Knox v Nile & Ors [2022] NSWSC 195 | Case summary

The parties' submissions and determination Whether the Court has power to make a winding up order

By an email dated 17 February 2022 to the Nile parties' solicitor, copied to other parties and my Associate, Mr Hall, who appears for Mr Knox, attached submissions in which Mr Knox "contends that the Association ought to be wound up on the just and equitable ground". By those submissions, Mr Hall also submits that, under r 36.1 of the Uniform Civil Procedure Rules 2003 (NSW) ("UCPR"), the Court may make such order as the nature of the case requires, whether or not a claim for relief extending to that order is included in any Originating Process or Notice of Motion. Mr Hall submits, on Mr Knox's behalf that: "In all the circumstances, the Association ought to be wound up and Mr Trent McMillen ought to be appointed as its liquidator."
In oral opening submissions, Mr Hall confirmed that Mr Knox had formed the view, following the hearing over four days before Rein J in November and December 2021, that the Association's affairs had become ungovernable and that a just and equitable winding up was the proper course in those circumstances (T3).
The Nile parties respond that that the Court has no such jurisdiction. This response seems to turn on two matters, the first directed to whether that relief was originally sought in the proceedings, and the second being a "query" as to Mr Knox's standing which was raised by Mr King in oral submissions in reply. As to the first of those points, in opening submissions, the Nile parties contend that Mr Knox's Summons and the Cross-Summons did not seek the winding up of the Association. Mr Ferguson, who appears for Mr Collins, also initially submitted that Mr Knox did not seek an order winding up the Association in insolvency or otherwise. By submissions in reply served on 22 February 2022, Mr Heath, who appears for the Receiver, contested the Nile parties' submission that the Court did not have jurisdiction to wind up the Association.
As I noted above, the relief that Mr Knox originally sought in his Statement of Claim included such other order as to the Court seemed fit and other parties sought similar relief. Other parties, including the Nile parties also sought such other orders as the Court deems fit in their several applications. Mr Knox now seeks a winding up order and other parties have had procedural fairness in that regard. The Court is authorised by both s 90(1) of the Civil Procedure Act 2005 (NSW) and UCPR r 36.1 (to which Mr Hall referred) to give such judgment, or make such orders, as the nature of the case may require and the operation of these provisions is not dependent upon any reliance upon them being foreshadowed in a motion, although they can be invoked by inclusion of a claim for "any other order(s) the Court deems appropriate": Alstom Ltd v Sirakas [2012] NSWSC 1064; see also Hodgson v Amcor Ltd [2012] VSC 162 at [55]. In Gerard Cassegrain & Co Pty Ltd (in liq) v Cassegrain (2013) 305 ALR 687; (2013) 97 ACSR 283; [2013] NSWCA 455 at [95], Emmett JA similarly observed that: "Under [UCPR] r 6.12(1), a statement of claim or summons must specifically state the relief claimed by the plaintiff. However, that requirement is not strictly enforced having regard to the provisions of the Civil Procedure Act 2005. Section 56 requires the just, quick and cheap resolution of the real issues in dispute, and ss 22 and 90 permit the court to give such judgment as the nature of the case requires. More important still is [UCPR] r 36.1, which permits the court at any stage of the proceedings to give such judgment or make such order as the nature of the case requires, whether or not the claim for relief extending to that judgment or order is included in any statement of claim or summons, that is to say, notwithstanding failure to comply with r 6.12(1). Further, s 63 of the Supreme Court Act 1970 requires the court to determine proceedings finally and to grant all the remedies to which the parties are entitled. The effect of these various provisions, as well as the amplitude of the power of amendment in Pt 19 of the Rules, is generally that a party's failure to claim a particular form of relief in an originating process will not necessarily disentitle it from obtaining an appropriate order."
In oral submissions in reply, Mr King also relied on the Court of Appeal's decision in Treadtel International Pty Ltd v Cocco (2016) 117 ACSR 176; [2016] NSWCA 360 which he submitted was authority that Mr Knox did not have standing to wind up the Association, although he did not draw attention to any reasoning in that judgment that supported that conclusion. That case dealt with the position where a person who was not then a member of a company, but contended that he should be recorded on the company's share register as a member, sought to wind up the company. The Court reached the unsurprising decision, consistent with earlier authority, that a person who was not then a member of the company did not have standing to wind it up under Part 2F.1 of the Corporations Act.
Mr King did not otherwise explain how that decision advanced the Nile parties' position, and it may be intended to do no more than support a contention that, if Mr Knox is not a member of the Association, he would not have standing to wind it up. This depends upon the second matter raised by Mr King in oral reply submissions, where he referred to "a query as to the status of [Mr Knox] as a non-member" (T93). By way of background, Mr Knox had pleaded in paragraph 6 of his Statement of Claim filed on 25 February 2021 that he was a member of the Association, and had been its treasurer for the 2020 calendar year; the Nile parties did not comply with a previous order to file their Defence made by the Registrar and did not deny Mr Knox's claim to be a member of the Association by any pleading; and the Nile parties were not granted leave to reopen their evidence at this hearing to read plainly inadmissible evidence to support a suggestion that Mr Knox was not a member of the Association. I proceed on the basis that there is no genuine dispute as to whether Mr Knox is a member of the Association, where these proceedings have continued for many months on the apparent common ground that he has standing to bring them as a member of the Association; no defence was filed denying that he is a member of the Association; and the raising of a "query" as to that matter by Counsel in reply, when Mr Knox had no to opportunity to lead evidence in response to that "query", does not raise a genuine dispute as to that matter.
The Court has power to wind up an incorporated Association, on a member's application, under s 63 of the Associations Incorporation Act, inter alia, where it is insolvent or the Court is of the opinion that it is just and equitable that the Association be wound up. The provisions relating to winding up of an incorporated association were reviewed by Lindsay J in Sengthong v Lao Buddhist Society Inc [2016] NSWSC 1408 ("Sengthong") and his Honour there noted that that the provision for "just and equitable" winding up in s 63(1)(i) of the Associations Incorporation Act corresponded to s 461(1)(k) of the Corporations Act. His Honour there referred (at [151] to Gordon J's observation in Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No 2) (2013) 93 ACSR 189; [2013] FCA 234 at [19] that the classes of conduct which justify a winding up order on the just and equitable ground are not closed and each application depends on the circumstances of the case; see also Re Catombal Investments Pty Ltd [2012] NSWSC 775; Re CNPR Limited [2018] NSWSC 989; Re Spitfire Q Pty Ltd [2021] NSWSC 866. His Honour also noted (at [153]), by reference to authority, that an association could be wound up under that section where "management of an association is deadlocked or paralysed by a loss of mutual trust and confidence between the members of the association" and observed (at [155]) that the determination whether to make a winding up order was fact specific and required consideration of alternative remedies available to address problems identified in management of a particular association. On the facts of that case, his Honour held that a winding up was not just and equitable where the relevant association's problems arose from disputed elections occurring after an extraordinary event, and the Court could provide a mechanism to allow that association's membership an opportunity to have a management committee elected in a Court supervised election "according, so far as may be practicable, to the terms of the [c]onstitution". In Chen v Shaanxi Chamber of Commerce [2021] NSWSC 337 ("Shaanxi"), Sackar J observed that: "[t]he Court's jurisdiction to intervene in the affairs of a registered organisation … where necessary and appropriate is not in doubt so as to ensure proper governance … Equally, the Court has jurisdiction to appoint a receiver to facilitate an election and in other wide ranging circumstances where the interests of justice warrant it."
For the reasons noted above, it seems to me that, contrary to the submission made by the Nile parties, the Court has power to make a winding up order in respect of the Association. I am satisfied that, as matters now stand, an order should be made to wind up the Association on Mr Knox's application, although I will stay that order for a period to allow yet another opportunity for the parties to resolve their differences or at least agree the basis on which a meeting of the Association could be held to elect officers and resolve the ongoing dispute as to the identity of the electorate branches whose delegates could vote at an Annual State Council meeting. I first address whether a winding up order should now be made by reference to the matters that were identified in my judgment deferring this hearing at the Nile parties' request, before turning to the wider matters raised in the course of the hearing that support the same result. The Association's solvency and use of electoral funds
The first of those matters was the Association's solvency and use of electoral funds. I have referred above to the Receiver's evidence as to his assessment of the Association's solvency, and he has expressed the view that the Association is solvent provided it can have recourse to the funds it has received from the Electoral Commission, being a significant portion of the amount currently held in the Association's State Election Account, for the costs of the receivership and the Receiver's costs of these proceedings and subject to the question of other parties' costs of the proceedings. Mr Heath contends that the Court should find, as a matter of construction of the Electoral Funding Act, that the monies received from the Electoral Commission referred to in the Receiver's evidence is not a "political donation" within the meaning of that Act. He fairly acknowledges that the Receiver's conclusion as to the Association's solvency depended upon the impact of any costs orders in these proceedings, and he notes the Receiver's understanding that the other parties now seek their costs of the proceedings against the Association.
In their opening written submissions, the Nile parties adopt the Receiver's view that the Association is not insolvent if it can expend electoral funds on the costs of the receivership and the proceedings, but neglect the contrary view he expresses (as I noted in paragraph 37 above) if the Association is constrained in expending electoral funds, and the reservation to his opinion in respect of the costs of these proceedings. They rely on the fact that the Electoral Commission placed no conditions on the payment made to the Association under s 76 of the Electoral Funding Act, but do not address the extent to which the use of those funds is limited by the Association's purposes. Mr King, in submissions in reply, submitted that there is no or insufficient evidence that the Association is insolvent.
Mr Ferguson, for Mr Collins, rightly recognises that the Receiver's view that the Association is solvent on the specified basis, but also fairly recognises that "the longer the Receivership lasts, the more of these funds will be sent on the expenses of the Receiver, including appropriate work in response to litigation, including this proceeding." He recognises that, although the Association may be solvent within the meaning of s 95A of the Corporations Act, there is a question for the Court whether the Association's use of electoral funds towards litigation and other irregular administrative costs, including the Receiver's costs, is consistent with the Association's rules, objects and aims. He raises the question whether: " … an outcome which extends or prolongs the period in which those costs are incurred, or increases the likelihood of those expenses being incurred, [is] fair and just to the member of the association?" That question overlaps with the issues in respect of a winding up on the just and equitable ground which I will address below.
I accept that the Association is presently solvent, applying the relatively narrow cashflow test for solvency under s 95A of the Corporations Act, because the substantial financial claims against it that are accruing as a result of the receivership and the proceedings are not yet debts that are due and payable. Although a voluntary administrator and a Court appointed receiver will ordinarily be allowed his or her costs from the assets of the body to which he or she is appointed, the Receiver has not yet sought an order from the Court as to the costs of the receivership. It appears the parties and interested persons may seek their costs of the proceedings, a matter to which I return below, but costs have generally been reserved and there is no agreement or assessment as to their amount. That, of course, provides no comfort as to the Association's financial position once those debts fall due.
I did not understand any party ultimately to contend that the Electoral Funding Act or any condition imposed by the Electoral Commission prevented the application of the funds that would otherwise be applied by the Association to participation in elections to the payment of the costs of the receivership or the parties' and interested persons' costs of the proceedings. The Receiver submits that there no legal impediment, so far as electoral legislation is concerned, to the use of the Association's funds for the purpose of the receivership, and Ferguson, for Mr Collins, adopted that submission. I do not reach any finding that such a prohibition exists. However, the Receiver also fairly recognised that that limited conclusion does not indicate that the use of the Association's funds in that manner is a proper use of those funds, particularly as more funds are used for that purpose over time and less for any electoral purposes. This conclusion highlights the significance of whether the basis for a winding up on the just and equitable ground is established. The parties' submissions as to winding up on the just and equitable ground
Turning first to Mr Knox's submissions, Mr Hall referred to the agreement reached at the mediation on 6 November 2020 (to which I referred above) and Mr Knox's claim that the election convened on 28 November 2020 was not conducted in accordance with the requirement for a 75% majority under cl 4(b) of the Association's constitution. Mr Hall also referred to a communication from Reverend Nile to members of the Association, apparently made prior to 14 February 2021, which referred to the Association's practice of conducting elections as follows: "It is noted that our standard Party practice over the years has been to gain a majority of delegate [sic] rather than attain unanimous or 75% of delegate votes at our Annual State Council. The proposed constitutional change recognises our standard Party practices so as to eliminate any degree of confusion or dispute over the final results stemming from our Annual State Council."
Mr Hall also refers to the appointment of Mr Condon, initially as voluntary administrator of the Association, and then by the Court as Receiver by the May Consent Orders. Mr Hall in turn summarises the circumstances of the Association, namely that it has been involved in these proceedings since September 2020; the Receiver was appointed to convene an election for the Association and has not been able to do so (and, I interpolate, the present proposal for an election is not consistent with the Association's constitution and officers of the Association could not be appointed by delegates of the branches where the identity of the branches is presently unknown); and the parties have been unable to resolve their differences despite encouragement by Rein J for them to do so in the listings on 10-11 and 30 November and 7 December 2021. In submissions in chief, Mr Hall also submits that Mr Condon's conclusion that the Association is solvent depends upon its application of the public monies received by it and placed in a fund for the conduct of elections to the costs of its ongoing internal disputes. In oral opening submissions, Mr Hall acknowledged the "sensible suggestions" made by Mr Collins in submissions, but contended that they were not capable of resolving the disputes in respect of the Association. He submitted that Mr Knox's nominee for appointment as liquidator, Mr McMillen, should be appointed rather than Mr Condon being appointed that role, and that it would be undesirable to delay the appointment of a liquidator and instead appoint a provisional liquidator or narrow the scope of the Receiver's role (T9), two possibilities which I address below. Mr Hall adopted the same position in his oral closing submissions as in his opening submissions.
In reply submissions, Mr Hall again submitted that the Association had a failed management structure and was not properly governable. He contended that an agreement was reached under the 2020 Heads of Agreement between the parties that no new branches of the Association would be established and that any election by branches would need to take place having regard to the branches which existed in May 2020. He also refers to a "membership" drive by the current "board" of the Association, although there is no evidence of that matter. Mr Knox also observed that he would support a meeting, if the Court was sufficiently persuaded that would bring an end to the hostilities. As will emerge below, I am not persuaded of that matter, and it seems to me that the unresolved issues as to the conduct of that meeting will simply open another front in the parties' ongoing disputes.
By their submissions dated 17 February 2022, the Nile parties submit that Reverend Nile is the current chair of the Association's board and Ms Wright is its current State director appointed by the board, and that Reverend Nile, Mrs Nile and Ms Wright are delegates to a State Council and members of the board. Each of those matters is in dispute and cannot be determined in this application, although it is not apparent how they could validly hold those positions without an election conducted in accordance with the 75% voting requirement in accordance with cl 4(b) of the Association's constitution. The Nile parties submit that a new board was duly elected on 28 November 2020, but that submission again disregards the non-compliance with the 75% voting requirement in cl 4(b) of the Association's constitution which emerges from Ms Wright's evidence. The Nile parties also submit that the appointment of the Receiver under the May Consent Orders should be terminated and the proceedings "otherwise dismissed" without a determination on the merits. The Nile parties submit that the Association's role as a political party remains viable, that there is no deadlock in the affairs of the Association and they identify alternatives including the holding of a State Council meeting and the election of a fresh board and refer to case law including Sengthong and Shaanxi to which I referred above. They do not address the manner in which those alternatives are to be achieved, where there is no consensus between the parties in respect of them; these proceedings have continued for many months; and it is not apparent how the Receiver's remuneration and his and the parties' legal costs in respect of the proceedings, if they seek them, are to be implemented without dissipating the remaining assets of the Association.
In oral opening submissions, Mr Loxton retreated from the position taken by the Nile parties in their written submissions and no longer submitted that the Receiver should be removed or the proceedings dismissed, while seeking to reserve the opportunity to do so in the future. Mr Loxton also raised the possibility that an election could be conducted by voting by delegates of electorate branches, although I have pointed above to the evidence as to the extent of dispute as to the identity of the Association's electorate branches and Mr Condon's evidence as to the absence of documentation to resolve it. Mr Loxton fairly acknowledged that the dispute between the parties included the question whether there were, on the one hand, less than 20 valid branches and, on the other hand, up to 35 or 45 valid branches of the Association and also, oddly, contemplated that branches might be invited to vote before it was determined which of them was a valid branch, apparently on the basis that some branches that are not valid would choose not to vote in any case (T12). Mr Loxton, in oral closing submissions, returned to the possibility that the Receiver might determine the identity of electorate branches and submitted that the membership should be given an opportunity to deal with the relevant issues rather than the Court making a winding up order, and addressed the difficulty arising from the 75% requirement in cl 4(b) of the Association's constitution.
In oral submissions in reply, Mr King first submitted that the Association's objectives were "lofty, spiritual, but ultimately very temporal objectives of the highest order in the public interest" and addressed the virtues of a "Christian democracy" (T91). It seems to me that the Court must focus on somewhat narrower questions, namely whether the Association is presently able to conduct itself in a manner that will not cause its objects to be frustrated and its assets to be eroded by the continuance of disputes between the parties, or can appoint its officers and conduct its Annual State Councils in the manner required by its constitution. Mr King also pointed to the integrity of those involved in the Association and I recognise that there has been no criticism by any party of the integrity of other parties in the course of this hearing. Reversing the position taken by Mr Loxton in chief, Mr King then submitted that the future of the Association "should be left in the hands of those who have successfully run and manage[d] it for 43 years" and the proceedings should be dismissed or the Receiver should be discharged. Plainly, any assessment of the success of the Association may require qualification for the difficulties addressed in this hearing as to the identity of its electorate branches, compliance with the constitutional requirements for the appointment of officers in Annual State Councils over recent years and the extent of the disputes between its members, and it does not follow from an assertion of the Association's past success that the proceedings could now be dismissed or the Receiver discharged given its present circumstances.
Mr King, in oral submission in reply, also referred to the "internal management rule" and a "hands off" approach which he attributed to the Court in respect of voluntary associations or at least political organisations that served the public interest (T95). I recognise that the Association is a voluntary association and a political party which has attracted some voting support. However, it is incorporated under and subject to the Associations Incorporation Act which provides for winding up on the just and equitable ground in an appropriate case. I should not apply any broadly formulated "hands off" rule that is not drawn from the statute and I should not be either more or less ready to wind up a political organisation that is unable to pursue its objectives by reason of internal conflict than to wind up a religious or cultural or other association in the corresponding situation. Mr King also advanced the submission that the Receiver had "created problems because of the inability to identify which branches" ought to be permitted to appoint delegates to vote at a meeting (T97), and he submits that the identification of branches is set out in cl 4.6.1 of the Association's constitution, which provides that the State Council shall comprise nominated and approved representatives, one from each State electorate as appointed by the Electorate Branch. I put aside the difficulties with this submission that the State Council and the Annual State Council appear to perform different roles under the Association's constitution and office bearers are elected at the Annual State Council rather than the State Council. The more fundamental difficulty with this submission is that it appears that the Association does not maintain the documents that are necessary to identify its electorate branches, the members are unable to reach any consensual position as to the radically different numbers of electorate branches for which different members contend, and it is impossible to see how any fault can be attributed to the Court-appointed receiver in respect of that position.
Mr King in turn submitted, in reply, that: "A proper exercise of [the Court's] discretion in the current circumstances is either to dismiss the proceedings, which would have the consequence of terminating the receivership which is proved expensive and futile because nothing has been achieved except to create a deadlock instead of solving it and in our respectful submission that's the proper way forward. Alternatively, if your Honour is not disposed to dismiss the proceedings, then your Honour should under the power to which I have referred under the rules discharge the orders made by Henry J, which would have the same result."
There is a degree of common ground between this submission and the submissions of Mr Knox and Mr Collins as to the difficulties with the receivership and the deadlock within the Association, although it seems to me that there is no basis to attribute that deadlock to the Receiver rather than to the members of the Association to which he was appointed. I do not accept, however, how that difficulty or deadlock could properly be resolved by simply terminating the receivership where no Annual State Council meeting can be held to appoint officers to the Association. Mr King's submission seems to me to highlight the choice between alternative remedies, whether a general meeting of the Association, a winding up, or a winding up that is stayed for a period to give the members of the Association a further opportunity to achieve consensus.
In oral submissions in reply, Mr King also raised the possibility that an election at which all members could vote should be conducted by the Receiver, exercising powers under the Model Rules under the Associations Incorporation Act or the reserve powers to which I refer below, in person or virtually and with a power to receive postal votes, with a specified agenda. That agenda provided for the election of office bearers but not for any amendments to the Association's constitution, and would not have resolved the issues as to the identification of the Association's electorate branches or its inability to conduct Annual State Council meetings without identifying those electorate branches.
Mr Heath, for the Receiver accepted that the previous hearing before Rein J had revealed a deadlock between the parties to the proceedings. The Receiver relies on Sengthong for the view that the Court would not order a winding up while the Association had a prospect of continuing. I do not read that decision as indicating that a winding up should be deferred and a receivership left in place, if the meeting to be convened by the receiver has little prospect of resolving the dispute and the continuing conduct of the dispute would likely dissipate an Association's remaining assets in a manner that is inconsistent with its underlying purposes. The Receiver also submits that the Court would be reluctant to order winding up, where it could direct (as Henry J already did) a meeting of the Association. While the Court made such an order in Sengthong, I do not understand that decision to contemplate that such a meeting would be pursued where it is unlikely to resolve the range of issues in dispute.
Mr Heath also submits that the Association's funds can properly be used to maintain the Association for the purpose of implementing the May Consent Orders. That seems to me to be a question of degree. It would no doubt be a proper expenditure of the Association's funds to continue a receivership or conduct a meeting that would resolve its governance difficulties; but a different conclusion could follow if those expenditures and litigation costs will substantially exhaust the Association's funds over time and if that meeting will not resolve the Association's difficulties. Here, that the extent of the costs incurred and the extent of the issues which remain to be resolved suggest that the Association's assets will be substantially dissipated, before the May Consent Orders are implemented; and the implementation of the May Consent Orders will not resolve the Association's difficulties, since those orders leave unresolved who is entitled to vote at that meeting and an election of office holders pursuant to those orders will not resolve the dispute as to the identity of its electorate branches or allow future Annual State Councils to be held until that dispute is resolved. The Receiver also submits that the expenditure of such funds would be for the "very purpose of putting the [Association] in a position to achieve its electoral purposes, not inconsistent with them", but that submission is undermined by the inability of the proposed meeting to achieve that objective.
In oral opening submissions, Mr Heath noted that the Receiver's conduct since his appointment had been directed to maintaining the Association, dealing with members and the ongoing Court proceedings, and addressed the question whether the conduct of an election in the manner proposed by the Receiver would have been inconsistent with the Association's constitution. He submitted that, as evidence had developed, it appeared that the Association was solvent and would not be prohibited from applying funds for the purposes of the receivership under the Electoral Funding Act, but recognised that an issue remained as to whether that would be consistent with the Association's objectives. Mr Heath also referred to the possibility of a general membership vote to appoint new officers of the Association. I address that possibility further below.
By submissions in reply served on 22 February 2022, Mr Heath responded to the Nile parties' submission that there was no deadlock in the Association's affairs by pointing to the parties' inability to agree as to the eligibility of branches to vote or send delegates to a general meeting of the Association when that matter was listed before Rein J. Mr Heath responded to the contention that there had been undue delay in calling the meeting contemplated by the May Consent Orders by pointing to the fact that the several parties had contested the manner in which the Receiver proposed to call that meeting and sought that it be called in a different way, and indicated that the Receiver was willing to make a determination as to the validity of branches, while recognising the likelihood that other parties would challenge that determination. In the event, I am satisfied by the Receiver's evidence that he would not be able to reach a determination as to the validity of the existing branches on the documentation available to him, although he might well be able to determine the different question which branches might have existed, had members chosen to create them and had they then be approved in the manner contemplated by the Association's constitution.
Mr Heath acknowledges that Mr Collins' submission as to the risk of dissipation of the Association's funds by litigation is a fair concern, but submits that the Receiver's use of the Association funds to implement the May Consent Orders is consistent with the Association's objectives, although he recognises that position is complicated by the contest as to the identity of electorate branches and the risk of ongoing litigation about that issue. Mr Heath also submitted that a direct membership vote would minimise the risk of further litigation and provide the best chance of the Association continuing. Mr Heath also pointed to the differing views of the parties as to which officer positions should be filled at any general meeting of the Association, and it is not apparent that there is any principled basis on which the Court could determine that question, where members of the Association cannot reach common ground about it.
Mr Ferguson made balanced and thoughtful submissions, by which I have been assisted, on Mr Collins' behalf. Mr Ferguson refers to the Association's objectives as set out in its constitution and addresses the conduct of the proceedings over the nearly 18 months on which they have been on foot. He refers to orders made by Lindsay J in October 2020 which required the Nile parties to take steps to end suspensions of multiple members and purported closures or suspensions of some eight branches of the Association, and observes that the number of persons and branches that were suspended "hints at (if not outrightly points to) serious factional splits within the party". Mr Ferguson also refers to the outcome of the mediation undertaken in November 2020, the appointment of a voluntary administrator to the Association in April 2021, the validation of that appointment by Henry J in May 2021 (without, it appears, any potentially improper purpose in that appointment having been disclosed) and the appointment of the Receiver "to administer and supervise an election process" and the grant of the powers necessary to convene an "extraordinary general meeting" to him. Mr Ferguson submits that that extraordinary general meeting should have occurred before November 2021, although that submission neglects the fact that an extraordinary general meeting at which all members of the Association elected office holders would not have complied with the Association's constitution and would arguably not have resulted in an effective election of office holders to the Association.
Mr Ferguson fairly recognises that, without confirmation of which electorate branches are entitled to send delegates or a co-ordinator to an Annual State Council meeting, the Annual State Council cannot be convened or elect nominees to the Association's management committee. He also recognises that there is no clause in the Association's constitution dealing with casual vacancies for committee positions and the constitution does not provide any other avenue for appointment or election of committee members. He recognises that the identity of which electorate branches are entitled to send delegates or a co-ordinator to an Annual State Council is uncertain and the parties have variously claimed there are between 13 and 93 valid and existing branches. He submits that no consensus can, or will, be reached between the active parties in these proceedings as to the identity of the Association's electorate branches. He also contends that the Receiver, who would have the responsibility of convening and chairing any meeting of the Annual State Council and would have the responsibility of admitting votes at such a meeting, is either unwilling or unable to determine which of the branches are valid and entitled to send voting delegates.
Mr Ferguson also points out that the State Council, which approves electorate branches, cannot itself be convened without first determining which current branches are valid and able to send a delegate to that meeting. He also points out that the State Council has not been convened since March 2020 and there is no prospect of it convening in the near future and that "this problem is intractable, and perhaps impassable." Mr Ferguson also fairly recognises that no Annual State Council meeting for the Association was held in 2021; that meetings of the Annual State Council of the Association held in 2019 and 2020 are the subject of unresolved disputes; and it is at least arguable that the Association has not had a validly elected "State Board" since 2019. Mr Ferguson also refers to Mr Collins' earlier proposal that, as at November 2021, rather than conducting the meeting contemplated by the May Consent Orders and the Association's annual general meeting in succession, it would have been preferable to conduct an Annual State Council meeting to achieve the appointment of a new board and submits that, by December 2021, the parties to the proceeding were in general agreement that that was the appropriate course. If that was the position in December 2021, it is no longer, since the Nile parties now contend (at least in their opening submissions and in reply) that the proceedings should be dismissed and the Association returned to their control without resolving the disputed governance issues in these proceedings, although they also put an alternative submission as to a postal vote of all members. Mr Ferguson also fairly acknowledges, on Mr Collins' behalf, that there is no guarantee that a further election of new office bearers would "solve the principal issue dividing the parties, namely the question of which Electorate Branches are entitled to send delegates to the Annual State Council Meeting".
Mr Ferguson in turn submits that: "As appears obvious from these proceedings, there is a state of discord within the [Association]. The Applicant submits that it is very unlikely that any one candidate for election will ever receive support of 75% of the voting delegates at an Annual State Council meeting. It is very likely that a meeting convened and using that threshold will result in many, if not all, Office Bearer positions remaining vacant. This position is not sustainable, and the current [c]onstitution is not fit for purpose. It is, respectfully, patently obvious that the [Association]'s [c]onstitution will need a significant revision if the [Association] continues as an association. However, the principal difficulty is that there remains a significant difference of opinion as to the list of valid Electorate Branches. Certainty as to those basic constituent bodies is crucial to the operation of the [Association]. [Mr Collins] therefore submits that the Court should be reluctant to return the [Association] to normal corporate existence without some confidence that these issues can be resolved. However, this Court has (respectfully, quite rightly) raised a concern that hearing, and resolving, the internecine disputes of the [Association] in this Court is likely to involve the [Association] in protracted litigation. Doing so while, necessarily, maintaining the appointment of the Receiver has the potential to exhaust whatever member funds remain. The Applicant considers that the above issues are relevant to an enquiry by this Court as to whether it is instead appropriate to wind the association up on just and equitable grounds."
As Mr Ferguson fairly points out, the Court may make an order winding up an incorporated association where there is a lack of competence in its conduct and management of its affairs or the management of its affairs is deadlocked or paralysed by a loss of mutual trust and confidence between the members of the Association: Sengthong at [152]-[153]. Mr Ferguson fairly recognises that the disputes in this case are more fundamental than those that arose in Sengthong, where they extend to the identity of constituent bodies that can exercise voting rights at the State Council and Annual State Council meetings and that, absent a resolution of that dispute, "it is virtually impossible for the [Association] to conduct business of the Association in the long term". Mr Ferguson also accepts that "there is a deadlock or impasse in the [Association] or its management, and that the members generally lack confidence in the management of the Association". He accepts that there is sufficient material before the Court to justify an inference that the Association has, or is, engaged in activities inconsistent with its objects or that it is just and equitable to wind up the Association.
In oral opening submissions, Mr Ferguson provided a helpful review of the Association's constitutional provisions, observed that the question of the identity of delegates from the electorate branches appeared to be at an "impasse" and could only be resolved by extensive litigation and identified Mr Collins' concern as to whether the Association's resources should be spent in that way or, on a winding up, made available to a new Association which had similar objects. He emphasised that Mr Collins was not himself seeking a winding up order but recognising the existence of the issues that might require such an order. He also noted the possibility that a restriction of the Receiver's powers, which limited the extent of the costs incurred, might be an acceptable outcome for the parties, but pointed to the risk that, if matters continued in their present course, then the Association would have few assets remaining even if a new board was appointed (T17).
Mr Ferguson, in oral closing submissions, also addressed a question whether officers of the Association had ceased to hold office on the voluntary administrator's appointment. It is not necessary to address that question, where the failure to comply with cl 4(b) of the Association's constitution likely has the consequence that the appointment of officers to the Association has been invalid for several years and there was in any event no relevant meeting to appoint such officers in 2021. Mr Ferguson also developed a subtle construction argument, in respect of the interaction between the Associations Incorporation Act, the Model Rules and the Association's constitution, as to the ability to convene a special general meeting of the Association. Without any disrespect to Mr Ferguson, it is not necessary to determine that argument since, even if a special general meeting could be convened, it would not have the power to appoint officers in accordance with the Association's constitution. I address the question of residual powers of members if the Association's governing body is unable to act below.
In oral closing submissions, Mr Ferguson rightly recognised a further difficulty with the Association's present position, namely that any amendment of the Association's constitution to identify the electorate branches would itself require the involvement of delegates to the Annual State Council, which could only be appointed once the identity of those electorate branches had been resolved (T65). Mr Ferguson also raised a question whether the reserve powers recognised in Singh v Singh extended beyond management decisions, to those which were reserved to the Annual State Council under the Association's constitution. I would be inclined to think, although it is not necessary to decide, that they would if, as here, the Annual State Council is presently unable to be constituted or act. Mr Ferguson accepted that, if there was no way of resolving the issue of which are the Association's electorate branches, then there was no alternative other than to wind up the Association (T67). Mr Ferguson also contended, contrary to the position assumed (but not established) by the Nile parties, that there are no officers of the Association presently in place where no Annual State Council meeting has been held (T68). Mr Ferguson also raised the possibility that the identity of the branches could be resolved by the appointment of a chair of any meeting, who would either admit or deny a delegate of that branch the opportunity to vote (T69); however, it seems to me that that proposition could only be accepted if the chair would have a proper basis on which to make that determination.
Mr Ferguson also raised a possible application of the plenary jurisdiction of the Court under s 23 of the Supreme Court Act 1970 (NSW) as a source of the Court's jurisdiction to call a meeting. It is not necessary to determine the extent of that jurisdiction, where I am not satisfied that there is utility in that meeting for the reasons noted below. Dissipation of the Association's assets in the receivership and the litigation
I now turn to the issue of the dissipation of the Association's assets in the receivership and the litigation, which was also recognised in my judgment deferring this hearing at the Nile parties' request. I sought clarification, after the two day hearing before me, from the parties as to whether they would seek the costs of these proceedings from the Association, and the amount of those costs, in order to assess the significance of that issue to a just and equitable winding up. Mr Knox responded that he sought his costs of the proceedings against the Nile parties, and quantified them in the order of $87,000, but did not indicate whether he would seek those costs against the Association if they were not ordered against the Nile parties or they could not meet that costs order. The Nile parties' response was unclear, indicating that they do not seek costs in "this cause", which appeared to be a reference to the hearing before me rather than the proceedings generally; suggesting a costs order should not be made where it would "put further strain on the [Association's] finances"; then expressly reserving the Nile parties right to "argue" (and presumably claim) costs depending on the Court's orders; and providing no information as to the amount of those costs. I infer that the Nile parties' costs of the proceedings would likely be greater than those incurred by Mr Knox, since they have been represented by Counsel and by two Counsel for part of this hearing.
The Receiver fairly confirmed that he sought his costs of the proceedings from the Association's assets, and quantified his legal costs of the voluntary administration as about $23,800, his legal costs of the receivership to 23 February 2022 as over $154,000, and his other costs of the receivership to that date as $171,430 inclusive of GST, updating the information included in his affidavit evidence. Mr Collins indicated that he sought his costs of intervention in this hearing since December 2021 out of the Association's assets, and quantified those costs as in excess of $24,000 inclusive of GST, and identified costs referable to the motion that was not determined by Rein J as about $50,000, while recognising that representations by the parties to Rein J may prevent his seeking those costs from the Association. It will immediately be apparent that the Association now faces substantial claims for costs of the voluntary administration, receivership and the proceedings, of at least $373,000, increased to $510,000 if Mr Knox and Mr Collins seek the other costs they have quantified against it, and likely to a much greater figure if the Nile parties seek the costs which they have not disclosed, which they have reserved their ability to do. While these claims do not establish insolvency, because they are not presently due and payable, they will substantially erode or extinguish the Association's existing assets, if pressed, and they will further increase at the hearing that is necessary to determine the remaining issues in the proceedings.
The ongoing hostilities between the parties and persons associated with the Association in various capacities have continued since the Receiver's appointment and it seems to me that the costs which have been incurred and will continue to be incurred in the receivership and the actual and potential claims for costs of these proceedings will likely dissipate the Association's assets, in substantial part, before the proceedings are resolved so that its political purposes could not then be achieved. I am satisfied that these matters, combined with the lack of any apparent hope of resolution of the internal disputes within the Association in the foreseeable future and the inconsistency between the use of the Association's resources for those costs and its specified purposes supports a winding up order. This is, of course, a question of degree and the proceedings are unusual because of the scale of the costs incurred; the fact that several attempts to narrow them (including the mediation and the May Consent Orders) have failed; the multiplication of interlocutory applications, the determination of which will likely not return the Association to functionality; and the fact that, as will emerge below, the differences between the parties and interested parties appear to be widening rather than narrowing. Wider issues raised in the hearing
The parties directed their attention at the hearing to a wider range of issues than the matters noted above. It is not strictly necessary to determine those issues to be satisfied that a winding up order should be made, although I will address them briefly in fairness to the parties' submissions about them, and they would largely have provided alternative or additional bases for a winding up order.
The evidence, including that of Ms Wright to which I referred above, indicates that the manner of appointment of officers to the Association has not complied with the 75% requirement in cl 4(b) of its constitution for several years. It appears that no Annual State Council meeting was held by the Association in 2021 and no such meeting could be held in future without first resolving the fundamental and ongoing dispute as to the identity of the Association's electorate branches so to appoint delegates of the branches to attend it. An election of office holders cannot presently be conducted in the manner prescribed by the Association's constitution, where the controversy as to the identification of its electorate branches cannot be resolved without continuing litigation which will continue to erode the Association's assets, and may be impossible to resolve in such litigation given the deficiencies in the Association's branch records.
It has also emerged, in the course of this hearing, that there is also a lack of utility in a meeting of Association members (either as contemplated by the May Consent Orders or in some other form) as an alternative to a winding up order or as a means to appoint office holders and address the difficulties that no Annual State Council meeting was held in 2021 and that the Association cannot now conduct an Annual State Council, or at least cannot do so without further disputes, because of the ongoing dispute as to which electorate branches would appoint delegates to such a Council. That lack of utility could only be resolved by a fundamental change of position among the parties as to their disputes as to the manner in which such a meeting would be held, including which branches could appoint delegates to it or, if it were conducted as a member meeting, who would vote, how that vote would be conducted and what resolutions, including as to constitutional amendments, would be put before them. The position here is radically worse than the common position where all that is required to resolve a dispute within an association is to elect new office holders.
Mr Ferguson, for Mr Collins, gave particular attention to the manner in which an alternative general meeting can be conducted, as an alternative to a winding up of the Association under s 63 of the Associations Incorporation Act, including the conduct of an extraordinary general meeting. He submits that a meeting of members of the Association may be the only remaining feasible way to break the current impasse. Mr Ferguson fairly recognises that the Association's constitution does not provide for general meetings, although cl 4.18 deals with postal ballots and the use of technology, and instead contemplates that the Annual State Council meeting is the general meeting, at which where branch delegates rather than members will elect office bearers. He also fairly recognises the validity of a resolution under s 38 of the Associations Incorporation Act is determined by the members of the Association who are entitled to vote on it, under the Association's constitution, which would not include the Association's members generally. Mr Ferguson also fairly recognises that there is no provision under the Association's constitution to call a special or extraordinary general meeting or for members generally to vote at such a meeting. He refers to s 25 of the Association Incorporation Act, which applies where an Association's constitution fails to address a matter referred to in Schedule 1 of that Act. It is by no means apparent that that assists here, because the Association's constitution does address the manner in which its officers are to be appointed and provides an alternative mechanism to a general meeting or extraordinary meeting at which all members may vote. It is not necessary to address that matter further where, even if s 25 of the Associations Incorporation Act conferred a power to call such a meeting, it could not appoint new office holders other than in accordance with the Association's constitution, requiring the appointment of delegates by the branches that are disputed, or otherwise under a residual or reserve power that I address below.
The first difficulty which arises is that the meeting cannot practically take place as contemplated by the Association's constitution, again because of the because of the ongoing dispute as to which electorate branches would appoint delegates to such a Council, and I have referred to the evidence of the difficulties in resolving that dispute above. An alternative would be to rely on a residual or default power of members to address these issues in general meeting in a manner not contemplated by the Association's constitution. I recognise that there is authority that the Associations Incorporation Act does not displace the principle that, once an association's governing body, such as the Annual State Council, does not exist or cannot function, then the members themselves may act in its place, exercising a reserve or default power through a duly convened meeting of members: Massey v Wales (2003) 57 NSWLR 718 at 730ff; Singh v Singh; Flora Trading as Flora Constructions v Budget Demolition and Excavation Pty Ltd [2008] NSWSC 386 at [132]; approved in Luen Fook Tong Inc v Lowe [2011] NSWSC 1004. Mr Heath, in submissions in reply, fairly points to a question as to the scope of Singh v Singh above, noting that members can only act through a duly convened meeting of members or through the concerted action of all of them, although he contends the May Consent Orders currently provide for such a meeting to be convened. He raises the possibility that a meeting would need to comply with procedural requirements for the conduct of a meeting under the Model Rules, to which reference was made in Singh v Singh and also addresses Mr Condon's evidence as to the time that would be required to hold a meeting that took place as a hybrid physical and virtual meeting, which was tendered by the Nile parties as I noted above. It may also be arguable that, where the Association's constitution does not provide for the manner in which members generally would reach a decision in general meeting, as distinct from by delegates at an Annual State Council, then they would do so by majority vote in respect of the appointment of new officers of the Association, or possibly by special resolution in respect of an amendment of the Association's constitution, by reason of ss 10 and 39 of the Associations Incorporation Act.
A second difficulty which arises is how that meeting would take place. The May Consent Orders are inadequate to address that difficulty and the disputes in respect of them are multiplying. Those orders provide for voting by those persons "entitled" to vote but the identity of those persons is a key issue in dispute. They cannot presently be implemented by voting by delegates of electorate branches, given the issues as to the identity of the branches noted above. Even if they could be implemented by voting by current members of the Association, in a manner not contemplated by its constitution, there is a dispute as to the number and identity of those members and whether the membership records reflect the categories of members contemplated by the constitution, which would need to be resolved. Those orders also do not provide for how that meeting should be held, and the disputed options include by a physical meeting, or possibly a hybrid meeting involving physical and virtual alternatives, or a postal ballot. There is also a question as to which offices should be the subject of such an election, and the consent position between some parties reflected in the May Consent Orders does not bind members who were not party to the proceedings.
A third difficulty is what such a meeting would achieve. By contrast with the position which commonly exists in incorporated associations, the appointment of office holders (which was all that was contemplated by the May Consent Orders) would here achieve little, because they could not conduct the Annual State Council without a resolution of the question which branches that were entitled to appoint delegates to it. The steps necessary to resolve that difficulty would not be straightforward, although they could include constitutional amendments to identify the existing branches or at least a basis on which they could be determined. However, the parties have not formulated any constitutional amendments that would be put to such a meeting, and there is no reason to think that there would be any greater consensus as to any amendments necessary to address that issue as to the identity of branches than as to the substantive question of the identity of those branches.
I have ultimately concluded that holding such a meeting does not assist here, unless the parties can resolve their differences as to who can vote and how it is to be held. As matters stand, such a meeting would prolong and expand, rather than resolve, the internal disputes within the Association; those disputes as to the conduct of that meeting are also now so many and so fundamental that the Court could not resolve them before the remaining assets of the Association are dissipated by costs; and these matters support a winding up order on the just and equitable ground.
In oral opening and closing submissions, Mr Loxton also addressed the possibility of an order made by the Court under the oppression provisions in ss 232-233 of the Corporations Act amending the Association's constitution to delete the 75% voting requirement in cl 4(b) and Mr King returned to that matter in reply. Mr King there submitted that the 75% requirement should be replaced by 50% by an amendment to the constitution ordered by the Court under s 233 of the Corporations Act. However, Mr King did not identify any evidence that would support a finding of oppression (as distinct from matters that would support a winding up on the just and equitable ground) to provide a proper foundation for the exercise of that power, if it was available in respect of an incorporated association. In reply submissions, Mr Heath drew attention to Bandiara v Bilabil Community Preschool & Oosh Inc [2018] NSWSC 1903, where Robb J briefly considered but did not decide the question whether ss 232-233 of the Corporations Act applied to an incorporated association, by reason of s 95 of the Associations Incorporation Act, where those sections are not "excluded" in respect of associations registered under the Corporations Act. Mr Heath fairly accepted the difficulty that ss 232-233 of the Corporations Act only apply, in their terms, to a "company" as defined in the Corporations Act.
It is not necessary to address the question whether ss 232-233 of the Corporations Act are available in respect of an incorporated association in New South Wales, although they are not specifically applied to incorporated associations by the Associations Incorporation Act (NSW), which also does not include the express provisions which address oppression in the corresponding legislation of several other States. The evidence necessary to establish oppression was not led and, if oppression had been established, the appropriate relief may well have been a winding up of the Association rather than a constitutional amendment. Matters which weigh against a winding up order
I recognise that a winding up order would also disrupt any continuing political activities of the Association. However, it appears those activities have already been substantially disrupted by the dispute between the Association's leadership, and I have referred above to the fact that the costs incurred in the receivership and the proceedings are likely to dissipate the Association's funds that would be available for political activities in any event. I also recognise that, as Lindsay J pointed out in Sengthong, the effect of a winding up order would not necessarily be, ameliorated by the existence of a process under s 65 of the Associations Incorporation Act to transfer surplus property (if any exists after the conclusion of this dispute). However, by contrast with Sengthong, this is not a case where all parties to the proceeding acknowledge that a receiver and manager could supervise an election for a newly constituted management committee. Who should be appointed as liquidator
As I noted above, Mr Knox seeks an order that McMillen be appointed as liquidator of the Association, rather than Mr Condon being appointed to that role, and tendered a consent dated 22 February 2022 of Mr McMillen to appointment as liquidator of the Association (Ex K4). By submissions in reply served on 22 February 2022, Mr Heath, for the Receiver, also addressed the question whether Mr Condon should be appointed as liquidator if the Association was to be wound up, while recognising that that was a matter for the Court. I recognise that, ordinarily, the liquidator proposed by the applicant for a winding up order would be appointed as liquidator.
A similar question arose in respect of the potential appointment of Mr McMillen rather than Mr Condon as receiver and manager, when the May Consent Orders were made, and Henry J there observed ([2021] NSWSC 538 at [35]) that "[i]t would be in the Association's best interest to realise the potential time and cost advantages from Mr Condon being appointed to that role". I have concluded, for similar reasons, that Mr Condon should now be appointed as liquidator of the Association. It seems to me that, on balance, there is likely to be an advantage in continuity, and a potential cost saving in appointing Mr Condon as liquidator, although I recognise that saving may be marginal given the extent of the costs that have been accrued in his role as receiver. It does not seem to me that there is any lack of independence affecting his appointment to that role, where his claim to reimbursement of remuneration as a receiver will be determined by the Court, rather than by the liquidator, and other parties will have the opportunity to oppose that claim. I will grant the necessary leave under s 532 of the Corporations Act (which provides that a person must not, except with the Court's leave, seek to be appointed or act as liquidator of a company if that person is, relevantly, a creditor of the company in an amount exceeding $5,000) which appears to apply to an incorporated association by reason of s 64 of the Associations Incorporation Act. The Court regularly grants leave under that section in respect of the appointment of replacement liquidators: see, for example, Re OGL Resources Ltd [2015] NSWSC 58; Re FGM Print Pty Ltd [2018] NSWSC 1478. Stay of the winding up order, narrowing of the Receiver's powers and whether a provisional liquidator should be appointed
I will stay the winding up order which I am satisfied should be made for a relatively short period to allow the parties a further opportunity to resolve their differences as to what could be achieved by any meeting of delegates of branches of the Association or members generally and how it could be conducted. The Court can set aside that order before it takes effect if the parties agree the basis for the conduct of meeting that would result in the appointment of officers to the Association and the making of any necessary amendments to the Association's constitution to regularise the branch system and allow future meetings of the Annual State Council to occur.
I will also vary the May Consent Orders (which expressly had effect until further order of the Court) to continue the Receiver's appointment only for the narrow purpose of preserving the Association's assets, while that stay is in place. This order should reduce the risk of the continuing dissipation of the Association's assets by the Receiver's remuneration and costs, by reducing the scope of his activities, and ensure that only the individual parties and not the Association are exposed to the continuing costs of this dispute, and will preserve the opportunity for the determination of the remaining issues in the proceedings on their merits. There is no doubt as to the Court's power to continue the Receiver's appointment for this narrow purpose, having regard to the extensive review of the relevant authorities by Lindsay J in Sengthong at [170]ff. I address the manner in which the remaining issues in the proceedings will be determined below.
For completeness, I invited submissions about whether there would be any utility in the appointment of a provisional liquidator rather than making a winding up order, at least as an interim position. Where the Court has power to wind up an association, it is at least arguable that it also has power to appoint a provisional liquidator in respect of an association, although the Associations Incorporation Act does not specifically provide for such an appointment. The power to make such an appointment was recognised in respect of the predecessor legislation in Re Application of Volleyball Conference of New South Wales (Young J, 10 April 1995) and by White J in Re Kwang Huauyu-Soon Inc [2009] NSWSC 658, and is implicitly recognised by s 66(1) of the Associations Incorporation Act which provides an appeal to the Court from an act, omission or decision of a provisional liquidator. It seems to me that any benefit from the appointment of a provisional liquidator can be achieved by retaining the Receiver in place and narrowing his powers as noted above. Determination of the balance of the proceedings
The remaining issues in the proceedings may have been narrowed by this judgment. At least the Nile parties reversed the position they had previously taken in an interlocutory application as to who was entitled to vote at a meeting in the course of this application, so they will presumably not press that application. I will now make orders for the filing of any further evidence (with qualified guillotine orders) and submissions as to all remaining issues, and allocated a hearing date in late April and early May 2022 to determine those issues.

Knox v Nile & Ors

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (7 paragraphs)

Parties

Legislation Cited (7)

Cases Cited (20)

Cited By (3)