Supreme Court of WA|2008-01-04|Before: Ms P, Hasluck J

MARKOPOULOS -v- WEDLOCK [2008] WASC 3 (4 January 2008)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : MARKOPOULOS -v- WEDLOCK [2008] WASC 3

Corporations - Management and administration - Motion for injunction - Whether procedural irregularity may cause substantial injustice which cannot be remedied by order of the court - Whether injunctive relief should be granted in circumstances where matter in contention is to be addressed at a forthcoming general meeting of members - Balance of convenience weighs against injunctive relief where forthcoming meeting is to be held - Application for injunctive relief and/or early trial refused

1 The plaintiffs commenced proceedings by way of an originating process dated 24 December 2007. The plaintiffs are directors of the third defendant, Golden West Resources Ltd. They seek relief concerning allegations they have made about the management of the defendant company in recent weeks.

2 The application for relief concerns the validity of the appointment of the first defendant Geoffrey Wedlock as a director of the company, the validity of the removal of the second defendant John Palermo as company secretary and the validity of the resolutions, if any, passed at a purported directors' meeting on 24 December 2007.

3 The plaintiffs brought on an application for interlocutory injunction pursuant to s 1322(4) and s 1324(1) of the Corporations Act 2001 (Cth) and arguably pursuant to the inherent jurisdiction of the Supreme Court. Various orders were sought, including that the first and second defendants be restrained from participating in the conduct and management of the defendant company.

4 The application for relief came before the Court initially on Monday, 24 December 2007 as an ex parte application. On that occasion programming orders were made which provided for the application to be returned before the Supreme Court on Friday, 4 January 2008.

5 I now have before me in support of the application for injunctive relief the affidavits of Constantino Markopoulos and David Grant Sanders, sworn 24 December 2007. I have also the further affidavits of Michael Patrick Bruce, sworn 24 December 2007, the affidavits sworn 3 January 2008 of Mr Markopoulos and Michael Reginald Wilson and Alan Paul Rudd. I have also the plaintiffs' undertaking as to damages dated 3 January 2008.

6 I have before me in opposition to the application the affidavit of John Palermo sworn 2 January 2008.

7 Counsel for the plaintiffs delivered to the Court a minute of proposed order for interlocutory injunction dated 4 January 2008.

8 This minute represented a significant change to the orders originally sought. The proposed orders in the 4 January minute are as follows:

(1) until after judgment in this action or further order, the second defendant be restrained without leave of the Court from acting or purporting to act as company secretary of Golden West Resources Ltd and be restrained from holding himself out as a company secretary of Golden West Resources Ltd;

(2) the trial of the within action be listed for hearing as a matter of urgency;

(3) the costs of the application be reserved;

(4) there be liberty to apply upon 48 hours' written notice.

9 At a first glance it might be thought from this that the plaintiffs' challenge is now directed solely to Mr Palermo.

10 There are two points to be made in that regard: first, I understand that if an urgent trial was granted, the challenge to Mr Wedlock's appointment and the other issues would be fully canvassed and pressed at that trial with a view to obtaining a ruling prior to a meeting of shareholders which is to be held on 5 February 2008; second, it must be understood that what is before me, although now curtailed in the way that I have just described, continues essentially to be an application for injunctive relief which must be dealt with pursuant to the principles governing such relief. I must also keep in mind that by the originating process the application for an order is said to be made pursuant to s 1322(4) and s 1324(1) of the Corporations Act.

12 I will not traverse the matters dealt with in these affidavits in detail. It emerges that on 4 September 2007 an off-market takeover offer for the defendant company was made by Fairstar Resources Ltd, being a company of which the plaintiff Rudd was a director and the plaintiff Wilson was a shareholder. This gave rise to various issues, being: first, as to whether those associated with Fairstar had a conflict of interest; second, the issues raised by the application for interim relief now before me.

13 More particularly, there is an issue to be resolved as to whether the effect of article 14.1 of the defendant company's constitution restricted the number of appointments to the board to five directors, with the result that the purported appointment of Wedlock as a sixth director was invalid. Further, there is an issue to be resolved as to whether sufficient notice was given of a meeting of directors purportedly held on 24 December 2007.

14 This brings me to cl 14.1(a) of the company's constitution. It provides that, subject to cl 14.1(b), the number of directors must be not less than the number required by the Corporations Act or more than the number, from time to time, resolved by the directors provided that such number does not exceed five. I note in passing that in the constitution the numeral '5' is flanked by asterisks, which gave rise to a query as to the effect of that numeral.

15 Clause 14.1(b) provides that the company in meeting may increase or reduce the number of persons who may be appointed directors but the minimum must not be reduced below three, at least two of whom must ordinarily reside within Australia. Clause 14.3(a) provides that, subject to cl 14.1(a), the directors may at any time appoint any person as a director either to fill a casual vacancy or as an additional director.

16 The following provisions have a bearing upon the dispute also. Clause 15.3 deals with convening and notice of meetings. By that clause a director may at any time, and the secretary upon the request of the director must, convene a meeting of the directors unless the directors otherwise unanimously agree and, without limiting the operation of cl 15.5, at least 48 hours' notice must be given of every directors' meeting. Reasonable efforts must be made to give notice of a meeting of directors to all directors. Then follows some particularity concerning the giving of notice.

17 Clause 15.9 of the constitution is also of significance in the context of the present dispute. Clause 15.9 deals with validation of acts of directors where there is a defect in appointment. It provides that all acts done, including resolutions passed at any meeting of directors or of a committee of directors or by any person acting as a director or by any person purporting to act as an attorney under the power of the company, notwithstanding that it is afterwards discovered that there was some defect in the appointment or continuance in office of such director or person or attorney acting in such capacity, or that they or any of them were disqualified or were not entitled to vote, are as valid as if every such person had been duly appointed or had duly continued in office and was qualified to be a director or attorney and was entitled to vote.

18 I note in passing that essentially a company acts by the resolutions of its directors at formally constituted meetings and thus all acts done at those meetings become quite central to the activities undertaken by the company.

19 Let me now turn to the background of the present dispute.

20 On or about 18 November 2002 the defendant company was registered in Western Australia. At that time it had three directors, being the third-named plaintiff Michael Wilson, George Gregory and Malcolm Douch. Changes in directors are described in detail in the Palermo affidavit.

21 It seems that on or about 3 March 2007 the first-named plaintiff, Mr Markopoulos, was appointed as a sixth director. On or about 28 May 2007 Mr Peter Thompson was appointed as a seventh director. On or about 21 September 2007 Patrick Gallagher resigned as a director, leaving the company with six directors.

22 It appears from the Palermo affidavit that at a general meeting of members of the defendant company on 21 September 2007 resolutions were carried, as ordinary resolutions, that 'for all purposes' Mr Markopoulos and Mr Thompson, who were appointed to the board since the last annual general meeting, be re-elected as directors.

23 I pause here to say that at this point there appeared to be no suggestion that the company and its officers were not proceeding properly and efficiently. Indeed, Mr Markopoulos noted, at par 5 of his affidavit sworn 3 January 2008, that the affairs of the company were handled in a businesslike and reasonably harmonious way until late November 2007.

24 This suggests that the disputation, that I will now come to, is essentially referable to commercial imperatives and differences of opinion rather than to concerns about compliance with the constitution or whether the company's affairs were being conducted in a regular manner.

25 On 4 September 2007 the secretary of the defendant company received notice of an off-market takeover offer for the company from Fairstar, being the offer mentioned earlier. This gave rise to concerns as to whether certain of the directors of the defendant company had conflicts of interest, bearing in mind, as I indicated earlier, that Rudd and Wilson were associated with Fairstar.

26 It seems that on or about 13 November 2007 each of Wedlock, Hutchinson, Thompson and Markopoulos, in their respective capacities as independent directors of the defendant company, informed the secretary Mr Palermo that they had resolved to reject the Fairstar takeover bid.

27 The secretary caused to be published an ASX announcement dated 20 November 2007 headed 'Reject Fairstar Offer and Support Wiluna West Iron Ore Funding'. This reflected a recommendation that the defendant company shareholder reject the Fairstar offer.

28 At a meeting on 23 November 2007 Markopoulos, Hutchinson and Thompson each voted in favour of a resolution that Wedlock be appointed a director and chairman of the defendant company. The plaintiffs Rudd and Wilson abstained from voting on that resolution. The materials before me include a copy of the defendant company's ASX announcement dated 5 December 2007 headed 'New Era for Golden West Begins Under Chairman Geoff Wedlock'.

29 It seems that on 19 December 2007 a board meeting was to be held. It is said that prior to the meeting Mr Rudd purported to inform the attendees that Wedlock was not a validly appointed director due to cl 14.1 of the company's constitution, which provides that the company could only have a maximum of five directors. In other words, it was said that Wedlock had been improperly appointed as a sixth director of the company.

30 The company secretary was instructed to seek independent legal advice about this matter. Nonetheless, the board meeting continued, allegedly without any objection by Rudd, Wilson or Markopoulos.

31 On 19 December 2007 an application for an injunction to restrain Wedlock from continuing to act as a director was foreshadowed in writing to Mr Palermo. On or about 20 December 2007 the company secretary received an email from Mr Markopoulos attaching a memorandum of resolution to appoint Mr Markopoulos as the defendant company's chairman until 31 January 2008. It was at about this time that Mr Palermo received legal advice to the effect that Wedlock had been validly appointed.

32 On 22 December 2007 Mr Palermo purported to convene a meeting of directors to be held on 24 December 2007 at 9 am at the registered office of the company. It soon became apparent that the plaintiffs and their legal advisers were minded to challenge the validity of the Wedlock appointment and the validity of any resolutions passed at a meeting of directors on 24 December 2007.

33 This stance led to a confrontation at the registered office and a submission on behalf of the plaintiffs that 20 minutes less than the required 48 hours' notice of the proposed meeting had been given; that is, notice of only 47 hours and 40 minutes had been given. It was said further that David Sanders was now to be regarded as the company's secretary.

34 Nonetheless, on the defendants' case the board meeting proceeded. In response to a special request, resolutions were passed which provided for a general meeting of members to be held on 5 February 2008 to resolve the matters in issue.

35 A notice of general meeting, pursuant to s 249D of the Corporations Act, was issued with an explanatory statement. It was said in that statement that, in accordance with the requirements of the constitution, the company and the Corporations Act, the company had convened the general meeting to allow shareholders to vote on the removal of each of Messrs Wilson, Rudd and Markopoulos.

36 The s 249D notice received by the company sought also the removal of any other director who might be appointed between the date of the notice, 21 December 2007, and the date of the general meeting to be held on 5 February 2008.

37 Further, the explanatory statement referred to a proposed appointment of Mr Odeh as a director of the company from the date of the general meeting, being a person associated with Falak Holding, a major shareholder in the company.

38 The statement noted also that cl 14.3(b) of the constitution indicated that the company would seek the re-election of Mr Wedlock as a director. Further, a resolution would seek shareholder approval to amend cl 14.1(a) of the constitution to provide that the maximum number of directors permitted be 10 directors.

39 I come now to the submissions of the parties. The plaintiffs contend that the appointment of Wedlock as a sixth director was invalid, having regard to cl 14.1 of the company's constitution. It is said further that resolutions purportedly passed at the directors' meeting on 24 December 2007 were ineffective because less than 48 hours notice of the meeting in question had been given. Challenges to Palermo's position have also been made, and to the exercise of his powers.

40 The position of the defendants is partly reflected in the Pullinger Readhead Lucas letter dated 20 December 2007, where this was said:

We refer you to clause 15.9 of the constitution which provides that all acts done, including resolutions passed at any meeting of directors by any person acting as a director, notwithstanding that it is afterwards discovered that there was some defect in the appointment or continuance in office of such director, are valid.

We are instructed that to resolve any potential doubt with respect to this matter (and without any admission or concession) the company intends to call a general meeting of members as soon as practicable in order to remedy this typographical error in the constitution.

The company will also, amongst other things, seek shareholder approval to confirm Mr Wedlock's appointment in accordance with clause 14.3(b) of the constitution. We are instructed that our client has significant shareholder support for these resolutions and anticipates their passage.

41 The defendants rely also upon what was said in the Maxim letter of 21 December 2007:

In our view, the resolutions passed at the general meeting on 21 September 2007, whereby each of Mr Markopoulos and Mr Thompson was re-elected as a director of GWR "for all purposes", had the effect, either expressly or by necessary implication, of increasing to six the number of persons who may be appointed directors for the purpose of inter alia clause 14.1(b) and clause 14.1(a) of the constitution.

42 In that letter these further observations were also made:

In our view, to the extent that the directors had not previously resolved to do so, the resolution passed by the board of GWR at its meeting on 23 November 2007, whereby Mr Wedlock was appointed as a director of GWR, had the effect, either expressly or by necessary implication, of increasing to six the maximum number of directors for the purpose of clause 14.1(a) of the constitution. Accordingly, in our view, Mr Wedlock's appointment as a director of GWR was and is valid.

43 It emerges, then that the defendants give weight to previous resolutions of the company, a practice of appointing more than five directors, and to cl 15.9 - mentioned earlier - which validates acts of directors even if there is a doubt as to the validity of their appointment. The clause in question reflects provisions contained in the Corporations Act; for example, by s 9 of the Corporations Act the term 'director' embraces one who is not validly appointed if he, in fact, acts in the position of a director. This is reinforced by s 201M(1) whereby an act done by a director is effective even if his appointment is invalid. See also Smolarek's case (2006) 32 WAR 109 at 59.

44 The defendants filed written submissions dated 2 January 2008 opposing the application for interlocutory relief. It was said there was no serious question to be tried because the application under s 1322(4) is misconceived and untenable. Further, there was no contravention of the Corporations Act alleged by the plaintiffs to support the granting of an injunction under s 1324(1).

45 The defendants submitted also, in the alternative, that the balance of convenience did not favour the granting of the injunction sought in that, first, there is nothing to suggest that an injunction is required to protect the interests of the plaintiffs, or indeed anybody else; second, and in any event, the status quo ought to be maintained pending the resolution of disputes between the parties; that is, it should be maintained until the general meeting which is to be held on 5 February 2008.

46 It is said that the preservation of the status quo requires the refusal of the injunction. It is said further that on 23 November 2007 Markopoulos voted in favour of the Wedlock appointment and Rudd and Wilson abstained from voting. The plaintiffs did not object to and acquiesced in Wedlock's appointment until 19 December 2007. It is relevant in that regard that a general meeting of members was held on 29 November 2007. Further, Wedlock's appointment as a director and the chairman of the company has been announced to shareholders in the market and any ruling casting doubt on the status of these defendants would be damaging to all the defendants.

47 The defendants submitted also that the plaintiffs' actions have been taken at a sensitive time for the company in that it is the subject of a hostile off-market takeover bid, with two of the plaintiffs being shareholders in the offeror. Relevantly, the offeror also seeks to have Wedlock removed as a director and chairman of the company.

48 It is said that against this background it was and is appropriate for the issue of the appointment and removal of directors to be referred to a general meeting of members. This is the correct and preferable way to deal with the disputes and issues that have emerged in relation to the governance of the company.

49 It is said that the plaintiffs have not identified how the resolutions passed could adversely affect their rights and interests and an injunction should not be granted in circumstances where the matter in contention is to be resolved decisively at a forthcoming general meeting of members.

50 It will now be useful to look briefly at the statutory provisions and legal principles bearing upon these matters.

51 Section 134 of the Corporations Act provides that a company's internal management may be governed by provisions of the Corporations Act that apply to the company as replaceable rules, by a constitution or by a combination of both. I note in passing that in this case the company's constitution, at cl 1.3, provides expressly that the replaceable rules contained in the Corporations Act are excluded and do not apply to the company, except so far as they are repeated in the constitution.

52 Section 140(1) provides that a company's constitution has effect as a contract between the company and each member, between the company and each director and between a member and each other member under which each person agrees to observe and perform the constitution and rules so far as they apply to that person.

53 It is thought that the deeming of the constitution to be a contract supplies the member with standing to sue on a cause of action in contract and to obtain a declaration as to his or her rights: See Ford's Principles of Corporations Law (12th ed) par 6.030 to 6.040.

54 Section 1322 of the Corporations Act deals with irregularities. By s 1322(2): a proceeding under the Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceedings to be invalid. A reference to a procedural irregularity includes reference to a defect, irregularity or deficiency of notice or time.

55 This provision was clearly designed to prevent minor errors invalidating resolutions of meetings, as well as other proceedings unconnected with meetings. It has been said that the section is a remedial measure which should be given a liberal construction.

56 It seems that the onus is on the person opposing resolutions to show substantial injustice which cannot be remedied by any order of the Court and that the resolutions would not have been passed if there had been no irregularities. The power allowed to the Court to grant an interim injunction pursuant to s 1324(4) of the Corporations Act requires the applicant to establish that a person has engaged or is proposing to engage in conduct that constitutes or would constitute a 'contravention under the act'.

57 It appears from Smolarek's case at [39], that a failure to comply with a constitution or replaceable rules is not, of itself, a contravention sufficient to enliven the operation of s 1324, because these operate as a deemed contract between the company and each member. However, a failure to comply may become a basis for obtaining equitable relief.

58 It emerges then that considerable care must be exercised by the Court in dealing with an application for relief based upon an alleged lack of compliance with procedural matters or other issues of alleged irregularity. In many circumstances it will be open to the party resisting the application for injunctive relief to rely upon the remedial provisions just mentioned. Indeed, this is the stance of the defendants in the present case.

59 It emerges from the decided cases that a discretionary power to grant injunctive relief, pursuant to a statutory provision such as s 1324 of the Corporations Act, must be exercised in accordance with the equitable principles generally applicable to the grant of injunction. That is, if there is a serious question to be tried, then the Court must consider the balance of convenience, although the strength or weakness of the plaintiffs' case may become a relevant factor touching on the balance of convenience or the exercise of the discretion. See Commissioner for Fair Trading v Holz [2005] WASC 202 at 15.

60 It will be apparent from earlier discussion, which reflects reasoning in Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, that the grant of an injunction is generally directed to the alleged infringement of an existing right. However, it is clear from the authorities that, if a threatened or apprehended violation of a right can be established which would cause imminent and substantial damage, an injunction may be made to prevent its occurrence if it can be shown that damages would not be an adequate remedy.

61 Care must be exercised in determining what is the status quo. If an order is sought to preserve the status quo, it is important to understand that the status quo is the state of affairs existing before the last change; that is, during the period immediately preceding the motion for interlocutory injunction. See Garden Cottage Foods v Milk Marketing Board [1984] AC 130 at 140.

62 In Paringa Mining & Exploration Co Plc v North Flinders Mines Ltd (1988) 52 SASR 22; (1988) 14 ACLR 587 it was held that the Court has power to postpone the transaction of business at a meeting by way of interlocutory order or to direct the adjournment of a meeting if the exercise of the power is necessary to protect the rights of the parties pending the outcome of litigation and is otherwise fair and just to those parties and to any other parties who might be affected by the exercise of that power.

63 It was thought in the Paringa case that the injunctions restraining the takeover offers and the rights issue under notice in that case preserved the status quo. However, the relevant status quo includes the right of a shareholder to vote at a lawfully convened general meeting of the company. To deprive shareholders, in particular a majority shareholder, of that right was not a preservation of the status quo but a disturbance of it.

64 Let me now return to the circumstances of the present case.

65 I noted in earlier discussion that this is an application concerning the validity of the purported appointment of the first defendant Geoffrey Wedlock as a director of the defendant company, the validity of the removal of the company's secretary and the validity of the resolutions, if any, passed at a purported directors' meeting on 24 December 2007. I noted also that the application for interim relief was made pursuant to s 1322(4) and s 1324(1) of the Corporations Act and arguably pursuant to the inherent jurisdiction of the Supreme Court.

66 It emerges from my review of the statutory provisions and legal principles that, where the conduct complained of arguably operates to infringe a personal right, shareholders - such as the plaintiffs in the present case - have standing to vindicate personal or individual rights on the basis that the constitutional rules of the company evidence a contractual relationship between the interested parties.

67 However, it emerges also that care must be exercised by the Court in intervening to address procedural irregularities, especially in circumstances where a correction can be effected by the shareholders of a company in general meeting. I am conscious that I must give weight also to the consideration reflected in cl 15 of the defendant company's constitution, especially cl 15.9, and similar provisions in the Corporations Act, to the effect that acts done by a director are effective even if his appointment is invalid.

68 In the circumstances of the present case this precept has a bearing upon the balance of convenience because it suggests that, even if the irregularities complained of are substantiated, the company is at liberty to function in accordance with an assumed regularity of process, at least until the meeting on 5 February 2008, when various matters in issue may well be resolved by resolutions of the shareholders.

69 It emerges also from the decided cases, including Paringa's case, that care must be exercised in determining what is a preservation of the status quo. Relevant status quo includes the right of a shareholder to vote at a lawfully convened general meeting of the company.

70 I must now draw together these various observations.

71 The plaintiff is seeking injunctive relief and must therefore establish that there is a serious issue to be tried in respect of the issues I have identified. It is not enough to argue that commercial interests may be threatened, for that is often a matter of opinion. It must be shown that specific rights are being or are likely to be infringed and that these will impact upon some commercial interest.

72 I am not persuaded that the plaintiffs are entitled to relief pursuant to s 1324(4) of the Corporations Act, because to my mind no contravention of the Act has been identified. The plaintiffs are seeking essentially injunctive relief pursuant to equitable principles under the contractual or deemed contractual relationship between the parties. However, as to that avenue of relief, it is nonetheless necessary to spell out and identify the breaches complained of and to identify the rights infringed.

73 In the present case, because of the plaintiffs' principal reliance upon the statutory provisions, this has not been done with particularity. Moreover, and more importantly, the rights allegedly infringed concerning the appointment of Mr Wedlock are conditioned or are qualified by the cl 15.9 provision which allows for a degree of irregularity. That clause refers to 'all acts done' and in my view is not limited in the manner contended for by counsel for the plaintiffs.

74 I consider also that weight must be given to the resolutions mentioned earlier and the practice of the company which has allowed for the appointment of more than five directors prior to the present dispute. This can be regarded, as asserted by the legal advice mentioned earlier, as authorising an appointment of the kind in question by necessary implication.

75 At this stage there is no need for me to make a decisive ruling concerning these issues. It is sufficient, in respect of an application for interim relief of this kind, to say that for present purposes I am not persuaded that there is a serious issue to be tried as to the validity of the appointment.

76 Further, as to the notice of the resolutions and the actions of Mr Palermo, I do not consider that the comparatively minor infringements or transgressions complained of give rise to a serious issue to be tried. For the reasons given by counsel for the defendants, I do not consider that s 1322(4) or s 1322(2) can justifiably provide a basis for the grant of relief. The former has no application to acts of alleged invalidity. As to s 1322(2), for the reasons I will come to concerning the balance of convenience, it cannot be said that the alleged irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the court.

77 Further, and in the alternative, even if it be held - contrary to the view I have expressed - that the plaintiffs have shown that there are serious issues to be tried in respect of the matters under notice, I am of the view that the balance of convenience weighs against the grant of injunctive relief. In this context also, cl 15.9 of the defendant company's constitution is relevant, for it ameliorates the effect of procedural irregularities and permits the defendant company to function until the matter, if any, is corrected.

78 Where the company can continue to function, notwithstanding complaints about the appointments of Wedlock and the validity of certain resolutions, the balance of convenience appears to favour the refusal of an injunction. This is because the matters in issue will be brought before a forthcoming shareholders' meeting which is to be held on 5 February 2008. The management and internal affairs of the company will be addressed at that time.

79 For the reasons given by counsel for the defendants, I am not persuaded that the matters complained of concerning Mr Palermo's performance of his duties can be sufficiently substantiated to justify the grant of injunctive relief. I am not persuaded that injunctive relief is required between now and the meeting.

80 It follows also that I am not persuaded that, as an adjunct to the grant of injunctive relief, that grounds exist for directing that there be an early trial of the proceedings.

81 It follows from the ruling that the plaintiffs' application will be dismissed. I will hear from the parties as to whether any further orders are necessary.

MARKOPOULOS -v- WEDLOCK [2008] WASC 3 (4 January 2008)

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MARKOPOULOS -v- WEDLOCK [2008] WASC 3 (4 January 2008)

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