In the matter of National Roads and Motorists' Association Limited [2003] FCA 842

REASONS FOR JUDGMENT 1 This is an application for an order under section 1322(4)(d) of the Corporations Act 2001 (Cth), that the date fixed by rule 67 of the Constitution of National Roads and Motorists' Association Limited (the NRMA) for the close of voting at an election of directors, be extended to 28 November 2003, which is approximately seven weeks after the date proposed for the NRMA's annual general meeting. 2 The NRMA's Constitution provides for a half board election to take place this year. Rule 67 requires that voting at the election is to close on a date to be fixed by the directors, being not later than one day before the date fixed for the annual general meeting. 3 The full text of the rule is as follows: "If the number of candidates is greater than the number required to be elected an election shall be conducted with the voting at that election to close on a date and at a time to be fixed in each odd-numbered year by the Board of Directors, such date being not later than one day before the date fixed for the holding of the annual general meeting. The time and date for the close of the election shall be set out in the election material prepared for the relevant election period." 4 The reasons why the NRMA seeks this relief are as follows: 5 First, the NRMA is seeking to replace the constitution with a new one ("the Proposed Constitution") under which there would be no requirement to hold the half board election, presently required to be held this year. The NRMA proposes to put the Proposed Constitution to members for their approval by special resolution at the Annual General Meeting, which, if this application is successful, will be held on 8 October 2003. 6 Second, the costs of holding the half board election will be substantial and, accordingly, if the Proposed Constitution is adopted at the Annual General Meeting on 8 October 2003, there will be cost savings which are estimated to be in the order of $2.8 million. 7 The application takes into account the need to safeguard against the possibility that the Proposed Constitution will not be adopted at the Annual General Meeting. In that event, the election will take place, but of course not on the date fixed by rule 67. 8 The background to this application is set out in an affidavit of Ms Jenny Kelly the group secretary and general counsel of the NRMA. 9 The NRMA has almost two million members. This is the reason why it is so expensive to hold board elections. The single biggest expense is the cost of mailing information and other material to members. 10 Rule 54 of the NRMA's Constitution provides that the number of directors of the NRMA is to be 14, but the number is to be reduced to 12 with effect from the conclusion of the "election period", which is defined in rule 1(h) of the NRMA's Constitution to be the first Saturday in December (i.e. 6 December 2003). 11 The effect of rule 56 of the NRMA's Constitution is that half of the board is required to retire at the conclusion of the election period this year. Nominations for the position of director are to be called and if the number of candidates is greater than the number required to be elected, then an election must be conducted as referred to in rule 67. 12 The constitution does not provide for the election to take place at the Annual General Meeting. Rather, it is by way of a ballot to be conducted in accordance with the election rules. The returning officer is required to count the votes and report on the number of votes to the secretary: see the NRMA's Constitution rule 76. 13 Although voting is to close the day before the Annual General Meeting, the results need not be available until the last day of the election period. Thus for example, if the Annual General Meeting were to be held on 28 November 2003, there would be a period of about a week after the meeting during which the results of the ballot could be determined. 14 On 21 May 2003, the NRMA board resolved to hold its Annual General Meeting for 2003 on 11 November 2003. On 26 June 2003, the NRMA published a notice calling for nominations to fill the six board positions which will fall vacant. The date for close of nominations was set at 31 July 2003. 15 At a board meeting held on 30 July 2003, the closing date for nominations was extended to 28 August 2003. The reason for this was to allow time for a member to make a challenge to the legality of a rule which imposes an age restriction on the eligibility of candidates. 16 On the same date, i.e. 30 July 2003, the resolution of 21 May 2003 was rescinded insofar as it fixed the November date for the Annual General Meeting. The date for holding the Annual General Meeting was brought forward at that meeting to 8 October 2003. 17 Since 26 June 2003, when nominations for board positions were called, the NRMA has made available to members, and also to potential board candidates, an information package containing details of instructions regarding the election process, the nomination process and other material referred to in paragraph 16 of Ms Kelly's affidavit. The information package includes details of the existing constitution. 18 Nominations have so far been received from 28 individuals which include 3 group nominations of 6 members each. Thus as the number of candidates already exceeds 6, rule 67 requires that an election be conducted. 19 It appears that at the June board meeting of the NRMA the directors resolved to put the Proposed Constitution, in a form which is yet to be finally settled, to members at the Annual General Meeting. 20 In mid July 2003, a letter was sent to the members with the July/August edition of an NRMA publication, the Open Road. The letter was from the President of the NRMA and it included the following statement:- "At our June Board meeting…we unanimously agreed to ask members to vote on the following changes at our next Annual General Meeting…in October: · to enshrine the company's mutual status · to reduce the Board's size to 9 directors · to move to regional elections for Directors · to hold full Board elections every three years". 21 It is therefore plain that members have been informed that they will be asked to vote at the Annual General Meeting on changes which would reduce the size of the NRMA Board to 9 and provide for full board elections every 3 years. 22 However, I cannot be satisfied on this evidence alone that the letter bought home to the members the fact that if the Proposed Constitution is adopted, the half board election for 2003 will not go ahead. 23 A draft of the Proposed Constitution was not tendered. I did not consider this was necessary because Ms Kelly's affidavit contained sufficient details of the salient provisions. 24 They are to include a provision which will reduce the number of directors to 9 from the date the Proposed Constitution is adopted or shortly thereafter. This provision will include a mechanism to determine which 5 of the 14 directors then in office are to retire. This will therefore occur without the need to call a further election. 25 There was evidence of the substantial cost savings which will be made if the Proposed Constitution is adopted and the half board election is not required to be conducted. The savings include the cost of paper, printing and postage, project management of the election, savings of ongoing directors' fees and the cost of an education/advertising program for the election. 26 The single largest cost as I have said is postage. Ms Kelly supplemented her affidavit evidence orally. The effect of her evidence was that if this application is unsuccessful there will have to be two mail-outs. The first will contain the financial statements and other material for the annual general meeting. The second will be the voting papers and other material for the election. It would not be possible to achieve cost reductions by combining the material in one mail-out. One reason for this is that the package would be so bulky that favourable postage rates on the smaller mail-out for the annual general meeting would be lost. 27 The first question which arises is whether I have power under section 1322(4)(d) to grant the relief. 28 In Omega Estates Pty Ltd v Ganke (1963) 80 WN (NSW) 1218, Else-Mitchell J considered the effect of section 366 of the Companies Act 1961 which was in similar but not identical terms to section 1322 of the Act. 29 His Honour gave a somewhat limited scope to the section. In particular, he said at 1223 that it did not authorise the court to overcome the articles of association. 30 In Re Pyramid Building Society; Ex parte Hodgson (1994) 13 ACSR 566 at 570, Hayne J referred to section 539 of the Companies (Victoria) Code 1981. His Honour said that it was framed in terms which dealt with irregularities which have occurred rather than steps which are to be taken which would, if taken, be irregular. Section 539 of the Companies Code was in terms which are substantially similar if not identical to the present legislation. 31 Mr Hutley SC, who appeared for the NRMA, submitted that Hayne J's remarks were not directed at the power contained in paragraph (d). 32 Mr Hutley pointed to the express language of section 1322(4)(d) which appears to authorise the court to extend time periods for the doing of any act, matter or thing in relation to a corporation both retroactively and prospectively. 33 Moreover, Mr Hutley pointed out that section 1322(6) prescribes conditions for the exercise of the discretion to make an order under section 1322(4)(a) and section 1322(4)(c) which are not applicable to the exercise of the power under section 1322(4)(d). 34 Also, I note that in NRMA v Spragg (2001) 38 ACSR 174 ("Spragg") Santow J proceeded upon the basis that there was power under section 1322(4)(d) to extend time to convene a meeting at a date later than that which was required under the constitution. 35 It is likely that the better view is that Mr Hutley's approach to the construction of the section is correct. As Lindgren J said In the Matter of Insurance Australia Group Limited [2003] FCA 581 at [27], "Section 1322 is a remedial provision and should be given a liberal construction". 36 However, I do not need to decide the question of whether I have power because I have come to the view that if I do this is not a case in which I would exercise it. 37 In Village Road Show v Austereo (1997) 24 ACSR 185 at 188, Goldberg J said that: "The power of the court under section 1322(4)(d) is expressed in extremely broad terms and is only circumscribed by the requirement of section 1322(6)(c) that the court cannot make an order under section 1322(4) unless it is satisfied that 'no substantial injustice has been or is likely to be caused to any person'". 38 In Spragg, Santow J said at 179 that section 1322(6)(c) requires the court to consider real and not merely insubstantial or theoretical prejudice. 39 His Honour also said at 179 that a degree of prejudice to a person or persons may be outweighed by "the overwhelming weight of justice". 40 His Honour also set out at 179 the following passage from his judgment in Super John Pty Ltd v Futurus Rural Pty Ltd (1999) 32 ACSR 398 at 402: "…detriment per se is not the same as substantial injustice; that must depend on whether the remedial order in giving rise to that detriment is unjust in the sense of causing such prejudice overall as to be unfair or inequitable, taking into account the interests of all of those directly affected by such dispensation." 41 There are two reasons why I have decided not to exercise my discretion in favour of the grant of relief. 42 The first is that I do not know one way or the other whether there is likely to be a cost saving. This will only occur if a second mail-out is not required. That depends on whether the special resolution required for the adoption of the proposed constitution is passed at the Annual General Meeting. This of course requires a 75 per cent majority vote. 43 The members have not yet been provided with the proposed constitution. Nor, as I have said, is it entirely clear that they are aware that if the proposed constitution is adopted there will be no half-board election. 44 Accordingly, I do not have any evidence of the likely reaction from members to the Proposed Constitution. 45 It seems to me that a departure from the provisions of the Constitution ought not to be made lightly. I do not see why I ought to exercise my discretion to make an order on the mere possibility that there will be cost savings. 46 The second reason is that I cannot be satisfied that no substantial injustice is likely to be caused to any person. The authorities make it clear that the NRMA has the onus of establishing this; see Australian Hydrocarbons NL v Green (1985) 10 ACLR 72. 47 Nominations have been received for the board. I do not know whether the members or the candidates are aware that if the proposed constitution is adopted there will be no half board election. Nor do I know whether the members or the candidates are aware that if the proposed constitution is not adopted voting for the half board election will close at a date later than that fixed by rule 67. 48 Mr Hutley submitted that there cannot be any prejudice by reason of the deferral of the voting by a period of about seven weeks from the date fixed by the Constitution. He submitted that the departure from rule 67 is minor; it cannot matter whether the voting closes in October or November. 49 But the short answer to this is that in the absence of any evidence of any reaction to the proposal from the members or the candidates I cannot be satisfied that the NRMA has discharged its onus. 50 It is true that under the proposal no member will be deprived of the opportunity to consider the proposed constitution. However, the proposal involves a departure from the Constitution in circumstances in which I cannot be satisfied that the members or the candidates will not suffer substantial injustice. 51 Accordingly the order I will make is that the application is dismissed. I certify that the preceding fifty one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson.