Host-Plus Pty Ltd v Australian Hotels Association [2003] VSC 145

For the defendant in 5191 of 2003 and 5713 of 2003 and the plaintiff in 5510 of 2003

2. Last Tuesday I tried two related proceedings, the parties to which are Host-Plus Pty Ltd and Australian Hotels Association ("AHA"). The matters they raise require urgent determination. I had intended to give judgment last Thursday but deferred doing so in view of a foreshadowed further application and further written submissions received on Wednesday from the AHA in response. As a result, in a short hearing on Thursday I expressed views about some relevant matters, including issues of law, to assist the parties. By then the foreshadowed application had been filed. I then adjourned the proceedings for judgment. That gave the parties time to consider what I had said, and to consider their position generally. I directed that any further written submissions be provided to me by noon on Friday. Pursuant to that leave the parties provided further written submissions which I have taken into account.

(a) 5191 of 2003 filed on 2 April 2003. In this proceeding Host-Plus Pty Ltd as plaintiff claims against the AHA as defendant an order that the AHA appoint directors to Host-Plus Pty Ltd pursuant to the requirement on it to do so in art 25(3) of the articles of association of Host-Plus Pty Ltd. The AHA opposes the claim.

(b) 5510 of 2003 filed on 28 April 2003. In this proceeding the AHA seeks an order that Host-Plus Pty Ltd be wound up on the just and equitable ground (s 461(1)(k) of the Corporations Act). I shall henceforth refer to Host-Plus Pty Ltd as "the company". The company and the Australian Liquor, Hospitality and Miscellaneous Workers Union ("ALHMWU" or "the union") appeared by the same counsel to oppose the application.

(c) 5713 of 2003 filed on 7 May 2003. In this proceeding, the union, as plaintiff, seeks as against the AHA relief under the oppression provisions of the Corporations Act, namely that the AHA by 4.00 pm on 9 May 2003 transfer and assign to the union for $300 all its shares in the company and all its rights and interests therein, and all its rights and interests as a subscriber to the company's memorandum, and that the company register the transfer.

11. The proceedings concern the Host-Plus Superannuation Fund ("the Fund") of which the company was trustee from its establishment by a trust deed dated 8 February 1998, until 5 March 2003. In addition to the company, which signed the trust deed by way of agreeing to act as trustee of the Fund, the deed was signed by the AHA and the Federated Liquor & Allied Industries Employees Union ("FLAIEU"). The AHA and the FLAIEU, by the deed, joined together to establish an indefinitely continuing superannuation fund for employees in the hospitality industry as that expression is defined in the deed. As trustee, the company was empowered from 1 October 1987 to accept contributions for the Fund and to hold the same on the trusts contained in the deed.

14. The company was registered on 8 February 1988. The subscribers to the company's memorandum of association were the AHA and the FLAIEU. That union is now, as a result of a merger with another union, the ALHMWU.

17. The memorandum of association of the company stated that the company had a capital of $10,000 divided into 10,000 shares of $1 each, that the liability of the members is limited and that:

"5. The sole object of the Company is to be the sole purpose of acting as trustee of a complying superannuation fund."

21. The articles of association provided for an equality of shareholding and directors between the AHA and the union. The subscribers each received 300 fully paid shares and that has continued to be the shareholding. The relevant provision concerning directors is contained in Article 25 which provides:

"25 (1) Subject to Article 26 there shall at all times be Equal Representation on the board of Directors. (2) In order to maintain Equal Representation, each of the subscribers to the Memorandum of Association shall be entitled to appoint an equal number of Directors and may, by agreement, increase or reduce the number of Directors. (3) On the vacation of office of any Director appointed by a subscriber to the Memorandum of Association that subscriber must appoint another Director in his place within the period required by Superannuation Law."

25. Immediately prior to 3 March 2003 there were 12 Directors, six appointed by the AHA and six by the union.

28. Article 27 sets out the circumstances in which the office of a director becomes vacant. The circumstances include resignation by notice in writing, and removal by way of resolution of the party which appointed the director.

31. It is worth noting, in light of the issues in the case, that art 26 makes provision for the AHA and the union to appoint "one or more Independent Directors as members of the Board", that such persons may act as chairman of directors with a deliberative but not a casting vote, and for the AHA and the union to "establish procedures dealing with the term of office of an Independent Director and any other relevant matters". No such independent director has been appointed.

34. Article 31 is concerned with the proceedings of Directors, and provides, in summary:

(a) In art 31(1), that a quorum is not less than one half of the total number of directors provided that at least one director appointed by each of the AHA or the union is present. (b) In art 31(2), if by reason of any vacancy in their number, the number of directors is less than a quorum the continuing directors may act only for the purpose of summoning a general meeting of the company and appointing new directors.

38. Further, art 33 provides that resolutions of directors be carried by two-thirds of the total number of directors.

41. This is sufficient reference to the structure under which the AHA and the union joined together to establish and conduct a superannuation fund for employees in the hospitality industry.

44. The fund is a regulated superannuation fund for the purposes of the Superannuation Industry Supervision Act 1993 ("the SIS Act") and on 24 February 2000 the company was approved by APRA under the SIS Act to be the trustee of the Fund.

47. The Fund has been a success. At 31 December 2002 it had 510,015 members and members funds and reserves of $1,937,335,353.00. The contributing employers are distributed in all the States and Territories. The Fund's annual report for 2001/2002 records that there were 18,403 employer contributors. The union represents employees across the whole of the hospitality industry, many of whom are members of the Fund. Many, and it seems the majority of employees in the industry, are not members of the union, but that is not to deny the availability and importance of the Fund to employees in the industry. Many industrial awards to which the union is a party identify the Fund as a relevant fund for employer superannuation contributions.

50. Why is it, in light of the success of the Fund, that the parties find themselves in litigation? The immediate precipitating event was that on 3 March 2003 the six AHA directors gave written notice of their resignation as directors with effect that day. That provided the ground, if not necessity, for the Australian Prudential & Regulatory Authority ("APRA") to remove the company as trustee, and APRA took that course. On 5 March 2003 APRA suspended the company as trustee of the Fund for a period of 120 days and on 6 March 2003 appointed Ernst & Young Superannuation Nominees No 1 Pty Ltd as acting trustee of the Fund, and made an order vesting the property of the Fund in the acting trustee.

53. The union is much aggrieved by the company's removal as trustee and is doing all that it can to have the company reinstated. The union is committed to its role and involvement in the industry fund in the better interests of employees in the industry. Accordingly, it has commenced legal action with a view to the company being reinstated as trustee. In addition to the present proceedings, it has commenced an application in the Federal Court of Australia to review the decision of APRA to suspend it and replace it as trustee, and that application (I am informed) is fixed for trial on 15 May 2003.

56. I should say that proceeding 5191 of 2003 was commenced on the basis that the six union directors would seek leave under s 237 of the Corporations Act to bring the proceeding in the name of the company. An application for leave was filed on the following day, 3 April 2003 for leave nunc pro tunc under s 237 to bring proceeding 5191 of 2003. The application for leave was proceeding 5392 of 2003. The applicants were the six union directors. A number of affidavits were filed in the application, in support and in opposition. I granted leave on 28 April 2003.

59. In addition to the affidavits filed in the application for leave, the parties filed affidavits in proceedings 5191 and 5510 of 2003. The trial of these proceedings was conducted on the basis that the evidence in one be evidence in the other, including evidence in the leave application. But not every affidavit was relied on. The parties have produced affidavits in circumstances of urgency and for the purpose of the trial counsel adopted the course of relying on a limited number of the affidavits. The affidavits relied on are:

* For the union - by Linda Rubinstein on 2, 10 and 28 April 2003, and Brian John Daley on 2 and 28 April 2003.

* For the AHA - by Michael Capezio on 10 April 2003.

* For the union - by Rubinstein on 1 May 2003, Daley on 5 May 2003 and Jeffrey Paul Lawrence on 1 May 2003.

* For the union - by Rubinstein on 2 May 2003, Daley on 5 May 2003 and Lawrence on 1 May 2003.

* For the AHA - by Capezio on 1 and 6 May 2003 and Paul Jubb on 24 April 2003.

75. The union's deponents were not cross-examined. Counsel for the union cross-examined the AHA's deponents, although briefly.

78. The affidavits referred to matters on which the AHA and the union directors had differed. It seems that the occurrence of such differences commenced in 2001. Until then the business of the company as trustee had been managed satisfactorily. That would indicate there was an appropriate degree of harmony between the union and AHA directors in the years 1988 to 2001. Indeed the Fund continues to have satisfactory results. As to what happened that led to the present situation, the evidence identified several important matters of difference. I refer to them below. Apart perhaps from matters of corporate governance the evidence does not enable me to find the underlying reason or reasons why differences commenced in 2001 or why they were not readily and appropriately managed. The parties took the course of referring to the matters on which they differed, each putting the best version or explanation from their point of view, in the way of providing historical explanation. But they refrained from going into too much detail.

81. The AHA witnesses identified the following matters. They went to these matters by way of seeking to establish a history and present situation of a deadlock in the management of the company on some important matters. This had a double purpose. It was both to meet the claim in proceeding 5191 and to establish facts which would satisfy the requirements of the just and equitable ground for the purpose of proceeding 5510. The matters are:

(a) Disagreements in the management of the company relating to:

* The operating budget of the company for the 2001/2002 financial year,

(c) Conflict of interest arising from Daley, a union director of the company, being also a director of Industry Funds Services Pty Ltd, the trustee of the Fund's Administrator Super Partners.

90. In one of his affidavits Capezio, who was an AHA appointed director of the company, and a member of the National Executive and National Board member of the AHA, said that the difficulties at the board level had arisen from concerns on the part of the AHA appointees that the best interests of the members were not being served due to the existence of unresolved issues regarding corporate governance and conflict of interest. He was referring to the above matters. It seems clear on the evidence that similar concerns were experienced on the union side, as Capezio referred to a complaint which Rubinstein, then the chair of the board, sent to APRA in March 2001 regarding certain corporate governance issues and the conduct of the board and the then chief executive officer. Capezio produced a letter to the directors from APRA dated 23 March 2003 requesting information on a number of matters.

93. Capezio considered that Rubinstein's complaint followed the chief executive officer's decision in late 2000 to appoint an asset consultant on an interim basis. He did this due to the failure of the Investment Committee to agree on such an appointment. The committee had equal membership of three union and three AHA directors. Capezio said that this led to a further deterioration in the relationship between Rubinstein and the chief executive officer.

96. Capezio further stated that Rubinstein had made the complaint without the knowledge of the AHA directors, and that she had refused to discuss her concerns following receipt of the letter from APRA. As a result, on 30 March 2001 Capezio (and, it would seem, the company's chief executive officer) wrote to APRA for clarification of the "certain governance issues" referred to in APRA's letter of 23 March. In response APRA said that the issues related to whether the company had demonstrable governance systems in place to enable it to adequately discharge its responsibilities as an approved trustee.

99. Then, in May 2001 the Executive and Administration Committee (which had three union and three AHA Directors as its members) failed to agree on the operating budget for 2001/2002. Capezio sought to have a special directors' meeting on 8 June 2001 to approve the budget but Rubinstein would not hold it then, or before the next regular meeting, for reasons stated in a letter dated 1 June 2001.

102. In the meantime APRA was conducting a review of the Fund. It wrote to the directors with advice to that effect on 19 June 2001. In the letter APRA referred to issues which had been identified as relating to the overall corporate governance of the Fund. They were:

* Failure to agree on an operating budget for 2001/2002.

* Failure of the board to implement a strategic/business plan for the Fund.

* Difficulties in resolving key strategic and operational issues of the Fund.

* Failure by the board to put in place appropriate arrangements with the Chief executive officer including position description and delegations from the board.

The letter stated that APRA was concerned that the company appeared unable to implement a functional corporate governance framework, and required the company to resolve the issues relating to corporate governance as a matter of high priority. APRA urged serious consideration of:

* The appointment of independent persons to the board with ordinary voting rights.

* Documenting a position description for the chief executive officer.

* Promulgating formal delegations from the board to management and the chief executive officer.

APRA would meet with the board on 27 June 2001 at which time it expected a concrete and satisfactory proposal.

116. That led to the directors agreeing in principle to reduce the size of the board and to consider the matter of strategic plans. I am satisfied on the evidence that it remained the position of the union and AHA directors that change to the board structure is required.

119. Capezio said that the tender process for the appointment of a Fund Administrator commenced and it was not practicable to restructure the board during the 12 month tender process. The engagement of the then current Fund Administrator was to expire on 28 February 2003.

122. On 17 July 2001 APRA sent to the company a report on its review of the company. It noted matters of the nature already referred to.

125. In August 2001 the board experienced difficulty in the matter of appointing the Fund's asset consultant. The union directors sought to re-appoint Frontier. The AHA directors were concerned as to a conflict of interest by reason of Daley being a director of Industry Funds Services Pty Ltd which had an interest in Frontier. After much debate, in October 2001 Frontier was replaced by John Nolan & Associates, at that time an independent asset consultant. Hence, the matter of the asset consultant was resolved by the directors.

128. Moving to early 2002, the company went to tender on the contract to administer the Fund. There were three parties, Citystreet, Super Partners and Australian Administrative Services ("AAS"). The tender documents had been reviewed by PricewaterhouseCoopers. The tender process proceeded. Capezio says that in September 2002 it became clear after board discussions that agreement would not be reached on the Fund Administrator. The AHA directors preferred AAS, while the union directors preferred to retain Super Partners. A concern of the AHA directors was that Industry Funds Services Pty Ltd was trustee of Super Partners.

131. The board sought a recommendation from the chief executive officer. He recommended AAS on the basis of cost savings but at its meeting on 24 September 2002 the board could not agree.

134. Capezio states that by this time the AHA directors were concerned that the failure of the union and AHA directors to agree on major issues relating to the governance and administration of the Fund meant that the board was failing to act in the members' best interests. The contract of the existing Fund Administrator was due to expire, there was no agreement on a replacement, and if Super Partners was selected the costs would be higher than with AAS.

137. In September 2002 Capezio advised APRA of his concerns. Another AHA director wrote to APRA expressing his concerns.

140. On 10 October 2002 APRA wrote to Capezio as chairman of the company advising that it was considering varying its approval as trustee by adding a condition that resolutions of the board be effective if carried by a simple majority. APRA requested submissions on the matter.

143. On 4 November 2002 APRA issued a variation to the company's instrument of approval whereby all resolutions at a meeting of directors of the company were henceforth to be effective if carried by a majority of directors. The variation was effective from 5 February 2003.

146. Still the board could not agree on a Fund Administrator. According to Capezio, the AHA directors remained concerned that the board was unable to fulfil its obligations to act in the best interests of the members, and they considered resigning as directors. One AHA director, Richard Mulcahy, suggested that AAS be appointed subject to an independent consultant being satisfied of the financial stability and controls process testing of AAS. The motion failed. But in late December 2002 the directors resolved to appoint Deloitte Touche Tohmatsu to report as to the preferred tenderer; a report was duly provided which recommended AAS be appointed with effect from 1 March 2003 on the expiry of the Super Partners appointment.

149. The board met on 21 February 2003 but still could not agree on the appointment. This brought matters to a head. Was the Fund to be left without a Fund Administrator? Concerned, the AHA directors left the meeting. Capezio said that the AHA directors were concerned as to the members' interests in the circumstance of no Fund Administrator, and that the board was not able to fulfil its obligations. The AHA directors felt that it would be in the best interests of the company if they resigned as then APRA would intervene and protect the interests of members.

152. On 2 March 2003 the AHA directors proposed a resolution to extend the Super Partners contract for three months to ensure the Fund had an administrator in place. The union directors rejected the resolution.

155. On 3 March 2003 the AHA directors resigned as directors of the company. This meant that the company could not function as a quorum could not be formed for a meeting of directors. Further, while under the articles the continuing union directors could summon a general meeting for the appointment of directors, no such resolution could pass without the support of the AHA.

158. On 3 March 2003, following receipt of the letters of resignation, the chief executive officer of the company wrote to APRA advising the resignations and stating that, as a result, the company could no longer perform its duties as trustee of Host-Plus as a quorum of directors can no longer be convened. He further advised that there was no longer a written fund administration agreement in force as required by APRA's instrument of approval. He advised that the Funds administration agreement with Super Partners came to an end on 28 February 2003. It was correct for the chief executive officer to send the letter. It is no answer, or even to the point, for Rubinstein to say, as she did in evidence, that the terms of the letter were not authorised by her or any of the other union directors.

161. I turn then to what Rubinstein said in her evidence on these matters, which she said by way of response to Capezio. Rubinstein said that while there had been disagreements on issues, the board had resolved on the appointment of an asset consultant and the 2002 operating budget. As to the former, the union directors had opposed replacement of the asset consultant whose advice had resulted in outstanding performance by the Fund. As to the latter, she and the other AHA directors had concerns relating to the chief executive officer's powers in respect of expenditure and desired to ensure appropriate controls were in place on expenditure. Then, as to her writing to APRA following the chief executive officer's appointment of an asset consultant on a temporary basis, her concern was as to the chief executive officer rather than the directors making the appointment, and as to his apparent capacity to authorise payments made by the administrator without controls in place relating to office payments. She had explained her concerns to the Board on more than one occasion.

164. Rubinstein said that Capezio was wrong in relation to the chronology of certain events. The tender process for the Fund Administrator did not commence in June 2001, as seemed to be suggested, and there was no discussion of difficulties that might be said to arise from a restructuring of the board. The restructuring contemplated involved a reduction in size, which had been agreed. It was planned that four directors would resign following a board meeting on 18 December 2001. It did not proceed as the AHA announced that it no longer agreed to the reduction.

167. Then, as to Capezio's evidence concerning August 2001 and the appointment of the asset consultant, Rubinstein referred to a reason not to appoint John Nolan & Associates, and added that Frontier was not then owned by Industry Funds Services Pty Ltd. She also said that Daley's role as a director of that company had been declared on many occasions.

170. On the matter of the Fund Administrator, Rubinstein said that at a board meeting on 24 September 2002 the union directors had proposed an external review but that was rejected by the AHA directors. The point of disagreement was whether AAS should be appointed subject to a review rather than conducting a review to be used to assist the making of the decision as to the appointment.

173. Finally, as to the AHA directors' proposal on 2 March 2003, Rubinstein said that the resolution to extend the existing administrator's contract was not rejected. She responded by email to the directors indicating that she supported extending the contract but considered that a transition arrangement should be included as part of any such extension. The AHA directors did not respond.

176. For reasons already mentioned, I am not able to resolve the differences in these accounts and I do not attempt to do so. Nor do I consider it useful or necessary for the resolution of the proceedings to recount more of the evidence that bears on these matters of difference. What emerges is that in the last few years the directors have experienced significant difficulty in making decisions on some important issues. I conclude that the difficulties reflect, although one suspects only in part, a lack of structural procedures to facilitate the resolution of such differences. None of the issues were of such complexity or difficulty as to be beyond the ability of directors of intelligence, acting reasonably and honestly in the performance of their functions in the interests of the members of the Fund, to have resolved, whether with or without constitutional or procedural change.

179. Having made these observations, what has happened since the resignation of the AHA directors? Apart from commencing legal proceedings, the union has had meetings with APRA and discussed the steps necessary for the company to resume as trustee of the Fund. It would seem clear that in suspending, and not finally removing, the company as trustee, APRA has provided the company with an opportunity to resolve corporate governance issues and be reinstated as trustee. Rubinstein said in evidence, and I accept, that the union directors are intent on resolving corporate governance issues "that gave rise to an impasse on the Board in the interests of the members and for the purpose of advancing a further application for approval as Trustee under the [SIS Act]". The union directors, she said, and I accept, "wish to advance proposals which address APRA's concerns and rectify current difficulties".

182. The difficulty for the union is that without AHA directors in place, the approach to APRA is stymied. On 28 March 2003 the union solicitors wrote requesting the AHA to appoint replacement directors pursuant to art 25. The AHA not having done so, and time running, the union commenced proceeding 5191 of 2003 for an order requiring the AHA to appoint directors. Whether to do so was considered at a meeting of the National Executive of the AHA on 11 April 2003. Capezio was the only director of the company who is a member of the Executive. He was present at the meeting. Mulcahy, also a director, was present as the executive director of the AHA. Those present declined to act as directors of the company. It was decided not to replace the directors, and that decision was confirmed at a national teleconference on 17 April 2003. Consistently with those decisions, the AHA had not asked persons outside the National Executive if they are prepared to act as directors of the company. The National Executive considered it inappropriate to do so in circumstances where the previous AHA directors had, "after considerable deliberation" resigned because the board had been unable to resolve important issues concerning the Fund and the failure of the board to appoint a Fund Administrator had placed the directors in a position where they would have been in breach of their fiduciary duty to the members of the Fund.

185. When I heard the parties on 6 May 2003 they were at loggerheads. There was no give between them. Yet, in terms of an industry fund it seemed reasonably clear from the evidence that the convenient, if not appropriate, participant on the employer side is the AHA. It also seemed clear that it is in the interest of the union and the AHA to continue working together in the Fund in the interests of employees in the hospitality industry. It also seemed clear that what was required, and had been required by APRA, was attention to corporate governance matters. The parties have been aware of this. They had given attention to it but had been unable to reach agreement. Whatever the explanation for that failure, and despite the obvious need for a heavy dose of commonsense, mutual understanding and forbearance, at the trial the parties were in "stand-off" mode.

188. Briefly summarised, the parties took these positions.

(i) Host-Plus Pty Ltd sought an order that the AHA appoint six persons as directors by no later than 2.00 pm on 9 May 2003. This was by way of enforcing art 25(3) of the statutory contract which the articles constitute under s 140 of the Corporations Act. Counsel relied on the covenants in s 52(2) of the SIS Act being deemed by s 52(8) of that Act to be contained in the company's constitution. It was submitted that the requirement on the AHA to appoint directors operated forthwith on the resignation. It was submitted that the order would not require continued supervision by the Court. In any event, in the circumstances it was appropriate to order specific performance. A relevant factor, among others, was that the AHA National Executive had not gone outside its number to seek replacement directors. Another of the relevant factors was that the AHA had offered to transfer its shares to the union and then declined to proceed with the sale.

(ii) The AHA opposed the orders sought on several grounds. The realistic position is that the AHA would not be able to obtain suitable people to act as directors, and no person can be forced to act who does not consent to do so. Further, any persons who were appointed as additional directors could resign and thus frustrate the order. Moreover, it was not appropriate to grant an injunction which, in effect, was to require the carrying on of a business.

(i) The AHA submitted that by reason of the differences between the parties a situation of deadlock had arisen in the conduct of the company as a result of which the company had become unmanageable on a critical issue. Further, the resignation of the AHA directors, and the company's suspension as trustee, meant that the company could not function. A relevant factor was that the union had unreasonably not agreed to the appointment of independent Directors to ensure the breaking of deadlock at the board, and it was unlikely differences would resolve in the future.

(ii) The company opposed winding up for reasons set out in its notice of appearance. They included that by reason of not having appointed replacement directors the AHA lacked clean hands. In other words, the AHA had created the problem. The notice of appearance is on the file, as also is a like notice on behalf of the ALHMWU which relies on the same grounds. If the Court is of the opinion that the company should be wound up, the company sought, instead, by way of alternative remedy, an order that the AHA forthwith transfer and assign to the union for $300 all its shares in the company and all its rights and interests as a subscriber to the memorandum of the company, and an order that the company register the transfer of shares.

197. The full terms of the parties submissions are contained in the written submissions which I have placed on the file, and the transcript. Otherwise, the above summary sufficiently indicates the scope of the submissions. On 6 May I reserved judgment on the issues thus presented.

200. As stated, on 6 May counsel for the union sought in the winding up proceedings orders for the transfer of the AHA shares. That was opposed by the AHA whose counsel submitted that the Court did not have the power to make the order. Putting aside the matter of power, the union's case is that it wished to involve other employer bodies in the company. On that aspect the union's evidence referred to several employer bodies which it said were suitable in lieu of the AHA as representing the employer interest in the company. The AHA evidence challenged that, but it remained as an issue. I do not resolve it. Further, the idea that the AHA transfer its shares to the union had been suggested by the AHA in discussions in April 2003 between Lawrence and Mulcahy. The union had accepted the suggestion and for the purpose of implementing the transfer its solicitors had prepared an assignment and terms of settlement. But, for its own reasons, the AHA refused to sign the documents and proceed with the transfer. In the argument before me, counsel for the AHA, in response to my questions as to why the company should be wound up rather than be taken over by the union who might be able to achieve its reinstatement as trustee, said that it should be wound up because the just and equitable ground was established. In other words, the ground was the ground, and, if it was established, the company should be wound up regardless of whether the company might still be able to have utility as trustee of the Fund. There was no suggestion that the AHA desired to have a continuing involvement in the company. Hence it was somewhat difficult to understand why the company, which was a mere trustee company to which the AHA had subscribed $300 for its 300 shares, should be wound up as against the union being able to continue with it hopefully to the point of having it reinstated as trustee.

203. The submissions of counsel for the union said little about the Court's power to order the transfer of the shares. At the very conclusion of submissions counsel for the union referred to a draft application having been prepared which could be filed if necessary. It was not filed and I did not see it and the nature of the particular application and the power it sought to invoke was not stated. For his part counsel for the AHA submitted that under s 467(4) of the Corporations Act the Court did not have power to do other than wind the company up, on the assumption that the just and equitable ground was established. It was implicit in the submission that "other remedy" in s 467(4) meant a cause of action.

206. On reflection, and following my consideration of the submission concerning s 467(4), on 7 May my Associate contacted the parties and requested that I be provided with the draft application. It was provided. As a result the application was filed (as proceeding 5713 of 2003) and I received further written submissions from counsel for the AHA. Those submissions revealed that in fact the AHA wished their involvement in the company to continue provided the board structure was altered. It was said that the AHA's preferred position is reflected in an offer it made to the union in March concerning restructure of the board to include three independently appointed directors which, it was said, was also APRA's preferred course. As to power to make an order to achieve that end, which could only be made in the AHA's winding up proceeding, it was suggested that s 467(1)(c) might be sufficient for this purpose, and Alati v Wei Shung[1] was referred to. The AHA consented to the winding up application being amended if that were necessary to enable orders for constitutional amendments to be made.

209. The submission recognised that orders of that nature could be made in the oppression proceeding under s 233(1)(c) as orders regulating the conduct of the company's affairs in the future. (See, also, s 233(1)(b).) However, it was submitted that the oppression proceeding must fail on the basis that one equal shareholder cannot oppress the other equal shareholder. If that is right, there is no power to make an order under s 233(1)(c) and s 467(4) is irrelevant in that respect.

212. I reconvened the hearing on 8 May in light of these developments. Among other things, I drew counsel's attention to authorities on the meaning of the expression "other remedy" in s 467(4). They raised the question whether remedy in that context means a remedy in the sense of a cause of action or whether it is a term of wider meaning which comprehends a course of action which might be considered sufficient in the circumstances. There were two Australian cases, re Dalkeith Investments Pty Ltd[2] and Bernhardt v Beau Rivage.[3] In the latter case, Young J referred to English cases which, in respect of the same statutory provision, had taken the view that "other remedy" included an out of court offer to purchase the plaintiff's shares. To the cases cited by Young J in his judgment, I added a reference to a further and more recent decision of the English Court of Appeal in Virdi v Abbey Leisure Ltd; re Abbey Leisure Ltd.[4] This decision is referred to in Gower's Principles of Modern Company Law with the statement: "The alternative remedy need not be a legal one." [5] See, too, Palmer's Company Law.[6] I noted that in his judgment, Young J said, at 164, that in his view these cases went too far and that the words "other remedy" meant "other cause of action" whether at general law or statutory. I did not then express a concluded view on the matter, but drew attention to the point, arising as it did out of counsel's submissions, and because the parties might find the observations of assistance in determining their approach to the case and as to the means of resolving the differences between them.

215. I then adjourned the proceeding for judgment.

218. Since then I have received written submissions which have much clarified the respective positions of the parties.

221. The first submission received was from the AHA. The submission stated that for the purpose of disposing of all proceedings, the AHA conceded, on the basis of on the Alati decision, that in the winding up proceeding the Court had power under s 467(1)(c) to give relief of the various kinds referred to in s 233, that being the effect of the union's contentions prior to filing their oppression proceeding. It was thus presumed that the ambit of s 467(4) no longer mattered as it was sufficient for the Court to act on the basis that "remedy" there mentioned includes remedy of the kind provided for in s 233. The submission then stated that for reasons advanced in the union's supplementary submission dated 7 May, the AHA contended for orders modifying the company's constitution, pursuant to s 233(1)(b), to ensure that the board can avoid future deadlocks and in a way that is likely to regain the confidence of APRA. An outline of proposed constitutional modifications was attached to the submission. They could be addressed by the union and hopefully the scope of the dispute between the parties might be narrowed. While the parties would have to agree on matters of drafting and mechanical aspects, the Court might, in the absence of agreement, have to make an in principle decision on the main elements such as, for example, the method of appointment of independent directors and the quorum required for directors' meetings.

224. The submission expressly confirmed that the AHA wished to continue to participate in joint control over any trustee of the Fund. Any compulsory buy-out order would significantly disadvantage the AHA's prospects in that regard and unfairly advantage the union because the union would then be in control of a company that has acquired significant experience in that regard. If the Court is not prepared to grant relief by way of modification of the company's constitution, it was fairer that the company be wound up.

227. This was followed by a written submission from the company and the union. The submission deals with the Court's power to grant relief in the winding up proceeding and the orders which should be made. It is submitted that under s 233(1) or s 467(1)(c) the Court can order a buy-out in favour of the union, and that was the relief sought. It was submitted that the AHA's conduct constituted oppression for the purpose of s 232 and that the order should be made under s 233(1(c). On that basis the AHA's wind up proceeding should be dismissed. Alternatively, the buy-out could be ordered under s 467(1)(c).

230. The submission did not seek an order in proceeding 5191 of 2003 that the AHA appoint replacement directors. The tenor of the submission is that the union's preferred position is to be rid of the AHA as an unco-operative, spoiling party, to use counsel's language. It is stated that the AHA's attitude since 6 May is a change of heart. In that respect counsel referred to the unchallenged evidence of Lawrence that on 7 April 2003 Mulcahy raised with him the prospect that the AHA transfer its shares to the union, and indicated that superannuation was not part of the AHA's core business and that it was prepared to end any involvement with superannuation.

233. I observe that while the union has remained willing to acquire the AHA's shares at fair value in order to facilitate the introduction of different employer interests, and hopefully reinstatement of the company as trustee, it is the AHA which has changed its position on the proposal. The AHA has also significantly "clarified" its position since the trial on 6 May. On 6 May the AHA was bent on the company being wound up with no consideration acknowledged to me, even when I pressed counsel on the point, as to any basis on which it might be salvaged or as to why it should not be salvaged by being retained under the control of the union. Then, by 8 May it favoured retention of the company provided there was constitutional change. This harked back to earlier attempts, including as recently as March, to negotiate constitutional change. Finally, on 9 May the AHA's position was further clarified. It wished to have a continuing role in the company, duly reinstated as trustee, provided the company's constitution is modified. To be fair, the AHA has (as noted above) raised this matter of constitutional change previously. For this purpose, and so as to dispose of all proceedings on this basis, the AHA conceded the Court's power to give the relief sought by it in the winding up proceeding. Whereas on 6 May the AHA's unswerving approach was that the company be wound up, its position on 9 May was that winding up should only occur if the Court is not prepared to grant relief by way of modification of the company's constitution. In that circumstance winding up would be fairer than a compulsory buy-out as that would ensure that neither party gained an advantage over the other in future attempts to participate in the administration of the Fund.

236. As with the other submissions of counsel, I have placed these latest submissions on the file. I do not set out the several contentions in them in more detail. I have regard to the entirety of the submissions.

239. What is apparent is that the preferred position of both parties is to have a continuing involvement in the company, and that it be reinstated as trustee of the Fund. The AHA's position is conditional on constitutional change and it supports orders to achieve that. The matter of such changes has been raised and considered before and, as I understand it, change - at least in the reduction of the number of directors - was acceptable and at one stage agreed. But the parties have not been able to agree on the scope and detail of changes. This circumstance, considered in the overall context, indicates that winding up of the company is not the appropriate course, at least at present. Unfortunately, rather than the parties agreeing on any constitutional or procedural changes, and to facilitate this purpose perhaps agreeing to avail themselves of the offices of a person experienced in such matters, they have fallen back on the Court to resolve their impasse. I cannot help thinking, having observed the events of the last week, that tactical considerations may be at play here. It is time they stopped.

242. In so far as the matter of power is concerned, I am of the view that "other remedy" in s 467(4) is not restricted to a legal remedy in the sense of a cause of action but is to be understood in the wider sense of a course of action otherwise open to the party. This interpretation accords, in my view, with the nature of the ground, the flexibility desirable in the resolution of such cases, and is consistent with the dictionary meaning of the word "remedy". In the particular circumstances of this case "other remedy" would, in principle, extend to acquisition of the AHA shares, and constitutional change.

245. I note the general acceptance by counsel of the power under s 467(1)(c). I do not consider it necessary to examine that power or its relationship with s 467(4). It is sufficient to note that s 467(4) deals with the just and equitable ground and, to the extent that it does, directs how the Court is to proceed in such cases.

248. Having regard to the parties positions, as they now are, it is appropriate to focus on the AHA's winding up proceeding. In the present circumstances, the company cannot function and, if the true position of the AHA was not known, it might be concluded that there was both deadlock and an irreversible failure of, or inability to achieve, the purpose for which the company was established, and that the just and equitable ground was made out. But I would not have ordered winding up at the conclusion of the trial on 6 May and I would not do so now.

251. In my view it would be unfair and unjust to order winding up in the circumstances. What was sought by the AHA on 6 May was simply to consign the company to the graveyard when the union might be able to achieve the reinstatement of the company as trustee of the Fund. Regarding the matter overall, it was one thing that the union and the AHA together could not continue on in mutual cooperation in pursuing the purpose of the Fund in the best interests of its members, but it seems somewhat capricious and out of all proportion for the company, with its standing and experience as trustee of the Fund, to be wound up because one party to the arrangement wished to pull out of it because of differences, even though they arose in relation to important matters. The company is solvent, it has been successful as a trustee, it has employees, and no irregularities are brought forward in matters of administration or otherwise that might support a conclusion that there is no proper option but to order winding up.

254. My view at the conclusion of the trial was that the proper, just and equitable disposition of the proceeding was that the union acquire the AHA shares. This solution had been and remained open to the AHA and was a preferable alternative to winding up a solvent company. It was, in my view, an appropriate remedy in terms of s 467(4). However, I would have held over making an order for a limited time in order that the parties might further consider their position and reach an agreement on the future conduct of the company or otherwise as may seem to them to be appropriate. I am reinforced in that course by the now stated position of the AHA. But having regard to that position, and the commonsense of the parties reaching an agreement, I will not now make orders, but will stand the proceedings over until 10.00 am next Friday. If at that time the parties remain in dispute I propose, subject to hearing counsel, to make orders for the acquisition by the union of the AHA shares.

257. The adjournment is sufficient time, in my estimation, having regard to the consideration given previously, and doubtless in the last several weeks to the matter of constitutional change, for the parties to agree on such changes to the company's constitution or procedures, or perhaps both, as will enable them to move forward together in the company in the best interests of the members. In terms of time, there must be a limit. Another three days is enough.

260. I should add that it seems to me to be a difficulty that the AHA continues not to appoint replacement directors. I say that in the sense that one cannot have a situation both ways. As it is sometimes said, you are either in or you are out, make up your mind. Further, in a sense for the AHA to negotiate on constitutional and related procedural change is a bit like negotiating while holding a gun at the head of the union.

263. That brings me to proceeding 5191 of 2003. Having regard to the way the case is being approached I say no more of that case than that in the particular circumstances and if all other things were equal, an order enforcing the requirement to appoint directions would seem warranted and appropriate.

266. It is unnecessary to express any view on the oppression proceeding.

269. For these reasons therefore I will stand the proceedings over to next Friday at 10.00 am when orders can be made or the matter dealt with as may then be appropriate.

[1] [2000] NSWSC 601; (2000) 34 ACSR 489.

[2] (1984) 9 ACLR 247.

[3] (1989) 15 ACLR 161.

[4] (1990) BCLC 342.