HIS HONOUR: The plaintiffs were unit holders of a trust which appears to have been carrying on an accountancy business. As will appear in more detail later, the Unitholders Deed provided that the business could be sold provided that a special majority of the Unitholders so agreed. The plaintiffs claim and the defendant denies that the appropriate resolution to sell the business was passed by the appropriate majority.
The proceedings came on for case management before me and I directed that a separate issue be determined ahead of the other issues in the case and it is that separate issue that is the subject of these reasons.
The order that I made on 6 March 2015 was that the following question be posed as a separate issue "was the resolution to approve a proposed merger between Grant Thornton and Capital BDO identified in paragraph 25 of the further amended statement of claim filed 11 January 2013 (FASC) passed by a special majority vote of the Unitholders within the meaning of clause 6.1(b) of the Unitholders Deed identified in paragraph 16 of the FASC?" I tried that question on 25 March 2015 but time ran out before I could give an extempore judgment. I now do so.
At the hearing, Mr Miles Condon SC appeared for the plaintiffs, Mr DFC Thomas appeared for the first nine defendants (other Unitholders) and Mr DG Guidolin appears for the 10th defendant (the purchaser). Although I have described the transaction as a sale and purchase, the parties would prefer to call it a merger. I merely use the word purchase for simplicity as it is not at all necessary to delve into the actual transaction in order to answer the separate question.
I do, however, need to look closely at the Unitholders Deed.
Clause 6.1(b) provides "no Decision regarding a Unitholders Matter may be implemented unless it is Passed by Special Majority vote of the Unitholders". Unitholders are defined and they include the matters designated Unitholders Matters in clause 6.2 and 6.2(a)(iv)(v) cover entering into a merger with another firm or selling or disposing of a material part of the business. Again, 6.2 emphasises that these matters must be determined by the Unitholders by a Special Majority.
Mr Condon submits that the members must mean all the members. Mr Thomas denies this and notes the word "all" is not there. Usually all the word "the" signifies is a definite something: see eg Broom v Batchelor (1856) 25 LJ Ex 299. That statement however does not take us closer to the solution in this case.
A key definition is that of "Special Majority". It reads, "Special Majority means a vote of a majority (in number and not equity) of the persons eligible to vote in respect of a resolution".
It is common ground that a meeting was convened of the Unitholders to make the required decision. There are 69 or possibly 70 Unitholders. Notice was given to all of them. If the definition of "Special Majority" means that one must look for two-thirds of the membership, then the number of affirmative votes would need to be 46 or 47.
There are no doubts as to the facts on the matter of the vote. The meeting was held on 27 April 2012. 59 Unitholders were in attendance by person or proxy. A quorum was declared because 75% of the Unitholders were so present, cf clause 6.3(e) of the Unitholders Deed.
After the resolution was put the Unitholders voted by poll. The scrutineers announced the result of the poll as follows:
Those eligible to vote by proxy or being present 59
Abstain 12
Total to be considered 47
Yes votes 44
No votes 3
47
[3]
If the requirement was two-thirds present at the meeting, one can clearly see that two-thirds of 59 is 40. If the requirement is two-thirds present and voting there is an a fortiori situation. The latter position is probably the correct view, but it does not matter in this case.
Accordingly, if the definition of "Special Majority" is construed to mean two-thirds of the total membership, the critical motion was lost. If the words mean two-thirds of those present or present and voting at the meeting, it was carried.
Mr Condon SC who is arguing for the vote not being sufficient to authorise the disposal puts that it is significant that the words "persons eligible" to vote in respect of a resolution are employed. Who is eligible to vote, he asked rhetorically, and answers it by saying all the Unitholders.
One problem with that submissions is that when one gets to clause 6.1 which is headed Voting and Decisions, 6.1(a) reads "In respect of a resolution to be considered at a meeting of Unitholders, each Unitholder will be entitled to cast one vote, irrespective of the number of Units held". It will be noted that the word "entitled" is used, not the word "eligible".
Clause 6.1 contains three subparagraphs, (a) and (b) to which I have already referred and then the following (c).
(c) A Decision by the Unitholders may be made by:
(i) a resolution voted on by the Unitholders at a meeting of the Unitholders; or
(ii) by means of each Unitholder signing a document containing a statement that they are in favour of the resolution set out in the document (without a meeting of Unitholders).
He puts that again, the emphasis is on each Unitholder being eligible to vote and entitled to vote.
I must confess that I would construe a clause 6.1 holistically as providing that there are two alternative methods of making a decision. First by a meeting or secondly by a circular resolution.
If circular resolution is chosen, then each and everyone of the Unitholders must sign the document. If on the other hand there is a meeting, then so long as a quorum is present, a "Special Majority" of the votes (a matter to which I will have to return) suffices.
Mr Condon does not agree with that. He notes that in 6.3(c) a Unitholder cannot be considered at a Unitholders Meeting unless one weeks' notice in writing is given to each Unitholder, though he concedes the requirement may be waived by a "Special Majority" vote of the Unitholders at the Unitholders Meeting. Mr Condon puts emphasis on the fact that notice has got to be given of the special matter to each Unitholder. I must confess my reading would make this sub-clause operate against Mr Condon's view because the Unitholders at the Unitholders Meeting can waive the requirement by a "Special Majority" which seems to suggest the "Special Majority" is of the people who are present at the meeting.
Mr Condon then contrasts the voting procedure at a Unitholders Meeting with the procedure for obtaining a decision from the Firm Council. Decisions of the Firm Council under 9.4 have to be made by "Special Majority" however, clause 9.4(c) provides "each Council Member has one vote on a matter arising at a meeting of the Firm Council" which would indicate that one is looking for the votes that are cast at the meeting or eligible to be cast at a meeting rather than the whole membership of the Firm Council.
However, the distinction between the general meeting of Unitholders and the meeting of the governing bodies is important because of the way in which authorities have dealt with this sort of problem in the past. Chancellor Kent of New York in his commentaries on American Law, Volume 2, Second edition, said of votes of a corporation:
Acts of a majority, in cases within the charter powers, bind the whole. The majority, here, means the major part of those who are present at a regular corporate meeting. There is a distinction taken between a corporate act to be done by a select and definite body, as, by a board of directors, and one to be performed by the constituent members. In the latter case a majority of those who appear may act: but in the former, a majority of a definite body must be present, and then the majority of the quorum may decide. This is the general rule on the subject: and if any corporation has a different modification of the expression of the binding will of the corporation, it arises from the special provisions of the act or charter of incorporation.
I applied the summary of that statement, taken from a case in Missouri, Foster v Mullanphy Planning Mill Co 4 SW (2d) 260 at 262 in my decision in Cullen v Galloway Cattle Society of Australia Inc (1998) 27 ACSR 648. That case concerned the validity of a resolution of the council of an incorporated association. The constitution provided that a resolution of two-thirds majority of the council was required and the question was whether that meant two-thirds majority of those present and voting or two-thirds of the whole members of council. I held it meant the latter. However, I said that as a general rule Chancellor Kent's utterances were appropriate so that if there is a decision of the members in the absence of specific provisions in the constitution, the majority must be of the whole of the membership which is present and voting at the meeting whereas in the case of a board or council it is two-thirds of the entire members of the council.
Cullen's case has stood for 17 years and as far as I know, this part of the decision has never been criticised.
There is an instructive decision in the English Court of Appeal, Knowles v Zoological Society of London [1959] 1 WLR 823, also reported in [1959] 2 All ER 595. In that particular case the defendant society was incorporated by Royal Charter which provided that new bye-laws could be made "if the majority of fellows entitled to vote" should vote in its favour. There were about 7000 fellows in the society. A meeting was held at which 3,034 fellows voted in person or by proxy and of these there was a majority of about 500 votes in favour of the resolution. The judges of the English Court of Appeal, Lord Evershed MR, CRR Romer LJ and Pearce LJ held that on the facts, the words majority meant the majority of those present and voting.
In the Weekly Law Reports, Pearce LJ says at page 834:
to my mind the natural meaning, in that particular context, of the words 'the majority of the fellows entitled to vote' is the majority of the fellows present, personally or by proxy, at the meeting when the proposal is put to it who at that moment can properly vote: absentees who have not appointed proxies are not included in the words.
Oddly, in the All England Reports at page 604, the word "meeting" is used instead of the word "moment". Although in this particular case the effect is exactly the same, although the reports are of equal standing, the custom is to follow the Weekly Law Reports as the judgment was probably revised by Pearce LJ before it was printed in that series.
I consider the same result as Knowles works out in the instant case. It is also an application of Chancellor Kent's principal, that is, there is a meeting of members and there has been a committal to the meeting of the quorum to make the decision on the part of the group and it would conflict with that to require the majority to be a majority of all the members.
Mr Thomas, in his submission, takes up that point very strongly and says that there is a quorum of at least 75% of all Unitholders vide clause 6.3(e) and clear language ought to be required if despite the protection conferred by that quorum, 66% of all the Unitholders was still required.
Mr Guidolin makes similar submissions, though he also says that in a significant leading clause 6.1(b) the words used are that there is a requirement of a special majority vote of the Unitholders, not all of the Unitholders.
In reply, Mr Condon again focussed on the word "eligible" and said a vote is a right of property. A person is eligible to vote and how can he or she lose that right merely because he or she does not attend the meeting. The answer to that proposition is that the eligibility to vote must be in accordance with the constitution and a person who declines to go to the meeting either voluntarily or involuntarily has submitted to the parts of the constitution which require a quorum and entitle a majority of those who are present and voting to make the decision.
Accordingly, in my view, the question posed must be answered, "yes". When reserving my decision I indicated that on handing down these reasons I would expect to receive submissions as to what followed and what other orders should be made with respect to either dismissing the proceedings or getting them ready for trial on the remaining issues. I will now proceed to do that.
[4]
Amendments
02 April 2015 - Para 3, "because" typographical error corrected to "before".
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 02 April 2015