer's submission that the resolution does not delegate any particular powers of directors to a committee of only one director. Under the constitution of the company, the power to conduct the business of the company is vested in the directors in very wide terms: Art 73. Characterising the chairperson resolution, as Jennifer does, as only creating an "office of executive chairperson", diverts attention from the correct question, namely whether the subject matter of the resolution is a delegation of certain of the powers of the directors to the person appointed to fulfil the role of chairperson of the company. Plainly that is what the resolution involves.

[24]

Severance

The final question which arises is whether the invalid part of the chairperson resolution is severable.
The terms of the "Chairperson proposal", as initially tabled at the February 2016 directors meeting, consisted of two resolutions. That part of the proposal dealing with the additional remuneration of the chairperson was contained in the second proposed resolution: par 8. Nonetheless, the "Chairperson proposal" was subsequently put to the June 2016 directors' meeting as a whole and passed as a whole.
The severability of resolutions passed at a general meeting of a company was considered by Hodgson J (as his Honour then was) in Simon v HPM Industries Pty Ltd (1989) 15 ACLR 427 at 439-440. After referring to the discussion in the 23rd edition of Palmers' Company Law at par [58-08], and noting the absence of clear authority comprehensively dealing with the question of severability in relation to resolutions passed at a general meeting of a company, Hodgson J said at 439: This discussion suggests to me that, if a number of resolutions are set out in the notice of meeting as separate resolutions, and are passed separately at the meeting, the presumption will be that they are intended to operate independently of the passage or validity of the other resolutions: whereas if they are set out in the notice of meeting as in effect a single resolution, and are passed at the meeting as a single resolution, then the presumption will be that they were intended to operate only as a whole.
Hodgson J observed that this approach bears some analogy with the approach taken to the constitutional invalidity of Commonwealth statutes, since the introduction of s 15A of the Acts Interpretation Act 1901 (Cth). His Honour also observed (at 440) that interpreting whether valid parts of a composite resolution could take effect independently of other invalid parts of the same resolution requires a "slightly stricter test than that adopted in relation to the severability of contract provisions".
In my view, there is no reason why a similar approach should not be taken to the severability of a resolution of directors which contains an invalid part.
In the present case, it is not possible to sever the invalid part of the chairperson resolution providing for remuneration of the chairperson, from the remainder of the resolution. As indicated, the chairperson resolution was put to the July 2016 directors meeting as a single resolution and passed by the directors as a single resolution. The presumption is that it is intended to operate only as a whole: Simon v HPM Industries at 439. Counsel for Michelle and John did not submit to the contrary. In my view, neither the form of the resolution nor its terms suggests that the various parts of the resolution are independent and severable from each other.
It follows that I accept Jennifer's contention that the chairperson resolution is beyond the power of the directors of the company.

[26]

Standing and proper parties

As to the question of standing, no issue was raised in the defence filed on 8 March 2017 concerning Jennifer's "standing" to claim a declaration that the chairperson resolution is invalid. Michelle and John only pleaded the "proper plaintiff rule" as a defence to Jennifer's contractual claims founded on the Protocol: par 21(a) defence. Alternatively, Michelle and John pleaded that the company is an interested party and the relief claimed by Jennifer (based on the Protocol) cannot be obtained in the company's absence.
However, in submissions dated 18 April 2017 filed after the conclusion of the hearing, in response to Jennifer's supplementary submissions (with leave) on the question of Jennifer's standing in relation to the Protocol and particularly the enforcement of cl 10 (as Martin's legal personal representative), Michelle and John asserted a "standing" defence to Jennifer's separate claim that the chairperson resolution was beyond the power of directors. Unsurprisingly, Jennifer objected (in submissions dated 21 April 2017) to the late raising of any such defence, which was not pleaded.
The attempt by Michelle and John to raise a new point in submissions served after the conclusion of the hearing must be rejected. It would be unfair and prejudicial to Jennifer to allow this new point to be raised. If the issue of "standing" had been pleaded in answer to Jennifer's separate claim that the chairperson resolution was beyond the power of the directors, Jennifer could have sought to meet that objection by utilising other procedural means (assuming the proper plaintiff rule afforded a good defence to the grant of relief with respect to the chairperson resolution) based on breach of Art 70.
One possible course would have been to challenge the validity of the chairperson resolution under Corporations Act ss 232-233 on the ground of oppression. Jennifer had standing under Corporations Act, s 234(1)(d), as a person to whom a share has been transmitted by will, to apply for relief in relation to oppression under s 233. Another possible course would have been to seek leave to bring a derivative claim under Corporations Act, s 237. Jennifer had standing under Corporations Act, s 236(1), as a person entitled to be registered as a member (see s 1072E(2)(a)), and also as an officer of the company (see s 1072E(2)(b)), to apply for leave to bring a derivative claim under s 237.
The new point raised by Michelle and John should not be permitted. That makes it unnecessary to consider whether the proper plaintiff rule does not apply here because the directors' conduct directly affects the rights or interests of individual shareholders to have the company and its directors act in accordance with the relevant articles of association, relevantly, Art 70: Winthrop Investments Ltd v Winns Ltd (1975) 2 NSWLR 666 at 690F-G; Residues Treatment & Trading Co Ltd v Southern Resources Ltd (No 4) (1988) 14 ACLR 569.
Similar reasoning applies insofar as Michelle and John pleaded the absence of the company as an interested party: par 21(a) defence. Again, that defence was not pleaded in relation to Jennifer's separate claim that the chairperson resolution was beyond the power of the directors. In circumstances where Michelle and John are the only other shareholders of the company, it is unsurprising that they did not plead the absence of the company as a defendant as a procedural obstacle in the path of Jennifer's separate claim.
There should be a declaration that the chairperson resolution is invalid.

[29]

Intention to create legal relations

The relevant principles are not in dispute. The essential question which arises in cases such as the present, as stated by Allsop J in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 (Branir) at [369]: is whether the parties' conduct, including what was said and not said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement … which bespeaks an intention to be legally bound to the essential elements of a contract.
What is required is an objective assessment of the state of affairs between the parties; that is, an assessment of what was conveyed objectively by what was said or done, having regard to the circumstances in which those statements and actions happened: Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 (Ermogenous) at [25]; Pavlovic v Universal Music Australia Pty Ltd (2015) 90 NSWLR 605 (Pavlovic) at [65] (Beazley P, Bathurst CJ and Meagher JA agreeing).
The enquiry as to the parties' intentions is not concerned with the parties subjective intentions, but with what has been described as the "outward manifestations" thereof, having regard to the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract: Taylor v Johnson (1983) 151 CLR 422 at 428; Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 at [59].
As Campbell JA explained in Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65 at [269], in determining whether a contract has been entered, or what construction it bears: the common intention that the court seeks to ascertain is what is sometimes called the 'objective intention' of the parties. That is the intention that a reasonable person, with the knowledge of the words and actions of the parties communicated to each other, and the knowledge that the parties had of the surrounding circumstances, would conclude that the parties had, concerning the subject matter of the alleged contract.
Subsequent communications between the parties are admissible on the question of whether a contract is formed: Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 at [25] (Heydon JA); Pavlovic at [133]; Lym International Pty Ltd v Marcolongo [2011] NSWCA 303; County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193; Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149.
In Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, Gleeson CJ said at 547-8 in relation to the admissibility of subsequent communications: There is ample authority for the proposition that reference may be made to the correspondence between the parties subsequent to 13 June 1986 for the purpose of showing that 'it was not in the contemplation of either party that they were to be bound until all the essential preliminaries had been agreed to, nor until a formal contract had been drawn up embodying all the matters incidental to a transaction of such a nature': Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 at 669 per Griffiths CJ; see also Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68; Hussey v Horne-Payne (1879) 4 App Cas 311; B Seppelt and Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 and Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251.
In Sagacious Procurement Pty Ltd v Symbion Health Ltd, Giles JA (Hodgson JA and Campbell JA agreeing) emphasised at [105] that since the objective intention of the parties is fact-based, and found in all the circumstances: That in their subsequent communications the parties have continued in negotiations, or have expressed the common understanding that they are not legally bound unless and until a formal contract is executed, is of itself probative as to their contractual intention: see Howard Smith and Co Ltd v Varawa [(1907) 5 CLR 68], stating simply that any statements or conduct inconsistent with the existence of a concluded contract are relevant.
It has been said that the basis of subsequent communications as admissions is very different. It does not depend on communication between the parties: Sagacious Procurement Pty Ltd v Symbion Health Ltd at [106]. Subsequent communications may be admissible as an admission, being evidence of facts whose assertion is against the interests of one party: Johnston v Bright Star Holdings Pty Ltd [2014] NSWCA 150 at [20] (Basten JA); Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570 at [35] (Gummow, Hayne and Kiefel JJ).
However, as Gleeson CJ said in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd at 550, "it will often be necessary to identify with some care the fact which is said to have been admitted". Thus to the extent that the evidence reveals matter of mixed law and fact is involved, or the application of a legal standard, admissibility may be more contentious, and an admission by conduct may bring its own difficulties: Sagacious Procurement Pty Ltd v Symbion Health Ltd at [106].

[30]

Analysis

The starting point is to recall that the intention in question in the present case is not a general intention at some time to enter into a contract, but an intention to make an immediately binding contract at the directors' meeting on 31 August 2011.
It also bears repeating that what is required is an objective assessment of what was conveyed by the words and actions of the 31 August 2011 meeting, having regard to the circumstances in which those statements and actions happened, including the signing of the Protocol, and whether it reveals an understanding or agreement which bespeaks of an intention to be legally bound to the essential elements of a contract: Ermogenous; Branir. Accordingly, much of the cross-examination was irrelevant to this issue since it was directed to the directors' subjective beliefs and intentions.
Jennifer emphasised the directors' signatures on the Protocol document, particularly following a detailed explanation of its terms by Mr McKensey. Reference was made the observation of Ward J (as her Honour then was) in Painaway Australia Pty Ltd v JAKL Group Pty Ltd (2011) 249 FLR 1 at [206], that the act of signing a document signified in that case "an objective intention of the signatories to commit to enter into and be bound by an agreement in these terms". The fact that all three directors signed the document at the meeting is a factor to take into account in determining whether they intended to be contractually bound by its terms, but it is far from conclusive. All relevant circumstances must be taken into account: Abadeen Group Pty Ltd v Bluestone Property Services Pty Ltd; Brown v Hodgkinson [2009] NSWCA 386 at [340] (Sackville AJA, Hodgson JA and Campbell JA agreeing).
As McHugh JA said in Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 337, a party may prove that before signing an agreement, the signatories agreed that it did not constitute a binding contract and that "the intention to be bound is a jural act separate and distinct from the terms of their bargain".
In the present case, the significance of the signing of the document is to be assessed in light of the circumstances in which the document was presented to the directors, and what was said by them before signing the document.
As to the context in which the document was presented to the directors by Mr McKensey, there is no evidence that the directors had sought or desired an agreement between themselves with respect to the subject matter of the Protocol, and no one other than Mr McKensey (a non-party) had turned their mind to the need for such a document, with the possible exception of Martin to the limited extent of his telephone discussions with Mr McKensey on 30 and 31 August 2011.
The document was put to the directors by Mr McKensey as a "working document" and a "road map to move the company forward". That is consistent with the form and heading of the document styled as "Proposed Preliminary Protocols". That many of the provisions in the Protocol employed the command "will", in stating the manner in which the company was to be managed (see cls 1-5, 7, 9, 11-13 and 16) and the Protocol contained a dispute resolution procedure (cl 17) is an indication of an intention to be immediately bound, but again is not determinative.
Against this, Michelle and John indicated at the directors' meeting that they were not happy with the document. At least John indicated that he wanted to obtain advice. In circumstances where the company and the directors frequently dealt with lawyers, the nature and subject matter and the magnitude, complexity and significance to the parties of the proposed arrangements under consideration (including the inconsistency of some of its terms with the constitution of the company), made the obtaining of advice a natural step before committing to any agreement.
I have found that immediately before signing the document, Michelle and John both indicated that they were only signing the document as a working document or a draft. That is, they each expressly qualified their assent to the Protocol before signing the document, in terms that plainly indicated that they did not intend to be immediately bound by the Protocol. That the document contained some provisions with which they were content, such as the terms of Martin's appointment as sole managing director, the arrangements with respect to directors' fees and the provision of motor vehicles for directors, is not inconsistent with the directors not intending to be immediately bound by the document.
Jennifer pointed to the absence of any written caveat (or qualification) in the Protocol itself, or in the correspondence which followed execution of the Protocol, as to the asserted non-binding character of that instrument. This was said to be significant in ascertaining what each party to the Protocol, by words and conduct, would have led a reasonable person in the position of the others to believe. I do not agree. First, this submission overlooked the harmonious relationship between the directors at the time; the unchallenged evidence of Michelle and John is that they trusted each other and Martin.
Second, as I have said, Michelle and John both expressly orally qualified their assent to the Protocol as a draft or working document before signing the document. That persons who trust each other do not record their qualified assent to a proposal as a draft by writing the word "draft" on the document before signing it, but are content to rely upon their spoken word and the bond of trust they have in each other as family members, is unexceptional.
The absence of correspondence following execution of the Protocol asserting the non-binding character of that instrument is explicable. As indicated, no minutes of the 31 August 2011 meeting were prepared by Mr McKensey, despite that being his usual practice. Thus, there was no occasion for the directors to subsequently challenge any minute of meeting to the effect that they had resolved to adopt the terms of the Protocol on 31 August 2011.
Michelle subsequently sought advice from her solicitor, Mr Hourigan, and presented his suggestions in relation to the document at the next directors' meeting in October 2011. Those suggestions, among others, were discussed by the directors at that meeting and at the following December 2011 and February 2012 meetings. Those discussions did not proceed on the basis that any of the directors suggested that they were immediately bound by the Protocol, and could only vary the document by a further agreement. Neither Martin nor Mr McKensey asserted that the directors were already immediately bound by the Protocol. Indeed, Mr McKensey's email to Mr Hourigan of 21 October 2011, described the Protocol as "nothing other than a platform on which to build". There was no need for Michelle or John to assert the non-binding character of the Protocol.
The fact that the directors continued discussions about various provisions in the Protocol after 31 August 2011 without any suggestion that that they were already bound by the terms of the Protocol, is inconsistent with the existence of a concluded contract. Similarly, the conduct of the directors in February 2012 in abandoning further discussions in relation to the Protocol and engaging the company's solicitor to prepare a shareholders' agreement is inconsistent with an earlier concluded contract. Again, none of the directors suggested that whist they were content to engage the company's solicitors to prepare a shareholders' agreement, they were nonetheless already bound by the terms of the document signed on 31 August 2011.
Jennifer submitted that the commercial object sought to be secured by the Protocol is readily apparent because following the exit of Peter as a director and shareholder it was "necessary for the three remaining directors and shareholders to regularise the management of the company going forward". This was a reference to the affidavit evidence of Mr McKensey (par 16). But what Mr McKensey considered "necessary" is not determinative of whether the Protocol gave rise to legally binding obligations on the directors and shareholders.
Jennifer also pointed to what was said to be the importance of ensuring that Martin, as managing director, had limits on the exercise of his powers, while also ensuring that no two directors could vote as a majority block and potentially oppress the third as a minority shareholder. This was a reference to Mr McKensey's affidavit evidence (par 19). Again, what Mr McKensey considered the purpose to be achieved by cl 10 of the Protocol is not determinative of the objectively ascertained intentions of the directors.
Jennifer submitted that the use of the words "Proposed" and "Preliminary" in the heading to the Protocol was consistent with the parties intending that what was agreed would later be recorded in a more formal document or, perhaps, supplemented with additional terms, but the parties nonetheless wished to be bound "from 1 September 2011" until any such further document was agreed. In oral argument, counsel for Jennifer submitted that in terms of Masters v Cameron classifications, the Protocol fell "most appropriately" within the added fourth category, described by McLelland J in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 628E-G. I do not agree with this characterisation of the Protocol.
The words "proposed" and "preliminary" are consistent with Mr McKensey's description of the document as being a "working document" and "a roadmap to move the company forward". Having regard to the circumstances in which Michelle and John qualified their assent to the document before signing, the Protocol does not fall within the so called fourth category of Masters v Cameron type of cases.

[31]

Subsequent conduct

Jennifer pointed to various items of conduct by the directors after they signed the Protocol, as illustrating their objective intention that the Protocol was a binding and enforceable agreement having immediate effect. It may be accepted that certain of the matters contemplated by the Protocol were put into effect after 31 August 2011, in particular, Martin's appointment as sole managing director with an increased salary, the appointment of Mr McKensey as chairperson of all meetings of directors and shareholders, the payment of dividends in lieu of directors' fees, and the provision of new motor vehicles to Martin and John. Michelle and John disputed that the conduct identified by Jennifer was truly referable to the Protocol, and submitted that most had their origin in earlier agreements or understandings between the directors. I will deal with each item of conduct in turn.
The first concerns Martin's appointment as sole managing director of the company with an increased salary of $190,000 per annum as contemplated by cl 5 of the Protocol, effective from 1 September 2011, and that Martin directed payment of approximately 40 percent of that salary to Jennifer as contemplated by cl 6 of the Protocol, effective from 1 September 2011.
It had been recognised by the directors before the 31 August 2011 meeting that Martin was the only director who had been engaged in any fulltime sense in the performance of the company's functions, and it was resolved at the 17 August 2011 directors' meeting that Martin was to become managing director and receive a new salary package to be benchmarked by Forsythes' Recruitment. Further, prior to 31 August 2011 Martin was already appropriating approximately 37 percent of his salary to Jennifer (based on the payroll records of the company that were put in evidence).
The second matter was that Mr McKensey was appointed unanimously to act as chairperson at all meetings of directors and shareholders as contemplated by cl 4 of the Protocol. However, Mr McKensey was already performing that role prior to 31 August 2011.
The third matter was that the directors took steps to amend certain provisions of the Protocol at subsequent directors' meetings. As I have said, the discussion of provisions in the Protocol at subsequent meetings is consistent with the directors not regarding the Protocol being immediately binding, and by February 2012 they had collectively decided to commit the task of drafting a shareholders agreement to Moray & Agnew.
Jennifer contended that such conduct is consistent with an "agreed" variation of the Protocol, in accordance with cl 10. I do not agree. There is no evidence that when discussing suggested amendments to the Protocol, the directors proceeded upon the basis that if a consensus was not reached on any of the suggested variations, then they were bound by the existing provisions in the Protocol in respect of which they had indicated their disagreement.
Nor is there any suggestion in the evidence that when the directors were discussing amendments to various provisions in the Protocol that such discussions were being undertaken within the framework of cl 10 of the Protocol, as opposed to discussions between the directors who were considering whether to commit to the terms of the proposed Protocol as a binding agreement.
As to the directors' decision to pursue a shareholders agreement, Jennifer submitted that the lack of speed with which that draft agreement was ultimately produced and considered is "testament to the proposition that a binding … agreement had already been struck", referring to the statement of Gzell J in Jagot v Coastalwatch Pty Ltd [2009] NSWSC 594 at [75]. I do not agree. That submission is contrary to the facts. There was no lack of speed in relation to the drafting of the shareholders agreement. The directors approached the company's solicitors, Moray and Agnew, on the day following the February 2012 Board meeting. As already indicated, those solicitors provided a draft shareholders agreement in about March 2012. That the matter did not progress is explained by the unexpected death of Martin on or about 30 April 2012.
The fourth matter was that Martin and Michelle and John received $10,000 per month in dividends in lieu of directors' fees as contemplated by cl 3 of the Protocol. However, there was no settled history of the company's practices with regard to remuneration and dividends, such that it could be said that the Protocol resulted in a change to that practice.
The fifth matter was that Martin was provided with a new Toyota Landcruiser as contemplated by cl 13 of the Protocol and John was provided with a new motor vehicle as contemplated by cl 12 of the Protocol. However, it was Michelle's unchallenged evidence, which I accept, that the practice regarding motor vehicles had been the same since 2009.
Jennifer also pointed to the directors' meeting on 28 May 2013 where reference was made to the directors' entitlement to new motor vehicles as being governed by the agreement regarding motor vehicles made on 31 August 2011, and confirmed at the Board meeting on 24 July 2012 that all director motor vehicles would be eligible for replacement at the earlier of five years or 150,000 kilometres. Jennifer submitted that Michelle's acceptance of the position with respect to new motor vehicles at the May 2013 meeting, and the absence of any expression of dissent on the part of Michelle or John, was a further illustration of the directors' objectively ascertained intention that the Protocol represented a legally binding agreement. I do not agree.
Michelle gave evidence, consistent with the minutes of the 24 July 2012 directors' meeting, that it had been formally agreed at that meeting that all director motor vehicles would be eligible for replacement at the earlier of five years or 150,000 kilometres. That the then directors agreed to vary the policy stated in the Protocol with respect to the replacement of motor vehicles is not determinative of whether the previous directors intended to be immediately bound by the Protocol.
I conclude that the directors did not intend to be immediately bound by the Protocol signed on 31 August 2011.

[32]

Issue 3: Whether any binding agreement the subject of the Protocol was only operative during the lifetime of Martin?

Michelle and John submitted that if, contrary to their primary submission, the Protocol was found to be a binding agreement, then it is plain from its content that any such agreement lapsed or ceased to have effect upon Martin's death. (That is, upon its proper construction the Protocol terminated upon the death of Martin.) In view of the conclusion above, this issue does not arise. Nonetheless, I will briefly indicate my views.
The starting point is to observe that on Jennifer's case, the only persons who are parties to the Protocol are the three named individuals and not the company itself. Assuming a binding agreement, the relevant question is whether the rights conferred by the Protocol on Martin qua director and shareholder of the company, are personal to Martin or transmissible to his legal personal representative on the true construction of the document.
The nature of the agreement supports the view that its operation was confined to the parties that signed it, being the three named individuals. First, the subject matter of the Protocol was essentially the arrangements for managing the company upon Martin's accession to the position of sole managing director; 9 of the 17 clauses of the Protocol are directed to the position of Martin, relevantly, cls 1, 5, 6, 7, 8, 11, 13, 15 and 16. Those arrangements reflected the generally deferential position of Michelle and John as the other directors with respect to the management of the company's business. So much is apparent, by way of example only, from cls 7, 8 and 11 of the Protocol which provided that:

Martin would be solely responsible for the day to day operation and management of the Hotel (cl 7);
Martin was authorised to commit and pay any operating expenditure of the company up to $50,000 without authorisation from the other directors (cl 8); and
the other directors would assist Martin in the management of the company from time to time as requested by him, and would otherwise not be actively involved in the management of the Hotel, which was the company's main business (cl 11).

Second, subject to the observations below concerning the operation of cl 16, none of those clauses could be operative after Martin passed away on 30 April 2012.
Third, the requirement in cl 10 for a vote of at least 70 percent of directors or shareholders was directed to changes in the manner in which the company was to be managed or operated under Martin's leadership, including funding and capital expenditure, dividend policy and structure. That would include changes to Martin's salary (cl 5); the operation of the Hotel (the company's main business); dividend policy and structure, including payment of directors' fees (cl 3); and the arrangements with respect to motor vehicles for each of Martin, Michelle and John (cls 12 and 13).
Fourth and importantly, the Protocol makes no mention of executors, administrators or assigns. While that is not necessarily determinative (Tollhurst v Associated Cement Manufacturers (1990) Ltd [1903] AC 414 at 423; Price v Murray [1970] VR 782 at 784), it is nonetheless significant in the present case, bearing in mind the context of the Protocol was Martin's appointment as sole managing director of the company.
Fifth (assuming a binding agreement), the bargain struck by the Protocol can be seen as dependent on Martin personally continuing in the role carved out for him as managing director. That is supported by the terms of cls 5 and 16 of the Protocol. Martin's appointment as sole managing director under cl 5 came to an end on his death, and in that circumstance, cl 16 specified the limited purpose for which the company is to use the proceeds of the key-man insurance on Martin's life, in the event of a claim being made on the policy, and required the company to prepare the Hotel for sale within two years of receipt of the key-man insurance proceeds to enable liquidation of the company.
There is no inconsistency between an intention (assuming a binding agreement) that the Protocol would come to an end upon Martin's death, and an intention that cl 16 operate with respect to its limited subject matter after termination of any such agreement. Whether or not a contractual term operates after termination is a question of construction: Photo Production Ltd v Securicor Transport Ltd [1980] AC 827. Here, the nature of the term in cl 16 can be seen to have been intended to operate after termination of the Protocol upon Martin's death.

[33]

Does cl 10 disclose a contrary indication?

Jennifer submitted that cl 10 discloses a contrary intention that at least that provision was to apply after the death of any one party because it does not use the individual names of the particular directors and shareholders but uses the general language of "directors or shareholders". This submission treated the expression in cl 10 as referring to the directors and shareholders from time to time. I do not agree.
First, cl 10 does not stand alone from the rest of the Protocol because it sets out one of the areas in which Michelle and John were to retain responsibility alongside Martin. That provision sits alongside others, like cl 8, which requires approval by Michelle or John (rather than the "directors from time to time") in the event that Martin wished to incur expenditure exceeding $50,000. There is no contextual reason for giving a wider meaning to the expression "directors or shareholders" in cl 10.
Second, given that cl 1 identifies Martin, Michelle and John by name as the directors, little weight (if any) should be given to the use of the shorthand expression "directors or shareholders" in cl 10. That is particularly so when that shorthand expression is used throughout the document to refer collectively to the three named individuals: see cls 2, 3, 4 and 17.
Third, that other clauses in the Protocol such as cl 15 refer specifically to the individual directors by name (in fact, by the abbreviation adopted in cl 1) is of little moment. The use of the individual names of the directors in cl 15 is explicable by the context of that provision, namely the maintenance of a register of private use of the Hotel by the named directors and their families.
Fourth, the subject matter of cl 10 is any variation in the manner in which the company is "managed and operates", including in the specified matters. Plainly, cl 10 is directed to relevant changes to management or operations under Martin's leadership as sole managing director, not to changes after his death when he would be no longer performing that role, particularly bearing in mind the requirements of cl 16 for what is to occur after Martin's death with respect to the sale of the Hotel with a view to liquidation of the company.
Accordingly, if (contrary to my conclusion) the Protocol is legally binding, the better view is that it came to an end upon Martin's death, subject to the continuing operation of cl 16 as explained above. I would add for completeness that on this analysis (which assumes the Protocol is binding) the present directors and shareholders could obviously agree to a different course to that contemplated by cl 16 of the Protocol (which seems to be what has in fact occurred following Martin's death).

[34]

Issue 4: Whether the Protocol takes effect as a resolution of shareholders and alters the constitution of the company to the extent of any inconsistency

Jennifer did not seriously argue against the proposition that the terms of cl 10 of the Protocol conflict with the Table A articles that were adopted as part of the constitution of the company (with some qualifications which are not presently relevant).
Article 80 of the Table A articles provides: Subject to these regulations questions arising at any meeting of directors shall be decided by a majority of votes and a determination by a majority of directors shall for all purposes be deemed a determination of the directors. In the case of an equality of votes the chairman of the meeting shall have a second or casting vote. Article 80 requires a simple majority of directors for all decisions within their competency, subject to the exercise of a casting vote by the chairman of the meeting in the case of equal votes.
This is to be contrasted with cl 10 of the Protocol which requires that any decision of the directors or shareholders of the company that is required to vary the manner in which the company is managed or operated requires the vote of directors or shareholders representing at least 70% of issued shares in the company. At the time of the Protocol and subsequently, there were three directors of the company, meaning that to satisfy cl 10 of the Protocol, the unanimous assent of the directors is required, relevantly, for any decision of the directors answering that description (assuming all three directors attended the meeting and exercised their vote).
Plainly, there is an inconsistency between Art 80 and the Protocol, cl 10. How is this inconsistency to be reconciled?
Jennifer submitted that the answer is to be found in the principle of informal unanimous assent in Re Duomatic Ltd (1969) 2 Ch 365. That is, terms of the Protocol take effect as a resolution of shareholders and thereby operate to alter the constitution of the company (which includes the articles of association) to the extent of any inconsistency.
In view of the conclusion on Issue 2, it is not necessary to address this issue. Nonetheless, I will briefly indicate my reasons why the Duomatic principle does not apply in the present case.
It is of assistance to first outline the manner in which the constitution of a company may be altered under the Corporations Act.

[35]

Corporations Act requirements for alteration of the constitution

The general provision concerning alteration of the constitution of a company is Corporations Act, s 136(2) which provides: The company may modify or repeal its constitution, or a provision of its constitution, by special resolution.
The expression "special resolution" is defined relevantly in Corporations Act, s 9: (a) in relation to a company, a resolution: (i) of which notice as set out in paragraph 249L has been given; and (ii) that has been passed by at least 75% of the votes cast by members entitled to vote on the resolution ….
Corporations Act, s249H deals with the amount of notice required to be given of meetings of members. Section 249H(1) provides that subject to subsection (2), at least 21 days notice must be given of the meeting of a company's members. However, if a company has a constitution, it may specify a longer minimum period of notice. Here, the constitution provides for a shorter period of notice, namely at least seven days' notice: reg 45 of the Table A articles.
Corporations Act, s 249H(2) provides that a company may call on short notice any general meeting, if members with at least 95% of the votes that may be cast at the meeting agree to that course beforehand. This is subject to certain exceptions, if the meeting is for the purpose of removing or appointing a director or removing an auditor, neither of which are presently relevant.
Corporations Act, s 249L(1) deals with the contents of notice of meetings of members. It relevantly provides that a notice of meeting of the company's members must: …. (b) state the general nature of the meeting's business; and (c) if a special resolution is to be proposed at the meeting - set out an intention to propose the special resolution and state the resolution; and ….
In Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd (2014) 88 NSWLR 689; [2014] NSWCA 326 (Wambo Coal) at [255] - [256], Barrett AJA (Bathurst CJ and Beazley P agreeing) explained the manner in which a company's articles may be altered as follows: [255] The power of alteration is vested by s 136(2) in the company itself. The power may be exercised by whatever processes are sufficient under the Act to constitute the passing of a special resolution. In terms of the relevant s 9 definition, one of the essential characteristics of a special resolution is that it "has been passed by at least 75% of the votes cast by members entitled to vote on the resolution". The other essential characteristic (referred to in the s 9 definition and derived from s 249L(1)(c)) is that the notice of the meeting at which the resolution is passed "set out an intention to propose the special resolution and state the resolution". Both these requirements may, however, be bypassed where, pursuant to s 249A(2) or s 249B(1), every member or, in the case of a single-member company, the sole member signs a document signifying consent to the passing of the resolution. [256] Except where resort is had to s 249A(2) or s 249B(1), the process by which a constitution is adopted under s 136(1)(b) or an existing constitution is altered under s 136(2) does not consist of the signing of any document. Rather, the necessary conditions are satisfied if a meeting of members is duly convened, the notice of meeting meets certain requirements as to content and a particular majority of the votes cast by members favours adoption or alteration. If those conditions are satisfied, the constitution as adopted or altered in accordance with the resolution is binding in the way described in s 140(1) despite the opposition expressed by any members who actively voted against the resolution and the silence of members who voted neither for nor against. In all cases, including those dealt with under ss 249A(2) and 249B(1), the company's directors and secretaries are bound despite their entire lack of participation and opportunity to participate.
A resolution cannot be a "special resolution" without the notice required by s 249L, even if it meets the requirements of 75% assent: Wambo Coal at [255]; Gibbons Investments Pty Ltd v Savage [2011] FCA 527 at [64] (Gordon J); Re NSW Leagues' Club Ltd [2014] NSWSC 1610 at [4]. As Barrett AJA explained in Wambo Coal at [256], one of the ways around this prohibition is by the use of circular resolutions under Corporations Act, s 249A(2).

[36]

Parties' submissions

Jennifer submitted, relying upon Corporations Act, s 249H(2), that it was possible in this case for the company to call a meeting on short notice because all the members of the company had agreed to meet beforehand.
Reference was made to Re Grundy Pty Ltd [2010] NSWSC 1432 where Barrett J said (at [7]) that it is possible to infer from parties' presence at and participation in a meeting that they were "content for the meeting to occur and to proceed as it did with less than 21 days' notice having been given" as the Corporations Act, s 249H(1) required for a general meeting of shareholders. Jennifer submitted that an inference should be drawn that the shareholders - Martin, Michelle and John - were content to proceed upon that basis, given Michelle's evidence that she, Martin and John were told half an hour in advance of the meeting on 31 August 2011 that it would occur, and that she "just went along with it".
Jennifer also referred, by way of example, to Rectron Australia BV v Lu [2013] VSC 384, where Judd J held (at [68]) that a shareholders agreement was effective in itself, as a resolution of members, to alter the constitution so as to introduce a limitation on the number of directors and a casting vote. His Honour found (at [69]) that the shareholders disregarded the formalities to achieve a substantive outcome; and that the shareholders agreement constituted the unanimous consent of the shareholders to change the constitution to reflect its terms.
The submissions of Michelle and John in response may be summarised as follows: 1. the Duomatic principle is not available in the present case for a number of reasons including: the principle did not apply to the variation of "substantial rights"; a shareholder cannot waive the destruction of rights of whose destruction the shareholder is ignorant; and the Duomatic principle can only operate where the persons participating in the meeting have full knowledge and consent. Reference was made to Herrman v Simon (1990) 4 ACSR 81. 2. the shareholders, at least Michelle and John, were ignorant of the rights to notice that they were foregoing, and therefore the Duomatic principle could not apply; 3. the Duomatic principle applies to recognise the regularity of past events, and does not apply prospectively to future central matters of governance of the company. That is, the principle does not apply where the resolution itself varies or overrides the members' substantial rights going into the future; 4. the Duomatic principle does not apply because the company was not a party to the Protocol, and there would be a fundamental inconsistency between clauses of the Protocol, as between the members only, and the statutory contract in Corporations Act, s 140(1), embodied in the company's constitution between the company and each member, between the company and each director and company secretary, and between the members inter-se. Reference was made to Rilgar Nominees Pty Ltd v BHA Holdings Pty Ltd [2014] VSC 632 (Sifris J); and Bodikian v Sproule (2009) 72 ACSR 598 at [32] where Austin J said that "the [Duomatic] doctrine does not give the members acting unanimously power that they do not constitutionally possess"; 5. Rectron Australia BV v Lu is distinguishable since that case involved a clearly binding agreement between the shareholders.
In reply, Jennifer drew attention to three matters: 1. the observations of Austin J in Bodikian v Sproule at [35] that the proposition that the Duomatic principle could not apply to vary substantial rights was not necessary for the decision in Herrman v Simon, and depending precisely on what is meant by the reference to "substantial rights", adopting that proposition may substantially narrow the availability of the principle in Australia; 2. that it could not be said that Michelle and John did not understand what cl 10 of the Protocol was seeking to achieve, and accordingly, they had given their fully informed consent; 3. that absent a contrary indication, Martin, John and Michelle should be taken to have signed the document in all their relevant capacities. As the directors and shareholders of the company at the time, they had power to bind the company and should be taken to have done so.
As will become apparent, it is not necessary to address all of the arguments referred to above.

[37]

The Duomatic principle

In Re Duomatic Buckley J said at 373C: [W]here it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent 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 Re Compaction Systems Pty Ltd [1976] 2 NSWLR 477 at 484, Bowen CJ in Eq stated the Duomatic principle as follows: If all the shareholders of the company are present together in a meeting, and signify their assent to a transaction which is within the powers of the company, their decision will be effective in the same way as if a resolution to that effect had been passed at a properly constituted meeting. This may be so, notwithstanding that those at the meeting thought they were conducting a directors meeting and the necessary formalities required for the calling of a general meeting had not been observed. See also Re PW Saddington & S Pty Ltd (1999) 19 NSWLR 674 at 675 - 676 (Young J).
In Gibbons Investments Pty Ltd v Savage [2011] FCA 527, Gordon J noted at [73] that there is still some uncertainty about the precise scope of the Duomatic doctrine in Australia. One view that has been expressed in Herrman v Simon is that the doctrine only permits shareholders to vary procedural rights (e.g.: notice requirements), not substantial rights. In Herrman v Simon, Meagher JA (Samuels and Priestley JJA agreeing) distinguished the Duomatic principle and said at 83: …. it seems to me a doctrine which goes to formalities and not to substance. If all shareholders want the same substantial result and say so, acting unanimously, that doctrine no doubt applies in order to dispense with any failure to observe formalities but it is not a doctrine which says that substantial rights may be varied. …. it seems to me, is that, after all, the Duomatic principle, however formulated, is really only a principle of waiver and it would be a very odd result if one could waive the destruction of rights of whose destruction one was ignorant. …. being a doctrine of waiver and a doctrine going to formalities, Buckley J was perfectly correct in stating that it can only operate where the persons attending a meeting have full knowledge and consent.
In Herrman v Simon, the "substantial right" of the shareholders that Meagher JA considered could not be waived, was the right to separate meetings of each class of shareholders to consider the proposed special resolution. Further and importantly, Meagher JA rejected the submission that one can treat the question of full knowledge and consent shorn of all subjective elements. His Honour said at 84: In other words, I cannot see how one could sensibly apply some doctrine to Mrs Simon which would amount to saying that she was deemed to have known and consented to the effect of the amendments even though the plain fact was that she did not do so.
The view expressed in Herrman v Simon that the Duomatic doctrine goes to waiver of formalities rather than of substantial rights was approved by the Full Federal Court of Australia in Vermillion Resources Pty Ltd v Gibbons Investments Pty Ltd (2011) 86 ACSR 246; [2011] FCAFC 149 (Vermillion) at [17] (Rares, Gilmour and Dodds-Streeton JJ).
By contrast, the authors of Ford, Austin, and Ramsay's, Principles of Corporations Law (LexisNexis Looseleaf) express the view at [7.595.6], that Herrman v Simon stands for the (narrower) proposition that the doctrine of unanimous assent can be applied only where all of the members, though not formally notified of the proposed decision, are sufficiently informed that they are in a position to make a decision.

[38]

The present case

In the present case, the right of shareholders under s 249L to receive notice of meeting setting out both the intention to propose a special resolution and stating the resolution, answers the description of a "substantial right" as referred to in Herrman v Simon. Jennifer cannot call in aid the circular resolution procedure under Corporations Act, s249A(2) as a means of waiving or dispensing with such notice, because the Protocol did not purport to be a "resolution" of members, nor did it contain "a statement that they are in favour of the resolution set out in the document", nor was it recorded in the minute book of the company in accordance with Corporations Act, s 251A. On the reasoning in Herrman v Simon and Vermillion, that is a sufficient answer to defeat Jennifer's reliance on the Duomatic principle.
Further and in any event, whether or not the Duomatic principle is limited to varying procedural rights as suggested in Herrman v Simon and Vermillion, it is plain that it requires actual, not merely, potential assent by the members, and that assent must be informed: Gibbons Investments Pty Ltd v Savage at [73]. In Herrman v Simon, Meagher JA spoke of "full knowledge and consent".
Here, the evidence does not establish that Michelle and John were aware of and consented to dispensing with the required period of notice for a general meeting of members to consider a special resolution to amend the constitution of the company, or the particular form of notice required under s249L(2) in relation to a special resolution. No cross-examination was directed to this issue.
Jennifer contended that informal assent may be inferred from the fact that Mr McKensey took the directors through the proposed Protocol line by line, and that the parties must have understood the import of each of the clauses. I do not agree. At no point during the 31 August 2011 meeting did Mr McKensey inform the directors that they were considering a special resolution qua members to vary or amend the constitution of the company, nor did he identify the inconsistencies between the terms of the Protocol and the constitution, in particular, Art 80 of the Table A articles, nor did he inform the directors that by signing the Protocol, they would be assenting qua shareholders to a waiver of their right to the statutory form of notice under s249L, and to their right under the constitution to have votes of directors determined by simple majority. As Meagher JA said in Herrman v Simon at 83, "it would be a very odd result if one could waive the destruction of rights of whose destruction one was ignorant."
Accordingly, even if (contrary to my conclusion) the Protocol is a binding agreement between the (then) directors of the company, it did not operate to bind the members of the company under the doctrine of informal unanimous assent to a variation of the constitution insofar as the Protocol is inconsistent with the Table A articles adopted by the company. Its follow on this analysis that cl 10 of the Protocol (assuming it is legally binding) cannot trump Art 80 of the Table A articles as to the requirement of a simple majority of directors for all decisions within their competency.

[40]

Issue 7: Whether the company is the proper plaintiff, or should have been joined as an interested party

It is convenient to deal with these issues together, keeping in mind the conclusion in Issue 1 above that Michelle and John ought not to be permitted to raise the proper plaintiff rule in answer to Jennifer's separate claim that the chairperson resolution is beyond the power of the directors, because this new point was not pleaded.
In response to Michelle and John's pleaded "proper plaintiff" or "necessary parties" defence to Jennifer's contractual claim to enforce the (assumed binding) Protocol, Jennifer submitted that the company is neither the proper plaintiff to bring the present claim, nor a necessary party to these proceedings, because the Protocol is binding only on the parties thereto and their personal representatives, being the then directors and shareholders of the company, and Jennifer as executrix of Martin's estate. It followed, it was submitted, that the cause of action in contract to enforce the rights and obligations contained in the Protocol rested with those parties alone: Plaintiff's Outline of Submissions, par 49.
As mentioned, leave was granted to the parties at the conclusion of the hearing to file supplementary submissions on the question of Jennifer's standing in relation to the Protocol, and particularly the enforcement of cl 10 (as the legal personal representative of Martin's estate).
Jennifer's submissions dated 13 April 2017 addressed the standing of an executor at common law, and the circumstances in which contracts are enforceable by and against the executor of a deceased party. Jennifer submitted that at common law the general rule is that contracts are enforceable by and against the executor of a deceased estate. It was accepted that there are two possible exceptions: one where the contract is for personal services and the other where the contract otherwise reveals an intention that it should be enforceable only against that (deceased) party personally.
Michelle and John's submissions in response dated 18 April 2017 contended that Jennifer's standing as executrix of Martin's estate did not invest her with whatever personal right Martin might have had to apply to the Court for any relief founded on the Protocol (assuming it had any legal effect). Reference was made to the remarks of Bowen LJ in Stanhope v Stanhope (1886) 11 PD 103 at 109-110, which were noted with approval by Windeyer J in Mayne v Jacques (1960) 101 CLR 169 at 179; [1960] HCA 23, that "[a]n executor does not act for a dead man or in his name, but for the estate of the dead man".
The authorities to which Jennifer referred on the question of standing of an executrix on behalf of the estate, concerned the executrix's responsibility for discharging contractual obligations of the deceased. That is not the present case. Hambly v Trott (1776) 98 ER 1136 at 1138 (Lord Mansfield) involved a claim in trover against the administrator; Bradbury v Morgan (1862) 158 ER 877 involved a claim against an executor that he was liable on a guarantee given by the deceased; Laybutt v Amoco (Australia) Pty Ltd (1974) 132 CLR 57 at 76 (Gibbs J) involved a claim against an executrix to enforce an option to purchase granted by a deceased; Angullia v Estate and Trust Agencies (1927) Ltd [1938] AC 624 at 634 (Lord Romer) involved a claim against an executor in relation to contracts remaining uncompleted at the death of the testator.
Similarly, the passage in GE Dal Pont and KF Mackie, Law of Succession, 2nd Ed, LexisNexis Butterworths, 2017 at [12.15], to which Jennifer referred, concerned the executor's responsibility for discharging the contractual obligations of the deceased.
That is not to say that an executor or administrator cannot enforce contracts made by the deceased. The principle is stated in Law of Succession at [12.13] as follows: As an executor or administrator 'represents' the estate, he or she is ordinarily the proper plaintiff to pursue proceedings on behalf of the estate, as part of a duty to get in the entire estate.
Thus, in Mayne v Jacques, where a trustee in bankruptcy died without his remuneration having been fixed either by the creditors or the court, his right to remuneration devolved as a right of property upon his legal personal representative for the benefit of his estate and an action was available to the executrix of his estate to apply to the court to fix the remuneration if the creditors did not fix it.
In the present case, Jennifer's standing to enforce cl 10 of the Protocol needs to be examined from two perspectives. First, plainly the office of director held by Martin was not transmissible to Jennifer as the legal personal representative of his estate. Nor was it suggested that Jennifer had standing as executrix of Martin's estate to enforce the (assumed) contractual rights of Martin qua director in relation to the Protocol, specifically; the special majority required by cl 10 of the Protocol for votes of directors within their capacity relating to changes in the manner in which the company is "managed or operates".
Second, that the executrix is ordinarily the proper plaintiff to pursue proceedings on behalf of the estate, does not put the executrix in a better position than the deceased when a defendant raises the proper plaintiff rule in respect of wrongs done to the company. Nor does it avoid the need to join all necessary parties to proceedings in which they are interested.
As explained above when dealing with Issue 1 (see [153]), the proper plaintiff rule does not apply if the directors' conduct directly affects the rights or interests of individual shareholders to have the company and its directors act in accordance with the relevant articles of association. Here Jennifer's claim is that Martin's rights qua shareholder are transmissible to her as executrix and include Martin's contractual right to enforce cl 10 of the Protocol (assuming it is binding, including after Martin's death, and effectively amends Art 80 of the Table A articles under the Duomatic principle).
In view of the conclusions above concerning the Protocol, it is not necessary to determine these issues. Nonetheless, I would briefly indicate my views.
I would incline to the view that the directors' conduct in passing the chairperson resolution contrary to the arrangement specifically agreed in cl 10 of the Protocol (assuming a binding agreement, including after Martin's death, and the Duomatic principle applies such that cl 10 of the Protocol effectively amends Art 80 of the Table A articles), directly affects the rights or interests of individual shareholders (such as Martin's estate, represented by Jennifer) to have the company and its directors act in accordance with the relevant articles of association as amended by the Protocol, cl 10.
Further, ordinarily, the company would be a necessary party to any claim to enforce the constitution (here, relevantly, Art 80 of the Table A articles, as amended by the Protocol, cl 10, relying on the Duomatic principle), since the alleged amendment to the constitution affects the statutory contract between, among others, the company and each member, and between the company and each director: Corporations Act, s 140(1).
If Jennifer had otherwise been successful on her contractual claim, I would have been minded to defer making final orders pending an application by her to join the company as a defendant. In circumstances where all shareholders are before the Court, it is unlikely that Michelle and John could have successfully opposed the late joinder of the company as a defendant on the ground of prejudice, particularly as they had raised the absence of the company in their defence.

[41]

Issue 8: Anshun estoppel

Michelle and John pleaded defences based on issue estoppel and Anshun estoppel. The defence of issue estoppel was abandoned at the hearing.
The defence of Anshun estoppel asserted that Jennifer is precluded from claiming the relief sought in this proceeding because she failed to raise the enforceability of the Protocol in the earlier Insurance Proceedings against the company. As mentioned, the Insurance Proceedings concerned a claim by Jennifer as executrix of Martin's estate to the proceeds of the insurance policy which the company had taken out over the life of her late husband, Martin Hawcroft. Jennifer's claim against the company was ultimately unsuccessful on appeal: Hawcroft General Trading Co Pty Ltd v Hawcroft [2017] NSWCA 91.
In oral argument, junior counsel for Michelle and John acknowledged that the defence of Anshun estoppel is not directed to Jennifer's claim for relief in relation to the chairperson resolution - orders 3 and 4 in the amended statement of claim. Counsel confirmed that the Anshun estoppel is only directed to Jennifer's claim for relief in order 1, which seeks a declaration that the Protocol is legally binding and enforceable against Michelle and John. That narrow reliance upon Anshun estoppel recognised that the question of the validity of the chairperson resolution did not arise until after judgment had been given in the Insurance Proceedings by the trial judge (Young AJ) on 5 May 2016: Hawcroft v Hawcroft General Trading Co Pty Ltd [2016] NSWSC 555.
Nevertheless, once it is accepted (as it should be) that no Anshun estoppel arises in relation to Jennifer's claim for relief in relation to the chairperson resolution; it is difficult to see any room for the defence of Anshun estoppel in relation to Jennifer's claim for declaratory relief with respect to the Protocol. That is, there is a tension in the bifurcated approach taken by Michelle and John to the defence of Anshun estoppel, since one of the arguments relied upon by Jennifer to challenge the validity of the chairperson resolution is that the Protocol is legally binding and enforceable against Michelle and John.
Having regard to the conclusions above, it is not necessary to determine this issue. Nonetheless, in deference to the argument advanced by junior counsel for Michelle and John, I will briefly indicate my reasons why the defence of Anshun estoppel should be rejected.

[42]

Relevant principles

It is necessary first to say something about the nature of an Anshun estoppel.
In Timbercorp Finance Pty Ltd (in liq) v Collins and Anor; Timbercorp Finance Pty Ltd (in liq) v Tomes (2016) 339 ALR 11; [2016] HCA 44 the plurality (French CJ, Kiefel, Keane and Nettle JJ) stated at [27] with reference to earlier authority, that Anshun estoppel "will preclude the assertion of a claim or of an issue of law or fact if the claim or issue was so connected to the subject matter of the first proceeding as to make it unreasonable, in the context of the first proceeding, for the claim or issue not to have been made or raised in it".
Anshun estoppel has been treated in Australia as a "true estoppel" and not a form of res judicata in the strict sense. Accordingly, considerations similar to those which underpin this form of estoppel may support a preclusive abuse of process argument: Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 507; [2015] HCA 28 at [22].
Anshun estoppel requires consideration of the practicalities, that is, the reasons why a party may have justifiably refrained from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings. As Gibbs CJ, Mason and Aickin JJ, explained in Anshun at 602: There are a variety of circumstances why a party may justifiably refrain from litigating an issue in one proceeding but wish to litigate the issue in other proceedings, eg, expense, importance of the particular issue, matters extraneous to the actual litigation, to mention but a few.
For this reason, the authorities emphasise that a "mechanical approach" to identifying common facts in proceedings said to give rise to an Anshun estoppel should be avoided: Champerslife Pty Ltd v Manojlovski (2010) 75 NSWLR 245 at [3] (Allsop P); [52] (Giles JA); Conference & Exhibition Organisers Pty Ltd v Johnson [2016] NSWCA 118 at [23] (Meagher JA, McColl and Leeming JJA agreeing).
Further, it is well accepted that shutting out a claim that a party wishes to pursue, without determination of its intrinsic merit, on the ground that it ought to have been raised in earlier litigation is a serious step not to be exercised except after careful examination of all the circumstances: Conference & Exhibition Organisers at [24] citing Habib v Radio 2UE Sydney Pty Ltd [2009] NSWCA 231 at [85] (McColl JA, Giles JA and Campbell JA agreeing); Ling v The Commonwealth (1996) 68 FCR 180 at 182 (Wilcox J, Whitlam and Sundberg JJ agreeing); and Bazos v Doman [2001] NSWCA 347 at [45] (Stein JA, Priestley and Beazley JJA agreeing).

[43]

Application of principles to the present case

The propositions stated above direct attention to the subject matter of the Insurance Proceedings, which can be taken from the reasons of the trial judge (Young AJ): [2016] NSWSC 555 at [1]-[7].
In broad outline, Jennifer sought an order that the company pay the proceeds of the life insurance policy to Martin's estate in compliance with cl 2 of an indemnity deed entered into by Jennifer and the company on 20 May 2014. In the alternative, Jennifer sought a declaration that Martin was, at the time of his death, the beneficial owner of the policy on the basis of an equitable assignment, or alternatively, a constructive or implied trust, such that the company held the proceeds of the policy on trust for the estate of Martin. Before Young AJ, Jennifer succeeded against the company solely on cl 2 of the indemnity deed. As I have said, the company succeeded on appeal in setting aside that decision.
The pleadings in the Insurance Proceedings reveal that Jennifer pleaded the terms of the Protocol, cl 16 and also the Amended Protocol, cl 15 (together the Protocols) in support of her contention that Martin had been paying the premiums on the policy prior to 31 August 2011, and that it was intended that the company would take over the policy from Martin under the Protocols. The basis for invoking those documents was to support Jennifer's contention that from and after 2005 there had been an equitable assignment of the policy to Martin. The Protocols were relied upon for their asserted evidentiary value as corroborating the alleged (earlier) equitable assignment of the policy to Martin, because the Protocols "assumed" that Martin was the beneficial owner of the policy.
Young AJ rejected that contention (at [112]) finding that Martin knew what was needed to effect a formal assignment and had not taken such steps; that Martin had paid the premiums because Peter was objecting to the premiums being paid by the company; and that the company's attitude to the policy changed from time to time. In reaching that conclusion, Young AJ noted that Jennifer submitted that the Protocols assumed that Martin was the beneficial owner of the policy (at [108]). His Honour also noted, but did not resolve, the disputed evidence given by Mr McKensey on behalf of Jennifer and by Michelle and John on behalf of the company as to whether or not the Protocols were adopted on 15 February 2012 (at [110]-[111]).
Having regard to the different subject matter of Jennifer's claim in the Insurance Proceedings, I do not consider it was unreasonable of Jennifer to have refrained from raising her present claim as to the enforceability of the Protocol in the Insurance Proceedings. The enforceability of the Protocol was a claim in respect of which Michelle and John would need to have been joined as parties. It was not unreasonable of Jennifer not to join additional parties to the Insurance Proceedings in 2015 (and thereby incur additional cost and expense) to raise a different issue concerning the enforceability of the Protocol. That it was not unreasonable not to do so is reinforced by the fact that the issue of the enforceability of the Protocol did not crystallise until after the determination of the Insurance Proceedings by the trial judge.
There is an additional reason for rejecting the Anshun estoppel argument. Michelle and John's argument seems to assume that there was privity of interest between them and the company who was a party to the Insurance Proceedings.
The relevant principles are stated by the High Court in Tomlinson v Ramsey Food Processing Pty Ltd where the plurality said at [33]: …..a party to a later proceeding ("A") can be privy in interest with a party to an earlier proceeding ("B") on either of two bases. One basis is that A might have had some legal interest in the outcome of the earlier proceeding which was represented by B, or that B has some legal interest in the outcome of the later proceeding which is represented by A. The extent to which the representation by A or B will be sufficient to bind the other is the critical issue which will be explored later in these reasons. The other basis is that, after that earlier proceeding was concluded by judgment, A might have acquired from B some legal interest in respect of which B would be affected by an estoppel which A then relies on in the later proceeding.
In relation to the first category, the interest of the privy must be a legal interest. Their Honours stated that "an economic or other interest on the part of A in the outcome of the earlier proceeding is insufficient" and that "absent a legal interest, such influence as A might have had over the conduct of the earlier proceeding is irrelevant even if that influence amounted to control" (at [35]).
In relation to the second category, their Honours stated: [40] Traditional forms of representation which bind those represented to estoppels include representation by an agent, representation by a trustee, representation by a tutor or a guardian, and representation by another person under rules of court which permit representation of numerous persons who have the same interest in a proceeding. To those traditional forms of representation can be added representation by a representative party in a modern class action. Each of those forms of representation is typically the subject of fiduciary duties imposed on the representing party or of procedures overseen by the court (of which opt-in or opt-out procedures and approval of settlements in representative or class actions are examples), or of both, which guard against collateral risks of representation, including the risk to a represented person of the detriment of an estoppel operating in a subsequent proceeding outweighing the benefit to that person of participating in the current proceeding. (footnotes omitted)
In the present case there was not, on either basis, any privity of interest between Michelle and John on the one hand and the company on the other hand in respect of Jennifer's unsuccessful claim against the company in the Insurance Proceedings. As to the first basis, Michelle and John did not have any legal interest in the outcome of the Insurance Proceedings, they being concerned at that stage solely as directors and shareholders in the company: Tomlinson v Ramsey Food Processing Pty Ltd at [35]. As to the second basis, none of the traditional forms of representations were enlivened, nor was the Insurance Proceedings a class action.

[44]

Abuse of process

One further matter should be mentioned for completeness, although not referred to in terms by Michelle and John. It may be accepted that mutuality of parties is not an answer to a defence of estoppel based on the extended principle in Reichel v McGrath (1889) 14 App Cas 665 at 668 and Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198, or abuse of process: Walton v Gardiner (1993) 177 CLR 378 at 393; Sheraz v Vegas Enterprises Pty Ltd (2015) 48 WAR 93 at [11] and [120]. As the High Court explained in Michael Wilson & Partners Limited v Nicholls and Others (2011) 244 CLR 427; [2011] HCA 48 at [94], Rippon v Chilcotin Pty Ltd is a case directed principally to the application of the doctrines of preclusion and, in particular, an extension of that species of preclusion dealt with in Anshun.
In White v Thompson [2011] NSWCA 161, Handley JA (Basten and Young JA agreeing), after referring to the principles in Reichel v McGrath, continued at [53]-[57]: [53] The relevant principles were reviewed in Rippon v Chilcotin [2001] NSWCA 142; (2001) 53 NSWLR 1981. The purchasers of a business sued the vendor for misrepresentation and breach of warranty as to the profits of the business in the accounts for the last full financial year before the sale. Their claim for misrepresentation failed because they had relied on the warranty in the contract and not on any representations by the vendor, and they only recovered modest damages for the breach of warranty. [54] The purchasers then sued the accountants for misrepresentation in the same accounts. The accountants were not parties to the earlier proceedings and were not privies of the vendor, and could not rely on res judicata estoppel. [55] In the first action the purchasers failed to prove that they had relied on the vendor's representations. Their second action could only succeed if they could prove that they relied on the accountants' representations about the same profits. This was an attempt to relitigate what, in substance, was the same issue against a different party. It was therefore an abuse of process. This court ordered summary dismissal, and the High Court refused special leave. [56] The decision in MCC Proceeds Inc v Lehman Bros International (Europe) [1988] 4 All ER 675 CA is another example. The litigation arose from the collapse of the corporate empire of the late Robert Maxwell. In the first action a Maxwell company unsuccessfully sued a Lehman company to recover shares in another public company. The second action, brought in respect of the same shares, by the successor in title of the original plaintiffs against the subsidiary of the original Lehman defendant was struck out as an abuse of process. [57] Mummery LJ, who delivered the principal judgment, held (at p 694) that the successor of the original plaintiff was not entitled to relitigate the issues relating to the shares. At p 696 he said: … the substantial issue raised … (ie title to the Berlitz shares) has already been decided … in the first action in circumstances which preclude the parties in this action from attempting to litigate that issue again.
In the present case the substantial issue, title to the proceeds of the life insurance policy over Martin's life, was litigated in the Insurance Proceedings, and Jennifer does not seek to re-litigate that question. The substantial issue in the present proceeding is whether the Protocol is binding and enforceable. That was not in issue in the Insurance Proceedings. As I have said, the Protocols were relied upon by Jennifer as corroborating the alleged (earlier) equitable assignment of the policy to Martin in or after 2005, because (it was said) the Protocols "assumed" that Martin was the beneficial owner of the policy.
In my view, the present proceeding by Jennifer is not precluded by the extended doctrine in Reichel v McGrath, or the doctrine of abuse of process.

[45]

Costs

Section 98 of the Civil Procedure Act 2005 (NSW) provides that, subject to the rules of court, costs are in the discretion of the Court, including by whom, to whom and to what extent costs are to be paid. UCPR r 42.1 provides that if the Court makes any order as to costs, it should be in terms that costs follow the event unless the circumstances justify some other order. As the authorities make clear, the "event" may be characterised in more than one way: Australian Receivables Ltd v Tekitu Pty Ltd [2011] NSWSC 1425 at [24]-[26], [54]-[60] (cited with approval in Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 at [15].
Here, Jennifer has succeeded on her claim that the chairperson resolution is invalid on the single ground that it is beyond the powers of the directors of the company, specifically Art 70 of the Table A articles adopted as part of the constitution of the company. Jennifer failed to establish her wider claim that the Protocol is legally binding and enforceable against Michelle and John, including her claim based on the Duomatic principle. Michelle and John have failed on their defence of Anshun estoppel.
Although the enforceability of the Protocol was not an entirely severable issue - it was raised as an alternative argument to the validity of the chairperson resolution, and as the basis of a separate claim for declaratory relief - it seems to me that there should be some reduction in the costs awarded to Jennifer as the successful party, to take into account the amount of the court's time and submissions that were directed to the issues on which Jennifer failed.
My preliminary view is that Jennifer's mixed success in the proceeding, whilst not overlooking the outcome in terms of setting aside the chairperson resolution, should be reflected in an order that Michelle and John pay 60 % of Jennifer's costs of the proceeding.
However, since the parties have not had an opportunity to address the question of costs in light of the outcome of the proceeding, it is appropriate to afford the parties an opportunity to make submissions on that question. Those submissions should also address Jennifer's claim that Michelle and John pay interest on her costs of the proceeding pursuant to s 101(4) of the Civil Procedure Act 2005 (NSW).

Parties

Applicant/Plaintiff:

Hawcroft

Respondent/Defendant:

Jamieson

Legislation Cited (4)

Companies Act 1961(NSW)

Acts Interpretation Act 1901(Cth)

Civil Procedure Act 2005(NSW)

Corporations Act 2001(Cth)

Cases Cited (62)

ESTOPPEL - Anshun estoppel and abuse of process - whether plaintiff is precluded from asserting that the Protocol was a valid and binding agreement - where plaintiff had earlier instituted proceedings against the company claiming proceeds of insurance policy over the life of her late husband - where in earlier proceedings the plaintiff had asserted the terms of the Protocol had evidentiary value for her claim to the insurance proceeds but did not assert that it constituted a valid and binding agreement - where the chairperson resolution was voted on after the earlier proceeding was instituted - whether unreasonable for plaintiff not to have joined additional defendants in earlier proceedings and raised the issue of the validity of Protocol. Legislation Cited: Acts Interpretation Act 1901 (Cth), s 15A Civil Procedure Act 2005 (NSW), ss 98, 101(4) Companies Act 1862 (UK), Table A, Art 68 Companies Act 1961 (NSW), Sch 4, Arts 49, 70, 85, 86 Corporations Act, 2001 (Cth), ss 9, 136, 140, 198D, 232, 233, 234, 236, 237, 249A, 249H, 249L, 251A, 1072E Joint Stock Companies Act 1856 (UK), Table B, Art 57 Cases Cited: Abadeen Group Pty Ltd v Bluestone Property Services Pty Ltd; Brown v Hodgkinson [2009] NSWCA 386 Agricultural and Rural Pty Ltd v Gardiner (2008) 238 CLR 570 Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 Angullia v Estate and Trust Agencies (1927) Ltd [1938] AC 624 Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 Australian Receivables Ltd v Tekitu Pty Ltd [2011] NSWSC 1425 B Seppelt and Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147 Barrier Wharfs Ltd v W Scott Fell & Co Ltd (1908) 5 CLR 647 Bazos v Doman [2001] NSWCA 347 Bodikian v Sproule (2009) 72 ACSR 598 Bradbury v Morgan (1862) 158 ER 877 Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 Champerslife Pty Ltd v Manojlovski (2010) 75 NSWLR 245 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Conference & Exhibition Organisers Pty Ltd v Johnson [2016] NSWCA 118 County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 Gibbons Investments Pty Ltd v Savage [2011] FCA 527 Habib v Radio 2UE Sydney Pty Ltd [2009] NSWCA 231 Hambly v Trott (1776) 98 ER 1136 Hawcroft v Hawcroft General Trading Co Pty Ltd [2016] NSWSC 555 Hawcroft General Trading Co Pty Ltd v Hawcroft [2017] NSWCA 91 Herrman v Simon (1990) 4 ACSR 81 Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68 Hussey v Horne-Payne (1879) 4 App Cas 311 Jagot v Coastalwatch Pty Ltd [2009] NSWSC 594 Johnston v Bright Star Holdings Pty Ltd [2014] NSWCA 150 Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 Laybutt v Amoco (Australia) Pty Ltd (1974) 132 CLR 57 Ling v The Commonwealth (1996) 68 FCR 180 Lym International Pty Ltd v Marcolongo [2011] NSWCA 303 Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72 Mayne v Jacques (1960) 101 CLR 169; [1960] HCA 23 Michael Wilson & Partners Limited v Nicholls and Others (2011) 244 CLR 427; [2011] HCA 48 Mushroom Composters Pty Ltd v IS & DE Robertson Pty Ltd [2015] NSWCA 1 Painaway Australia Pty Ltd v JAKL Group Pty Ltd (2011) 249 FLR 1 Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589 Price v Murray [1970] VR 782 Re Compaction Systems Pty Ltd [1976] 2 NSWLR 477 Re Duomatic Ltd (1969) 2 Ch 365 Re Fireproof Doors Ltd; Umney v The Company (1916) 2 Ch 142 Re George Newman & Co [1895] 1 Ch 674 Re Grundy Pty Ltd [2010] NSWSC 1432 Re NSW Leagues' Club Ltd [2014] NSWSC 1610 Re PW Saddington & S Pty Ltd (1999) 19 NSWLR 674 Rectron Australia BV v Lu [2013] VSC 384 Reichel v McGrath (1889) 14 App Cas 665 Residues Treatment & Trading Co Ltd v Southern Resources Ltd (No 4) (1988) 14 ACLR 569 Rilgar Nominees Pty Ltd v BHA Holdings Pty Ltd [2014] VSC 632 Rippon v Chilcotin Pty Ltd (2001) 53 NSWLR 198 Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603; [2007] NSWCA 65 Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 Sheraz v Vegas Enterprises Pty Ltd (2015) 48 WAR 93 Simon v HPM Industries (1989) 15 ACLR 427 Stanhope v Stanhope (1886) 11 PD 103 Taurine Co (1884) 25 Ch D 118 Taylor v Johnson (1983) 151 CLR 422 Timbercorp Finance Pty Ltd (in liq) v Collins and Anor; Timbercorp Finance Pty Ltd (in liq) v Tomes (2016) 339 ALR 11; [2016] HCA 44 Tollhurst v Associated Cement Manufacturers (1990) Ltd [1903] AC 414 Tomlinson v Ramsey Food Processing Pty Ltd (2015) 89 ALJR 758; [2015] HCA 28 Universal Music Australia Pty Ltd v Pavlovic & Ors; Pavlovic & Anor v Universal Music Australia Pty Ltd [2015] NSWCA 313 Vermillion Resources Pty Ltd v Gibbons Investments Pty Ltd (2011) 86 ACSR 246; [2011] FCAFC 149 Walton v Gardiner (1993) 177 CLR 378 Wambo Coal Pty Ltd v Sumiseki Materials Co Ltd (2014) 88 NSWLR 689 White v Thompson [2011] NSWCA 161 Winthrop Investments Ltd v Winns Ltd (1975) 2 NSWLR 666 Texts Cited: Ford, Austin, and Ramsay, Company Directors - Principles of Law and Corporate Governance (LexisNexis Butterworths, 2005)

[2013] VSC 384

[2014] VSC 632

(2008) 238 CLR 570

(1985) 2 NSWLR 309

(1988) 18 NSWLR 540

(1908) 5 CLR 647

(2001) 117 FCR 424

(1986) 40 NSWLR 622

(2010) 75 NSWLR 245

(2001) 53 NSWLR 153

(2002) 209 CLR 95

(1907) 5 CLR 68