Kavourakis v Waverley Bowling & Recreation Club Ltd

CATCHWORDS : CORPORATIONS - voluntary administration - proceedings commenced against company before start of administration - plaintiff seeks leave to continue proceedings - plaintiff makes several claims all of which depend on his being a member of the company - consideration of evidence shows that his claim to be a member is unsupportable - alleged membership by estoppel - requirements for estoppel not shown to be met - case has no solid foundation - other factors also against grant of leave to proceed - leave refused - CORPORATIONS - membership - company limited by guarantee - whether solid foundation for contention that applicant for membership is a member - "membership by estoppel" - where company represented to plaintiff that he had a membership number - whether he believed any representation that he was a member

LEGISLATION CITED : Corporations Act 2001 (Cth), Part 5.3A, ss 168, 169, 231, 440D

George Whitechurch Ltd v Cavanagh [1902] AC 117 J F Keir Pty Ltd v Priority Management Systems Pty Ltd [2007] NSWSC 748 CASES CITED : Ogilvie-Grant v East (1983) 7 ACLR 669 Re Bahia and San Francisco Railway Co Ltd (1868) LR 3 QB 584 Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387

PARTIES : Michael Kavourakis - Plaintiff Waverley Bowling & Recreation Club Limited - Defendant

COUNSEL : Mr D A Neggo - Plaintiff Mr S A Wells - Defendant

SOLICITORS : James Tuite & Associates Lawyers - Plaintiff O'Neill Partners - Defendant

• 8 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

2009/325946 MICHAEL KAVOURAKIS v WAVERLEY BOWLING & RECREATION CLUB LIMITED

1 The defendant is a public company limited by guarantee. As its name implies, the defendant conducts a bowling club at Waverley. 2 The plaintiff filed a summons on 23 December 2009 seeking declarations to the effect that:

(a) a general meeting of the defendant held on 5 December 2009 was convened by insufficient notice;

(b) the plaintiff and a number of other identified persons were members of the defendant "at all times from on or about 9 May to 5 December 2009";

(c) the general meeting of 5 December 2009 was convened without notice having been given to the plaintiff and those other persons;

(d) the explanatory memorandum that accompanied the notice convening the general meeting was deficient in certain respects; and

(e) a resolution purportedly passed by the general meeting is invalid and of no effect. 3 The plaintiff advances certain other claims concerned with steps taken by the defendant, relying on the resolution passed at the meeting of 5 December 2009 (which was approved by 70 of the 72 members who voted), to enter into an amalgamation with Eastern Suburbs Leagues Club Ltd under legislation relating to registered clubs. 4 Now before me for determination is an application by the plaintiff, by notice of motion filed on 23 August 2010, for leave under s 440D of the Corporations Act 2001 (Cth) to continue the proceedings against the defendant. The need for that leave arises from the circumstance that, on 13 March 2010 - that is, almost three months after the proceedings were commenced - the defendant became subject to voluntary administration under Part 5.3A of the Corporations Act. Section 440D(1) is in these terms: "During the administration of a company, a proceeding in a court against the company or in relation to any of its property cannot be begun or proceeded with, except: (a) with the administrator's written consent; or (b) with the leave of the Court and in accordance with such terms (if any) as the Court imposes." 5 Some of the factors often taken into account upon an application under s 440D(1) were enumerated by Rein AJ in J F Keir Pty Ltd v Priority Management Systems Pty Ltd [2007] NSWSC 748 (with due acknowledgement of Mr Jason Harris's notes to the Thomson Reuters annual volume of corporations legislation): "1. Whether the claim has a solid foundation and gives rise to a serious dispute.

2. Whether the administrator would be unreasonably distracted from his or her statutory duties and be obliged unnecessarily to incur substantial legal costs. 3. Whether the company is insured against the liability the subject of the claim. 4. Who appointed the administrator.

5. Whether the applicant will suffer any disadvantage if leave is not granted.

6. Whether there are good reasons for allowing a creditor to depart from the general intention of Part 5.3A which is that a creditor ought not be able to take action against the company in such circumstances." 6 Not all of these criteria are relevant to this case. Obvious exceptions are items 3 and 6, in that no money claim is made and the plaintiff does not purport to be a creditor. Nor, I might say, is the above list in any sense exhaustive. In relation to the analogous provision applicable to a winding up, McPherson J said in Ogilvie-Grant v East (1983) 7 ACLR 669 that it is "quite impossible to state in an exhaustive manner all the circumstances in which leave to proceed may be appropriate". 7 In the course of submissions, particular attention was paid to the strength of the plaintiff's substantive case (item 1 in Rein AJ's list). I did not understand there to be any disagreement with the proposition that, if the plaintiff has a demonstrably weak case clearly falling short of a solid foundation, that will be a powerful indicator against the grant of leave. 8 The defendant, by its administrators, contends that the plaintiff's case manifestly lacks a solid foundation. At the centre of the case the plaintiff will, of necessity, seek to make is the proposition that he is - and was at all material times - a member of the defendant, along with each of the other persons he mentions; or, as an alternative, that the defendant is estopped from denying the membership of the plaintiff and each such other person. It is on this aspect that submissions about the strength or weakness of the plaintiff's case concentrated. 9 I turn to the facts. 10 The plaintiff and the other persons he mentions are members of the Waverley Old Boys Football Club or, as I shall call them, "football club members". In early 2009, the plaintiff and another of the football club members began discussions with employees of the defendant about the possibility of establishing a connection between the football club members and the defendant so that the defendant became the "home" from which the football club operated. 11 This led to correspondence about the football club members becoming members of the defendant. In an email of 7 May 2009, Ms Spiliopoulos of the defendant told the plaintiff that "every single person" would have to "fill in a membership form when they come in to the club". This was a reference to a particular function planned for 9 May 2009. Ms Spiliopoulos was the defendant's events and functions co-ordinator. 12 On 12 May 2009, Ms Spiliopoulos emailed to the plaintiff "the social membership form" and asked that he send it on to his members who should then fax it back to Ms Spiliopoulos "or drop them in to us next time you're over". On the same day, Ms Spiliopoulos informed the plaintiff which football club members had already handed in forms (presumably at the 9 May 2009 function). On 14 May 2009, she told the plaintiff that each of the football club members needed to pay a $5.00 membership fee. 13 On 5 June 2009, Ms Spiliopoulos asked the plaintiff, "How are you going with collecting membership forms and $5 from all your members?" Mr Nagle, the general manager of the defendant, repeated that question in an email to the plaintiff dated 22 July 2009. 14 On 14 September 2009, Mr Nagle acknowledged to the plaintiff that 81 membership forms were in hand "from your club" and were "waiting for payment". The email from Mr Nagle continued: "I have 81 membership forms from your club that are waiting for payment. Currently these cannot be approved by the Board until the fees are paid ($5.00pp.) Could you please advise what your intentions are; i.e. should we scrap the current applications and wait till you have organised new applications in conjunction with your sign-in day next year, or will you be forwarding the payment to us within the next couple of weeks? (Total $405.00) 15 On 21 September 2009, the plaintiff asked the defendant for an invoice for $405 addressed to the football club. This obviously represented $5 for each of 81 persons. That request was repeated on 23 November 2009. An invoice for $405 addressed to the football club was forwarded by the defendant on the same day and paid on 26 November 2009. It was expressed to be for: "WOBFC Bowling Club Membership 09/10" 16 On 29 November 2009, the defendant, by its chairman, returned the $405, saying: "There is no membership application." 17 The constitution of the defendant makes provision for several classes of member. Article 6, so far as relevant, then provides: "(a) Candidates for all classes of membership of the Club shall be proposed by one Bowling Member or Life Member and seconded by another Bowling Member or Life Member of the Club. The nomination form shall set out the full name, address and occupation of the nominee and shall be in the form and contain such particulars as are from time to time determined by the Board and shall be signed by the proposer and seconder and the nominee. (b) An application for membership shall, if required under By-Law, be accompanied by the amount of the entrance fee (if any) and applicable annual subscription. (c) An application for membership shall be lodged with the Secretary and particulars of the nomination for membership shall be posted on the Notice Board and shall remain posted for at least seven (7) days prior to the date of the meeting of the Board at which application is to be considered. (d) An interval of at least fourteen (14) days shall elapse between the date of application and the date of election of any candidate. (e) A candidate for membership shall be elected by the Board at a duly convened meeting of the Board at which not less than three-fourths of the Directors present and voting, vote in favour of such election. The Secretary of the Club shall keep a record of names of the members of the Board present and voting at such Board Meeting and the names of the members elected. (f) The Board may refuse any application for membership without assigning any reason for such refusal. The Secretary shall return to such refused candidate the amount of any entrance fee and annual subscription lodged with the application. (g) The Secretary shall forthwith advise a nominee of his election. Upon such election and payment of the annual subscription specified in the account rendered to him with the notice of election the nominee shall become a member of the Club and will be bound by the Memorandum and Articles of Association and By-Laws of the Club. (h) Every person elected to membership shall be required to pay within one month of the date of notice of election the annual subscription specified in the account rendered to him with the notice of election failing which payment the election shall be null and void." 18 It is thus clear that membership is the product of several distinct steps: first, proposing and seconding under article 6(a); second, application and payment as envisaged by article 6(b); third, lodgment and posting on the notice board under article 6(c); and, fourth, election by the board of the defendant under article 6(e). Payment is also necessary: article 6(g). 19 In relation to the 81 persons (being the plaintiff and other football club members), there is a question whether the second step was completed. By 14 September 2009, applications by 81 football club members had been received by the defendant but none of those applications was supported by any payment. On that day, Mr Nagle asked the plaintiff which of two courses it was proposed to follow in relation to the 81 applicants: either make the necessary payments "within the next couple of weeks"; or "scrap the current applications". In the absence of payment "within the next couple of weeks", the defendant may have been justified in treating the 81 applications as "scrapped". 20 It is, in any event, clear that the first step of nomination was not taken in relation to any of the 81 persons and that there was no posting on the notice board (the third step). Nor, crucially, does the evidence indicate in any way that any of the 81 became the subject of a decision of the defendant's board under article 6(e). The 81 became, at the highest, no more than applicants for membership. 21 Article 10 of the defendant's constitution requires the secretary to keep a register of members. This is a reflection of the independent statutory requirement imposed on the defendant by s 168 and s 169 of the Corporations Act. Under s 231 of that Act, a person is a member of a company if the person agrees to become a member and the person's name is entered in the register of members. There is no suggestion in the evidence that the name of the plaintiff or any of the other football club members was ever entered in the defendant's register of members or ought to have been so entered. 22 On the evidence as it stands, therefore, the contention that any of the 81 persons in question became a member of the defendant - either under the constitution or in the Corporations Act sense - is simply unsupportable. A case brought by the plaintiff on that footing is doomed to fail. The case is devoid of foundation. 23 The plaintiff's alternative case is based on estoppel and the proposition that the defendant is estopped from denying the membership status of the persons in question. 24 There is no pleading at this point. The brief written submissions of Mr Neggo of counsel on behalf of the plaintiff do not refer to the estoppel case. He put the matter thus in oral submissions: "We say an estoppel claim could arise. The entitlement to membership is based in contract. You can have an estoppel in contract. There are circumstances, historically, whereby membership numbers were issued to each of the football club members; they were allowed to prepare a card with that membership on it. The evidence is that they were allowed to use that card to gain entry to the club without signing in. There is evidence of being held at the club without them being required to sign in.

In fact, the documentation behind tab 18A … That documentation indicates, not that there was required to be anything further by way of formal requirement to finalise the membership but, simply, they needed to be financial so that they could gain entry to the club. In those circumstances, the second limb raises the serious question, in any event, even if the first didn't arise." 25 The "documentation behind Tab 18A" is the email from Mr Nagle to the plaintiff dated 14 September 2009 quoted, as to the possibility of "scrapping" applications, at paragraph [14] above. The part not previously quoted but relevant to Mr Neggo's submission is: "Until members are financial, any of your members that come to the club must sign in, and if they live within the 5k radius must be signed in by a member and stay with that member during the visit to the club." 26 The species of estoppel on which the plaintiff would rely to establish "membership by estoppel" is no doubt based on reliance on some representation. If, as Mr Neggo's submission suggests, the relevant representation is that of Mr Nagle just quoted, the estoppel case cannot possibly succeed. Mr Nagle was not representing that football club members were members of the defendant. He was saying exactly the opposite, that is, that they were not members and that, for that reason, they would be subject to the constraints applicable to all non-members when visiting the club premises. 27 As the first part of the submission quoted above indicates, however, the plaintiff seeks to mount an estoppel case based on the circumstances in which football club members were allocated "membership numbers" of the defendant and the football club issued each of them with a card in accordance with the 7 May 2009 email message from Ms Spiliopoulos to the plaintiff referred to at paragraph [11] above which read in part as follows: "If you put their name, Membership number and 'Waverley Bowling & Recreation Club Ltd' on the card it will work perfectly." 28 A copy of the card issued to the plaintiff is in evidence. It is as follows: Membership No: 1143 Michael Kavourakis

Waverley Old Boys Football Club Membership Program

This card is also your membership card to Waverley Bowling Club Ltd Expires 06/10

29 The Waverley Old Boys Football Club logo appears in the bottom left corner. The membership number is that allocated by Ms Spiliopolous. 30 The central allegation is, no doubt, that the defendant, through Ms Spiliopoulos, allowed the football club members to whom such cards were issued to hold themselves out as members of the defendant; and that the defendant is therefore estopped from denying their membership. 31 There is a body of case law concerned with what is generally termed estoppel by share certificate. It arises typically where one person (B) relies on a share certificate showing another (A) as the holder of shares and acts to his or he detriment on the faith of the certificate - for example, by paying A for a transfer of the shares - only to find that the certificate was in truth a misrepresentation by the company of the true position with respect to the ownership of the relevant shares. In such a case, B will be entitled to redress against the company on the general principle that the company, by issuing the certificate in the name of A, represents that A is the holder of the relevant shares and may not depart from that representation when presented with a transfer from A to B: see, for example, Re Bahia and San Francisco Railway Co Ltd (1868) LR 3 QB 584. 32 But the company does not, in such a case, become estopped as against A. The essence of estoppel is reliance on a representation as a basis for taking some action. As Cockburn CJ said in the case just mentioned: "[I]f you make a representation with the intention that it shall be acted upon by another, and he does so, you are estopped from denying the truth of what you represent to be the fact." 33 In the example given, the transferee from A clearly acts in reliance on the company's representation in the erroneous share certificate. But A does not. The fact that A is, without proper legal foundation, represented by the company to be a member does not of itself prompt any action by A on the faith of the representation or any detriment to A. Acting to one's detriment in reliance upon an assumption engendered by another is the essence of estoppel: see, for example, Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387. 34 Another important principle made clear by the cases about estoppel by share certificate is that the representation of membership will be capable of raising an estoppel only if made by a company officer with relevant authority: see, for example, George Whitechurch Ltd v Cavanagh [1902] AC 117. In the present case, the only possibly relevant representation was that of Ms Spiliopoulos, the defendant's events and functions co-ordinator. A person whose duties relate to events and functions may be taken to be quite removed from the article 6 processes concerning membership of the company which, as one might expect, are centred on members, the secretary and the board. 35 The plaintiff did not act on the faith of any representation by Ms Spiliopolous in early May 2009 that he was a member of the defendant. In fact, he did not himself at any time believe that he was a member. I say this because, over several months after May 2009, he continued with efforts to make application for membership and to make payment of a sum of money he knew to be associated with the obtaining of membership. He no doubt had, from May 2009, an expectation that he could and would become a member by following a particular procedural path. But it is simply impossible that he could at any time have thought that he was already a member. 36 The plaintiff's allegation of "membership by estoppel" rests on an erroneous foundation and cannot possibly succeed. 37 The conclusion that the plaintiff's case, in both its branches, is bound to fail means that leave under s 440D(1) should be refused. Two other factors should, however, be mentioned for the sake of completeness. 38 I refer first to the task that lies ahead of the administrators and the need for them to be free to devote themselves to that task without needless distraction. 39 On 27 August 2010, the creditors of the defendant resolved that the defendant should enter into a deed of company arrangement. The deed is part of the machinery by which the amalgamation with Eastern Suburbs Leagues Club will be achieved. Perhaps more significantly in the Part 5.3A context, the deed of company arrangement will, it is expected, see Eastern Suburbs Leagues Club assume all obligations of the defendant to its employees and result in other creditors with provable claims receiving 100 cents in the dollar. The deadline for execution of the deed of company arrangement is 18 May 2010. The administrators should not be distracted unnecessarily from these tasks which will be of demonstrable benefit to creditors. 40 The second additional factor is cost. The defendant's solicitor, Mr O'Neill, has sworn an affidavit in which he gives, with supporting analysis and reasons, an estimate of the sums the defendant would have to pay to defend the litigation proposed by the plaintiff. The total estimate is $103,020 to $141,120. 41 The legislation proceeds on the footing that legal proceedings should not be brought or continued against a company in voluntary administration unless a clear and positive case for subjecting the company to the proceedings is established. No such clear and positive case - indeed, no case at all - is made out in this instance. 42 The plaintiff's notice of motion filed on 23 April 2010 is dismissed with costs. **********

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